International Diversification Via an Exchange Traded Fund (Part 2)

 I have held Tangerine funds within my RRSP for a few years and then sold out.  I kept the cash with Tangerine as a high interest savings account for about 3 years.  The interest rate kept dropping and I got more and more frustrated.  I decided to make a move.

I transferred my RRSP to my brokerage to make better investments and hopefully better returns.

I decided to start off with international exposure.  I decided to go with XAW ETF based in Canada.  The ETF is actually called iShares Core MSCI All Country World ex Canada Index ETF.  To learn more about this ETF, click here.

I now own 76 units of this ETF.  I did not use my own money, except the capital to purchase other positions to help pay for it.

To see how I purchased the first 35 units of XAW, click here.  

Steps

From Part 1

          -   total raised cash was $1004.13.

          - total purchase cost of 35 XAW units was $934.34

 Now Part 2  (September 2020 to August 28 2021)

           

- September 21  Covered call on Fortis expired 

- September 22  Sold 2 Nov 20 2020 FTS.TO covered calls for net premium of $158.05

- October 27  Bought 2 units of XAW at $$28.25 for a total cost of $56.51 including ECN fees 

-  November 13  Bought to close 2 Nov 20 2020 $54 FTS.TO covered calls for net cost of $201.95

-   November 13   Sold 2 Dec 18 2020 FTS.TO $54 covered calls for net premium of $284.05 . 

- December 1   Collected $101.00 dividend from FTS.TO 

- December 14 Bought 8 units of XAW at $30.30 for a cost of $242.43 including ECN fees.

- December 21   Covered call expires worthless

- January 6   Received XAW distribution of $10.23

- January 25    Sold 2 April 15 2021 FTS.TO  $54 covered calls for net premium of $78.05.

-  January 27  Bought 2 units of XAW at $31.58 for a cost of $63.17 including ECN fees.

- March 1   Collected $101.00 dividend from FTS.TO

- April 16   Covered call is assigned.

- April 28   Purchased 400 shares of Telus Corporation. 

- April 30   Bought 6 units of XAW at $32.77 for cost of $196.64 including ECN fees

- May 10  Sold 4 June 18 2021 T.TO $27 covered calls for net premium of $66.05

- May 10  Bought 3 units of XAW at $32.60 for cost of $97.81 including ECN Fees.

- May 12  Bought 14 units of XAW at $31.60 for a cost of $442.45 including ECN fees

 June 8   Covered calls are assigned. 

June 14  Purchased 400 shares of New Flyer Group  (NFI.TO)

June 14  Sold 4  July 16 2021 NFI.TO $27 covered calls for net premium of $126.05 

June 28   Covered calls on NFI.TO were assigned

June 30    Received XAW distribution of $15.82

July 5   Bought 100 shares of CP Rail

July  6   Sold 1 Sept 17 2021 CP.TO $95 covered call for net premium of $164.05

July 19   Bought 6 units of XAW at $33.75 for cost of $202.52 including ECN fees 

Summary:  

From Part 1    Total cash available = $1004.13

                     Total costs of purchases = $934.34

   Total cash after part 1 is $69.79

Now  for Part 2

Option Premiums Received = $158.05 +$284.05 +$78.05 +$66.05 +$126.05                                                +$164.05

                                       =  $876.30

Dividends / Distributions received =  $101.00+$10.23+$101.00+$15.82

                                                 = $228.05 

The total amount is $1104.35

 

Purchase cost of 41 units of XAW =  $56.51 +$242.43 +$63.17 +$196.64                                                                +97.81+ $442.45+$202.52

                                                 =  $1301.53

Purchase cost of Buy to Close option = $201.95

The total cost  is $ 1503.48. 

 So, we have the following as of Aug 28, 2021:

$69.79 (left over from part 1) + $1104.35 - $1503.48 = - $329. 34 . 

