Friday, October 31, 2014

Money Show 2014 - Kelley Wright

This presentation was the first one I attended on the second day of the World Money Show convention. Kelley Wright's presentation was called "Quality, Value and Dividends: The Three Keys to Building Great Portfolios".

This company only invests in stocks. They feel that a stock's real total return is equal to its capital gains, its dividends and its dividend growth. Kelley Wright feels that at some point interest rates are going to rise and then we will have disinflation (that is lower inflation) or deflation. This is natural when asset bubbles bursts. The excesses must be wrung out of the economy. The Fed tried to drown inflation with enough liquidity however prices are going down, like oil prices. This is not inflation.

To Kelley Wright, it is all about the return on investment.
  • The sole purpose of investing is to build a pool of capital and a stream of income from that capital.
  • Capital growth and income can only be achieved by Return on Investment (ROI).
  • The most basic measurement of ROI is the cash dividend.
  • The cash dividend and dividend growth is unique to stocks.
  • A rising dividend trend is a predictor of price appreciation.
In the US there are more than 15,000 publicly companies, but not all are worthy of consideration. The question is: How do you separate the good from the bad and the ugly? This company looks for Blue Chip stocks. They feel that these stocks should have the following characteristics.
  • Dividend increases five times in last 12 yrs.
  • S&P Quality ranking in the "A" category.
  • At least 5,000,000 shares outstanding.
  • At least 80 institutional investors.
  • At least 25 years of uninterrupted dividends.
  • Earnings improved in at least seven of last 12 yrs.
They buy when the price is low and then they need someone to help raise the price. That is where institutions come in to help. If a company has 25 years of uninterrupted dividends, it means the company has stayed relevant to their customers for 25 years. This would be a highly competent company. The business cycle usually runs for 12 years so that is why they have 12 year requirements.

Through filters they whittle 1500 companies down to 350 and then to 260. This is a more manageable number of handle. They have a price/value strategy. Price is what you pay, value is what you receive. Price on its own means nothing. A stocks' dividend, dividend-yield and dividend trend are the primary measures of its value.

There are two paths to ROI. Every investor who has purchased a stock has believed that stock would be sold for a profit. ROI based only on capital appreciation is difficult to achieve on a consistent basis. The cash dividend is the only ROI path that offers any degree of certainty.

Why Dividends Are So Important?
  • The cash dividend is a company policy.
  • Dividends are the result of earnings.
  • Rising dividends indicate rising earnings.
  • Dividend increases reflects management's confidence for future earnings.
  • A rising dividend trend is a predictor for a rising stock price.
  • Dividends provide a floor of safety beneath a stock's price.
Sometimes earnings are down, but a company raises its dividend. This could be because it has confidence in their ability to earn in the future. Also, a company's stock price will fluctuate between ranges of high and low dividend yields.

Say a company's overvalued dividend yield is 1.6% and undervalued dividend yield is 3%. You should sell when the dividend yield is near the dividend yield of 1.6% and buy when the dividend yield is near the 3% dividend yield.

Stocks are divided into 9 sections of:
  • Consumer Discretionary
  • Consumer Staples
  • Energy
  • Financials
  • Health Care
  • Industrials
  • Materials
  • Technology
  • Utilities
There is an ETF called SPDR (NYSE-SPY) that covers the whole S&P 500 index stocks. You can also buy ETF's for each of the 9 sectors. If you buy stocks, you need to buy 3 to 4 companies in each sector. There is currently a phenomenal opportunity to buy energy companies. Some have current yields at 3%. These you should buy and hold for a while. If you can get Johnson and Johnson (NYSE-JNJ) at a good price, go for it.

Charles Dow said "To know value is to know the meaning of the market".

They have been looking lately at the Canadian market. So far only Canadian Banks can meet their criteria. They want companies to have Dividend Payout Ratios of 50% earnings or less. Companies need money to grow and to withstand recessions. He thinks that WR Berkley (NYSE-WRB) is an early Warren Buffet company.

The company's web site is called IQ Trends.

On my other blog I am today writing about TransForce Inc. (TSX-TFI, OTC-TFIFF) ... 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.

