Monday, August 31, 2015

Dividend Income Growth 4

Near the end of July I talked about what would happen to your dividend income if you reinvested your dividends to buy more stocks. Then I was using possible samples. Today I want to talk about what actually would happen on the same basis using actual values and stock of Royal Bank and RioCan. I am comparing what my spreadsheet would calculate with what really could occur.

The main problem with my spreadsheets is that I am reinvesting dividends annually and in real life you would be reinvesting dividends quarterly. You would actually do better.

In the first table I am showing what dividends you would receive in the first year of holding these stocks. The columns are Original Dividend Yield, Dividend Growth, Income and Income with Reinvestment. The chart below shows year 1.

Stock Ori Yield Div Growth Income Rev Inc
RY SS 4.13% 11.56% $528.00 $528.00
RY Actual 4.13% 11.56% $528.00 $528.00
RIO SS 7.67% 2.92% $860.00 $860.00
RIO Actual 7.67% 2.92% $950.00 $950.00


In year 5 the following chart shows what the spreadsheet calculation is compared to what could have actually happened. You can see the income growing with reinvestment of dividends. In the last column I have shown what the increase in income would be.

Stock Ori Yield Div Growth Income Rev Inc Increase
RY SS 4.13% 11.56% $816.00 $967.57 18.57%
RY Actual 4.13% 11.56% $912.00 $1,003.44 10.03%
RIO SS 7.67% 2.92% $980.00 $1,325.21 35.23%
RIO Actual 7.67% 2.92% $1,105.00 $1,654.40 49.72%


This next chart is for year 10.

Stock Ori Yield Div Growth Income Rev Inc Increase
RY SS 4.13% 11.56% $816.00 $967.57 18.57%
RY Actual 4.13% 11.56% $912.00 $1,003.44 10.03%
RIO SS 7.67% 2.92% $980.00 $1,325.21 35.23%
RIO Actual 7.67% 2.92% $1,105.00 $1,654.40 49.72%


And in year 15:

Stock Ori Yield Div Growth Income Rev Inc Increase
RY SS 4.13% 11.56% $2,432.00 $4,262.44 75.26%
RY Actual 4.13% 11.56% $3,200.00 $4,811.66 50.36%
RIO SS 7.67% 2.92% $1,300.00 $3,693.10 184.08%
RIO Actual 7.67% 2.92% $1,380.00 $3,995.18 189.51%


And in year 20:

Stock Ori Yield Div Growth Income Rev Inc Increase
RY SS 4.13% 11.56% $4,240.00 $9,024.87 112.85%
RY Actual 4.13% 11.56% $4,344.00 $7,788.08 79.28%
RIO SS 7.67% 2.92% $1,500.00 $6,172.78 311.52%
RIO Actual 7.67% 2.92% $1,450.00 $5,431.55 274.59%


See the full spreadsheet here.

On my other blog I am today writing about ONEX Corp. (TSX-OCX, OTC-ONEXF) ... continue...

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.

Sunday, August 23, 2015

Wednesday, August 19, 2015

Cash Flow

Some analysts, when they calculate a company's cash flow from operations, exclude changes in working capital. That is, they exclude changes in current assets and current liabilities. When I look at cash flow and cash flow per share on my spreadsheets, I exclude changes in working capital. The Investment reporter discusses this subject here.

This is what they say on this subject:

When we calculate a company's cash flow from operations, we exclude changes in current assets and current liabilities. Under this system of measuring cash flow, the higher the cash flow the better.

But some companies include changes in current assets and liabilities when calculating cash flow. We think including changes in current assets and liabilities may mislead you. After all, firms that do well often find their current assets increase, which reduces their cash flow. By contrast, firms that do poorly often end up with lower current assets, which increase their cash flow. Looked at this way, lower reported cash flow can be better.

They go on to give an example:

Let's compare, for example, two firms that manufacture widgets. Firm One is booming. In fact, its sales of digital widgets doubled from $100 to $200 in 2014. Firm Two's sales of analog widgets, by contrast, fell by half, from $100 to $50.

Let's say both firms' receivables total 20 per cent of their sales. This means Firm One's receivables will have increased from $20 at the start of 2014 to $40 at the beginning of this year. These higher receivables will have used up an extra $20 of cash. Meanwhile, Firm Two's receivables will have fallen from $20 to $10. This frees up $10 of cash.

Let's also say both firms keep inventory at half their sales. Firm One's inventory will have increased from $50 at the start of 2014 to $100 at the start of 2015. This higher level of inventory will have used up $50 cash. Firm Two, by contrast, will now only need $25 of inventory. This will free up $25 of cash. In this example, Firm One will have put $70 cash into its growing operations ($20 in receivables plus $50 in inventory). Firm Two, by contrast, will find its shrinking working capital needs will have freed up $35 ($10 from receivables and $25 of inventory).

What this means is that Firm One's reported cash flow will likely come in lower than Firm Two's, if you choose to include changes in current assets. Calculating cash flow this way could give unsuspecting investors the false impression that Firm Two's higher cash flow means that it's doing better than Firm One.

