Market Drama: More Pain Likely Coming, But No Need to Panic

Over the weekend, I wrote a couple of articles on How to Review Your Portfolio in a Falling Market. One of them specifically talked about reviewing and managing your dividend portfolio. I thought of writing these articles because indices had broken major supports last week.

However, the Monday action was still very hard to stomach…well, it would have been if you were awake when the market opened. Take a look at the charts below regarding iShares S&P/TSX 60 Index Fund (TSX:XIU), SPDR S&P 500 ETF Trust (NYSEARCA:SPY), and Dow Jones Industrial Average (INDEXDJX:.DJI).

The Dow fell as much as 1000 points when the market opened. At the end of the day, it recovered about half of the losses. This is even more drama than the most dramatic drama or movie.

XIU action

If an investor were cautious enough they would have loaded off some shares in mid August when death crosses formed in the different indices and stocks. If you didn’t, it maybe too late to do so now because you might have to sell at a loss. Read More

The Top Canadian Energy Dividend Company

We all know companies in the Energy sector are taking a beating due to the oil price plummet. Many energy companies pay a dividend. Yet, on one extreme some companies slashed their dividends, such as Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) and on the other side of the extreme, there are some that have continued raising their dividends.

Here is the list of Energy companies that have not cut (some even raised) their dividends in the past year: Imperial Oil Limited (TSX:IMO)(NYSE:IMO), Suncor Energy Inc. (TSX:SU)(NYSE:SU), Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ), Enbridge Inc (TSX:ENB)(NYSE:ENB), TransCanada Corporation (TSX:TRP)(NYSE:TRP), Inter Pipeline Ltd (TSX:IPL), Pason Systems Inc. (TSX:PSI), and Ensign Energy Services Inc (TSX:ESI).

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Oil Majors: The P/E Is Irrelevant In Determining Their Valuations

Summary

  • The oil majors’ P/E are so volatile that it should be used in evaluating the valuation of the oil majors with a grain of salt.
  • On the other hand, their book values per share are much more stable and so the P/B maybe a better metric to use.
  • The yield compared to historical yields may also be an indicator. High yield may imply good value.
  • After determining a dividend is safe, we just need to buy it on price dips.
  • And a price dip is happening right now. So, if the yield is attractive enough for you, consider easing into Exxon Mobil and or Chevron.

P/E is one of the first metrics that investors typically use to determine if a company is overvalued, fairly valued, or undervalued. However, I suspect that the P/E cannot be viewed the same way for oil majors.

Initially, I subconsciously observed that it’s a good time to buy oil majors when their P/Es are high relative to their historical P/Es. But looking at real data, it’s not as simple as that.

I looked at the P/E, P/B, price range, and yields of the past 10 years for Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), and BP plc (NYSE:BP). From looking at these data, I strive to derive some conclusion from my observations.

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Website Downtime

Well, this is a rare event. My webhost is closing down, so this website, Passive Income Earner, is being transferred to another host. I will try to make it as seamless as possible so that there’s little disruption. The transfer will take place over the weekend. Wish me luck!

Which Account to Best Buy REITs In?

Where is the Best Place to Buy REITs?

REITs or real estate investment trusts allow you to easily invest in real estate for rental income. You can buy residential REITs, retail REITs, healthcare REITs, office REITs, etc. Generally, REITs pay out high income called distributions. However, they are different from stocks that pay out dividends.

Investors generally buy REITs for their high income. But investors need to consider where to buy high-yield REITs to avoid as much tax as possible for the high income. That is, to buy in a non-registered, TFSA, or RRSP account. First, we need to gain a better understanding of REIT distributions.

clinic in Auckland

How are REIT Distributions Different from Stock Dividends?

REIT distributions may consist of other income, foreign non-business income, capital gains, and return of capital. Other income and foreign non-business income are taxed at your marginal tax rate, while capital gains are taxed at half your marginal tax rate.

However, the return of capital portion is not taxed until the adjusted cost basis goes to negative. If you buy a Canadian REIT in a non-registered (taxable) account, the T3 you receive will help you determine how much to deduct from the adjusted cost basis for the year.

Where to buy Canadian REITs?

Because the return of capital part of the distribution reduces the adjusted cost basis, investors should consider buying REITs with a big percentage of return of capital in the distribution in the non-registered account. Read More

Plaza Retail REIT: Detailed Analysis

About Plaza Retail REIT

Plaza Retail REIT (TSX:PLZ.UN) is based in Fredericton, New Brunswick in Eastern Canada. It rents out retail properties such as strip plazas, single-use properties, and enclosed malls. Plaza’s unique business strategy drives its business via value-add opportunities to develop and redevelop retail real estate mainly in Eastern Canada.

