Thursday, June 21, 2018

Stock Analysis - Toronto-Dominion Bank

Individuals get up each day and often "force" themselves to go to jobs.  I say "force" themselves because studies have shown that a vast majority of people hate their jobs.  When at your place of employment, individuals are forced to take breaks and lunch at certain times.  They are forced to show up by a certain time each day.  Some employers have even given workers a hard time if they go to the bathroom when it is not break or lunch time!  You don't think this happens? Well, I personally seen it happen at one of my former jobs.

Most people wonder if there is a better way.  Majority of people decide on keeping the status quo, because it is a lot easier than trying to do something different.

A person can positively change their life with a simple concepts.  These simple concepts are to lower expenses and pay yourself first.  Some people might look at their budget and say there is no way they can find anything to cut.  It is imperative a person has to set themselves up to pay themselves first.  This might be trimming expenses and/or increasing their income.  Their income can be increased through a side hustle or second job.

Wages have been quite stagnant since the 70s.  Wages have gone up mostly only due to inflation.  When you work at a job, every employee of a company sometimes gets a raise of same amount or percentage at the same time.  This type of raise is called a Cost of Living increase.  A real raise to me is when you are called into the manager's office and told you are getting a raise.

With the money you get from paying yourself first, you can save and invest this to make more money.  This will ease your stress and eventually give you more choices in life.  Imagine, leaving the rat race and able to live life on your own terms. 

One of they ways of investing is via stock market instruments.  Some of these market instruments pay income via dividends, distributions, interest or premiums while others don't.  We are best to give the former more of our attention.  When a stock pays a dividend, that is cold hard cash hitting your brokerage account. Similar for instruments that pay distributions or interest.  An investor can receive premiums from options if they are the seller of an option and not the buyer of the option.

Canada has some great assets that an investor can own.  Toronto Stock Exchange is mostly financials and energy stocks. 

Canada has 5 big banks that are really solid companies and are considered to be some of the best banks in the world.  These banks are Toronto Dominion Bank (TD), Bank of Montreal (BMO), Royal Bank of Canada (RY), Bank of Nova Scotia (BNS) and Canadian Imperial Bank of Commerce (CM).  The Canadian Imperial Bank of Commerce is more commonly known as CIBC.  All these 5 banks trade on both the NYSE and Toronto Stock Exchange.

I recently did an analysis on Royal Bank, which you can read about here.

TD BANK

      Toronto Dominion Bank aka TD Bank is known for their office hours.  Their branches are open late Monday - Friday and also reduced hours on the weekends.  Other banks might have some branches open on Saturday, but the numbers are extremely low.

The Toronto-Dominion Bank, together with its subsidiaries, provides various personal and commercial banking products and services in Canada and the United States. It operates through three segments: Canadian Retail, U.S. Retail, and Wholesale Banking. The company offers personal deposits, such as checking, savings, and investment products; financing, investment, cash management, international trade, and day-to-day banking services to small, medium, and large businesses; financing options to customers at point of sale for automotive and recreational vehicle purchases through auto dealer network; credit cards; investing, advice-based, and asset management services to retail and institutional clients; and property and casualty insurance, as well as life and health insurance products. It also provides capital markets, investment banking, and corporate banking products and services, including underwriting and distribution of new debt and equity issues; providing advice on strategic acquisitions and divestitures; and trading, funding, and investment services to companies, governments, and institutions, as well as offers telephone, Internet, and mobile banking services. The company offers its products and services under the TD Canada Trust, TD Bank, and America's Most Convenient Bank brand names. It offers personal and business banking products and services to approximately 15 million customers through a network of 1,128 branches and 3,157 automated teller machines in Canada; and to approximately 8 million retail customers through a network of 1,270 stores. The company was founded in 1855 and is headquartered in Toronto, Canada. (Source: Yahoo Finance)
TD Bank currently pays annual dividend of $2.68 per share.  The current yield is 3.49%.  The dividend payout ratio is currently 47.3% based on the current dividend and the trailing twelve months of $5.65 per share.

