Budget Items

I know that the Canadian government is saying that inflation is low, however I do wonder about this. For some items it is not true. What the Bank of Canada says for inflation per year is as show in the table below.

Years	Total Inflation	Core Inflation
3	1.71%	2.18%
5	1.44%	1.78%
10	1.67%	1.76%

I live in Ontario where the cost of Electricity has been a problem of awful government policies for years. My Electricity has gone up for me by 22.2% between 2015 and 2016. My increases over the past 3, 5 and 10 years are at 6.23% per year, at 3.60% per year and 4.77% per year.

I find that food is also raising much higher than what is said to be the inflation rate. In 2016 I spent 17.5% more on food than in 2015. My increases over the past 3, 5 and 10 years are at 11.7% per year, at 7.1% per year and 4.7% per year. Since I generally buy fresh rather than pre-packaged food, the changing CDN$ to US$ could be a big factor. Our dollar is declining against the US$ and we do get fresh food in non-summer months from the US.

Cable, Internet and Phone also seem to be an area where prices are rising quickly. These bills were up by 9.4% in 2016 compared to 2015. My increases over the past 3, 5 and 10 years are at 9.2% per year, at 2.2% per year and 5.7% per year.

I would think that these items would be core items in anyone's budget. The food inflation will affect my budget much more than the other items. I spend just over 10% of my budget on food, just over 1% of my budget on electricity and for the Cable, Internet and Phone combo I spend just under 3% of my budget.

On my other blog I wrote yesterday about Methanex Corp. (TSX-MX, NASDAQ-MEOH)... learn more. Tomorrow, I will write about Magna International Inc. (TSX-MG, NYSE-MGA)... learn more on Friday, December 30, 2016 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.

Portfolio Size

I started this entry because of a question from a reader.

In connection with portfolio size the quick answer is to go with what you are comfortable with. Also, you need to be able to track your stock. You need to review all your stocks at least once a year. Some stocks you might want to review more often if they are cyclical or volatile. I have 50 that I own, but I track 150 stocks. I can do this quite comfortably at the present time.

Most analysts and people who talk about portfolio size feel that around 20 stocks that are diversified is the right size portfolio.

You are going to have losers. These are the ones you will lose money on. You may not lose all your money, but could lose 50% to 90% of a stock's value. A recent stock going off the rails that comes to mind is TransAlta Corp. (TSX-TA). The initial drop was around 50%. It is now down some 84% since its top in August 2008.

Part of the reason I have 50 stocks is that I opened Trading Accounts at different times. I got my trading account first, then an RRSP account, then a US account, then a Locked-In RRSP account and finally my TFSA. There is some overlap, but I could not have complete overlap because stocks I liked were not at reasonable prices when I need to do some buying. I feel that it is more important to pay a reasonable price for your stocks. If you overpay for a stock at the start you could do poorly with it over the long term even with a great stock.

One question to ask yourself about your portfolio is, can I go off and leave it and not worry? Can I leave my portfolio alone for a month or 6 months and not worry? I can. I feel that nothing much will happen to it in the long term.

However, problems in the short term are a different matter. You should not be worried about your investment in the short term or you got the wrong things in your portfolio. It is not that I do not indulge in short term investments. I do because it is fun and I do not do it with enough money to damage my portfolio.

I remember talking to an acquaintance I know when the market was crashing at the end of 2008. She said that she had taken 2 days off of work to sell stuff from her portfolio. She lost a lot of money. To me the crash was just been there done that time to focus on something else.

You may want to focus on dividend payments, not value of your portfolio. The last two bear markets I lost just over 30% of the value of my portfolio. However, my dividend income did not decline. Since I have mostly great stocks the value of my portfolio recovered quite nicely.

I sold nothing because of the crash. I wrote about this a number of times. The first entry compared my portfolio to the TSX in Recovery from Bears where I looked to see how well my portfolio recovered from bear markets. I wrote about Me and CDZ on how my portfolio compared to the Dividend Aristocrat Index ETF of CDZ. I also wrote I about my Bear Market Income.

On my other blog I wrote yesterday about FirstService Corp (TSX-FSV, NASDAQ-FSV)... report learn more. Tomorrow, I will write about Colliers International Group Inc. (TSX-CIGI, NASDAQ-CIGI)... learn more on Friday, December 23, 2016 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.

Borrowing to Invest

In this Daily Buy and Sell Advisor article, the author comes out against borrowing to invest. However, he is talking about taking out a loan and only ever paying the interest on the loan.

Personally, I see nothing wrong with borrowing to invest in good stock. I do see a problem with only paying the interest and never the principal. In my budget is a monthly payment to my Line of Credit that I am using to invest in stocks.

The reason investors fail is because they panic when we hit a bear market. We will always hit a bear market at some time. If you are going to invest in dividend stock with a loan, you should focus on changes in dividend payments, not the change in the value of your portfolio.

