Friday, January 26, 2018

50 Companies of the Canadian Shareholder Yield Index

I recently finished the book Millennial Money by Patrick O'Shaughnessy who you might know from his Invest Like the Best podcast. Both Patrick and his father James are prominent proponents of factor investing (a.k.a. evidenced based investing), researching and writing extensively on the subject. One particular factor that is prevalent in the Millennial Money book is shareholder yield, a term I decided to explore further.

Although I previously thought that shareholder yield was the sum of dividend yield and buyback yield, I discovered through the S&P TSX Composite Shareholder Yield Index a debt paydown yield is also incorporated. Using the methodology provided by S&P, I tried to recalculate the three components of shareholder yield for the 50 companies that are equally weighted in the index. Based on my results (especially the negative values for the four companies at the bottom of the list), I likely made some mistakes in trying to replicate the calculation methodology set out by S&P. However, I still think the below table identifies some Canadian-listed companies whose management teams are capable capital allocators based on their ability to enhance shareholder value by paying dividends, buying back their shares and paying down debt.

Some of my preliminary observations from the above table are:

- Most of the dividend yields presented above are lower than the current dividend yields (i.e. H&R REIT, Corus Entertainment, Shaw Communications, etc.). This is due to my attempt to stick to the S&P methodology of dividing the total dividends paid over the last twelve months by the market capitalization of the company twelve months ago.
- For the 24 companies with a negative buyback yield, it means they issued more shares than they bought back over the past twelve months. I found it fascinating that almost half of the top shareholder yielders in Canada were net issuers of shares.
- Buyback yield is pretty controversial as management teams have a history of buying their shares back at high prices and subsequently putting an end to share repurchase programs when shares are trading cheaply. For buyback yield to useful on its own, you'd likely have to pair it with a valuation metric.
- Although I find it admirable that Valeant has successfully paid down so much of their debt, they still have about USD 30M of debt and remain a very highly leveraged company (debt/EBITDA ~ 7X).
- Initially, I was impressed with companies like Thomson Reuters that have positive percentages in each of the three factors contributing to shareholder yield. Although, the more I reflect, I wonder if it doesn't make sense for their management teams to focus on maximizing the factor with the highest return (i.e. Spin Master whose sole focus is debt reduction).
-  For shareholder yield to be a useful metric, you'd have to trend it over time. I noticed Suncor retired a nominal amount of shares over the past twelve months. However, they did a huge equity issue in the preceding twelve months that negates any positive buyback yield for a longer-term holder.

Does a high shareholder yield make you more or less likely to invest in a company?

Friday, January 19, 2018

Monthly Paying Canadian Dividend Growers for 2018

The list of Canadian companies that pay growing monthly dividends was one of my most read posts in 2017 and 2016. Using the Canadian Dividend All-Star list from December 31, 2017, I determined the list of monthly dividend growers for 2018.   To be included, companies had to pay a monthly dividend, increase their distribution at least once in the last 12 months, and have a minimum 5-year history of annually increasing their payouts.  The initial screen this year yielded 21 companies before I removed three organizations that had not raised their payout in the last 12-months (Exchange Income Corporation, Atrium Mortgage Investment Corporation and Pizza Pizza Royalty Corp). I also removed Boyd Group Income Fund due to their unimpressive 0.5% dividend yield. Although the 17 monthly dividend growers for 2018 fell from 20 last year, it still remains higher than the 12 companies in 2016.

The resulting 17 companies included six real estate investment trusts (REITs). As the payout ratios and valuations of REITs are usually calculated based on funds from operations (FFO) or adjusted funds from operations (AFFO), I decided to separate the resulting list in two so as not to confuse any casual readers. For your browsing pleasure, the resulting lists are included below.

Here are some quick comparisons between the monthly dividend payers and the complete list of Canadian Dividend All-Stars:

- 21 of the 101 Canadian Dividend All-Stars at December 31, 2017 pay dividends monthly.
- Although the average yield of all Canadian Dividend All-Stars of 3.13% is considerably less than the seventeen monthly payers listed above (5.25%), the 1-year average dividend growth rate of 9.07% is significantly greater than that of the monthly payers (5.12%). 
- The average 3, 5, and 10-year dividend growth rates of the Canadian Dividend All-Stars of 10.08%, 11.90% and 8.55% are much greater than the comparable growth rates of the monthly payers 6.08%, 6.26%, and 3.15%. 

As with any other screen, the above list is simply a starting point for further research.  Clearly, a deeper dive is required given the average EPS payout ratio of 292% and the high average trailing P/E of 47.3X valuation (partly due to nonsensical values for TransAlta Renewables). As indicated on my Investment Holdings tab, I currently own four monthly paying Canadian Dividend All-Stars (Granite REIT, Canadian Apartment Properties REIT, Enbridge Income Fund Holdings and Enercare Inc.). Of the remaining thirteen companies, I have owned Inter Pipeline in the past, and have included Altagas, First National and Cineplex on past watch lists. 

Do you hold or are you interested in purchasing any of the 20 monthly payers?

Friday, January 5, 2018

Q1 2018 Dividend Growth Watch List

Before I even had a chance yesterday to post my Q1 2018 watch list, I conducted my first transaction of 2018, adding to my Brookfield Infrastructure Partners position in my TFSA. Although I don't have any immediate plans to buy or sell shares, I still wanted to share my watch list. Since my investment holdings consists of my unregistered account, my TFSA, and RRSP, that will be the format in which I present my considerations.

Unregistered Account

This quarter, the theme of my watch list seems to be “utilities”. At current prices, I’m open to adding to my two utility holdings of Canadian Utilties (TSX: CU) and Emera (TSX: EMA). Both of these companies are reasonably priced, have attractive current dividend yields, and have a history of annually dividend increases (46 and 11 years respectively). For similar reasons, when I start to look at companies outside of my holdings, I gravitate towards Fortis (TSE: FTS) and Algonquin Power (TSX: AQN).  I’d consider initiating positions in these two companies since I feel both provide something slightly different than my current holdings. In the case of Fortis, it’s the extensive exposure to 11 states in the US. Exposure to the utility markets in New York, Illinois and Arizona are particularly attractive to me as I see these three states as having largely inelastic and growing demand for power. For Algonquin, it’s the company’s clean energy assets that I’d like to add to my portfolio. Additionally, the company offers investors the option to receive dividends in either US dollars or Canadian dollars, which I also find attractive.


I wrote the below paragraph before adding to my position in Brookfield Infrastructure Partners (TSX: BIP.UN) on January 4, 2018. 

My utilities theme extends to my plan to increase my holding of Brookfield Infrastructure Partners. Despite the nearly annual dilutive share offerings in order to finance their growing backlog, I continue to have faith in Brookfield’s excellent management team to effectively manage their utility, transport, energy, and communication infrastructure assets. The company’s recently announced $1.3B sale of an aging Chilean utility investment to a Chinese buyer might mean less or no dilution through share offerings in 2018. Exposure to a worldwide set of infrastructure assets that generate steady amounts of rising income continues to be desirable for me.


Although my plan is to let dividends accumulate and add them to my annual RRSP contribution in Q2 2018 to purchase more shares of Digital Realty Trust (NYSE: DLR), there’s one position I might add to in the next three months. With A&W Income Fund (TSE: AW.UN) announcing the addition of 35 net new restaurants to their royalty pool for 2018, it could be an opportune time to add to this position before increased royalties from the new restaurants flow through to A&W’s financial results.

Which companies appear at the top of your watch list for Q1 2018?