The 5-year dividend CAGR comes in at 10.2%.  This is greater than 6.8% CAGR of their Canadian peers.

TD is currently yielding better than the broader market, which is S&P TSX Composite Index.  The current yield is slightly better than the stock's own 5 year average.

Now, I will go into looking at some fundamentals of the stock.

TD revenues grew from $14.669 billion in 2008 to $36.149 billion in 2017.  This is a compound annual growth rate, or CAGR, of 10.54%.  This is a great CAGR for revenues.

TD makes money via a lot of different mediums. The have a lot of branches in the United States besides Canada.  TD bank goes above and beyond for their customers.  Besides their branches being open M-F, most of them are open on both Saturday and Sunday.  During the week, most branches are open to 8pm.  Majority of the TD's competition in both Canada and United States do not open on weekends or late on week nights.

TD earnings per share grew from $4.87 in 2008 to $5.54 in 2018.  This is a CAGR of 1.44%.  When revenues have such a large CAGR compared to this, this means a further investigation is required.  So looking at a 10 year chart of TD.TO, we see a 2:1 stock split on Feb 3 2014.  So, I take a look at Morningstar for TD, and notice the earnings are basically half of what's in the 2008 annual report.
So, therefore factoring in the 2:1 stock split, the revenues grew from $2.44 in 2008 to $5.54 in 2018.  This represents a CAGR of 9.54%.

This is quite what I expected.  The big 5 Canadian Banks are known as some of the best banks in the entire world.

The long-term debt to equity ratio comes in at 0.129.  The interest coverage ratio comes in at 5.02.  An interest coverage ratio of 5.02 looks good.  This ratio is an indication of a company's ability to pay interest on its outstanding debt.  The higher the interest coverage ratio the better.

Now, we look at the profitability of TD.  The average annual net margin over the last 5 years is 25.45%.  Net margin is basically, when everything is account for, this is the amount of profit for each dollar.  The average annual return on equity for the last 5 years is 14.19.

Now, we will look at the valuation by using a dividend discount model. We will use a discount rate of 10% and a dividend growth rate of 7%.  The dividend growth rate of 7% is on the conversative side.  North America did not have a major recession since 2009. The only recession we had was due to low oil prices, which did not  cause havoc across the entire economy.

The Dividend Discount model gives us a fair value of $95.59.

The P/E ratio is in line with the stock's own 5 year average and is lower than that of the broader market.

The price to cashflow is 10.6 is way about the average 3-year P/CF of TD and is greater than that of the broader market.

I do not want to solely rely on the dividend discount analysis fair value of $95.59. So, Morningstar has a fair value of $79.00.

If you have another fair value estimate from a different research, it give an even better estimate.  With the 2 fair values, we take the average which gives us a fair value of $87.30

The stock is currently trading at $76.74.  The shares are potentially 14% undervalued.

CONCLUSION

With the stock possibly 14% undervalued and trading at P/E of 13.58 for trailing twelve months.  TD is a solid company and has rewarded shareholders with increasing dividends in the past several years.

The stock has risen the last  while and has shown resistance at around $70 in the past six months.  This stock would be great buy on a dip.

Disclosure: Do not own TD currently.

DISCLAIMER

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk




Sunday, June 17, 2018

Royal Bank Stock Anaylsis

In Canada, we have some of the best financial institutions in the world. These companies are collective known as the big 5 banks. These 5 banks are Bank of Nova Scotia (BNS), Royal Bank of Canada (RY), Toronto Dominion Bank (TD), Canadian Imperial Bank of Commerce (CM), and Bank of Montreal (BMO). These banks trade on the Toronto Stock Exchange and the New York Stock Exchange.

Every time the banks report earnings, I often hear people complain about the banks making so much money. I just filter out this "negative" view by people. The positive is that the banks can be great investments as the increased earnings often mean dividend increases for their shareholders.