What can be disastrous is if you borrow to invest and then panic at a bear market decline and sell. You still have to pay back the loan and you may sell stocks at a loss.

Also, if you borrow to invest, you should have a diversified portfolio, with at least 20 stocks and covering most stock categories. I say most because personally I do not invest in resource stock and I tend to not do Tech stocks for the long term as tech stocks often flame out after a while.

The bottom line is that you should not borrow to invest if you are going to be bothered by bear markets.

On my other blog I wrote yesterday about The Keg Royalties Income Fund (TSX-KEG.UN, OTC-KRIUF)... learn more. Tomorrow, I will write about FirstService Corp (TSX-FSV, NASDAQ-FSV)... report learn more on Wednesday, December 21, 2016 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.

Walking and Wining

My friend Nancy Ferragine has some interesting walk and wine tours in Europe for next summer. She has three of them, but one involves Chianti and southern Tuscany. I must say that Chianti is one of my favourite wines. She describes this tip on her website.

With its Renaissance cities, mediaeval villages and cypress lined avenues snaking through vineyards, southern Tuscany is the perfect place for a relaxed walking tour. Based at the tranquil Villa Casalta, we visit beautiful San Gimignano, the market town of Greve in Chianti, the UNESCO World Heritage Site of Siena and the magnificent city of Florence. During the week we sample several varieties of the world-renowned local Chianti and have the opportunity to learn more about Italian wines at the Wine School of Siena.

If you like wine and walking perhaps you should check it out.

On my other blog I wrote yesterday about DHX Media Ltd. (TSX-DHX.B, OTC- DHXMF)... learn more. Tomorrow, I will write about First Capital Realty (TSX-FCR, OTC-FCRGF)... learn more on Wednesday, December 14, 2016 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.

Something to Buy December 2016

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 December 2016 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). Reitmans (Canada) Ltd. (TSX-RET.A) is added back to this list. Thomson Reuters Corp (TSX-TRI) has been taken off the list.

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. There is no change.

I follow 12 Real Estate stocks. None of these stocks are showing as cheap by the historically high dividend yield. Four stocks (or 33%) are showing cheap by historical median dividend yield. They are Artis REIT (TSX-AX.UN); FirstService Corp (TSX-FSV), Granite Real Estate (TSX-GRT.UN) and Melcor Developments Inc. (TSX-MRD. There is no change.

I follow 7 Bank stocks. There is no company showing as cheap by the historically high dividend yield. Five stocks (or 71%) 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), National Bank of Canada (TSX-NA); and Toronto Dominion Bank (TSX-TD). Royal Bank (TSX-RY) 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), DirectCash Payments Inc. (TSX-DCI) is no longer on this list. DH Corporation (TSX-DH, OTC-DHIFF) has been taken off this list.

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.

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 Bird Construction Inc. (TSX-BDT, OTC-BIRDF), and SNC-Lavalin (TSX-SNC, OTC-SNCAF). Stantec Inc. (TSX-STN, NYSE-STN) has been deleted from this list.

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). Hammond Power Solutions Inc. (TSX-HPS.A, OTC-HMDPF) is no longer showing as cheap by the historically high dividend yield

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). Pason Systems Inc. (TSX-PSI, OTC-PSYTF) is no longer showing as cheap by the historically high dividend yield.

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.

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.

I follow 8 Tech stocks. None are showing as cheap by historical high dividend yield. Five stocks (or 63%) are showing cheap by historical median dividend yield. They are Absolute Software Corporation (TSX-ABT, OTC-ALSWF), 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 I have started a spreadsheet on Sylogist Ltd (TSXV-SYZ, OTC-SYZLF), but I have not finished it yet. There is no change from last month.

I follow 8 of the Infrastructure type utility companies. None are showing as cheap by historical high dividend yield. Three stocks (or 38%) are showing cheap by historical median dividend yield. They are AltaGas Ltd (TSX-ALA, OTC-ATGFF), Enbridge Inc. (TSX-ENB, NYSE-ENB) and Veresen Inc. (TSX-VSN, OTC-FCGYF). There is no change from last month.

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). Fortis Inc. (TSX-FTS, OTC-FRTSF) is new to this list.

I follow 5 of the Telecom Service type utility companies. No stock is showing cheap by the historical high dividend yield. Three stocks (or 60%) are showing cheap by historical median dividend yield. These stocks are Shaw Communications Inc. (TSX-SJR.B, NYSE-SJR); Telus Corp. (TSX-T, NYSE-TU) and WiLan Inc. (TSX-WIN, NASDAQ-WILN). There is no change.

On my other blog I wrote yesterday about Chesswood Group Ltd. (TSX-CHW, OTC-CHWWF)... learn more. Tomorrow, I will write about Northland Power Inc. (TSX-NPI, OTC-NPIFF)... learn more on Friday, December 9, 2016 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.

Dividend Stocks December 2016

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 December 2016.

