Tuesday, January 31, 2017

Banks and Ratios

The reason to look at company ratios is that the stock price for a company tells you very little. The price of a stock certainly does not tell you if the stock is cheap or expensive. For example a stock price of $10 on one stock could be an expensive price, but a stock price of $20 on another stock could be a cheap price. It is like all stocks have their own currency and you will need a common frame of reference in order to tell how cheap or expensive a stock is. My Spreadsheet is here.

In this entry I am only talking about the big 6 Canadian Banks of Bank of Montreal, Bank of Nova Scotia, CIBC, Royal Bank, National Bank, and TD Bank. I try to get the right information, but I cannot guarantee anything.

The method I like best to check for a good stock price is dividend yield and this against the historical median dividend yield. What you are looking for is a current dividend yield higher than the historical dividend yield. Of the big banks that I follow, the Canadian Imperial Bank of Commerce comes off well in this test.

For CIBC the current dividend yield is 4.38% and this historical one is 4.25% a value 3% lower. The only other bank to have a higher current yield than the historical one is National Bank with a current dividend yield of 3.96% and a historical dividend yield of 3.94%.

My next favourite test is using the Graham Price. Of the big banks I follow, the CIBC is relatively lower with the current Price/Graham Price Ratio some 5% below its historical median P/GP Ratio. None of the other banks have a lower P/GP Ratios that the 10 year median. The Royal Bank is close being only 0.4% above.

One of the most common ratios to look at is the P/E Ratio. When dealing with P/E Ratios, the lower the P/E ratio the better the relatively price is. Below is the 5 year low, median and high median P/E Ratios for each bank I follow. Basically what this chart tells you is that investors are willing to pay relatively more money for TD Bank shares per dollar of earnings than for other banks.

Bank Symbol Low P/E Median P/E High P/E
Bank of Montreal BMO 10.05 11.33 12.61
Bank of Nova Scotia BNS 10.29 11.32 12.50
CIBC CM 9.00 9.89 10.78
Royal Bank RY 9.98 11.33 12.46
National Bank NA 9.04 10.62 12.21
TD Bank TD 11.40 12.63 13.69

So what is the relatively cheapest bank today? Currently CIBC has the lower P/E. In the last column I am comparing the Historical Median P/E with the Current P/E. This shows that TD Bank has dropped the least from its median. It is off the median by less than 1%

Bank Symbol Price 2017 EPS Est. Curr P/E M/C Bank of Montreal BMO $100.66 $7.58 13.28 17.21% Bank of Nova Scotia BNS $78.61 $6.31 12.46 10.05% CIBC CM $113.16 $10.30 10.99 11.09% Royal Bank RY $94.47 $6.99 13.52 19.29% National Bank NA $56.54 $5.05 11.20 5.42% TD Bank TD $68.35 $5.40 12.66 0.22%
The next most common ratio is the Price/Book Value per Share Ratio. For Price/Book Value per Share Ratio, the lower the P/B Ratio is, the more book value you get for your money. Theoretically, the book value is the difference between assets and liabilities and therefore is the potential value a company is worth or the breakup value of the stock for the shareholders.

When valuing a stock, the lower the P/B Ratio is, the better the stock price is on a relative basis. The 10 year median P/B Ratios for our banks are below. From this it is obvious that historically, investors were willing to pay a relatively higher price for Royal Bank shares than other shares. It could also say that the Bank of Montreal offers the best deal when it comes to Book Value per Share.

Last year, except for BNS and CIBC, all the 10 year P/B Ratios for these banks were higher. On a relative basis, investors were still willing to pay a relatively higher price of the Royal Bank shares and Bank of Montreal was still the best deal with it come to Book Value per Share.

Bank Symbol Price 2017 EPS Est. Curr P/E M/C
Bank of Montreal BMO $100.66 $7.58 13.28 17.21%
Bank of Nova Scotia BNS $78.61 $6.31 12.46 10.05%
CIBC CM $113.16 $10.30 10.99 11.09%
Royal Bank RY $94.47 $6.99 13.52 19.29%
National Bank NA $56.54 $5.05 11.20 5.42%
TD Bank TD $68.35 $5.40 12.66 0.22%

Of the banks I follow, BMO has the lowest P/B Ratio and the BNS is the lowest relative to its 10 year P/B Ratio as its current P/B Ratio is some 7.5% lower than the 10 year P/B Ratio.

Bank Symbol Price BVPS Current P/B M/C
Bank of Montreal BMO $100.66 $60.49 1.66 8.76%
Bank of Nova Scotia BNS $78.61 $43.59 1.80 -7.53%
CIBC CM $113.16 $56.59 2.00 -1.50%
Royal Bank RY $94.47 $43.32 2.18 5.85%
National Bank NA $56.54 $28.52 1.98 13.93%
TD Bank TD $68.35 $36.69 1.86 15.57%

For dividend paying stocks, the Dividend Payout Ratios are important. For the DPRs, lower ratios are better ratios. For Banks the DPR for EPS is the most important one. When looking at these ratios, it would appear that TD Bank has the best one, which is the lowest one. The National Bank is above the 40 to 55% level you would expect from a bank. However, I think this is just temporary.

The problem with cash flow is that for banks they tend to be volatile and often negative. A lot of analysts ignore the Cash Flow of banks.