In Canada, any bank is not allowed to have a shareholder larger than 10% of the company .A shareholder can be a mutual fund, an individual or a corporation such as a holding company.

Royal Bank of Canada (RY)

Royal Bank of Canada, aka Royal Bank, operates in traditional banking, insurance, wealth management, investor and treasuries services, and capital markets. Royal Bank is truly a global bank and his the largest of the 5 big banks by market capitalization. Royal Bank operates in Canada, the United States, and in 35 other countries serving their 16 million plus clients.

Royal Bank grew total revenue from $21.582 billion in 2008 to $40.669 billion in 2017. That is a compound annual growth rate (CAGR) of 7.29%.

This CAGR of revenues is impressive considering this includes the great recession at the start of this period. Royal Bank did not escape the financial crisis unscathed so this is quite impressive.

With the world's population increasing along with more and more people realizing that they have to take a more proactive approach to their finances, should keep the revenues flowing in. See, the baby boom generation and definitely the generation before that, could go work a job and stay at that job for their entire working years. Fast forward to people starting their work careers in the 1970s and beyond, job security has become a myth. Also in the 1970s, people started becoming responsible for their own retirement instead of receiving a pension from the company they worked for. People now have more jobs during their working lifetime and some have more than one job at a time.

Royal Bank grew earnings per share from $3.38 in fiscal year 2008 to $7.56 in fiscal year 2017. This represents a CAGR of 9.36%.

Over the 10 period from 2008 to 2017, interest rates in Canada and the United States were extremely low. This leads to more and more people borrowing money due to the lower interest rates. The Federal Reserve Bank, aka The Fed, determines the rate of interest that bank charges on its loans and mortgages in the United States. The Fed announces quarterly that they will increase or decrease the rate by a percentage or leave the rate the same. Similarly in Canada, the Bank of Canada does the same. These rates are a starting point, meaning the rates of interest are higher on loans and mortgages. If an individual or company has a fixed rate loan or mortgage, their rate does not change. In Canada, their mortgage interest rate will change when the mortgage is renewed at the end of the 1yr, 3yr or 5yr term.

With positive earnings, an dividend growth investor looks for a share of the profits via dividends.

Royal Bank has increased their dividend for the past 8 years. Prior to this the bank did not raise or lower their dividend during the financial crisis.

The 5 year dividend growth rate comes in at 8.30%. This is well above the rate of inflation.

The current dividend payout ratio is 48.14%. This is near ideal payout ratio of 50%. It means the dividend is easily covered.

The current yield of the stock is 3.75%. This is on par for the stock's own 5 year average and greater than the broader market over the same time. The broader market here is the S&P TSX Composite Index.
The long-term debt ratio of Royal Bank comes in at 0.125. The interest coverage ratio comes in at 5.17.

The profitability of Royal Bank over the last 10 years have been mostly above 20% yearly but dipped below 20% for a few years due to the financial crisis. The latter was expected as the economy was not doing that great. The annual average annual net margin is 26.84% and the average annual return on equity is 18.82%, over the last 5 years

The margin is excellent as expected for a bank. Banks make huge margins due to the ability to take savers money via deposits and turn around and loan that out at a higher interest rate. Another source of income comes from insurance premiums. Unless a major catastrophe occurring like a damaging hurricane, the float can be reinvest to make more income.

Now, let's look at the valuation.

The stock is currently trading at a P/E of 12.8. This is slightly higher the 5 year industry average and the stock's own 5 year average of 12.5.

Investors are currently paying approximately 6 times cash flow, which is roughly equivalent to the 3 year average P/CF of 5.2.

Valuing a stock is not an exact science. The exact intrinsic value of a stock cannot be determined. An investor can use some tools to help them determine a fair value of a stock making assumptions of where they think the company is going in the future.

I am now going to do a dividend discount model analysis for my valuation. I going to assume a 10 year dividend growth rate of 6.5% and going to use a discounted rate of 10%.