To side-step this problem, we calculate cash flow excluding changes in current assets and liabilities. You, too, should exclude changes in current assets and liabilities when calculating cash flow. But at the same time, rely on common sense. Use common sense when calculating cash flow

It's best to know why changes in current assets and liabilities occur. Say a firm has moved to 'just-in-time' manufacturing. Under this system, supplies are brought to a factory just in time to make a few more units. This, of course, means less cash is tied up in supplies and inventory. Cash is freed up from greater efficiency, not from a slowdown in sales.

Increasing inventory, by contrast, can indicate that a lot of it may only sell at marked-down prices, which squeezes profit margins. Similarly, a firm may extend less credit if there's an increasing likelihood that customers will fail. In this case, lower investment in receivables stems from prudence rather than a drop-off in orders. By contrast, rising receivables may indicate more bad debts instead of growing operations.

In short, it's best to use your common sense when you examine changes in current assets and current liabilities.

Other Discussions on this subject are show below:

In this entry Investopediadiscusses how changes in working capital affect a company's cash flow. This Wikinvestarticle explains what working capital is. Morning Star has an article about cash flow from Operating Activities.

On my other blog I am today writing about TECSYS Inc. (TSX-TCS, OTC- TCYSF) ... continue...

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.

Monday, August 17, 2015

Update Notes 2

When I review stock price and dividends each month, I also take the opportunity to look at a bit closer at some of the stocks I cover. These are the 5 other stocks I looked at more closely.

SNC-Lavalin Group Inc. (TSX-SNC, OTC-SNCAF)

I have had stock in this company since 1989 and it comprises about 2% of my portfolio at the present time. It has had problems over the past few years, but seems to be turning itself around. There is a recent Motley Fools article on this stock. (Note that sometimes you need to use a browsers arrows at the top left side of the page to go out and back into a Motley Fools article to get the whole article.)

TransAlta Corp (TSX-TA, NYSE-TAC)

This company cut their dividend by some 37% in 2014 because it was having difficulties. The earnings could no longer cover the dividends. Now this company is being charged by the Alberta Utilities Commission for deliberately timed outages at power plants in Alberta at peak times in order to drive up electricity prices. See an article in the Financial Post about this. The company has previously denied the allegations. This has caused a recent decline in the share price.

In other news, the company has recently brought solar and wind power generation capacity in the U.S. The company has been working to reduce its reliance on coal-fired power plants.

Ensign Energy Services Inc. (TSX-ESI, OTC-ESVIF)

Recent recommendations seem to be Holds. Most of the recommendations on this stock are Holds. With the drop in oil prices and fear of NDP royalty review oil and gas producers have stopped talking to oil services companies like Ensign.

PFB Corp (TSX-PFB, OTC-PFBOF)

This stock is up 44% from last month. The most recent new is a very good second quarter .

Suncor Energy Inc. (TSX-SU, NYSE-SU)

This is an energy company that increased its dividends. This is interesting. There is a recent report on this company at Motley Fool.

On my other blog I am today writing about Newfoundland Capital Corp. (TSX-NCC, OTC-none) ... continue...

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.

Wednesday, August 12, 2015

Update Notes

When I review stock price and dividends each month, I also take the opportunity to look at a bit closer at some of the stocks I cover. These some of the stocks I looked at more closely.

Automodular Corp. (TSX-AM, OTC-AMZKF)

This company no longer has any business and is being delisted from the TSX on August 14, 2015 and is going to be listed on NEX Exchange, a part of the TSX Venture Exchange. I am retaining my shares and I hope to be able to learn how the NEX Exchange works. The company talks about this change here. I have only a small nominal amount in this stock. NEX stock symbols end with an H or K that is ABC.H or ABC.K.

Barrick Gold Corp. (TSX-ABX, NYSE-ABX)

Buying Barrick Gold was a long term bet that I think may still pay off. Barrick has been in the news lately because of a sale of a mine. This Financial Post article talks about this. Benjamin Sinclair in the Motley Fool asks if Barrick is a steal at $10. He basically says no. I only have a small nominal amount in this stock.

Bombardier Inc. (TSX-BBD.B, OTC-BDRAF)

I have had this stock for a very long time, since 1987. I have seen it up and down and lot in that period of time. The value of my investment has been falling a lot lately. However, this investment is just one half of one percent of my portfolio. I have not yet decided whether or not to sell this. I was waiting for the next bear market as most of my value in this stock is all capital gain because I bought it so long ago.

Goodfellow Inc. (TSX-GDL, OTC-GFELF)

I bought this as a small cap with dividends. I was trying it out. It was struggling when I reviewed this stock in February of this year. My reports are here and here. I was reviewing this stock because the stock price had not changed from last month, but it did go up then down between last month and this month.

There does not seem much happening on this stock recently. There is one report of it signing a deal with Certain Teed. There is also a Stockhouse report about this company having a good second quarter.

Dividends are paid semi-annually and they are set by the board. Dividends on this company tend to go and down a lot. Last year the dividends were set at $0.20 and $0.25 a share. The dividend for the first half of 2015 was set at $0.15. They pay what they feel that they can afford to pay.

