Tuesday, October 30, 2012

Money Show - Roger Conrad 2

Roger Conrad is editor of Utility Forecaster and Canadian Edge. His talk was called "The Revenge of the Income Trusts".

We have been in a bull market since March of 2009. The Canadian economy is solid. Stocks have higher valuations. Asia is slumping. Europe is still fractured. (But Europe still has the political will to hold together.) The US, post-election, is uncertain.

Former Income Trusts are holding to their model. There is the discipline of dividend payouts. The big payouts were a smart capital decision. Their distribution model was a cash flow model. However, some income trusts were slapped together and had no business being income trusts. But, the survival of income trusts is generally good. It was the tax changes that stopped income trusts and caused them to vanish.

Something like 50% of the old income trusts did not decrease their distributions as the tax burden was not as great as people feared. Some have returned to dividend growth. Some examples are Bird Construction (TSX-BDT), Cineplex Inc. (TSX-CGX) and Keyera Corp (TSX-KEY).

His 6 point Canadian Edge rating system.
  • Dividend growth is the ultimate sign of safety.
  • For Payout Ratios, watch the Cash Flow, not the conventional EPS.
  • For debt, look for near-term maturities (debt coming due this year and next year). When credit ceased up in 2008, any one that had to roll over debt had problems. They either could not get a loan or interest rates were very high.
  • You need revenue growth for security. How vulnerable is the company to the economy?
  • We should focus on value and beware of stock momentum. Do not buy a stock just because it has momentum. Focus on the value of the company.
  • Focus on how safe is the distribution. (A company needs capital growth to grow distributions.)
His favourite section is energy midstream. These are companies that ship and refine and then sell energy. Examples are AltaGas Ltd (TSX-ALA) and Pembina Pipelines (TSX-PPL). There is a tremendous need for midstream companies in Canada. Inter Pipeline Fund (TSX-IPL.UN). Americans cannot buy this company because it is still a limited partnership, but it is still a good company.

Another set of stocks are oil companies. He likes ARC Energy (TSX-ARX), Vermilion Energy Inc. (TSX-VET) and Petrobakken Energy Ltd. (TSX-PBN). They have cash flow affected by price volatility. They have undervalued resources and conservative managers.

Crescent Point Energy (TSX-CPG) also could be included in the list. They did not cut dividends and the stock price is up 50% on conversion. (This company used to be Crescent Point Energy Trust (TSX-CPG.UN and made the transition to a corporation in July 2009.) It uses its stock price to buy other companies and to grow.

He also likes Cineplex Inc. (TSX-CGX), Enercare Inc. (TSX-ECI) and Poseidon Concepts Corp. (TSX-PSN). These are strong business in many places. He wants companies that can grow yearly at 10%. He also likes Brookfield Real Estate Services Inc. (TSX-BRE) and Just Energy (TSX-JE).

He said that sweet yields don't always bring sour consequences and price moves don't always reflect value or risks. You should know the company you are investing in and know the risk. He says do not overpay for REITS. We should bet on rising energy prices. Buy on weakness. We should avoid long term bonds because it is a seller's market. His web site is here.

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. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

1 comment:

  1. From all the talk about utilities being bad investments after deregulation. Today many electric utilities are very well run and pay very decent dividends.