Bank Symbol DPR for EPS DPR for CFPS
Bank of Montreal BMO 48.55% -81.94%
Bank of Nova Scotia BNS 49.91% 84.87%
CIBC CM 44.39% 18.47%
Royal Bank RY 47.20% 17.69%
National Bank NA 65.35% 13.37%
TD Bank TD 46.25% 9.09%

When Shares are issued for Stock Options, you want a company that issues around the same relative number of shares for its industry. Of course, the lower the number of shares issued for stock options, the less money comes out of the earnings for shareholders. In the value column, I am putting in the value of the stock options at the end of the calendar year.

In 2016 CIBC has one of the lowest percentages of their shares issued for stock options purposes. However, it was the second lowest when it came to the cost of these stock options. For 2016 BNS has the highest percentage of their shares issued for stock purposes and also the highest cost. All the banks issued more shares and a higher percentage of their shares in 2016 compared to 2015.

Bank Symbol Shares % of Shares Value 2016
Bank of Montreal BMO 2.103 0.33% $179M
Bank of Nova Scotia BNS 4.228 0.35% $304M
CIBC CM 0.816 0.21% $89M
Royal Bank RY 4.981 0.34% $417M
National Bank NA 1.123 0.33% $54M
TD Bank TD 4.900 0.26% $298M

For the 10 year Price/Graham Price Ratios, the lower the ratio the lower the relative price of the underlying shares. Here again, this chart shows that investors are willing to pay a relatively higher price for Royal Bank stock than for other bank stocks. It also shows that generally the BMO has a relatively lower stock price.

Bank Symbol Low Median High
Bank of Montreal BMO 0.73 0.87 0.99
Bank of Nova Scotia BNS 0.86 0.93 1.13
CIBC CM 0.88 1.04 1.16
Royal Bank RY 0.95 1.14 1.32
National Bank NA 0.77 0.88 1.03
TD Bank TD 0.86 0.98 1.08

So on a relative basis what stock is cheaper? BMO, CIBC and National are tied with the lowest P/GP Ratio for the stocks that I follow. The CIBC has relatively the lowest P/GP Ratio compared to the 10 year median value being some 5% lower.

Bank Symbol Price Graham Price P/GP Ratio M/C
Bank of Montreal BMO $100.66 $101.57 0.99 13.91%
Bank of Nova Scotia BNS $78.61 $64.37 1.22 31.31%
CIBC CM $113.16 $114.52 0.99 -4.99%
Royal Bank RY $94.47 $82.55 1.14 0.39%
National Bank NA $56.54 $56.93 0.99 12.86%
TD Bank TD $68.35 $64.12 1.07 8.77%

For dividend yields, the higher the dividend yields the better the relative price of a stock is. Here is the 5 year median and historical average and historical median dividend yields based on my spreadsheets for our banks.

Bank Symbol 5 Year Hist. Ave Hist. Med
Bank of Montreal BMO 4.29% 5.30% 4.29%
Bank of Nova Scotia BNS 4.12% 5.15% 3.92%
CIBC CM 4.67% 4.64% 4.25%
Royal Bank RY 3.95% 4.38% 3.92%
National Bank NA 4.16% 6.04% 3.94%
TD Bank TD 3.75% 3.26% 3.34%

The best test of whether or not a stock is cheap or expensive is to compare the current dividend yield to the Historical Median Dividend yield. Except for CIBC and National bank, all the banks I follow have lower dividend yields than the historical median. What you want is for a good stock price is for the current years to be higher than the historical median.

The higher the dividends yield the better and in this category, the winner is the CIBC at 4.38%. Also CIBC is also the one which is the highest compared to the historical median. It is some 3% higher than the historical median dividend yield. All this data is going back to 1988.

Bank Symbol Price Dividend Yield M/C
Bank of Montreal BMO $100.66 $3.52 3.50% -18.49%
Bank of Nova Scotia BNS $78.61 $2.96 3.77% -3.94%
CIBC CM $113.16 $4.96 4.38% 3.13%
Royal Bank RY $94.47 $3.32 3.51% -10.35%
National Bank NA $56.54 $2.24 3.96% 0.55%
TD Bank TD $68.35 $2.20 3.22% -3.63%

Canadian Imperial Bank of Commerce (TSX-CM, NYSE-CM)... learn more. Tomorrow, I will write about Valener Inc. (TSX-VNR, OTC-VNRCF)... learn more on Wednesday, February 1, 2017 after 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

Thursday, January 26, 2017

Rethinking Retirement

Since we are living longer and longer lives, maybe school, work, retirement is not the way to go. I think that school will be an off and on thing to begin with. There is probably no course you can take today that will be valid all your life.

My father had a job for life. I did not. I worked for 5 different companies but had more than 5 different jobs. I did not have to go back to school to progress to different jobs. I did take courses and went for training seminars. However, the new kids coming into work at what I was doing had two year college course just to start in a junior position.

It seems like people do not expect training or education to last for a long time in work. For example a friend of mine took a project management course to get a certificate. Now with this certificate you must renew it every five years. So, in five years' time you basically begin again. Things are changing rapidly.

Another problem is Pensions. Pension plans are having troubles especially for civil services who can retire at 55. There are many in retirement reaching 100. So if you start work at 20 and retire at 55 after working 35, you live to 100, that is have 45 years of retirement. Pension plans were never designed to do this and cannot.

