Brief Review A&W Income Fund Quarter Results

     There is a lot of variety in Canada when it comes to fast food chains.  These restaurants included Burger King, McDonald's, A&W and Wendy's.

      The Fund is a limited purpose trust established to invest in A&W Trade Marks Inc. (Trade Marks), which indirectly owns the A&W trade-marks used in the A&W quick service restaurant business in Canada. The trade-marks comprise some of the best-known brand names in the Canadian foodservice industry. Trade Marks licences these trade-marks to A&W Food Services of Canada Inc. in exchange for a royalty of 3 per cent of the sales of 861 A&W restaurants in Canada. Source: A&W Income Fund website  )                           

       This structure makes the A&W Revenue Royalties Income Fund a "top-line" fund because income is based solely on the sales of A&W restaurants minus the Fund's and Trade Marks' minimal operating expenses, interest on Trade Marks' term debt and income taxes. The Fund is not subject to the variability of earnings or expenses associated with an operating business. (Source: A&W Income Fund website )

A&W has changed their menu in the last 3-5 years to such as can be found in this list of facts.  I will highlight some of those here:

• In 2013. A&W started to use beef that is raise without the use of hormones or steroids.
• In Sept 2014, A&W started using chicken that was raised without the use of antibiotics and fed  a grain-based, vegetarian diet without the use of animal by products.
• In Feb 2016, A&W started to use pork raised without the use of antibiotics.

    With these changes over the last several years, this has increased the prices on the menu up besides increases due to inflation.  A&W also has a lot of restaurants in Alberta and Saskatchewan, which have seen there economies struggle over the last 3 years with falling oil prices.

      The number of restaurants in the royalty pool increased from 838 to 861, which is updated every January.  This represents a increase of 2.67% in the restaurants in the royalty pool.

      A&W saw a decrease of 0.3% in Same Store Sales growth from the period between January 1 2017 to March 26 2017.  For the same period in 2016, there was an increase of 8.6% in same stores sales growth.

       The royalty income increased from $7314000 for Q1 2016 to $7355000 for Q1 2017, which represents an increase of  just 0.56% .  This small increase in royalty income and increase in expenses for administration of the fund and an increased distribution as pushed the payout ratio higher. Since this is an income fund, A&W must pay out 90% or more of their profits as distributions to unitholders.

      The income fund has fallen over the last month by 10.94% and 3.03% on May 29. The fund pays monthly distributions. 

Disclosure:  I own 38 units of AW.UN in my TFSA and 115 units of AW.UN in my trading account.

EDIT (May 30 2018) - This stock has had a rough start to the trading day once again. We have also had lots of things happen recently.  The Green party is British Columbia holds the balance in power.  They now have a agreement in place with the NDP, in which the current government will lose power. If this gets approved then I believe the NDP will form the government.  The NDP has said they will increase corporate taxes.  

   The premier of Ontario has announced that the minimum wage in Ontario will change dramatically. It is already set to go increase from $11.40 to $11.60 this October. In her announcement, Premier Wynne stated the minimum wage will increase to $14 on Jan 1, 2018 and to $15 the following year.  I personally think this will have dramatic effects. People of all income levels are not happy with the prices in stores now. Businesses have to raise their prices in order to increase wages.  

    The minimum wage in Alberta is supposed to be raised by $1.40 on October 1, 2017 and then raised to another $1.40 on October 1, 2018.  A&W has lots of restaurants in Alberta.  With the state of the economy in Alberta, these stores are going to struggle financially.

    I wish I would of set a stop loss in the trading account.  This position has a purchase price of $36.65.

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.

Market Outlook

      The markets are moving sideways or upwards.  At the time of this writing, the S&P 500 closed Friday at 2415.82, which is  slightly below it's all time high. North of the border, the TSX Composite Index closed at 15,416.93.  The TSX Composite Index has been in a channel between basically 15300 and 15900 since the beginning of 2017.