Plaza maybe a new name to you because it is a small REIT with a market capitalization of 398 million. However, whenever a business’ board of directors, officers, and employees own a huge stake (roughly 43.5%) in the business, their interests are aligned with common shareholders’.

The REIT pays out monthly distributions that can be reinvested at a 3% discount if you enroll in the dividend reinvestment plan. The yield is close to 5.9% at $4.30 per unit.

Retail Properties

The REIT has interests in 306 properties with 6.7 million square feet of gross leasable area (GLA). Over half of Plaza’s gross leasable area is located in Québec and New Brunswick.

Plaza Retail Gross Leasable Area by Location

Plaza primarily leases to national retailers (over 90% based on square footage) with a focus in the consumer staples sector. So, the Target withdrawal from Canada and the Future Shops to Best Buy rebranding has had little impact on Plaza. Read More

Which Utilities to Buy On The Utilities Dip?

I notice some utilities have dipped as much as 20% from their 52-week highs. The dip maybe a rotation of funds out of the typically slower growth utilities sector for the purpose of profit-taking, or maybe investors are worried that interest rate hikes will cause the typical high-yielding utilities to dip further.

Because of the dip, I reviewed the 30 utilities in The Utilities Select Sector SPDR Fund (NYSEARCA:XLU) to see if there are treasures to be found. I filtered down to one utility that has had stable, growing earnings for more than a decade.

Southern Co, a Stable Utility with 5% Yield

Here, I present Southern Co (NYSE:SO), which has a S&P Credit Rating of A, sustainable debt levels, and is trading close to a price-to-earnings ratio (P/E) of 15 priced around $43 per share today.

Southern Co. fundamental analysis graph

I believe it’s fairly priced today, hitting the orange earnings line. The blue normal P/E line indicates that it has historically traded at a P/E of 16.

Since 2005, the company has increased dividends by 3-4% per year. I’d say that’s keeping pace with inflation. With a juicy yield of 5%, and growing say at 3% going forward, it should keep pace with general market returns of 7%.

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5 US Stocks for High Dividend Growth

Summary

  • Some investors maybe worried about interest rate hikes.
  • Lower-yielding companies with estimated high earnings growth will likely be less affected by interest rate hikes compared to high-yielders.
  • These 5 companies could help complement the blue chip dividend payers in a dividend growth portfolio.

With the interest rate hike matter looming, investors might opt to look for investments which pay a lower yield, but have higher expected earnings growth rates.

If you’re looking for total return in investments and are not concerned about the immediate dividend income, here are 5 businesses for consideration. They are all expected to grow earnings at a rate of 10% or higher per year in the near future.

I placed them from lowest expected earnings growth to highest, assuming it’s easier to achieve lower growth than higher. So the companies appearing first are more likely to achieve their expected earnings growth. Additionally, they’re all expected to grow dividends at least 10% per year in the foreseeable future.

  1. Enbridge Inc (TSX:ENB)(NYSE:ENB) with 3% yield and 10-12% expected earnings growth.
  2. Gilead Sciences, Inc. (NASDAQ:GILD) with 1.5% yield and 11% estimated earnings growth.
  3. Union Pacific Corporation (NYSE:UNP) with 2.1% yield and 11% estimated earnings growth.
  4. Johnson Controls Inc (NYSE:JCI) with 2% yield and 12% expected earnings growth.
  5. Cummins Inc. (NYSE:CMI) with 2.2% yield and 15% estimated earnings growth.

To learn more about each of these companies, check out the Seeking Alpha article at 5 Dividend Companies With 10-15% Growth.

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Growth Has Finally Dawned On IBM As It Continues To Transform

I recently took another look at International Business Machines Corp. (NYSE:IBM). Some people thinks it’s done for as after it reached a high of $215 in 2013, it has since gone down to the $150 area and now it’s back up to the $170 area. Is IBM still a valid investment?

Here’s why I believe IBM is turning a new leaf with proof of growth.

Summary

  1. IBM is transforming its business, just like its many enterprise clients who want to extract value with new technologies such as the cloud, Big Data, analytics, social, and mobile.
  2. IBM is innovating, moving towards high value products and services, as well as developing open ecosystems and forming strategic partnerships with leading companies including Apple, Facebook, Twitter, SAP, and Tencent.
  3. Other than its Hybrid Cloud, IBM’s customizable POWER microprocessor, and Watson Analytics are also showing promising growth potential.
  4. The company is undervalued and at a high yield of 3%, its shares are attractive.

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