Reitmans Canada Ltd (TSX-RET.A; OTC-RTMAF)

I bought this stock when it was cheap and struggling. I plan to hold it for a while and see what happens. Nothing much is happening here. There is one interesting article about RW & Co. a chain owned by Reitmans.

On my other blog I am today writing about DirectCash Payments Inc. (TSX-DCI, OTC-DCTFF) ... continue...

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.

Monday, August 10, 2015

What Works in Investing

This article by Value Walk is quite interesting. He basically says buy assets cheap, buy earnings cheap, but when dividend yields are high and payouts are low, buy when insiders buy, buy stocks that have declined in price and buy companies with lower market capitalizations.

This article is while worth the read.

On my other blog I am today writing about Savaria Corporation (TSX-SIS, OTC-SISXF) ... continue...

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.

Wednesday, August 5, 2015

Something to Buy August 2015

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.

However, no system is perfect. But if you are interested in buy 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 my spreadsheet at here 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.

I follow 19 stocks in the consumer discretionary category. Of these stocks, only Dorel Industries (TSX-DII.B) is showing as cheap by the historically high dividend yield. This has not changed from last month; however, this company has only been paying dividends for 7 years. Five stocks (or 26%) are showing cheap by the historical average dividend yield, 7 (or 37%) are showing cheap by historical median dividend yield and 5 (or 26%) are showing cheap by 5 year median dividend yield.

I follow 10 Consumer Staples stocks. None are showing as cheap by the historically high dividend yield. Two stocks (or 20%) are showing cheap by the historical average dividend yield, 2 (or 20%) are showing cheap by historical median dividend yield and 1 (or 10%) is showing cheap by 5 year median dividend yield.

I only follow two Health Care stocks and both are US stocks. They are both only cheap by the historical average dividend yield and the historical median dividend yield.

I follow 12 Real Estate stocks. None are showing as cheap by the historically high dividend yield. Four stocks (or 33%) are showing cheap by the historical average dividend yield, 4 (or 33%) are showing cheap by historical median dividend yield and 5 (or 42%) are showing cheap by 5 year median dividend yield. There is no change from last month.

I follow 6 Bank stocks. None are showing as cheap by the historically high dividend yield. Two stocks (or 33%) are showing cheap by the historical average dividend yield, 4 (or 67%) are showing cheap by historical median dividend yield and 5 (or 83%) are showing cheap by 5 year median dividend yield. There is no change from last month.

I follow 12 Financial Service stocks. One is now showing as cheap by the historically high dividend yield and that is Home Capital Group. Both this company and Equitable Group had a big drop in price from last month. Four stocks (or 33%) are showing cheap by the historical average dividend yield, 8 (or 67%) are showing cheap by historical median dividend yield and 6 (or 50%) are showing cheap by 5 year median dividend yield.

I follow 5 Insurance stocks. None are showing as cheap by the historically high dividend yield. One stock (or 20%) is showing cheap by the historical average dividend yield, 4 (or 80%) are showing cheap by historical median dividend yield and none are showing cheap by 5 year median dividend yield. There is no change from last month.

I follow 34 Industrial stocks. One is now showing as cheap by the historically high dividend yield and that is Pason Systems Inc. Nine stocks (or 26%) are showing cheap by the historical average dividend yield, 11 (or 32%) are showing cheap by historical median dividend yield and 13 (or 38%) are showing cheap by 5 year median dividend yield.

I follow 7 Tech stocks. None are showing as cheap by the historically high dividend yield. Four stocks (or 57%) are showing cheap by the historical average dividend yield, 3 (or 43%) cheap by historical median dividend yield and cheap by 5 year median dividend yield.

I follow 10 Energy stocks. Four Stocks or (40%) are showing as cheap by the historical high dividend yield, 7 stocks (or 70%) are showing cheap by the historical average dividend yield, 7 (or 70%) are showing cheap by historical median dividend yield and 7 (or 70%) are showing cheap by 5 year median dividend yield.

I follow 2 Material stocks. One is showing as cheap by the historically high dividend yield and that is Teck Resources Ltd. Both stocks are showing cheap by the historical average dividend yield, 1 is showing cheap by historical median dividend yield and 2 are showing cheap by 5 year median dividend yield.

I follow 8 of the infrastructure type utility companies. Only 4 stocks (or 50%) are showing cheap by 5 year median dividend yield and that is it. This has not changed from last month.

I follow 12 of the power type utility companies. One is now showing as cheap by the historically high dividend yield and that is TransAlta Corp. Two stock (or 17%) is showing cheap by the historical average dividend yield, 2 (or 17%) are showing cheap by historical median dividend yield and 6 (or 50%) are showing cheap by 5 year median dividend yield.

I follow 5 of the Telecom Service type utility companies. One stocks (or 20%) is showing cheap by the historical high dividend yield, 3 stocks (or 60%) is showing cheap by the historical average dividend yield, 3 (or 60%) are showing cheap by historical median dividend yield and 2 (or 33%) are showing cheap by 5 year median dividend yield. This has not changed from last month

On my other blog I am today writing about Dorel Industries Inc. (TSX-DII.B, OTC-DIIBF) ... continue...

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.