Thursday, July 31, 2008

Sun Life breaks dividend trend

One day after Canadian wealth manager IGM financial continued their habit of semi-annual dividend raises, fellow financial services firm Sun Life Financial (SLF) appears to have decided to break their similar trend. Sun Life has been raising dividends twice annually since 2004. After reporting a 12% profit drop in their most recent quarter, Sun Life failed to raise their dividend, likely marking an end to the semi-annual trend. Sun Life is currently yielding 3.6%. The stock was punished today as it fell by 6.1% to close under $40/share.

Wednesday, July 30, 2008

IGM continues semi-annual raises

Another day, another dividend raise. Canada's largest mutual fund manager, IGM Financial (IGM), manager of $119 Billion worth of investment assets, raised their quarterly dividend today from $0.4875 to $0.5125/share. This represents an increase of over 5%. This raise continues IGM's long streak of raising dividends twice annually. The stock is yielding 4.9% on today's closing price.

My thoughts on IGM Financial.

Monday, July 28, 2008

more economic green

Being Green Must Be Economic, Otherwise Motivation Of The Masses Is Lost!

Looks like Toronto Dominion Bank (TD), my largest single stock holding, is doing some business that I'd have to classify as fitting into my 'economic green' theme that I blogged about back in May. The company's Green Wheel™ program rewards those who own or lease a hybrid vehicle by offering a five to ten per cent discount on auto insurance premiums. While most research that I have seen still shows the pay back period when buying a hybrid vehicle to be too long to make economic sense, this insurance initiative is a step in the right direction; not to mention good marketing and PR for TD.

"At TD Insurance, we're listening to consumers who want environmentally-friendly products - and leading with programs that reward green behaviour," says Jean-Francois Tougas, Vice President, TD Insurance. "With TD's Green Wheel discount, saving the environment and saving money can go hand in hand."

Saturday, July 26, 2008

are cars the new smoking? al.

Canadian behaviour changes due to gas prices by the Globe & Mail

Dividends more reliable than share price rises in the U.K. from professional

Cars Are the New Smoking, by Squawkfox, that got your attention didn't it.

Thursday, July 24, 2008

high oil gives me a raise

Speak of the devil, Husky Energy (HSE) just announced a big jump in earnings and yet another dividend increase of 25% to $0.50/share. I am having trouble keeping up with Husky's dividend activity, and I like it. Shareholders are surely benefiting from higher energy costs. Petro Canada (PCA) also announced a large increase to their more modest quarterly dividend (+54%).

Below is the way I see Husky's dividend history when all of the special dividends are included, and the split is factored in:
2006 - $1.13
2007 - $1.25
2008 - $1.56
2009 - $2.00 (EST)

The stock is yielding about 4.9% on today's share price.

Wednesday, July 23, 2008

GE presents dividend opportunity

This article originally appeared on The DIV-Net on July 16, 2008.

Diversified conglomerate General Electric (GE) announced their second quarter earnings this past Friday. GE's finance unit, GE money's profits fell 9% while the consensus estimate was for profits in that unit to drop 15-20%. Their Infrastructure unit's earnings, on the other hand, were up 24%. Overall the company met expectations by posting nearly flat earnings growth over the same quarter in 2007. Revenue actually rose 11% to $46.9 B.

GE's shares got hit hard last quarter when they surprised the market by announcing an unexpected drop in earnings due to weak credit markets. In this most recent earnings release GE affirmed it's full year earnings forecast of $2.20-$2.30 per share. This is barely above their 2007 earnings per share of $2.20. With plans to spin off their industrial and appliance units, and forecasting further lower profit from their finance segments, GE's earnings growth looks stagnant for the short term.

But really, here at The DIV-Net we don't care about the short term. Here are a few points to ponder with respect to GE as a potential long term dividend growing investment:

GE's current dividend pay out ratio is about 52% (they are paying out half of their earnings)
The current yield on the stock is around 4.5%
GE has grown earnings per share in 8 of the last 9 years
Their dividend growth has swift, consistent, and has stood the test of time
Global infrastructure, alternative energy, and emerging economies are great areas to be a leader in long term and GE is there with bells on
GE is already deriving about 50% of revenue from outside of the U.S.
The company currently has their hands in a lot of cookie jars. The main focus of management is to get their hands out of the cookie jars that are growing slower and keep searching for cookies in the faster growing jars. Maybe buy more nice jars too...

As of writing this GE shares of off about 25% year to date, and it's not a purely financial company. Yes GE has some financial exposure but one of the scary things about investing in financials, for a dividend growth investor, is the possibility of dividend cuts. Since GE has a pay out ratio of about 52%, and minimal exposure to finance as compared to, say a bank, the dividend is not at risk because their other divisions profits are looking pretty solid. This is a key point because as mentioned GE is now yielding about 4.5%, and probably has a bright future, even without light bulbs. A 'yield on cost' of 4.5% with solid growth potential is a great starting point for a position in this company.