The dividend growth rate of 6.5% is reasonable as a recession is likely to occur in the next 1.5 to 3 years, so people will not borrow money easily. The Fed and the Bank of Canada have been slowly raising interest rates over the last year to slow the economy.

The Dividend Discount Analysis results in a fair value of $114.41

I do not want to rely on just this for valuation. Morningstar currently rates it as a 3-star stock and a fair valuation of $107.00

We take the average of these 2 valuations, to get a fair price of $110.71.

The stock is currently trading at $100.27, which means this stock is approximately 10% undervalued.

Summary:

Royal Bank is a solid company that has greatly awarded investors in the the past. The stock is currently yield about 3.6% and the dividend was increased roughly 8% over the last year. Royal Bank has been raising their dividend every 2 quarters in recent years. The stock appears to be roughly 10% undervalued. I will monitor this stock for a future investment.

Disclosure: - Do not own RY.TO currently, but owned it in the past.
                   - Long BMO.TO, CM.TO, BNS.TO


DISCLAIMER

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Saturday, June 9, 2018

Recent Option Trades

       Options can be used for income or protection.  Investors and traders sell options of income and buy options for protection.

      For example, an investor owns a 100 shares of stock "ABC"and is scared the stock may drop in price.  The type of option to be bought would be a put option.  An investor  buying a put option has right but not the obligation to sell their shares at the strike price prior to or at expiration.  In this case, the buyer of the put option is buying a put as insurance.  If the price of the stock dropped a large amount, the buyer can exercise the option and will be able to sell the stock at the strike price.   The option seller is obligated to buy100 shares of stock "ABC" at the strike price if the option is in the money at expiration or is exercised by the buyer prior to expiration.  For this obligation by the option seller, he or she is paid a premium upfront.  When the option seller is assigned the stock, he or she is "put" the stock.
   
    The stockholder who owns 100 shares of stock can also sell a covered call option.  The covered call allows the investor or trader to be paid a premium upfront for the obligation to sell their 100 shares of stock at the strike price on or before the expiration date.

      An individual can also buy options without owning stock. In this case, options are a form of leverage without using debt. When an investor is bullish on the stock, he or she can BUY a call option contract(s) at a strike price and expiration day.  The opposite of this for when a person is bearish on a stock, the person can BUY a put option contract(s) at a strike price and expiration date.  In both these cases, the option buyer pays a premium.

Recent Option Trades

  My 2 recent option trades involve covered calls.

Option Trade Number 1

    On June 5, I sold 2 covered call option contracts on my position in Rogers Communications Class B Non-Voting (RCI.B.TO) stock

 Net Premium Received =  $20.05
Option Assignment Fee = $24.95
Current Annual Dividend = $1.96
# of days to expiration = 46
Strike Price = $ 65.00

 Return = premium received / money received from selling at strike price
             = $20.05 / $13000
             = 0.00154
             = 0.154%

This return is for 46 days

Annualized return = 0.154% *(365/46)
                              = 1.222%

    These returns are small.  The annualized return of 1.222%  is slightly higher than the interest on my high interest savings account of 1.1%.  The annualized return is rather low, but this is due to selling the option deep out of the money.

     If this option is assigned, the capital gain would be slightly if I sold the stock at the strike price without an option.  This is due to the net option premium received is less than the option assignment fee.

Capital gain = # contracts*100 shares*strike price + net option premium  - option  assignment  fee                                        -    (adjusted cost base of stock purchase)

Option Trade Number 2

    On June 8, I sold 1 covered call option contracts on my position in Restaurant Brands International (QSR.TO ) stock.