I am short $329.34.  So I will have to collect dividends and sell more option premiums  to get this number to be positive.  Currently, I can received dividends from the CP Rail position and from XAW itself.  I also have a covered call on CP Rail that with an September 17 2021 expiration date.  

  

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.

Total Dividend Income Since 2012

As a dividend investor over the years, I have collected my rightful share of dividends from various companies.  Some companies have increased their dividend each and every year.  Some companies have not increased nor decreased their dividend in several years.  Other companies that I am a shareholder have cut, suspended or stopped their dividend.  The table below shows my total dividend income from January 1, 2012 to December 20, 2020 in relation to this blog. 

Two of the REITs no longer exit.  Whiterock REIT was taken over by Dundee REIT via unit holder approval.    Dundee REIT has since changed their name to Dream Office REIT.  Transglobe REIT was taken private in $1 billion deal in 2012.  

Potash Corporation of Saskatchewan merged with Agrium to form a new company called Nutrien. 

Tim Hortons was purchased by Burger King and these 2 companies operated independently under combined entity called Restaurant Brands International.  

Westjet Airlines was privatized when taken over by Onex Corporation.  

Disclosure:  Long all stocks in my investment tab spreadsheet 

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.
   

Took a Detour in Finance

After my shares of Mullen Group were called away in my trading account, I thought I would take a gamble and try to make a quick trade.  See, my trading account is currently within my margin account. When I make a trade in the trading account all the money stays in the trading account.  

I "borrowed" the amount of balance in my trading account  to make a trade that I was expecting to be completed really quick.

I purchased 558 units of Boston Pizza Royalties Fund (BPF.UN.TO) for $6.82 per unit for a total cost of $3811.34 including commissions. I set a limit order to sell within a few days at $7.10 per unit.  The unit price went on a downward spiral a few weeks and even fell below $6.00 per unit.  

Due to the COVID19 pandemic their business lost lot of money as their were lockdowns and social distancing rules for businesses to follow.  Boston Pizza felt this very early in 2020 and as a result, Boston Pizza Royalties Income Fund suspended their distribution.  The fund made an agreement that they will not pay a distribution prior to October 1.   

Fast forward to October 2.  Trading of the fund was halted on the stock market during an announcement.  The fund announced that they will start to pay a distribution starting the end of October.  Shortly after the trading was resumed the price of the fund shot up over a dollar and some.

The sell order was actually filled at $7.20 per unit on October 2.  The proceeds of sale were 4010.07 including commissions.  

So, I made a profit of $198.73.

Also, in the first week of October, I received dividends from Roger's Communications Class B and Restaurant Brands International.  Between these 2 positions, I received $168.17 in dividends..

I received a GST rebate check from federal government of $112.75 on October 5. 

So, I decided to make  a detour from my current plan.  The current plan was paying myself 12% to savings to get up to $2000.00 balance.  While doing this, I was paying 15% of income on my line of credit.

Detour

I used the $168.17 in dividends, my GST rebate check of $112.75 and the profit of the trade $198.73  and decided to write a check for $750.00 to purchase more shares of Bank of Nova Scotia (BNS,TO) directly with the transfer agent. Since I am short by $270.35.

The detour will consist of paying myself 15% to investing and 12% to savings. I will make a line of credit payment if any money left over at the end of a month.  If the $750 is reached and my savings is not up to $2000.00, the I will then revert back to paying 15% income on line of credit.

When buying shares directly through the transfer agent, the investor does not get to choose the price of the shares. The shares, which will include fractional shares. are purchased on a set day set out by the company (Bank of Nova Scotia).  The new shares will be purchased on the dividend payment date for October.  The most recent closing price of BNS shares is $56.18, which means the stock is currently yielding 6.41%.

Disclosure:  - Also own BPF.UN in TFSA 

                    - Long BPF.UN, BNS.TO

International Diversification Via an Exchange Traded Fund

I have held Tangerine funds within my RRSP for a few years and then sold out.  I kept the cash with Tangerine as a high interest savings account for about 3 years.  The interest rate kept dropping and I got more and more frustrated.  I decided to make a move.