Thursday, October 30, 2014

Money Show 2014 - BNN Presents

BNN did a special event at this World Money show. This event was called "The Confidence to Invest". The panelists were Andrew Busch, Peter Schiff and Jose Schmitt. The moderator was Pamela Ritchie. This is to air on November 13, 2014.

Investors:
  • Schmitt: Investor confidence is low as there are problems in fairness and transparency.
  • Busch: Have retail investors come back? No. Investors freaked out in 2008 and have not come back. The banks are looking at growth in wealth management.
  • Schiff: People are fearful of losing money. However, by keeping it in cash you will lose money.
Volatility:
  • Busch: volatility is great for trading. For investors it can help them get stocks at great prices.
  • Schiff: People are used to buying on market dips. He thinks there will be another QE.
  • Schmitt: You need a game plan to handle volatility. You should not panic as volatility is part of our world and we need to manage it. He is worried about today's intraday volatility.
  • Schiff: The problem in the US is that people think that QE worked. We got monetary heroin. The Fed will be forced to do more QE because QE doesn't work. If the Fed stopped QE and raise rates, we will be in a bear market.
Taxes
  • Busch: Unless the US changes their tax rates, the US is going to have trouble. US tax rates are higher than anywhere else. Because of the difference in US and Canadian Tax rates differences, we have mergers and acquisitions that are not good but they are done because of tax rates. Canadian Tax rates are better, but not perfect, of course. Valeant is trying to buy a US company. Valeant is run out of Quebec, but it is a New Jersey company.
  • Busch: US companies could be taken because they will be worth more money if outside the US (that is domiciled outside the US). The US taxes their people wherever they go.
  • Schiff: There should be no corporate taxes. Instead we should tax executives, tax workers and tax customers when they buy.
  • Schmitt: When companies make decisions based on tax, they are not adding value to a company. We need to find the right balance in taxing companies.
Taxes: Canada's corporate tax rates are lower than in the US. Ireland's corporate taxes are lower than Canadian taxes.
  • Busch: Britain lowered the corporate tax in the last recession.
  • Schiff: The US has capital tax and income tax and the worse system. It is a good idea to have competition in taxes. Because of tax havens, it keeps taxes lower everywhere.
  • Busch: Regulatory rules are expensive and are a real problem. If the republicans get both houses there will be a slowdown in new regulations.
  • Schiff: The tax return is 125 pages for Federal taxes alone. It is rules and regulations that are driving US companies out of business.
Where will investors go?
  • Schmitt: I am a born optimist. Things will improve. We have to live with geopolitical events. We live in an over regulated world. We need principled regulations not macro regulations. Problem is often unintended consequences to regulations. We cannot control everything, but we can control some things.
  • Schiff: We have QE infinity and phony economics.
  • Busch: The US is still the place to go. Energy is really good. There will be low energy prices for a while. If we get tax reform half right, the US will do better.
  • Schiff: The US needs debt devaluation. The politicians will not step up and do what is needed.
  • Schmitt: There is a positive side. We must believe we can change things for the better.
  • Schiff: Government is betting bigger and bigger and promising more and more that they cannot afford. It will end in a crisis. Scandinavia has recognized problems and is lowering regulations.
On my other blog I am today writing about TransForce Inc. (TSX-TFI, OTC-TFIFF) ... 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, October 29, 2014

Money Show 2014 - Pat Bolland

Pat Bolland's talk was on "The Global Economy and what it Means to You". This was also in the Bull Pen area.

The recent global financial crisis changed everything. The housing bubble (sub-prime lending), the credit crush and Lehman's bankruptcy will affect us for the next 4 decades. The Fed will start contracting its total assets (or the money press). The BOJ will be expanding its assets.

Did the money press save the markets? In the short term the answer is yes. The purchase of bonds caused bonds to go up and interest rates to go down. Did the money press create jobs? There are many discouraged workers and worker participation rate is down.

The unemployment rate in US is at 5.9%. Most people who are interested in unemployment talk about the U3 and U6 unemployment rates. The U6 rate includes discouraged workers or the underemployed. Unemployment will improve with time over the next 1 to 1 and one half years. See Mint Press News for a short discussion on this subject.