      With the markets being at or near their all time highs, lots of investors are becoming fearful.  In Canada, the energy is one of the main industries for investors to invest in .  With oil trading anywhere between $45 and $53 per barrel, this definitely hurts the bottom lines of the oil patch companies.  In fact, a lot of laid off workers in the oil patch are hesitant to go back.  Furthermore, a lot of companies are offering lower wages. A few months ago, it was mentioned on the Business News Network aka BNN that a company who used to pay people $40 an hour hired people back at $15 an hour.

       The actual drilling rig activity in western Canada can be shown in the following weekly chart.

Source:  CAODC website

          The price of a barrel, on top of spring "break up", have a large impact on companies willing to drill right now.  These numbers would be slightly higher, but it is spring break up.  Spring breakup in western Canada, usually occurs between April and May. Basically, spring break up is where oil patch activity slows down tremendously due to the thawing of the ground.  The dirt roads become difficult to drive on and lease roads are even more horrific.  A lease road is basically a road off a main road or a dirt road that was not there recently.  These lease roads can be right through a wooded area some times. These lease roads start of smooth and there get more difficult over the time the rig is in operation due to weather events and large trucks coming in and out.  Canada is also a high cost producer for oil.

      Why all the mention on oil?  Energy companies are a major part of the Canadian markets and lot of these companies are struggling to maintain profitability.  To makes matter worse, the North American market is due for a recession. As nobody has a crystal ball,  we do not know when the recession is coming but it has been roughly 9 years since we had one. When there is a recession, the oil companies are not immune.

      Investors in Canada have limited investing opportunities within our borders. In order to invest in some sectors, we have to purchase US stocks. The companies like the Johnson &Johnson, Coca-Cola, Peps, and Phillip Morris do not exist up in Canada. Ideally, Canadians should buy US stocks when our dollar is on par with the US dollar.

   With the Canadian dollar trading at approximately $0.74 US, a Canadian investor is better off purchasing their investments in Canada.  With the state of the financial markets, investors have to be more careful in their entry points. A fellow blogger, Jason Fieber, recently published an article on a Daily Trade Alert with a video which  can you explore here.  At the bottom of Jason's article is a link to a video where Jason talks about how he researches stock.  Jason was the founder of the blog www.divendmantra.com and now is the founder and publisher of mrfreeat33.com

    Conclusion:

     With the markets at an all time highs, investors have be more careful at picking stocks and picking their entry points. Investors need to grow their cash position, so they can take action when an opportunity arises.  We do not know when the recession or a 10% to 20% correction will come.  If we did, we would be all more wealthy than we currently are.

      The new normal consists of less full time jobs and more part time jobs. Usually a company does not provide benefits for part workers.  Nowadays, an individual has to be open to working possible multiple jobs, become self employed or have side hustles.  The cost of living is going nowhere but up whereas wages are become stagnant or even less.  Since the 70s, wages have pretty much stayed the same adjusted to inflation.  I find a lot of people believe they get a "raise", when in fact they get a cost of living increase.  To me, getting a raise involves the employee being called into their boss's office and is praised for good performance and is rewarded by getting paid more. When an employee receives of cost of living increase, so do all his or her fellow employees.  For individuals to be able to invest frequently, their savings rate has to increase.  To increase his or her savings rate, an individual must lower their expenses and make more income.

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.

Option Trades Update

       May 17 was a down day on the North American markets. Investors and traders are concerned over recent events involving the President of United States Donald Trump.  Adding to this, is the low interest rates that we have currently.  Another major issue is that of Home Capital Group (ticker symbol HCG.TO).  HCG.TO, which is in the mortgage business, continues to be the major topic of discussion. Savers are continuing to withdraw their money from their high interest savings account, which is putting strain on the HCG.TO bottom line.  HCG.TO recently got a 2 billion line of credit from HOOPP, which is Healthcare of Ontario Pension Plan to try to stay a float.  HCG.TO has said in the last week, that replacing the HOOPP line of credit is a top priority due to the high interest rate on the line of credit.