I transferred my RRSP to my brokerage to make better investments and hopefully better returns.

I decided to start off with international exposure.  I decided to go with XAW ETF based in Canada.  The ETF is actually called iShares Core MSCI All Country World ex Canada Index ETF.  To learn more about this ETF, click here.

I now own 35 units of this ETF.  I did not use my own money, except the capital to purchase other positions to help pay for it.

Steps:

- April 24  Purchased 400 shares of SJR.B 

- April 24 Sold 4 SJR.B covered calls with expiration May 15 2020 at $23 strike  for net premium of $206.05

- May 14 Bought 8 units of XAW ETF at $24.93 for a cost of $199.47 including ECN fees

- Covered call expires worthless

- May 19  Sold 4 covered calls on June 19 2020 $23 SJR.B for net premium of $226.05

- June 10 Bought 9 units of XAW at $27.36 for a cost of $246.27 including ECN fees

-June 19 Option assigned

- June 23 Purchased 400 shares of SJR.B

- June 26 Bought 10 units of XAW at $26.35 for a cost of $263.54 including ECN fees.

- July 2 Sold 4 covered calls with expiration August 21 2020 at $23 strike for net premium of $246.05

- August 12 Option assigned 

- August 14  Bought 1 unit of XAW at $28.27 with no ECN fees.

- August 17 Bought 200 shares of Fortis (FTS.TO)

- August 19 Sold 2 FTS.TO covered calls with September 18 2020 expiration at $54 for net premium of $108.05

- August 20  Bought 7 units of XAW at $28.11 for a cost of $196.79.

I received dividends as follows 

- May 28 2020    SJR.B  $39.50

- June 29 2020  SJR.B $39.50

- June 30 2020 XAW $3.93

- July 30 2020  SJR.B $39.50

I will be receiving the FTS.TO dividend of $95.50 on September 1.

Summary

Options premiums received = $206.05+226.05+ $246.05+$108.05

                                        = $786.20

Dividends/Distributions received = $39.50+$39.50+$39.50+$3.93

                                                = $122.43

Future FTS.TO dividend  = $95.50

The total amount is $1004.13

Purchased costs for XAW = $199.47+ $246.27+ $263.54+28.27+196.79

                                     = $934.34

You can see that my purchase of 35 units of XAW have been paid by a future dividend from Fortis, option premiums collected and payouts via both dividends and distributions.

Note: My RRSP is not part of the blog and therefore the dividends, distributions, RRSP portfolio value and option premiums are not part of my portfolio updates or dividend income updates.  The market value of my RRSP will appear in my net worth updates. 

Disclosure :  Long XAW.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.

Stock Analysis: Fortis Inc.

As investors in individual stocks, one of the goals should be to reduce risk of losing money.  This can be done by choosing stocks that are known as blue chips.  Blue chips cost more but tend to hold their value.

Another way to reduce risk is to do a valuation of a stock.  Valuation is not an exact science but an investor can do an analysis on what the stock is worth.  

This number on what price the stock is worth compared to the actually price of the stock will indicate if the stock is undervalued or overvalued.

Ultimately, you want to purchase a stock far below the price determined by doing a valuation analysis. The lower the purchase price the better.  The lower the purchase the greater the starting yield, which means your money will be working harder for you.  

Fortis is a leading utility in North America that is headquartered in St. John's, Newfoundland and Labrador. Fortis Inc. started in 1885 under the St. John's Electric Light Company in what would become the province of Newfoundland.  The St. John's Electric Light Company eventually came the Newfoundland Light and Power Co. Ltd.  The latter eventually became the first subsiduary of Fortis Inc in 1987.  

Fortis is a holding company that operates under various subsidiaries in the utility space.