 Net Premium Received =  $34.05
Option Assignment Fee = $24.95
Current Annual Dividend = $1.80 US
# of days to expiration = 43
Strike Price = $ 82.00

 Return = premium received / money received from selling at strike price
             = $34.05 / $8200
             = 0.00415
             = 0.415%

This return is for 43 days

Annualized return = 0.415% *(365/43)
                              = 3.52%

  This annualized return is much greater than the interest on my high interest savings account of 1.1%.  I sold this covered call option contract with the option being deep out the money.  The annualized return is higher the the first covered call as QSR.TO stock price is more volatile than RCB.B.TO.  

Summary:

       The return on these positions is small as I sold these option contracts deep out the money.  This is still a possibility of these options being assigned before or at expiration day. I wrote (sold) covered call options on these positions to get some more money out of the markets.

Disclosure:  Long QSR.TO, RCI.B.TO

DISCLAIMER
I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

Saturday, June 2, 2018

Dividend Income Update: May 2018



      
        The month of May 2018 is another month of dividend income landing in my accounts. This money is used to help pay my expenses if it is needed. If the money is not needed, it is ALL used to purchase new investments to further increase my cash flow.

       
 Non-registered Accounts 

  • Bank of Montreal (BMO) - $32.55
  • Cineplex  (CGX) - $14.00
  • Dream Office REIT   (D.UN)  - $52.58
  • Enerplus (ERF)  -$ 5.58
  • Emera Inc. (EMA) - $56.50
  • Shaw Communications (SJR.B)    - $19.75

TFSA
  • A&W Royalties Income Fund (AW.UN) - $5.24
  • Boston Pizza Royalties Income Fund   (BPF.UN) - $26.91
  • Cominar REIT (CUF.UN) - $10.80
  • iShares 1-5 yr Laddered Canadian Corporate Bond ETF (CBO) - $0.57
  • Dream Office REIT   (D.UN)  - $14.00
  • Horizons Natural Gas Yield ETF (HNY)  - $7.00
  • Killam Properties REIT (KMP.UN) - $  16.11


Total = $261.59

    I received a total of $261.59 in dividend income for the month of April 2018.  This represents a 2.52%  decrease from 3 months ago and 22.41%  decrease year over year.  The decrease from 3 months ago is mostly of a result of Cominar REIT reducing its distribution from $1.14 to $0.72 annually.

    I received $0.00 from option premiums within my investment accounts in May 2018.

    I will update my dividend income tab with the new amount I will include my option premium income also.  It is great to see money from passive income sources deposited into my brokerage account every single month.

How was your dividend income for May 2018?

Disclosure : Long all securities above.

Photo Credit: www.mipaq,co.za

DISCLAIMER
I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.



Portfolio Update: May 2018

 The month of May is now behind us.

What a month for news affecting the markets? Where do I start? Things happened in the United States and Canada. 

  
 Canada has 2 major air lines in operation, which are WestJet Airlines and Air Canada.  Air Canada is a lot bigger than WestJet and fly to more destinations.  During the month of May, the pilots of WestJet voted 91% in favor of strike action. One of the major issues was the pilot's union did not like the plan of non WestJet pilots to fly SWOOP planes.  WestJet is considered a discount airline whereas SWOOP is a future ultra low cost carrier that will operate as a subsidiary of WestJet.  The pilots, as a goodwill gesture, said they will not strike during the long Victoria Day week in Canada.  This was to not disrupt the travel plans of their passengers.  The pilot's union and WestJet Airlines continued there talks and avoided a strike.  The head of the pilot's union and the CEO of WestJet came to an agreement to agree to mediation, and if necessary, use binding arbitration.  WestJet Airlines and the pilot's union said the pilots of SWOOP will be WestJet pilots. 

   Canadian Pacific Railway workers voted in favor of strike action.  Unlike WestJet Airlines, CP Rail  workers went on strike.  The strike lasted less than 48 hours, when an agreement was reached between the workers and CP Rail.  Canada has a backlog of grain shipments, so a prolonged striked would of been drastic to grain farmers getting their grain to markets.  CP Railway and its competitor CN Rail are regulated to move grain shipments.  Obviously, the railways move other freight such as intermodal, coal, crude oil etc.