Tuesday, July 22, 2008

oil purely for yield

When a company's prospects for earnings success are tied to the price of a commodity, some funny things tend to happen to it's share price. Throw in a rising dividend and a higher yield and things get even more interesting.

Case in point are oil stocks right now. Most oil stocks in Canada are fairly low yielding but Husky Energy (HSE) stands out in offering a higher dividend yield to investors. Recently as oil climbed from under $100 to around $147 oil stocks soared with sentiment all around claiming high oil was here to stay and that we could hit $200/barrel quickly. Since then oil has begun to come off as it is now flirting with $125/barrel. Evidence exists that high oil is curbing demand, and that the U.S. economy is slowing. These factors along with the usual speculative trading dynamics seem to have turned the bus around.

Anticipating this move, the stocks of the oil companies themselves have been falling. So much so that Husky Energy (HSE) has actually come off about 23% since May 21. The energy ETF (XEG) has come off about 18% during the same time frame. What makes the move down by Husky so intriguing to me is that the stock pays a nice, rising dividend. Husky is now yielding almost 4% and sports a dividend pay out ratio of earnings of about 35%. If you expect the world's insatiable appetite for oil to continue, and expect per barrel prices to leave double digits as a distant memory, take note. Remember, oil is still well above it's average price over the last few years.

For every $1,000 invested, Husky is paying you $40/year currently and this will likely rise as their fortunes rise with oil and oil demand. As the sentiment mounts and oil trades lower it is no fun to have the value of your oil stock fall. However, a nice yield certainly cushions that fall and allows you to pick up more yield or at least get paid while you wait for your holding to appreciate with the global demand for energy. In my opinion this is a very low risk yield with minimal downside and major upside potential. If your investment strategy focuses on dividends and dividend growth, as mine does, then a 4% yield on a non-financial stock that adds diversity to a portfolio is interesting to say the least.

Monday, July 21, 2008

manic monday links

Great post on The Phases of Stock Talk by Michael James on Money. Perhaps the roots of a potential long term trading strategy.

Bear Market Advice from Ben Stein. He might be oversimplifying things, but interesting thoughts nonetheless.

Talk about volatility...long term dividend grower, Bank of America's dividend yield has gone from 9.4% to 13.9% to today's 8.5% over the past month. There goes that efficient market again pricing in every one's fears, hopes, and best guesses...

Thursday, July 17, 2008

consistency is crucial

This article originally appeared on The DIV-Net July 9, 2008

Last Wednesday I wrote about my dividend growth philosophy. This is my investing plan that I employ through good times and bad, no matter what the market throws at me. The first factor in the last point within my investment philosophy, and a factor that I consider crucial when selecting and analyzing investments, is consistency.

Consistency to me means steady growth of sales, earnings, and dividends over many years. It also means maintaining market share, return on equity, and a solid balance sheet as well as a stable, positive corporate culture and direction. When selecting companies (stocks) to evaluate for my watchlist, which I will later use to monitor price action and select an entry point, consistency is critical.

In order to be successful long term using a dividend growth investment strategy, I believe that selecting consistency is a must. The reason for this is that for a corporation to be a long term raiser of dividends they need to be a long term raiser of earnings. Stable, boring companies that raise their earnings and therefore their dividends year in and year out are what I am after. I am not after companies that double their earnings one year, and then go on to earn 30% less the next year. Since a dividend is actually money that is paid out in cash, some reliability and consistency must be built into a company in order for that company to raise dividends every year. The company must have the wherewithal to know that they'll be able to come up with ever increasing amounts of cash to pay me each year.Generally, cyclical, fly-by-night, sporadically growing, or companies struggling with business model issues do not have this luxury.

Companies that raise their dividends every year have made a conscious decision to make consistency a priority. The reason for this is because they know they'll need to come up with an every increasing pile of cash to use for dividend payments each year, so in most years they must earn a little bit more than they earned in the previous year. Their culture as a company, their relationship with investors, and their long term performance and investor return metrics all absolutely depend on them becoming consistent.Here is an example to clarify my point.

One company that fits the consistency bill to a tee is consumer products giant Procter & Gamble (PG). Let's look at how PG gets it done:

Earnings Per Share: PG has increased EPS in 7 of the last 9 years
Sales: PG has increased sales in 8 of the last 9 years
Dividends: PG has increased dividends in 9 of the last 9 years (this track record goes back very far)
Return on Equity: PG's return on equity as been above 15% in 8 of the last 9 years

Procter makes an excellent candidate for any dividend growth investor's portfolio for several reasons. Their past consistency is one of the factors that most investor's likely consider when evaluating P&G as a potential investment.

Wednesday, July 16, 2008

..and the book winner is...

The winner of the book A Million Dollars By 30, drawn at random, instinct

Your instincts were correct cash. Please email me at themoneygardener(at)gmail(dot)com to obtain the book.