Fortis has over 9000 employees and serve their customers in Canada (5 provinces) , 9 American states and 3 countries in the Caribbean.  Fortis has $53 billion in total assets at the end of 2019.  The customer base consists of 1.3 million gas utility customers and 2 million electric utility customers.

Now, we will look at the fundamentals of the stock.  Fortis Inc. trades on the Toronto Stock Exchange and New York Stock exchange as FTS.

As I am in Canada, I will use the Toronto Stock Exchange FTS quote in my analysis.

Currently, Fortis is trading at $53.25 at the close of May 8, 2020.  Fortis pays an annual dividend of $1.91 per share, or $0.4775 per share. The stock is currently yielding 3.59%. This yield is 10 bps below the stock's own 5 year average and 30 bps below that of the broader market. 

The EPS per the trailing twelve months (TTM) is $3.73.  The dividend payout ratio is 51.2%.  This is a great dividend payout ratio showing half of the earnings are going to investors while the other half as retained earnings. 

At the end of fiscal year 2019, 99% of earnings came from regulated utilities. 

The 5yr dividend growth rate is 7.4%.  The 10yr dividend growth rate is 5.8%.

Fortis has raised their dividend for 46 consecutive years.  This is the second highest streak in Canada.  

People use utilities to live their everyday lives.  So, in good and bad times the company makes money.  In the current COVID19 pandemic, earnings could take a hit from the industrial and commercial side of the business as a lot of places are shut down.  The earnings from residential customers will increase as people are home more and therefore using their utilities more than normal.

Now, we will take a lot at the some fundamentals over the last 10 years.  Although third party information, like Morningstar, is quite accurate, it is best to get the information from annual reports from Fortis directly.  The fiscal year for Fortis ends December 31, which is same as regular calendar year.

Fortis grew revenues from $3.664 billion in 2010 to $8.783 billion in 2019.  This is a compound annual growth rate (CAGR) of  10.33%.

This CAGR is fantastic. During this time, the price of oil has been varied from near a $100 per barrel to $30 a barrel.  The lower the price of oil means higher earnings due to lower cost.

We next take a look at diluted EPS over the last 10 years.  Fortis grew diluted EPS from $1.62 per share in 2010 to $3.78 per share in $3.78 per share. This is a CAGR of 9.87%.  

A CAGR near 10% for EPS was helped by 3 major acquisitions.  

The number of shares outstanding has increased by 134% over the last 10 years.  During the last 10 years Fortis had 3 major acquisitions to grow their assets.  

I expect the EPS to continue to grow over the long term, but be reduced in the short term.  The EPS will likely decline in the short term as most of their industrial or commercial customers have been shut down to help reduce the spread of COVID19.  Although their residential customers have been increasing their use of utilities during the COVID19 pandemic, the increase in revenues will not come anywhere close to replacing the losses via by their industrial and commercial customers.  The economy is starting to open up, but is will be a slow recovery as things will have to be done differently by individuals and businesses. 

The long term debt to equity ratio comes in at 1.16.  The interest coverage ratio is 3.06.

The higher the interest coverage ratio the better.  The interest coverage ratio is a measure of the ability of a company to pays the interest on its debt.  Ideally, I would look for an interest coverage ratio of minimum 5.  I am not too concerned with Fortis ability to pay its debt due to earnings will be helped by the low price of oil and costs being reduced via increase of renewable energy.

Fortis has an average annual net margin of 12.59% over the last 5 years.  Net margin is basically what percentage of revenue hits the bottom line after every expense is accounted for.  The net margin fell a bit in 2016 but increased in the next 3 fiscal years. 

Fortis has an average return of equity of 8.16% over the last 5 years. 

Investing in Fortis has served investors well over the last 10 years.  As utilities allowed people to live their lives and to run the industries and businesses in various aspects of the economy, the company is highly recession proof. 