How many years of retirement could you save for? The current life expectancy in Canada is 81.24 years. But that means that 50% of the people are dead at that age and 50% are not. As far as I know the oldest person lived to 121. Most will not do that, but living into your 90's is a very real possibility. So if you start work at 20 and live until 90 do you really think that you could fund 25 years of retirement after working 45 years? This will give you a retirement age of 65. Retiring earlier just makes it worse.

Death at 100 95 90 85 80
Start w 20 20 20 20 20
Retire at 55 55 55 55 55
Years R 45 40 35 30 25
Years W 35 35 35 35 35
Death at 100 95 90 85 80
Start w 20 20 20 20 20
Retire at 60 60 60 60 60
Years R 40 35 30 25 20
Years W 40 40 40 40 40
Death at 100 95 90 85 80
Start w 20 20 20 20 20
Retire at 65 65 65 65 65
Years R 35 30 25 20 15
Years W 45 45 45 45 45

Looking at retirement if you become a couch potato after retirement the mortality statistics are awful. A lot of people who following this route are dead in 5 years from strokes, heart attacks or cancer. There also are lots of retirees that are working. They do this because they are bored or need some extra money or for both reasons.

People who retire successfully talk about having a passion for something. They fulfill their passion after retirement so that they can live a long and fulfilled retirement. I have seen some people successfully start a new career after retirement. It does not matter what you have a passion in. What is important is that you are interested.

Personally, I blog, analyze stocks, exercise, read and socialize. You have to have money. I get CPP plus my dividend income from the stocks that I hold. I also do a bit of stock trading to keep investing interesting.

I think we should rethink retirement or maybe we should just cancel it.

On my other blog I wrote yesterday about National Bank of Canada (TSX-NA, OTC-NTIOF)... learn more. Tomorrow, I will write about Transcontinental Inc. (TSX-TCL, OTC-TCLAF)... learn more on Wednesday, January 25, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Tuesday, January 24, 2017

Buying Bonds

Bonds are easy to buy and if you have good quality bonds like government bonds or good corporate bonds, then risk is slight and you will get back your capital if you hold the bond to maturity. People do not realize that the bond market is a lot riskier than the stock market. Bonds are only a safe investment if you buy and hold them until maturity.

What you do is phone your broker and ask for what they have in bonds. You are quoted a price per $100 of bond values. If you are buying a new issue, the asking price will be $100. However, if you buy a bond that is already issued, you will price a price per $100 of bond. If the bond has an interest rate above the current interest rate, then you will be quoted a price above $100 of the bond's amount. If the bond has an interest rate above the below interest rate, then you will be quoted a price below $100 of the bond's amount.

At maturity a bond will pay $100 per $100 of face amount. So if you paid a price below $100 of face amount, then you will end up with a capital gain between what you paid and the $100 of face amount. If you paid a price above $100 of face amount, then you will end up with a capital loss between what you paid the $100 of face amount.

When you buy a bond, the interest rate you will get is the current one for the type and duration of that bond. If you are getting a higher interest rate that the bond has then you will be quoted a price lower than $100. If you are getting lower interest rate than the bond has then you will be quoted a price higher than $100.

Say you were quoted $106.38 and were buying a bond with a face of $1000. You would be paying $1063.80 for the bond. What you will get by the maturity of the bond is the interest rate promised and the return of the money you paid. The interest payments you receive will be more than those quoted, but you will have a capital loss.

In this example the capital loss would be $63.80. The net amount you will receive is $24.81. You will pay tax on the $88.61 you actually receive in Interest and have a capital loss of $63.80 to be used against any capital gains you have. When you buy the bond you will also paid interest due between the last interest payment and the date you buy the bond. In this example, that would be $5.14.

Issuer Amount Coupon Maturity Paid Int Rate Paid
Gov of CDN $1,000.00 3.75% 1-Jun-19 $106.38 0.99647% $1,063.80
Int pd yrly $37.50 -$63.80 Cap Loss
Mths paid Jun/Dec Jun/Dec
Net Rec Int Inc
1-Dec-16
20-Jan-17 -$1,063.80
50 Days -$5.14 -$5.14
1-Jun-17 $18.75 $18.75
1-Dec-17 $18.75 $18.75
1-Jun-18 $18.75 $18.75
1-Dec-18 $18.75 $18.75
1-Jun-19 $18.75 $18.75
$1,000.00
Sum $24.81 $88.61 Int. Inc.

In another example, say you were quoted $99.796 and were buying a bond with a face of $1000. You would be paying $$997.96 for the bond. What you will get by the maturity of the bond is the interest rate promised and the return of the money you paid. The interest payments you receive will be less than those quoted, but this will be made up for the fact that you will receive back $1000 or $2.04 more than the $997.96 you paid for the bond.

In this example the capital gain would be $2.04. The net amount you will receive is $14.79. You will pay tax on the $12.75 you actually receive in Interest and the capital gain of $2.40. When you buy the bond you will also paid interest due between the last interest payment and the date you buy the bond. In this example, that would be $0.55.