One of our main problems is debt. There several ways to default on debt.
  • One way is like Argentina where they just walked away from their debt that was denominated in US$. Argentina has defaulted 8 times on its debt so far.
  • A second way is payment extensions. This is what Greece did. (However, they are not going to pay their debt.)
  • A third way is currency devaluation. Canada did this and investments dried up.
  • A fourth way is a Bail-in. This occurred in Cyprus where they took money out of the banking system.
  • Poland used private pension money to pay off their debt.
In Canada we have $1.63 in debt for each $1 we earn. Canadians are starting to pay down their mortgages faster than expected according to Scotia Bank. In the US housing prices outpaced inflation. The housing prices crashed to the rate of inflation. In Vancouver and Toronto housing prices are increasing way about the inflation rates. The prices may not crash, but prices cannot continue to increases as they have in the past.

Inflation is when prices increase and deflation is when they decrease. No one is talking about deflation. The Bank of Canada says that deflation is under control. An economy needs a bit of inflation to keep it afloat. Inflation is running at around 4% in the developing world. Wage inflation in China is at around 25% per year currently.

Milton Friedman has a model with two phrases. In phrase A, stock prices go up and gold prices go down. This can continue until inflation rises. In phrase B, GDP and employment improve. These are inflationary effects. In the US since 2000 inflation is up 33.7%, but wages have no gone up.

There is a cycle of emotion. If you bought dividend stocks since 2000 you are ahead and more. Since 1881, normal P/E is 10 plus inflation. Currently the P&P 500 is the highest valuation against treasury bills. He says that stocks prices might look attractive, but he doesn't think that they are. He believes oil will go to $80 or even $75.

He feels that the Saudi's can produce oil at $75 a barrel, but Canada cannot. Some startups in Alberta are already shutting down.

He believes that the real risk of deflation is in the EU.

He thinks Harper is going to produce a budget surplus and then call an election in the spring.

On my other blog I am today writing about Pason Systems Inc. (TSX-PSI, OTC-PSYTF) ... 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.

Tuesday, October 28, 2014

Money Show 2014 - Derek Foster

I went on the main floor into the bull pen for a talk by Derek Foster. His talk was entitled "Idiot-Proof Your Investing That Can Make You a Millionaire".

First he advises to read Moody's Handbook. It lists high dividend achievers. These are companies that have raised their dividend every year for the past 10 years at a minimum.

He says you should look at your revenue stream for retirement, not look for a fixed sum to have at retirement.

He says that Canadian is a high tax country with payroll taxes of UI and Pension. However, if you do not work, you do not have to pay UI or CPP. Therefore a salary of $70,000 is the same as Dividend Income of $35,000.

He has his own Website where you can buy his books and a video series for $40.00

On my other blog I am today writing about Pason Systems Inc. (TSX-PSI, OTC-PSYTF) ... 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, October 27, 2014

Money Show 2014 - Jos Schmitt

The last Opening Remarks speaker was Jos Schmitt. His presentation was entitled "Restoring Confidence in Canada's Capital Markets: Understanding the Issues, Discussing the Solutions".

Jos Schmitt stated by talking about investor's confidence in the market. He says individual investors have the impression that they cannot make money in the market and the market is stacked against you. Also individual investors feel that the market moves in mysterious ways.

He wants to set up a new stock exchange to get back investors' confidence. One type of problem is
  • Some companies have incredible speed advantages.
  • Some companies have advantages that are not always good the for whole market.
  • Some companies can front run with their 10 second speed average holding time for securities.
  • There are liquidity issues. Liquidity seems good when there is lots of trading on a stock and stock's spread is small. If spreads are big, this is bad for individual investors. This can be caused by high frequency trades of which 90% disappear in 1 minute.
A second type of problem is that market makers are disappearing. They can no longer make any money.

A third type of problems is transparencies. Only 20 to 30% of the trading is taking place on the TSX. However, when we see quotes they are all from the TSX.

So the problems we have are fairness, liquidity and transparency. We need a new stock exchange to get rid of these problems. We need an exchange to give priority to investors and put in speed bumps. This new exchange will be
  • A listing platform where corporations can go to trades their shares on the exchange
  • A trading platform where stocks are traded that are already listed
  • It will only list companies that are set up for success.
The new exchange will re-mutualize an exchange. Issuers and investors will have first priority on the exchange.

