**August 1st Issue of The JMRD Market Observer**
In This Week’s Market Observer…
- JMRD Strategy Comments
- National Bank’s Dividend All-stars: H2 2014 Update
- JMRD Basket Corner
- Retirement Corner
- Week at a Glance
- Reads of the week
- Economic Calendar
- Earnings Reports
JMRD Strategy Comments
Market volatility returned this week with a significant down day in the financial markets on Thursday. This was the first meaningful pullback in the markets in many months and it was, in many ways, overdue. However, to put things in perspective, the TSX hit a fresh all time high reaching 15,527 this week. As of this writing, the TSX was hovering around the 15,200 mark. Some stocks have been affected a little more than the TSX over the last two days, but overall, the index is still up 11% year to date.
Our strategy remains the same in the long term. Our goal is to own good quality companies that can grow their earnings and ideally pay us a dividend while we own it. We have some cash holdings in our baskets as we think there could be more volatility over the coming few months but we will not be making any radical shifts. Since interest rates are low and the global economy is still growing, we would expect the final months of the year to be pretty good.
In light of the recent market movements, we have provided a link to Martin Lefebvre’s market commentary webcast. Martin is NBF’s Asset Allocation and Investment Strategist.
National Bank’s Dividend All-Stars: H2 2014 Update
National Bank analysts collectively cover over 300 TSX-listed equities, of which more than half offer investors income in the form of dividends or distributions. To help navigate this universe NBF has assembled a portfolio that contains 34 of NBF’s favourite yield ideas, the group spanning a variety of industries, sizes and liquidity, but sharing three investment criteria:
1. Dividend/distribution yield north of ~3.5%;
2. Extremely low risk of the current payout proving unsustainable; and,
3. Positive analyst bias regarding the prospects for share/unit price.
In the JMRD DIG Basket, Dividend All-Stars include Arist REIT, Crescent Point, Gibson Energy, Pembina Pipeline and Whitecap Resources. Holdings that made the list and are also held in the All-Cap Growth Basket are Canyon Services, Inter Pipeline and Surge Energy.
- NBF’s Dividend All-Stars portfolio updated Jan. 26, 2014 has returned income of 3.3% and realized an average price return of 13.1% for its first six months of 2014, this 16.4% total return ahead of the S&P/TSX composite’s 13.6% for the same period (1.5% income & 12.1% price for the index). 17 of the 34 equities outpaced the benchmark. Six delivered negative total returns H1, although only one posted a total return less than -2%, highlighting the defensive nature of this basket.
- Eight All-Stars increased dividends since the last publication by an average of ~8%: Baytex +9.1%, Canadian Energy Services & Tech +15.4%, EnerCare +4.1%, First National +7.1%, Innergex +3.5%, Keyera +7.5%, Pembina Pipeline +3.6% and Whitecap +10.2%. In addition, Sirius XM paid a ~6.4% special dividend. To date there have been 35 dividend/distribution increases amongst the 65 companies that have been named NBF Dividend All-Stars, versus just one cut.
- There are eight additions this update (AG Growth, Boralex, BCE, Chemtrade, Surge Energy, Superior Plus, Thomson Reuters & WSP Global) and eight subtractions (Canadian Energy Services, Great West, Innergex, Keyera, Royal Bank, Sirius XM, Teck Resources & Transcontinental). These adjustments keep the basket status quo at 34 equities.
- The average yield of an All-Star remains elevated at 5.5%, but payout is easily funded for each, with most equities having the capacity to grow dividends/distributions over time.
- For investors seeking stable, predictable, elevated income and exposure to high quality companies, the following portfolio reflects NBF’s favourite ideas.
JMRD Basket Corner
DH Corp (DH) – DH reported Q2 revenue of $286 mln (vs. $293 mln est. & $197 mln in Q2/13), adj. EBITDA of $93 mln (vs. $86.5 mln est. & $58.3 mln last year), adjusted net income of $0.64/share (vs. $0.58 est. & $0.58 Q2/13) and full capex expensed DCPS of
$0.67 reflecting a 48% payout (vs. $0.61 / 52% est. & $0.70 / 46% in Q2/13). Results were similarly ahead of the Street’s $293 mln revenue and $89.8 mln EBITDA projections. After pulling back over the last month, DH traded up 5% on Wednesday following the Q2 report.
Whitecap (WCP) – “Insider Holdings edge up at Whitecap Resources”
All-Cap Growth Basket
Alimentation Couche-Tard (ATD.b) – Announced the acquisition of 55 storeis in the state of Illinois and state of Indiana. These stores are currently operating under the brand Super Pantry and offer Phillips 66 and Mobil branded motor fuel. In addition, the Parties have signed a confidentiality agreement whereby precluding the Parties from disclosing the purchase price for this acquisition at this time
Constellation Software (CSU) – CSU announced Q2 results on Thursday after the market close. Net income rose to $23.0 million, or $1.08 per share, in the three-month period ended June 30, from $19.2 million, or $0.91 per share, a year earlier. Adjusted earnings rose to $3.07 per share from $2.36 per share last year. Revenues climbed 39 percent to $415.9 million from $298.2 million last year. CSU traded higher by 8% $280.00 following the release.
CCL Industries (CCL.b) – Reported Q2 results and a 20% dividend increase
U.S. Growth Basket
Dow Chemical (DOW) – Dow Chemical’s Winning Formula for Investors – Barron’s
1) “The 4% withdrawal rule may be too low” (Star Phoenix)It’s possible to draw more of your retirement savings and still leave a sizeable estate for heirs
2) “Don’t count on a pension to stay afloat in retirement“ (Globe and Mail)
Week at a Glance
Reads of the Week
- “Burger King Is Run by Children” (Business Week)
- “So you’re the world’s greatest trader? Taxes will fix that.” (Washington Post)
- “The Threat of Rising Rates” (Bloomberg)
- “How the business of golf got stuck in the rough” (Financial Post)
- “What is the Internet of Things?” (Visual Capitalist)
Monday August 4th – Canadian Markets Closed for Civic Holiday,
Tuesday August 5th – U.S. ISM Non-Manufacturing Composite, U.S. Factory Orders
Wednesday August 6th – U.S. Trade Balance
Thursday August 7th – Canadian Building Permits, Ivey Purchasing Managers Index, U.S. Initial Jobless Claims
Friday August 8th – Canadian Nonfarm Productivity, Canadian Wholesale Inventories, Canadian Wholesale Trade Sales
Monday August 4th – None
Tuesday August 5th – Northland Power, Walt Disney Co
Wednesday August 6th – Agrium, Bellatrix Exploration, Cineplex, Extendicare, Gibson Energy, Keyera, Newalta Corp, Pason Systems, Superior Plus Corp and WSP Global
Thursday August 7th – Artis REIT, AutoCanada, Avigilon, BCE, Canadian Natural Resources, CI Financial, Cominar REIT, Great-West Lifeco, Innergex Renewable Energy, Inter Pipeline, Just Energy Group, Manulife Financial, Stantec, TELUS
Friday August 8th – Berkshire Hathaway, Brookfield Asset Management, Canadian Apartment REIT, Enerplus, Magna International, Pembina Pipeline Corp, Power Corp of Canada