Wednesday, April 3, 2019

Dividend Paying Companies That You Hate

Tuesday February 5th, we had our alarm clock set for 5:30 so that we could get the kids ready and bring them to the airport by 9:00 for a week vacation in Mexico. At 4:10, my son woke us up crying since he'd vomited. We quickly changed his bedding, put him in a different pair of pjs, and told him he'd fell better if he got some sleep. My shower was then interrupted by my son making a mad dash to throw up over the toilet. Again, we cleaned him up, gave him hugs and told him to take it easy. We hit the road a bit late, but five minutes from our house, my son was sick again, and we came to the realization that five hours on a plane with a sick four year-old wasn't a smart plan. We turned around, brought my daughter to daycare, my son threw up again, and by the time we got home, my wife and I were both feeling pretty awful.

Since we had checked into our Air Transat flight the night before, we thought we should give them a call and tell them we wouldn't be showing up. The agent on phone didn't seem to care that we weren't showing up and told my wife she should call back in three days to talk about a partial refund. Having dealt with airlines semi-frequently over the past 10+ years at my current job, I told my wife not to expect anything. Despite low expectations, Air Transat actually managed to disappoint her during the initial call to the point where she told them she needed a break. The agent tried to justify how the airline still had to charge us for pre-paid baggage fees, despite never hauling our luggage. When my wife asked if they managed to resell our seats, the agent evaded her. After "a supervisor" called back my wife later that day, providing a refund of about ~20% of our ticket costs, my wife promptly informed me that we would never fly Air Transat again. For context, after a similar experience a couple years ago with Videotron (a cable/telephone/Internet provider in Quebec), my wife canceled our cable and Internet subscription within days, and laughs every time she tares up a junkmail flyer from Videotron.

 The Air Transat episode got me thinking about a near-investment I made in WestJet (TSX: WJA). Their stock was priced reasonably (P/E around 15X if memory serves), yielding close to 3% at the time, they seemed to be growing their dividend regularly, and I thought investing in an airline would provide me with some industry diversification. While considering investing, I flew to Victoria on WestJet, had a horrible experience, and took the airline off my watchlist after checking into my hotel. I've a couple articles similar to this one indicating that investing in companies you hate can produce good returns. Although my gut reaction is that companies you hate probably aren't interested in long-term sustainable growth fueled by satisfied customers, after considering my own experience investing in dividend paying companies I hate, I'm not sure what to conclude. A couple examples of dividend payers that I hate, yet own, jump out in my mind.

The Bank of Nova Scotia (TSX: BNS):
If you follow me on Twitter, I apologize if you've noticed one of my many sarcastic, mean-spirited tweets calling out Scotia iTrade (my discount brokerage). Ever since BNS took over iTrade from E-trade, the client-focus and responsiveness fell off a cliff. For instance, iTrade still charges the same $10/trade as E-trade promoted when I joined in 2001. Scotia programmed a US-dollar RRSP, and then sat on it for four years before introducing it late last year. Why introduce a service your clients ask for when you can instead charge them $30/quarter for a fair USD/CAD exchange rate? I think iTrade is the only brokerage in Canada that holds dividends for an extra day (minimum) before depositing them into your account. Then there's the unpopular changes BNS has made transitioning ING bank's former Canada business into their "Tangerine" brand.

In terms of investment performance, BNS is up about 10% over the past five years (not including dividends). Safe to say that their operating performance and integration of acquired subsidiaries has caused a lag in their stock performance. Despite the bank being attractively priced ~10.5X trailing earnings and yielding 5%, I wouldn't consider adding to my position in BNS in the near-term.

BCE Inc. (TSE: BCE):
Like thousands of other Canadians, I have a couple stories about Bell Canada's horrific customer service. Before moving out of my condo, I called Bell to disconnect my little-used landline.. I was told that since I was moving on a Saturday, my line couldn't be disconnected officially, in their system until Monday at 9:00am, and I'd be responsible for any long-distance charges incurred over the 48 hours the new owner was in the condo. While holding back my laughter, I asked the Bell representative how they planned to bill me for charges after I had left, knowing I had prepaid my last bill and left them with no forwarding address. The agent seemed confident when she warned me that they would find me. That seemed like an appropriate end to my relationship with Bell Canada during which I threatened to take them to small claims court when they informed me they would be keeping a $20 prepayment I made against a Virgin mobile cell phone. Perhaps realizing that the cost/benefit relationship wasn't in their favor, the agent agreed to transfer back the $20 to me.

BCE is up over 20% over the past five years (not including dividends). The stock is a bit pricey at 19X trailing earnings, but I might consider adding to my position if it becomes a better value. Maybe it's the personal lack of recent bad interactions with Bell that has me feeling that way?

There are other dividend paying companies in my portfolio with which I have had less than spectacular interactions with over the years:

Enercare (now part of Brookfield Infrastructure (TSX: BIP.UN)) / Enbridge (TSX: ENB):
Since moving to Quebec seven years ago, I've rented my hot water tank from Enercare, with the payment flowing through Enbridge, my natural gas provider. I called Enbridge last year to see how much it would cost me to buy the 2009 hot water heater and they quoted me a price equal to that of a brand new, energy efficient heater. I've since been trying to figure out how to buy and get a natural gas heater installed so I can tell Enercare/Enbridge where they can pick up and stick their 10-year old heater.

Rogers Communcation (TSX: RCI.B):
During my condo living years, twice I was quoted better prices for Rogers packages that were not honored on my next bill. This was apparently a favorite sales tactic for the company, which they continue to do over the telephone and in their retail stores.

Canadian Imperial Bank o Commerce (TSX: CM):
CIBC eliminated my no-monthly fee plan, didn't inform me of the change, started to charge me $10 per month on an account with no activity, then decided not to reimburse me when I called them out on it. Of course, this resulted in my closing my account, changing my credit card from one issued by them, and never setting foot in a CIBC branch again.

Canadian Apartment REIT (TSX: CAR.UN):
I moved from a CAR apartment to my condo over a period of a month during which I still paid rent. When I went for my last boxes about a week before month end, I noticed my fridge had been emptied including a recently acquired bottle of Cuban rum. This pissed me off to the point where I kept a key to the building that I used to park underground and play squash for years after I moved out.

McDonalds Corporation (NYSE: MCD):
Having worked in fast foot for about five years during high school, I have conflicted feelings about McDs. I know not to expect too much from minimum wage earning high school kids, but I feel that if the workers got my orders right more than half the time, I'd feel less crappy about owning shares in the company. In contrast I've never had a bad experience during visits to A&W or the Keg (other holdings of mine).

Is it good to hold shares in dividend paying companies that you hate? Looking at the track record of some of the companies above, the investment performance results are mixed. It almost seems like a necessary evil in Canada to hold shares in a bank, telecommunications firm and utility provider if you're a diversified dividend growth investor.

Do you own any dividend paying companies that you hate doing business with? If so, how have they performed for you?









1 comment:

  1. DiH -

    Hilarious. BNS is a glory position for many, loved hearing your feedback on them.

    -Lanny

    ReplyDelete