Issuer Amount Coupon Maturity Paid Int Rate Paid
BNS $1,000.00 1.33% 5-Jan-18 $99.796 1.49323% $997.96
Int pd yrly $13.30 $2.04 Cap Gain
Mths paid Jan/Jul
Net Rec Int Inc
5-Jan-17
20-Jan-17 -$997.96
15 -$0.55 -$0.55
5-Jul-17 $6.65 $6.65
5-Jan-18 $6.65 $6.65
5-Jan-18 $1,000.00
$14.79 $12.75 Int. Inc.

The thing is that it is not risky in buying a bond on the open market and holding it until maturity. The risk is that if interest rates go up, the value of your bond will go down and people can panic and sell a bond on the open market. The bond market is risky when you buy and sell on the open market. However, if you hold that bond until maturity and ignore the current market price, you will get your money back.

On my other blog I wrote yesterday about National Bank of Canada (TSX-NA, OTC-NTIOF)... learn more. Tomorrow, I will write Transcontinental Inc. (TSX-TCL, OTC-TCLAF)... learn more on Wednesday, January 25, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Thursday, January 19, 2017

Bond Market Bear

A bear market occurs in bonds when interest rates go up. When interest rates go up, bond capital (or what a bond is worth) goes down. The longer the term of the bond the more the bond capital goes down. We have had a very long run bull market in bonds. That is when interest rates go down and bond capital goes up.

I have been expecting a Bond Market Bear for some time. It maybe time now. If this is true, people who hold mutual funds or ETFs with bonds could be in for a real shock. I have no idea why people would hold mutual funds with bonds in them.

Bonds are easy to buy and if you have good quality bonds like government bonds or good corporate bonds, then risk is slight and you will get back your capital if you hold the bond to maturity. People do not realize that the bond market is a lot riskier than the stock market. Bonds are only a safe investment if you buy and hold them until maturity.

If you hold bonds in such things as a mutual fund or ETF, you will lose capital in a bond bear market. You may lose more capital than you can ever recover. The general rule with assets and interest rates is that they go in the opposite direction. That is asset price goes up when interest rates fall and asset price goes down when interest rates rise. This rule can affect all sorts of assets. Bonds are one type, but things like real estate and some stocks are also affected by this rule.

Mark Hulbert wrote an article about Bond Bear Markets in 2014 on Market Watch. Gemma Acton says in a recent article on CNBC that Didier Saint-Georges, a managing director at Carmignac Gestion says that the recent jump in yields does not signal the beginning of a major bear market for bonds. Andrea Wong on Bloomberg says Lacy Hunt one of the few around you experienced the last Bond Bear Market thinks we are not there yet.

On my other blog I wrote yesterday about Toronto Dominion Bank (TSX-TD, NYSE-TD)... learn more. Tomorrow, I will write about Bank of Nova Scotia (TSX-BNS, NYSE-BNS)... learn more on Friday, January 20, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Tuesday, January 17, 2017

Dividend Payout Ratios

For Dividend Payout Ratios, they will change depending on the type of company or the sector the company is in. There are some rules of thumbs that you can follow. For Dividend Payout Ratio in connection with EPS I look for the following ratios.

Sector DPR
REITs 75% to 95%
Utilities 70% to 80%
Non-Utilities 50% to 60%
Banks 40% to 55%

Note that some people calculate the earnings Dividend Payout Ratios using Dividends over Net Income. There can be a big difference between that calculation and Dividends per Share over EPS if there is a big difference between the basic and diluted EPS. Also some analyst use Cash Dividends over Net Income. If the company is has a DRIP plan there could be a big difference the dividends paid and the cash dividends paid.

I also check the Dividend Payout Ratio against Cash Flow per Share. The Cash Flow per Share I generally use is that after removing working capital. (See my blog for further information on Cash Flow.) The rule of thumb here is that Dividend Payout Ratios for Cash Flow per Share should not be greater than 40%.

These are just guidelines. Fast growing companies will need to retain earnings for expansion and/or reinvestment purposes. There is a tradeoff for some companies about what to give shareholders in dividends and what to hold on to for investment purposes. Some companies have very low payout ratios because of this.

As expected Investopedia has an article on this subject. There is also an article on Wikipedia. What is interesting about this article is that they have a chart about average payout ratios from the 1930's to the 2000's. This table says the payout is based on Operating Earnings, which excludes non-operating expenses such as interest and taxes. An article My Accounting Course also talks about Dividend Payout Ratios.

John Heinzl in the Globe and Mail wrote an interesting article on this subject in 2013. It might be a bit old, but his information is not out of date. There is also a long, but easy to read talk about this subject on Wiki How. The most interesting item on this article by Simply Safe Dividends is the chart of Dividend Payout Ratios by sector for the S&P500.

On my other blog I wrote yesterday about Sylogist Ltd (TSX-SYZ, OTC-SYZLF)...learn more. Tomorrow, I will write about Toronto Dominion Bank (TSX-TD, NYSE-TD)... learn more on Wednesday, January 18, 2017 date around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Thursday, January 12, 2017

Year 2016

My first question is how did I do? My portfolio is up by 21.3% compared to the TSX increase of 17.51%. Looking over the data from 2000, I tend not to go as high as TSX and not to go as low as the TSX.

Looking at Dividend Growth, it seems to be declining for me. For 2016, my dividends only went up 5.08%. This is the second lowest level. The lowest level was in 2014 when growth was only 3.83%.