• 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 last list in November,

• I have 5 stocks with a dividend yield higher than the historical high dividend yield,
• I have 39 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
• 66 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 $151.64. This month dividends would be $153.06. Of the stock that I follow 12 stocks has raised their dividends since last month. Dividends raises are denoted in green. Those stocks are shown below.

Alimentation Couche-Tard (TSX-ATD.B, OTC-ANCUF)
Canadian Natural Resources (TSX-CNQ, NYSE-CNQ) (This is an Oil Stock!)
Canadian Tire Corporation (TSX-CTC.A, OTC-CDNAF)
Chesswood Group (TSX-CHW, OTC-CHWWF)
Equitable Group Inc. (TSX-EQB, OTC-EQGPF)

H & R Real Estate Investment Trust (TSX-HR.UN, OTC-HRUFF)
High Liner Foods (TSX-HLF, OTC-HLNFF)
Inter Pipeline Ltd. (TSX-IPL, OTC-IPPLF)
Sun Life Financial (TSX-SLF, NYSE-SLF)
Telus Corp. (TSX-T, NYSE-TU)

TMX Group Ltd. (TSX-X, OTC-TMXXF)Sun Life Financial (TSX-SLF, NYSE-SLF)
Valener Inc. (TSX-VNR, OTC-VNRCF)

Of the stocks that I follow no company has decreased their dividends and of the stocks that I follow no company has suspended their dividends.

The TSX has changed the rules so companies can have a four letter symbol effective November 1, 2016. These companies have changed their TSX Symbols.

Enghouse Systems Limited (TSX-ENGH, OTC-EGHSF) (from TSX-ESL)

I have added a stock to this list and it is below. I had been meaning to do a spreadsheet on this stock, but I had not got around to it. I belong now to an investment club and I did one for this club.

Dollarama Inc. (TSX-DOL, OTC-DLMAF)

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.

On my other blog I wrote yesterday about WiLan Inc. (TSX-WIN, OTC-WILN)... learn more. Tomorrow, I will write about Chesswood Group Ltd. (TSX-CHW, OTC-CHWWF)... learn more on December 7, 2016 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.

Debt Ratios

Debt does matter. I check it in a number of ways. I check the Long Term Debt of a company against the market cap. Since I am doing a ratio, I am looking for Debt/Market Cap Ratio approaching 1.00. Look for any large change in debt especially a debt increase. It is a warning sign if in a normal market your stock has this ratio approaching or higher than 1.00. If this occurs because of a severe bear market when all stocks have their market cap cut, I would not be so worried.

This is the thing that was pointed out with Valeant Pharmaceuticals and Debt. Of analysts seem to point it out after the fact. It is also the reason I would be cautious about Innergex Renewable Energy (TSX-INE, OTC-INGXF) which had a ratio of Long Term Debt/Market Cap Ratio of 1.63. Analysts have pointed out that the company owns good assets, but the high Debt/Market Cap Ratio seems to point to the fact that the market does not agree.

Another type of ratio I look at is the Intangible/Market Cap Ratio. This covers both Goodwill and Intangible assets. If this ratio is approaching 1.00 or is above 1.00 I think that the company has a problem. It is obvious that the market does not consider the value attached to Goodwill and/or Intangibles by the company to be valid. Often when this happens you are looking at possible write-downs of these items.

I also look at Leverage (Asset/Book Value Ratio) and Debt/Equity Ratios. These can vary depending on the sector your stock is in. Here it is important to know the normal ratios for the sector your stock is in. Consumer stocks tend to be with Leverage Ratios at around 2 and below and Debt/Equity ratios around 1 and below. On the other hand banks have high ratios with Leverage Ratios at around 16.00 to 18.00 and Debt/Equity ratios around 14.00 to 17.00.

I look at Liquidity Ratios. It is best that this ratio be 1.50 and above. If this ratio is lower than 1.00, it means that current assets cannot cover current liabilities. This is not a great situation. However, some companies, especially utilities, partially cover current liabilities with current cash flow. This is fine when the company's cash flow is dependable. The problem with low Liquidity Ratios is that it leaves the company vulnerable in bad times.

I also look at Debt Ratios. That is Assets compared to Liabilities. Here you do want the ratio to be 1.50 or better. This gives room for safety. If the ratio is below 1.00, it means that assets cannot cover current liabilities. When the ratio is below 1.00 you will have a negative book value. The book value is seen as the breakup value of the company. So if you have a negative book value, it means that the company is not worth anything. This may not be strictly true as a company may have assets that are worth more than the assets book value.

For addition readings on debt start at Investopedia with an overview of debt.

On my other blog I wrote yesterday about Crescent Point Energy Corp. (TSX-CPG, NYSE-CPG)... learn more. Tomorrow, I will write about Finning International Inc. (TSX-FTT, OTC-FINGF)... learn more on Friday, December 2, 2016 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.