       In Canada, the TSX Composite Index was down 269.65 points which represents 1.73% decrease from the day before. The S&P 500 was down 43.64 points, or 1.82%, for the day.  The Dow Jones Industrial Average was down 372.82. or 1.78%, for the day.

      I currently have to put options set to expire this month. My short put in Royal Bank is set to expire on May 19th.  The stock RY.TO closed at $91.45 today. My strike price is $92.00 and it is for a single contract.

     My other put option is in another Canadian bank, TD Bank.  My short put in TD is set to expire on May 26th.  The stock TD.TO closed today at $62.26, which is below my strike price of $62.50.  I also currently own 100 shares of TD.TO.

     Today's closing prices of these stocks are over $8.00 per share below their 52 week highs. I am not worried at all with option assignment on these stocks, as the banks have proven over the years that they are excellent companies to own.  If Royal Bank option gets assigned I will likely write covered calls as I would like my entry point to be lower. 

Disclosure: Long 100 shares of TD in margin account.

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.

Option Trade

          The big banks in Canada have falling in value recently. In particular, Royal Bank of Canada (RY.TO) has falling from it's 52 high of $99.90 from a few months ago.  RY.TO is currently trading at  $93.33 per share.

       The major topic in the news in Canada is the company called Home Capital Group (HCG.TO).  The company provides high interest savings accounts for savers at low interest rate and then writes mortgages with a higher interest rate, and basically makes money off the difference.  This business model has been failing as savers have been pulling there money out in droves.  The savers are doing this as they do not feel comfortable having their money there due to recent events happening to HCG.TO.  HCG.TO has recently gotten a $2 billion line of credit from Health Care of Ontario Pension Plan, which they have used approximately 1.4 billion dollars of to stay a float.

       In Canada, there is high cost of housing in Vancouver, Toronto, Edmonton, Calgary and Fort McMurray.  The highest of these costs and in Vancouver and Toronto.  Some people are talking about a possible housing correction, so this has caused the bank stocks to trade lower as of late and slightly offset with investors chasing yield by purchasing shares in the banks.

      So on May 10, I sold a put option in RY with a May 19, 2017 expiration day.  I collected a premium of $41.05 after commissions.

Summary:

Strike Price: $92.00
Total Premium Received : $36.05
Days to Expiration: 9
Current Annual Dividend = $3.48
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $36.05/ (1*100*$92.00)
                     = .00392
                     = 0.392%

The total return for 9 days is 0.392%.  The annualized return is 15.89%.  For comparison, my interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [1*100*$92- $36.05+$24.95] / 100
                                                = $91.89

Yield on Cost = $3.48/$91.89*100 %
                       = 3.787%

 What would the yield be if shares purchased directly at $92.00 using a limit order?

Commission = $4.95

ACB/per share = [1*100*$92.00+$4.95 ] / 100
                         = $92.05

Yield on Cost = ($3.48/ $92.05) * 100%
                       = 3.781%

Conclusion:

      From Scenario #2, we can see the yield on cost would be roughly the same although receiving a net premium of $36.05.  The option assignment fee of $24.95 greatly reduces the difference between the yield on cost of option assignment to that of purchasing shares out right.  Not all brokerages have an option assignment/exercise fee.

     As of this time, I do not plan to open an account with Interactive Brokers. I will open an account with Interactive Brokers in the future.

Disclosure: Currently do not own any shares of RY.TO in any accounts.

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.

One Thing You Can Be Sure Of In LIfe

          We all know people who spend their entire paychecks.  These people live paycheck to paycheck. If you do not know anybody specifically, you can roughly tell by their actions if they live paycheck to paycheck.  Some of these people are in dire straights, while others are just more managers of their money. Some people have plans for their money even before they receive it.  These people might have a lot more fun, but they are also a lot more stressed.  Unfortunately for the rest of us, we here the complaining and snapping at people. 

         The one thing we can be sure of that will happen in an individual's life is an emergency.  These emergencies can be things such as car breaks down, roof leaks, or a job loss.  Emergencies can occur without any notice.  People need to prepare for emergencies before they happen.  People prepare by saving 3 to 6 months of expenses in an account for emergencies.  This is called an emergency fund. 