Date My Ret Div Gth TSX Ret
31-Dec-00 17.82% 11.72% 6.18%
31-Dec-01 -7.48% 9.73% -13.94%
31-Dec-02 -11.41% 32.27% -13.97%
31-Dec-03 17.73% 12.91% 24.29%
31-Dec-04 9.71% 11.64% 12.48%
31-Dec-05 12.12% 7.77% 21.91%
31-Dec-06 15.36% 23.96% 14.51%
31-Dec-07 5.94% 23.21% 7.16%
31-Dec-08 -21.85% 11.35% -35.03%
31-Dec-09 28.37% 14.94% 30.69%
31-Dec-10 13.85% 5.29% 14.45%
31-Dec-11 4.92% 9.23% -11.07%
31-Dec-12 13.09% 9.63% 4.00%
31-Dec-13 19.02% 10.53% 9.55%
31-Dec-14 16.61% 3.83% 8.25%
31-Dec-15 -5.76% 7.58% -11.77%
31-Dec-16 21.30% 5.08% 17.51%

I looked for any article about dividend growth slowing down. I got this article by Jeff Brown in US News. He says that US dividend growth dropped to 5% in the first quarter of 2016 due to corporate earnings not growing. I cannot find any comments on dividend growth in Canada.

On my other blog I wrote yesterday about Rogers Sugar Inc. (TSX-RSI, OTC- RSGUF)... learn more. Tomorrow, I will write about Calian Group Ltd. (TSX-CGY, OTC-CLNFF)... learn more on Friday, January 13, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Tuesday, January 10, 2017

Yield and Cost Coverage

In my review of Bank of Montreal (TSX-BMO, NYSE-BMO), I looked at what dividend yield or cost coverage you might have if this stock was purchases 5 to 30 years ago. In that post I talked about how well I did with the stock that I purchased for my Trading account.

My dividends since 1987 covered the cost of my stock in 1987 and in my subsequent purchases by 173%. However, according to the table below, stock bought some 30 years ago (in 1987) with a median price, the purchase price would be covered by 643%. However, investors do tend to buy a stock over a period of time rather than all at once.

Dividend growth stock can deliver great returns over the longer term. For this stock which I bought in 1983 some 34 years ago, I am making a dividend yield of 47.8% on my original purchase price of $7.37. The following table shows that if you had bought this stock from 5 to 30 years ago before 2017 what your yield or cost of purchase price would be covered if you paid a median price for this stock.

Yield Cost Covered
Yield if held 5 yrs. 6.11% Cost covered if held 5 years 28.00%
Yield if held 10 yrs. 5.25% Cost covered if held 10 years 45.09%
Yield if held 15 yrs. 9.85% Cost covered if held 15 years 112.01%
Yield if held 20 yrs. 13.91% Cost covered if held 20 years 178.50%
Yield if held 25 yes 32.80% Cost covered if held 25 years 451.74%
Yield if held 30 yes 44.28% Cost covered if held 30 years 642.92%

In the above table the yield after 10 years is lower than the one after 5 years because some 10 years ago (2007) the stock hit a peak that was not again matched until 2013. If you had purchased the stock at the lowest in that year your current yield would be 5.79%. Better, but if you had waited until the following year (2008), your yield would 6.95% and in 2009, 8.84%. Some years are just not good years to buy particular stocks.

However, if this stock was bought at the current price $97.81 with the dividend of $3.52 with the continuing dividend increase at 4.35% (the increase for 2016), then in 5 to 30 years times the dividend yield would be as shown in the table below.

In this table if you buy the stock at a $ 97.81 and held it for 5 years you would have a yield of 4.45%, an increase of 23.7%. If you hold the stock for 30 years, you would have a dividend yield of 12.91%, an increase of 258.7%. This is assuming at the growth in dividends is at 4.35% per year over these periods of time.

Div. Yield 4.45% earning in 5 Years at IRR of 4.35% Div. Inc. 23.73%
Div. Yield 5.51% earning in 10 Years at IRR of 4.35% Div. Inc. 53.08%
Div. Yield 6.82% earning in 15 Years at IRR of 4.35% Div. Inc. 89.40%
Div. Yield 8.43% earning in 20 Years at IRR of 4.35% Div. Inc. 134.34%
Div. Yield 10.43% earning in 25 Years at IRR of 4.35% Div. Inc. 189.94%
Div. Yield 12.91% earning in 30 Years at IRR of 4.35% Div. Inc. 258.73%

The combination of yield and dividend growth can really make a difference. In the above table with 4.35% dividend growth starting at 3.60%, in 30 years' time the yield on the original purchase price (that is $97.81) would be 12.91%. If you had bought this stock 30 years ago, the yield on your original purchase price (that is at $7.91 in 1987) your current yield on that $7.91 purchase price would be 44.28%.

My purchase price in 1983 (including commission) was $7.37 with a yield of $6.65%. I am now earning $3.52 on that $7.37 cost which is a yield of 47.76%. For my original purchase I started at a higher yield (6.65% compared to current one of 3.60%) and my dividend growth was higher (5.95% compared to current one of 4.35%).

On my other blog I wrote yesterday about Royal Bank of Canada (TSX-RY, NYSE-RY)...learn more. Tomorrow, I will write about Rogers Sugar Inc. (TSX-RSI, OTC- RSGUF)... learn more on Wednesday January 11, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Thursday, January 5, 2017

Something to Buy January 2017

There is always something to buy in the stock market. On Tuesday, I put out a list of the stocks that I covered and showed what stock might be a good deal based on dividend yield. Now I am trying to categorize what sorts of stocks may be a good deal based on dividend yield.