High Frequency Trading (HFT) is 50% of the market in the US and 20% in Canada.

On my other blog I am today writing about Molson Coors Canada (TSX-TPX.B, NYSE-TAP) ... 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.

Friday, October 24, 2014

Money Show 2014 - Andrew Busch

Andrew Busch was the sixth speaker at the Opening Remarks section of this Money Show convention. His talk was entitles "Mid-Term Elections: Who Wins and What it Means for the Markets". He is Editor-in-Chief and Publisher of the Busch Update. Andrew Busch used to work for BMO. He has a website.

He says if you get economic growth right, nothing else matters (i.e. social policy). Monetary policy has reached its limits. Mario Draghi must get EU policy right or the EU will not grow.

In 2013 the republicans stopped the government and the people hated them for it. It was bad public relation. Then came Obama care and the republicans are back. Tax Reform is the only policy for economic growth if they get it right. It looks like the republicans can get the senate in the mid-term elections.

President Obama's job approval is at 42.9%. This low level could lead to 10 seats turnover in the senate. If the Democrats win the senate then the status quo will split congress and crush remaining proposal for entitlement reform, Obama will fix EPS regulations which was brought up in the house but shot down in the senate.

If the Republicans win control of the senate then republicans will take control of committees and chairmanships. They will hold hearings on everything from EPA to Dodd-Frank Act to IRS. Things will not get worse. The republicans will attempt to put bills on the president's desk via the budget reconciliation process and lots of legislation from the Job Bill, Ryan Tax reform, energy reform and Obama Care reform.

The US has high tax rates and this is why Burger King bought Tim Horton's. Apple has issued a bond to pay its dividend. It has the cash, but it is offshore. Because of US tax rates you get bizarre behavior from companies.

Lower reparation taxes would help. They are now at 35%. Reagan lowered them to 5 and one half percent one year and a lot of offshore money came into the US. However, to do tax reform you need the president behind it.

In 2016 social Security runs out. The net interest on the US debt is going to expand greatly over the next few years.

Three political takeaways is Tax Reform, Regulations from Energy to Finance and Geopolitics (which currently is unstable.)

The S&P 500 had a support level and 1905 and when it went below that, it crashed further. The is gloomy

Germany does not want QE because then EU countries will not have to do reform, like labor market reforms.

If the market drops 10%, then your portfolio should fall less than 10%.

What does lower oil tell us? It broke support levels of $91.25, then $85.93 and $84.00. US oil demand is down by 2B barrels and the oil supply is up by 2B barrels. So there is a 4B barrel excess.

On my other blog I am today writing about The North West Company (TSX-NWC, OTC-NWTUF) ... 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.

Thursday, October 23, 2014

Money Show 2014 - Peter Hodson

The fifth speaker in the Opening Remarks was Peter Hodson who is editor of the Canadian Money Saver Magazine. His talk was entitled "Dividends Rule (and Dividend Rules)".

You do a little bit of work and invest some money and then get money back every 3 months plus get a raise each year. This is dividend investing and it is a miracle.

What is going on currently is a normal market correction. When will the current bull market end? No one knows.

There are chicken farmers and egg farmers. The chicken farmer worries about the price of chickens and the price of eggs. The egg farmer worries about the prices of eggs. If you are an investor in dividend stocks you are like the egg farmer.

Dividend stocks offer safety in down markets especially by dividend growth companies. What you want to do is do your homework before investing. You do not want to invest in a company that will fail and cut their dividends.

One of the best signals for a growing company is that they start to pay a dividend. This tells you that the company is doing fine and plans to be around for a long time. An example is Stantec Inc. (TSX-STN). This company started to pay a dividend after 50 years in business. They are not going to cut the dividend at the first downturn.

What you want are companies that can grow their dividends. Be cautious about any company with a high debt. A company that has lower revenue year after year is also bad. You want a company that grows its revenue. Dividend paying stocks outperform non dividend paying stocks. There are also several Canadian Dividend ETFs to choose from.