         The emergency fund  has to be easily accessible.  This can be money kept in a savings account, money market fund,  or somewhere in your house.  By having an emergency fund, an individual will not have use a credit card or sell investments to fund these emergencies.

        Having an emergency fund also allows an individual to sleep better at night.  How much money should be in an emergency fund?  The amount of money put in an emergency fund should be at least 3 to 6 months worth of expenses, but an individual should make there emergency fund as big as they need.

   How would you feel when somethings happens like this:

• car breaks down
• furnace breaks down
• get sick
• lose a job
• sewage backup
• house fire

   For anything that people have insurance for, there is a delay from receiving moving from insurance. For example,  if your house or place of residence catches fire and you have to go to a hotel, you will have immediate access to the money via the emergency fund instead of putting money on a credit card. The insurance will take a few days to go through and you might have to put up a fight to get it.

   People who save money these days will actually lose money due to the interest rates that banks pay on savings accounts and how this compares to inflation.  See, the emergency fund is insurance and not an investment.

    Do you have an emergency fund?

  

Photo Credit:  www.shutterstock.com

No Money to Invest?

        When it comes to investing, a lot of people say they cannot afford to invest.  I think people can not afford NOT to invest. What do I mean by that?  Investing means putting your money to work.  If a person spends on their income, they will not get anywhere in life. People often say you need tens of thousands of dollars to invest. The modern day potential investor has a lot of advantages over someone years ago.

       Years ago before the birth and rise of discount brokerages meant that investors had 2 options. They could call up the brokerage and purchase shares or units at high commission. This made it harder to pick entry points.  Also investor's were not able to see real time quotes like they do today.

        The investors of today have another method still at their disposal.  The real old method of purchasing shares is directly through the transfer agent. In Canada, can purchase shares through the transfer agent directly.  Before using the transfer agent, often times the potential investor has to buy a share from another person.  In Canada, this can be done through the website dripprimer.ca.  An individual would then go to the Share Exchange board and put a message on the board saying they are looking for a share in a certain stock. A share certificate is then sent to the transfer agent by the seller and the buyer would receive the share in a few days or so.  When an investor purchases shares through the transfer agent, they have no control of the purchase price of the new shares. Purchasing shares through the transfer agents means investors do not pay commissions and the entire dividend is reinvestment or paid out.  Some of the companies have a DRIP discount on shares purchased with re-invested dividends.  This method of investing do not require a lot of upfront costs.

     Nowadays, investors pay low commissions via discount brokerages. These discount brokerages have commissions of $10 or under compared to full brokerages which have commissions of $30 or more.  Unlike a full brokerage, an investor using a discount brokerage has to  pick their stocks on the own after doing their own research.  Currently, Dan of Sharpe Trade is proving a way this can be down.  You can read about this project, called the Sharpe Income project on Sharpe Trade and search for Sharpe Income or click on the Sharpe Income label.  Their entries on Monday provide a link to the start of the project and also a link for a spreadsheet.

   For disclosure, I have no affiliation with Sharpe Trade LLC or any of its products on their website. 

      A few of the discount brokerages off commission free ETFs for purchasing only or for both purchasing and selling. The fees associated with the purchase or selling is a ECN, or electronic exchange network, fee which is usually very small.

      Exchange Traded Funds, aka ETFs, are cheaper than mutual funds when it comes to fees and trade like a stock on the stock exchange.  Investment fees eat into returns, so an investor should keep their fees as low as possible.

      The power of DRIPs is shown in the following video.

Dividend income Update - April 2017

      The month of April 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.

        The price of barrel of crude oil has falling during the month, and it currently sits just below $48.00 per barrel.  As April and May is when breakup occurs in the Western Canadian oil patch.  What is breakup? Breakup is where oil rig activity slows to a crawl as the ground is thawing.  This thawing causes the dirt roads and lease roads to be difficult to have large trucks travel.