The advantages to using dividend yield to judge how cheap or expensive a stock is, is that you are not using estimates or old data (like last reported quarter's data). You are using today's stock price and today's dividend yield.

For other testing, like using P/E Ratios and Price/Graham Price Ratios, you use EPS estimates or from the last reported financial quarter. When using P/S Ratios, P/CF Ratios or P/BV Ratios you are using data from the last reported financial quarter.

This system does not work well for old Income Trust companies. These companies had quite high Dividend Yields which will probably never be seen again. So I started a column called VT (for Valid Test) and this applies to checking stock price using dividend yield. If not a valid test I use N to show this. For these stocks, you might be better comparing the current dividend yield to the 5 year median dividend yield.

However, no system is perfect. But if you are interested in buying a stock a list of stocks cheap or reasonable using dividend yield data might be a good place to start.

Categorizing stocks is not as simple as it might seem. Every site you go to has categorized stocks a bit differently. I try to keep this as simple as possible. See Something to Buy January 2017 Spreadsheet to see what stocks are showing whether a stock is relatively cheap based on historical high dividend yields (P/Hi), historical average dividend yields (P/Ave), historical median dividend yields (P/Med) or on 5 year median dividend yields (P/5Yr). As in other spreadsheets, you can highlight a line or a number of lines for better viewing.

In the following notes I am only going to list stocks showing as cheap using the historical high dividend yields (P/Hi) and historical median dividend yields (P/Med).

I follow 21 stocks in the Consumer Discretionary category. None of these stocks are showing as cheap by the historically high dividend yield. Nine (or 43%) are showing cheap by historical median dividend yield. They are Canadian Tire Corporation (TSX-CTC.A, OTC-CDNAF), DHX Media Ltd. (TSX-DHX.A, OTC-DHXMF), Dorel Industries (TSX-DII.B), Goodfellow Inc. (TSX-GDL, OTC-GFELF), High Liner Foods (TSX-HLF, OTC-HLNFF), Leon's Furniture (TSX-LNF); Magna International Inc. (TSX-MG), Newfoundland Capital Corp (TSX-NCC.A) and Reitmans (Canada) Ltd. (TSX-RET.A). There is no change from last month.

I follow 12 Consumer Staples stocks. There is one company showing as cheap by the historically high dividend yield and that is Empire Company Ltd. (TSX-EMP.A, OTC-EMLAF). Three stocks (or 25%) are showing cheap by historical median dividend yield. These are Empire Company Ltd. (TSX-EMP.A, OTC-EMLAF), Jean Coutu Group Inc. (TSX-PJC.A, OTC-JCOUF) and Loblaw Companies (TSX-L, OTC-LBLCF). There is no change from last month.

I only follow two Health Care stocks and both are US stocks. None of these stocks are showing as cheap by the historically high dividend yield. They are both cheap by the historical median dividend yield. The stocks are Johnson and Johnson (NYSE-JNJ) and Medtronic Inc. (NYSE-MDT). This is the same as for last month.

I follow 12 Real Estate stocks. None of these stocks are showing as cheap by the historically high dividend yield. Three stocks (or 25%) are showing cheap by historical median dividend yield. They are Artis REIT (TSX-AX.UN); Granite Real Estate (TSX-GRT.UN) and Melcor Developments Inc. (TSX-MRD. FirstService Corp (TSX-FSV) was taken from this list.

I follow 7 Bank stocks. There is no company showing as cheap by the historically high dividend yield. Four stocks (or 57%) are showing cheap by the historical median dividend yield. These stocks are Bank of Nova Scotia (TSX-BNS); Barclays PLC (NYSE-BCS), Home Capital Group (TSX-HCG, OTC-HMCBF) and National Bank of Canada (TSX-NA). Toronto Dominion Bank (TSX-TD) has been taken off this list.

I follow 14 Financial Service stocks. None are showing as cheap by the historically high dividend yield. Eight (or 57%) stocks are showing cheap by the historical median dividend yield. These stocks are Accord Financial Corp (TSX-ACD, OTC-ACCFF), AGF Management Ltd (TSX-AGF.B), Alaris Royalty Corp (TSX-AD, OTC-ALARF), CI Financial (TSX-CIX), Equitable Group Inc. (TSX-EQB, OTC-EQGPF), Gluskin Sheff + Associates Inc. (TSX-GS), IGM Financial (TSX-IGM) and Power Corp (TSX-POW). There is no change from last month.

I follow 5 Insurance stocks. None are showing as cheap by the historically high dividend yield. Four stocks (or 80%) are showing cheap by historical median dividend yield. These stocks are Great-West Lifeco Inc. (TSX-GWO); Manulife Financial Corp (TSX-MFC); Power Financial Corp (TSX-PWF) and Sun Life Financial (TSX-SLF). There is no change from last month.

I follow 34 Industrial stocks. Because I have so many and Industrial is not very descriptive, I have divided my Industrial stocks into 4 separate categories under Industrial. They are Construction, Industrial, Manufacturing and (Business) Services.