One notable dividend stock is Constellation Software (TSX-CSU) which started dividends at $0.15 per share per year in 2007 and is now paying dividends of $4.00 per share per year.

Peter thinks there are 5 reasons that dividend stocks are good. They are:
  • Dividends prevent investors from selling a stock.
  • Dividend paying stocks are more stable.
  • Paying dividends provide management with discipline.
  • Dividend paying stocks get a better market valuation.
  • Dividend paying stocks outperform other stocks.
Management needs to pay dividends out of cash flow and this is what ensures management discipline. You are better off with investing in a company with the discipline of dividends than without the discipline of dividends.

A dividend increase followed by a big market decline is a good sign. Here yield goes up but the risks decline. For example, Surge Energy Inc. (TSX-SGY) had a dividend increase on June 16 just prior to the sector decline of the past 3 months. The dividend yield is now 9%. Here the yield is up but the market is down and nothing has changed with this company. Also, for pipeline stocks nothing has changed but the market has gone down on these shares.

What are good dividend signs?
  • A company starts to pay the first dividend ever.
  • Dividend payments are made on small and mid-cap stocks.
  • The dividends do not start too high.
  • There is management ownership and they are paying themselves with dividends rather than salary.
Another good sign is consistent dividend increases. Fortis Inc. (TSX-FTS) has increased its dividend each year for the past 41 years. Slow and steady dividend increases are the best. You need to watch dividend payout ratios. Look at the payout ratios for cash flow not earnings. One problem would be for REITs where they are paying out more than 60% of cash flow. Use caution here.

Some companies increased their dividends during the last recession. Home Capital Group's (TSX-HCG) dividend went from $0.055 per share quarterly to $0.08 in the last recession. Telus Corp's (TSX-T) dividend increased from $0.1875 per share quarterly to $0.2375 between 2007 and 2009.

A strong balance sheet and cash on hand makes a dividend more secure. Wi-Lan Inc. (TSX-WIN) has lots of cash on hand. At the last financial statement year there was $1.44 cash on hand for each share which was some 32% of the stock price.

A bad sign is a dividend payout ratio of 80 to 90% of the cash flow. This leaves little in the way of cushioning. Cyclical companies should have lower payout ratios. Also companies with debt should have lower payout ratios.

DRIP's are not always good. Some companies add DRIPs to conserve cash. They may not have enough cash to pay their dividends. You need to include the DRIP dividend when calculating payout ratios. This is because DRIPs can be cancelled at any time by investors.

Watch out for companies that increase dividends in the face of earnings decline. He calls this the Fake Out. The company is trying to prop up a stock. An example of this is Horizon North Logistics (TSX-HNL). They raised their dividend in the face of an earnings decline. This is bad.

What also is bad and bears repeating is when a stock goes down but the whole market does not. When a company has a high yield almost always this is a significant sign. The exception is when there is a major market decline which will raise all dividend yields.

Examples of high yields being bad are Data Group Ltd. (TSX-DGI) and Twin Butte Energy Ltd. (TSX-TBE). Data Group Ltd had a yield of 20% and now the stock is down 70%. Twin Butte Energy has a yield of 13% and high debt and operational concerns. A 3% dividend yield will not make up for a 60% capital loss.

There is almost never just one dividend cut. Ignore what the management says. Atlantic Power (TSX-ATP) cut the dividend twice. Management does try to control stock price declines.

Dividend growth stocks beat high dividend yield stocks. Dividend ETFs have lot of stocks and if one or two cut their dividends, the ETF will do fine. However, if an investor has a few stocks and one or two cut their dividends, this can be a real problem.

In building a portfolio you need to diversify by
  • Sector
  • Geography
  • Market cap
  • Style of Management
  • Dividend payment cycles
  • Add some high payers
  • Add dividend growth stocks
Exchange Traded Funds (ETF) to consider are Vanguard Dividend Appreciation (NYSE-VIG); iShares S&P/TSX CDN Dividend Aristocrats (TSX-CDZ); Vanguard US Div. Appreciation (NYSE-VGG) and iShares US High Dividend Equity (TSX-XHD).

On my other blog I am today writing about The North West Company (TSX-NWC, OTC-NWTUF) ... 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.