The expansion of the Trans Mountain Pipeline, which was owned by Kinder Morgan, stalled as opposition to the pipeline.  The opposition was from protestors and the NDP government and the 3 members of the Green Party of BC are totally against the project.  The expansion of the pipeline would increase the capacity of Alberta oil and allow Canada to get their resources to market.  Right now, Canada is selling our oil to the Americans as a discount compared to what they could get on world markets.  Canada is essential loosing approximately $12 billion a year.


Kinder Morgan gave a May 31 2018 deadline to have the issue of protestors and opposition by the BC NDP Government come to a peaceful end.  Alberta NDP government recently passed legislation that Alberta government can restrict the movements if its resources through pipelines.  The NDP government  is going to go court to see if Alberta is legally allowed to restrict the flow of Alberta's resources outside Alberta's borders.  

The issues with the BC government opposing the pipeline along with the protestors, had led to the federal government  paying $4.5 billion to purchase the existing pipeline and assets of Trans Mountain pipeline.  The federal government has federal jurisdiction  when it comes to pipelines.  The federal government believes they can have construction on the pipeline started within months.  The federal government said the plan is to build the expansion and then to sell the pipeline to a non-government entity.  

Over the past several months, the US President Donald Trump and Canada are having talks about NAFTA.  NAFTA stands for North American Free Trade Agreement.  The US president announces tariffs this week and the federal liberal government retaliated by imposing tariffs of their own.

Portfolio Activity

During the month of May, there was no options trades started. 



Shares Purchased Via DRIP

0.434 unit of ENB.TO @ $39.37 for a total cost of $17.08  (transfer agent)
 

ENB.TO currently pays an annual dividend of $2.684. This DRIP adds $1.16 to my annual dividend income.

 

Dividend Increases
 

On May 1, A&W Revenue Royalties Income Fund (AW.UN) released it first quarter earnings.  With the release of their first quarter earnings, AW.UN announced a distribution increase $0.024 annually. The distribution was increased from $1.632 to $1.656.  This represents an increase of 1.47%. 

I currently own 38 shares of AW.UN,  so this increase adds $0.91 to my annual dividend income.  This increase of $0.91 is equivalent to investing $26.00 of my own money at a 3.5% yield. The distribution was recently raised for the Nov 30 2017 payment date.

On May 30, Bank of Montreal (BMO.TO) reported solid earnings and announced a dividend increase of $0.12 per year. The annual dividend was increase from $3.72 to $3.84, which represents a 3.23% increase. Bank of Montreal, along with 3 of the other 4 big banks, have been increasing their dividend twice a year. 

I currently own 35 shares of BMO.TO, so this increase adds $4.20 to my annual dividend income. The increase of $4.20 is equivalent to investing $120.00 of my own money at a 3.5% yield.


Summary:


As of June 1 2018, the value of the portfolio is $111409.75. This is a 3.62% increase over last month's total. The spreadsheet investment tab above has been updated.
 

Disclosure: Long AW.UN, BMO.TO, WJA.TO, CNR.TO
 

Please Note: All stocks are from the Toronto Stock Exchange except TTR which trades on the Venture Exchange.

DISCLAIMER

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

Monday, May 28, 2018

Strikes : Good or Bad?

WestJet Airlines          

      When the pilot's union of the pilots of WestJet voted 91% in favor of strike action, the travelling public started to worry about their travel plans.  WestJet Airlines employees were not part of a union until recently.  WestJet Airlines employees are WestJet owners, which was part of the commercials.  See, instead of having pensions like their Canadian competitor Air Canada, WestJet employees could purchase company stock as part of an employee stock purchase plan.
       