I have 6 Construction stocks. None are cheap by the historically high dividend yield. Two stocks or 33% are showing as cheap by historical median dividend yield. They are and SNC-Lavalin (TSX-SNC, OTC-SNCAF) and Stantec Inc. (TSX-STN, NYSE-STN). Bird Construction Inc. (TSX-BDT, OTC-BIRDF) has been deleted from this list. Stantec Inc. (TSX-STN, NYSE-STN) has been added. Bird Construction has just lowered its dividend.

I have 3 stocks I have left with the sub-index of Industrial. None are cheap by the historically high dividend yield. Two stocks or 67% are showing as cheap by historical median dividend yield. They are Finning International Inc. (TSX-FTT, OTC-FINGF), and Russel Metals (TSX-RUS, OTC-RUSMF). There is no change.

I have 9 Manufacturing stocks. There is one company showing as cheap by the historically high dividend yield. Five stocks or 56% are showing as cheap by historical median dividend yield. They are Canam Group Inc. (TSX-CAM, OTC-CNMGA), Exco Technologies Ltd. (TSX-XTC, OTC-EXCOF), Hammond Power Solutions Inc. (TSX-HPS.A, OTC-HMDPF), Intertape Polymer Group Inc. (TSX-ITP, OTC-ITPOF) and PFB Corp (TSX-PFB, OTC-PFBOF). There is no change from last month.

I have 16 Services stocks. None are showing as cheap by the historically high dividend yield. Three stocks or 19% are showing as cheap by historical median dividend yield. These stocks are Canadian National Railway (TSX-CNR, NYSE-CNI), Pason Systems Inc. (TSX-PSI, OTC-PSYTF) and Transcontinental Inc. (TSX-TCL.A, OTC-TCLAF). There is no change from last month.

I follow 7 Material stocks. None are showing as cheap by the historically high dividend yield. One stock or 16% are showing as cheap by historical median dividend yield. That stock is Methanex Corp (TSX-MX, NASDAQ-MEOH). There is no change from last month.

I follow 9 Energy stocks. One Stock or (11%) is showing as cheap by the historical high dividend yield. It is Ensign Energy Services (TSX-ESI, OTC-ESVIF) There are three stocks (or 33%) showing cheap by historical median dividend yield. They are Canadian Natural Resources (TSX-CNQ, NYSE-CNQ), Ensign Energy Services (TSX-ESI, OTC-ESVIF); and Suncor Energy (TSX-SU, NYSE-SU). There is no change from last month.

I follow 8 Tech stocks. None are showing as cheap by historical high dividend yield. Four stocks (or 50%) are showing cheap by historical median dividend yield. They are Calian Technologies Ltd (TSX-CTY, OTC-CLNFF), Computer Modelling Group Ltd. (TSX-CMG, OTC-CMDXF), Evertz Technologies (TSX-ET, OTC-EVTZF) and MacDonald Dettwiler & Assoc. (TSX-MDA, OTC-MDDWF). Absolute Software Corporation (TSX-ABT, OTC-ALSWF) has been removed from this list.

I follow 8 of the Infrastructure type utility companies. None are showing as cheap by historical high dividend yield. Two stocks (or 25%) are showing cheap by historical median dividend yield. They are AltaGas Ltd (TSX-ALA, OTC-ATGFF) and Enbridge Inc. (TSX-ENB, NYSE-ENB). Veresen Inc. (TSX-VSN, OTC-FCGYF) is no longer on this list.

I follow 12 of the Power type utility companies. None are showing as cheap by the historically high dividend yield. Two stock (or 17%) is showing cheap by historical median dividend yield. Those stocks are ATCO Ltd (TSX-ACO.X, OTC-ACLLF) and Fortis Inc. (TSX-FTS, OTC-FRTSF). There is no change from last month.

I follow 5 of the Telecom Service type utility companies. No stock is showing cheap by the historical high dividend yield. Two stocks (or 40%) are showing cheap by historical median dividend yield. These stocks are Shaw Communications Inc. (TSX-SJR.B, NYSE-SJR) and Telus Corp (TSX-T, NYSE-TU). WiLan Inc. (TSX-WIN, NASDAQ-WILN) has been deleted from this list.

On my other blog I wrote yesterday about Bird Construction Inc. (TSX-BDT, OTC-BIRDF)... learn more. Tomorrow, I will write about Bank of Montreal (TSX-BMO, NYSE-BMO)... learn more on Friday, January 6, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter.

Tuesday, January 3, 2017

Dividend Stocks January 2017

First I want to point out that not all of the stocks I follow are great investments. I follow a diverse selection of stocks. There are some that I would never invest in personally. I follow a number of resource stocks even though I personally have little invested in this area. I follow what I find interesting and with resource stocks, I think it is important for Canadians to know what is happening in the resource area. On the other hand I do follow of good number of great dividend growth stocks.