      One thing for sure, is that I was paid dividends and distributions for being a shareholder or unit holder in  various companies or funds. In  Sept 2016, the Dream Office REIT in the margin account will be counted as dividend income  for the first time.

 Non-registered Account

• Bank of Nova Scotia (BNS) - $24.96  (transfer agent)
• Bank of Nova Scotia (BNS) - $15.20
• Bell Canada Enterprises (BCE) - $71.75
• Canadian Imperial Bank of Commerce (CM) - $ 35.56
• Enerplus (ERF)  -$ 5.58
• Dream Office REIT   (D.UN)  - $77.25
• Roger's Communications Class B (RCI.B) - $96.00
• Shaw Communications (SJR.B)    - $19.75

TFSA

• A&W Royalties Income Fund (AW.UN) - $5.05
• Boston Pizza Royalties Income Fund   (BPF.UN) - $26.91
• iShares 1-5 yr Laddered Canadian Corporate Bond ETF (CBO) - $0.62
• Cominar REIT (CUF.UN) - $21.07
• Dream Office REIT   (D.UN)  - $ 17.63
• Horizons Natural Gas Yield ETF (HNY)  - $4.45
• Killam Properties REIT (KMP.UN) - $  15.60
• TFI International (TFII) - $9.50

Total = $446.88

    
    As the amount of distribution from D.UN inside my margin account, will have a large impact on the comparison of dividend income from 12 months ago. This dividend income total of $446.88 represents an increase of 8.09% from 3 months ago.

     Dream REIT has reduced the amount of distribution they pay monthly which was announced in February 2016.  Recently, I wrote about purchasing more units of D.UN inside a margin account.  Starting in September, the distribution from this D.UN inside the margin account will be included in my dividend income.

    I received $0.00 in options premiums in April 2017.

     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 April?

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.

Option Trade

 

   

        The big banks in Canada have falling in value recently. This decrease in value can be the result of a lot of things currently.  We are due for a recession in North America ,as historically, we have had a recession every 8-10 years.  Currently, right now Alberta is in a recession all of its own in Canada.  The province of Alberta major employer is the oil and gas industry.  The oil and gas industry involves drilling companies, production companies, oilfield service companies and companies whose derive a lot of business due to indirectly serving the oil and gas industry.  My previous employer made machined parts for the oil and gas industry and had one major client.

        A major issue in central Canada is the housing situation in Ontario in their largest city which is Toronto. Toronto and its adjacent areas such as Mississauga are part of what is known as the GTA.  The prices of houses here extremely high due do the population.  The mayor of Toronto and some members of their provincial government are concerned about a possible housing correction as they believe many people will not be able to afford their homes. Our interest rates are extremely low right now.  When they start to rise, the will mean higher mortgage payments eventually for the people.

       The other major city in Canada with similar high priced homes is Vancouver.  Vancouver is located in British Columbia. 

      So on May 2, I sold a put option in TD with a May 26, 2017 expiration day.  I collected a premium of $41.05 after commissions.

Summary:

Strike Price: $62.50
Total Premium Received : $41.05
Days to Expiration: 24
Current Annual Dividend = $2.40
 Option Assignment Fee = $24.95

Scenario #1 :  Option not assigned

Total Return = $41.05 / (1*100*$62.50)
                     = .0066
                     = 0.66%

The total return for 24 days is 0.66%.  The annualized return is 9.99%.  For comparison, my interest savings accounts pays an annual interest of 0.80%.

Scenario #2:  Option is Assigned 

Adjusted Cost Base  per share= [1*100*$62.50- $41.05 +$24.95] / 100
                                                = $62.34

Yield on Cost = $2.40/$62.34*100 %
                       = 3.850%

 What would the yield be if shares purchased directly at $62.50 using a limit order?

Commission = $4.95

ACB/per share = [1*100*$62.50+$4.95 ] / 100
                         = $62.55

Yield on Cost = ($2.40/ $62.55) * 100%
                       = 3.837%

Disclosure:  Long 100 shares of TD.TO in my margin account.

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.