       On May 25th of 2018, WestJet CEO and head of pilot's union made an announcement that the threat of strike action has been eliminated and the people can book with WestJet with 100% confidence.  One of the major sticking points involved the soon to launch ultra low cost carrier Swoop.  Swoop was going to have pilots from other parts of the world and they would not be WestJet Pilots.  WestJet has come out and said that Swoop planes will be piloted by WestJet pilots.  This will likely mean, the cost to fly on Swoop will be increased to offset thee pay of the unionized pilot.   The parties have agreed to mediation and possibly binding arbitration to come to a contract.
           On this news of no strike action, the price of WestJet stock, WJA.TO, increased 5% and then started to retract to between 2 and 3%.

Canadian Pacific Railway

     Over the weekend, the unions of Canadian Pacific Railway gave a 72 hr strike notice after rejecting the company's latest offer. 

     What happens when a Class 1 railway goes on strike?  The economy is strongly affected as a lot of companies ship by rail to reduce cost considerably and the belief that it is more environmentally friendly.  Trains transport commodities such as coal, crude oil and grain. Trains also transport goods via intermodal containers and temperature controlled intermodal containers.
   
    The federal government will get involved very soon if the matter is not settled within a matter of days.  Canadian Pacific Railway is preparing for a work stoppage.  Their main competitor in Canada, Canadian National Railway, has stated they will not be able to accommodate shippers in the event of strike by Canadian Pacific Railway.

Are Strikes Good or Bad?

      Strikes can sometimes cause hardships for everyday people.  In 2011 or 2012, Metro Transit drivers of Halifax went on strike. The strike lasted approximately 6 weeks and it was during the winter.  A lot of people rely on buses to get back and forth to work and university.  A lot of people had to quit their jobs because they did not a viable means of transportation due to lack of money.  The bus drivers wanted higher pay, more safety and better work schedules.  Bus drivers get to pick their schedule of when their start time and which routes they will drive.  This picking of schedules is done by seniority.
     
       Was their anyone compensation for the public who had to quit their jobs? No there was not.  A goodwill gesture, Metro Transit made the buses free for 2 weeks to help their passengers financially.

         Union employees get paid more than regular employees to the same type of work.  I recall being told by someone in 2005, that their friend got paid $24 an hour to work at Canada Post's sortation plant in Halifax.  Canada Post is unionized.  Courier companies like Purolator and Sameday Worldwide pay their dock employees a lot less. Often times the courier companies work would be harder physically than Canada Post, which has lots of letter mail.

     When I was at Dalhousie University, the professors went on strike about 2 weeks before final exams. All classes were cancelled obliviously, or that was what we were told.  One professor decided to teach his class during the strike saying that you guys are paying for this course.  A few days before exams were scheduled to start, the strike was over.  A lot of students were stressed out during the strike wondering if their semester and possibly year ( full-year courses) were in jeopardy.
 
    Years ago, that a bus driver was suspended for taking his lunch break at a different time that when is lunch was scheduled.  The driver was late due to an accident and construction along his route.  The bus driver was part of a union.  So, his suspension lead to his fellow bus drivers walking off the job.  Did any of the bus drivers get fired?  No bus driver lost their job.  If a non-unionized employee did this, they would be fired instantly.

   When not a part of a union, there is no protection in a job.  A boss or fellow co-worker could scream at you and such.  If you quit your job, you will have a hard time to convince the employment insurance office that you had a valid reason for quitting.  Therefore, your source of income is lost completely as there is no job income or employment insurance income.  We all have been there or know of someone that quit a job because of a toxic work environment.
    Some worksites will not even allow non-unionized workers on site.

Conclusion:

     Strikes can be good or bad depending on the individuals involved.  A strike can lead to better working conditions and higher pay for the employees involved.  The downside is that the public can drastically affected.  An example of the latter is when public transit goes on strike.  The travelling public could be left without a reasonable cost effective way to get to and from work.

Disclosure: Long WJA.TO


DISCLAIMER
I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

Monday, May 21, 2018

How Events Affect The Markets

         The prices of stocks move up and down daily. More often than not, the fundamentals of the company do not change every single day.  The price of a stock goes up when there are more buyers than sellers and vice versa.  When an investor buys a stock on the stock market, the company does not make any money from you from this purchase.  The investor is basically buy shares from another investor (seller).  Besides the normal operations of the business, a business can also make money from selling of shares through an initial public offering (IPO) or offering shares for sale.