The theory is that you should use the dividend yield to see if a dividend stock is selling at a stock price that is relatively cheap. A stock price is considered cheap if it is selling at a dividend yield higher than the historical high yield or higher than the historical average yield or historical median yield. See my spreadsheet at dividend growth stocks that I just updated for January 2017.
  • I have 2 stocks with a dividend yield higher than the historical high dividend yield,
  • I have 32 stocks with a dividend yield higher than the historical average dividend yield
  • I have 59 stocks with a dividend yield higher than the historical median dividend yield and
  • 59 stocks with a dividend yield higher than the 5 year average dividend yield.
When I did my list last list in December,
  • I have 2 stocks with a dividend yield higher than the historical high dividend yield,
  • I have 33 stocks with a dividend yield higher than the historical average dividend yield
  • I have 64 stocks with a dividend yield higher than the historical median dividend yield and
  • 60 stocks with a dividend yield higher than the 5 year average dividend yield.
When I did my list in January 2014,
  • I had 9 stocks with a dividend yield higher than the historical high dividend yield,
  • I had 45 stocks with a dividend yield higher than the historical average dividend yield and
  • 39 stocks with a dividend yield higher than the 5 year average dividend yield.
If you had one share of each stock, total dividends last month would be $153.06. This month dividends would be $151.83. Of the stock that I follow 5 stocks has raised their dividends since last month. Dividends raises are denoted in green. Those stocks are shown below.

Allied Properties REIT (TSX,-AP.UN, OTC-APYRF)
Bank of Montreal (TSX-BMO, NYSE-BMO)
Granite REIT (TSX-GRT.UN, NYSE-GRP.U)
National Bank of Canada (TSX-NA, OTC-NTIOF)
TECSYS Inc. (TSX-TCS, OTC-TCYSF)

Of the stocks that I follow 1 company has decreased their dividends. That company is Bird Construction Inc. (TSX-BDT, OTC-BIRDF).

Manitoba Telecom's (TSX-MBT, OTC-MOBAF) dividend has been suspended. As part of the plan of arrangement pursuant to which, among other things, BCE will acquire all of the issued and outstanding common shares of MTS, they do not expect to declare or pay any more dividends to shareholders prior to closing. Their last dividend was declared on May 11, 2016 and paid out to shareholders on July 15, 2016.

The Stock Le Chateau Inc. (TSX-CTU.A, OTC-LCUAF) has changed its TSX symbol to CTU, the OTC symbol remains LCUAF. Herschel H. Segal has changed his multiple voting shares of TSX-CTU.B or Class B shares into Class A shares so there will be only one Class of Shares under the CTU symbol.

Teck Resources Ltd changed its symbols from TSX-TCK.B and NYSE-TCK to TSX-TECK.B and NYSE-TECK. TransForce Inc. changed its name and symbol from TransForce Inc. to TFI International and TSX-TFI to TSX-TFII. Kombat Copper Inc. (TSX-KBT, OTC-PNTZF) is now Trigon Metals Inc. (TSX-TM, OTC-PNTZF).

Most of my stocks started out as Dividend Payers. Currently 15 stocks are not paying any dividends and this would be some 10.14% of the stocks that I follow. Three of these stocks never had dividends, so 8.11% of the stocks I follow have suspended their dividends. The three stocks that never paid dividends are Ballard Power Systems Inc. (TSX-BLD, NASDAQ-BLDP0, Blackberry Ltd. (TSX-BB, NASDAQ-BBRY) and Kombat Copper Inc. (TSX-KBT, OTC-PNTZF).

I am showing whether a stock is relatively cheap based on historical high dividend yields (P/Hi), historical average dividend yields (P/Ave), historical median dividend yields (P/Med) or on 5 year median dividend yields (P/5Yr). See these fields on the right side of the file. You can highlight a particular stock using your cursor to highlight the appropriate line.

There are always some stocks to buy because they are priced reasonably. There are always stocks to currently avoid because they are overpriced. Looking at dividend growth stocks that are selling at stock prices that give them a dividend yield above the historical median dividend yield are probably the best bet.

The stocks that are selling at prices that give them a dividend yield above the historical high yield could be good stocks to buy. However, these stocks may be selling so cheap because of current troubles, especially financial troubles and should be treated with caution. Do not forget that I have all the stocks I follow on this spreadsheet and some are much better investments than others.

You should always investigate a stock before you buy. Sometimes different stocks in certain sectors are just out of favour or the stock market is just in one of its declines. However, a stock may be relatively cheap because it has problems. That is why you should always investigate a stock before buying.

Looking at stock this way is equivalent to a stock filter. A main problem I know of is for the old income trusts. These companies have generally lowered their dividend yields forever and they will probably never get back to the old dividend yield highs they made as an income trust company. For these stocks, you might be better comparing the current dividend yield to the 5 year median dividend yield. I also started a column called VT (for Valid Test) and this applies to checking stock price using dividend yield. If not a valid test I use N to show this.

Also, on some stocks I have a lot more information years in my spreadsheets than for other stocks. So, finding a stock on the list as "cheap" is only the first step in finding a stock to buy. This is the same with any other sort of stock filters that you can use.

The last thing to remember is that I have entering figures into a spreadsheet. I could put them in incorrectly, I can transpose figures and I can misread figures. This is another great reason why you should check a stock out before investing. As this is just a filter, it works better on some stocks than on others.

See my entry on my methodology in establishing the historical dividend yield highs and lows for the stocks that I cover. I have an entry on my introduction to Dividend Growth. You might want to look at my original entry on Dividend Growth Stocks. I have also written about why I like Dividend Growth companies.

The last stock I wrote about was about was Metro Inc. (TSX-MRU, OTC-MTRAF)... learn more . The next stock I will write about will be Bird Construction Inc. (TSX-BDT, OTC-BIRDF)... learn more on Wednesday, January 04, 2017 around 5 pm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.