 Major Events in Canada

Pipelines 

        Over the past several months, there has been an ongoing battle between the provincial governments of Alberta and British Columbia and the federal government. The New Democratic Government (with help from the 3 Green Party MLAs) of British Columbia are against the expansion the Trans Mountain Pipeline that will increase the flow of oil from Alberta to British Columbia.  The expansion of the Trans Mountain Pipeline would allow Alberta to gets its resources to foreign markets beside the United States and within Canada.
        With the United States being the only country that receives Alberta oil and gas, Canada receives a lower dollar amount than what the corresponding products trade in the markets. Oil and gas moves by rail, truck and pipelines.  A few years ago, there was a major accident in Lac-Megantic, Quebec, involving the 72 crude oil rail cars rolled down an incline. Some of these cars derailed and caught fire.
        The pipelines are operating at full capacity, so the next option is transport by rail.  Although the government of  Canada and the US government have brought in regulations to improve rail safety, transporting oil and gas via trains is dangerous.  So the push is to have a safer alternative, and that safer alternative is pipelines.
       The NDP government of British Columbia campaigned on being against the pipeline expansion.  This government is concerned with the possible spills on their lands and in their coastal waters.  The expansion of the Trans Mountain pipeline would bring increase tanker traffic on their coasts.  The current Trans Mountain pipeline has been in existence for approximately 6 decades.
       The NDP government of British Columbia is using every tool at their disposal to try to stop the expansion of the Trans Mountain Pipeline.  The NDP government of Alberta and federal government are saying the pipeline will be built and that the pipeline falls into federal jurisdiction.  The Alberta government has passed a bill that will allow Alberta to restrict the flow of resources to British Columbia.  The governments of Alberta at the federal level have stated they will make an large investment in the pipeline to make sure it gets built.
       Kinder Morgan Canada has publicly declared a deadline of May 31 to proceed with the expansion of the pipeline or not.  A representative of Kinder Morgan Canada has recently stated that the likelihood of the project going forward is low despite due to the environment of protestors and opposition to the pipeline.
        As a result of the pipelines running at full capacity, the rail companies have benefited from increased use of rail cars to transport crude oil.

WestJet Airlines Potential Strike

   Canada has 2 major airlines.  These 2 major airlines in Canada are Air Canada and WestJet.  About a year ago, the pilots of WestJet joined a union.  Prior to that, employees of WestJet joined a union.  A couple of weeks ago, the pilots of WestJet voted 91% in favor of a strike. The pilots said , as part of a goodwill gesture to WestJet Passengers, they will not strike during the Victoria Day long weekend. So the pilots go walk off the job on Tuesday.
    WestJet Airlines have stated they will fully refund fares to passengers affected in the event of a strike.
    WestJet Airlines (WJA,TO) have recently released their earnings that were negatively affected by the rising fuel costs.  Their earnings report. along with the possibility of a strike, has caused investors to flee which lead to the stock to fall below $20 per share.

 Conclusion:

     The events that unfold on a daily basis can cause markets or , in particular, specific stocks to drastically move in one direction.  When their is rather bad news,  investors flee in droves and this causes a large drop in the price of a stock.
     If the WestJet pilots actually do strike, the federal government is likely to get involved real quick as to eleviate the incoveniece to the travelling public and people who use the airline as part of their business.
   How will the markets react in the next couple of weeks.  If Kinder Morgan decides not go ahead with the pipeline expansion or the NDP government will not allow the pipeline to be buidt, this will cause the price of Kinder Morgan and likely other companies in the same price to faul in value.

Disclosure: Long ENB.TO, ERF.TO, WJA.TO, CNR.TO

DISCLAIMER
I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.