We do not want to over pay for a stock. Ultimately, we want to purchase a stock for less than we think it is worth.  By doing this, we have a large margin of safety.  The lower you purchase a stock, the higher the starting yield which means your money is working harder for you right from the start.  

Valuation

The stock is currently trading at P/E of 14.35.  This is well below the stock's 5 year average of 19.7 and slightly above that of the broader market (TSX Composite Index) of 12.2. 

The stock is basically on par in terms of price to book and price to sales when compared to the stock's 5 year average.

The stock is currently trading at P/CF (Price to cash flow) of 8.8.  This is on par with the stock's own 3 year average of 7.6.  The current P/CF is also on par with that of the broader market of 7.9.

With these numbers that stock does not look appealing at $53.25.

I will attempt to value the stock using a dividend discount model analysis. I am going to use a discount rate of 9%.  I choose 9% as this represents what I am for in terms of annual return with a stock with a current yield of 3.6%.  I am going to use a dividend growth rate of 5.5% growth rate. This is slightly lower than the aim of Fortis to grow their dividend annually at 6% to 2024.  

The Dividend Discount Model Analysis gives me a fair value of $57.57. 

I want to compare this to a 3rd party to see if my analysis is reasonable.

Morningstar currently rates Fortis as a 3 star stock.  This would mean the stock is equally valued.

Morningstar has a fair value of $54.76.

I take the average of these 2 numbers to get a fair value of $56.16.

Conclusion:

The stock could be possibly be 5.2% undervalued.

I would not be a buyer currently as I believe the margin of safety is too low.  Valuing a stock is not an exact science.  

Disclosure:  I do not own FTS.TO in any of my accounts.  

Photo credit www.fortisinc.com

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.

Account Activity

      In recent weeks, the market has been going up and down a lot it seems with any major news story.  On top of that, Canada is in the middle of a federal election where there is no front runner and the prospects of a minority government, liberal or conservative, are high.
      
Account Activity

    I had no active trades in my trading account the past several weeks.  I also had around $1400 in my margin account.  So I decided to make another trade in the margin account by using the positive margin account balance, "borrowing" the balance of the trading account and using some margin to make a purchase.

    I purchased 200 shares of TFI International (TFII.TO) on the Toronto Stock Exchange.  TFI International is a large trucking company that operates under various subsidiaries in Canada, United States and Mexico.  

    I purchased 200 shares at $39.20 for a total cost of $7844.95 including commissions.  The reason that I used some margin to purchase a board lot of shares is to sell covered calls against the position.  

   On Sept 26, I sold 2 covered call contracts with October 18, 2019, expiration date and a strike price of $40.00.  I collected a net premium of $88.05 on this transaction for being the seller of the option.

   I purchased the 200 shares of TFI International prior to the ex-dividend date.  TFI International currently pays a quarterly dividend of $0.24 per share, or $0.96 per share annually.  So I will receive the quarterly dividend payment of $48.00 in the middle of October.  

   My plan is to use the premium collected, dividends and capital gain to help pay down debt. I will hold back around $5.00 to more than cover the margin interest per month.  Therefore, the dividend is not going to show up in my dividend tabs for the month.   If option expires than I will sell another covered call or place a limit order to sell at a higher price.

Disclosure: Long 50 shares of TFII.TO inside TFSA

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.

Recent Portfolio Activity

It has been a crazy couple weeks on the the stock markets across the world. Are we in a recession? Are the trade wars between US and China causing investors to pull out for the market? I believe some investors fear that we are in a recession at this time. I do believe the impact of the US-China trade wars are having the most impact on the markets at this time.

Margin Account Activities

Sales

On August 7, I mentioned that I made a trade inside my margin account involving Telus Corporation (T.TO).

After making the purchase at $47.10 per share, I put in a stop limit order at $48.10 per share. The stock has been under a little pressure over the last week as the stock recently missed earning expectations.

On August 14, I decided to cancel the stop limit order around noon and replace it with a trailing stop limit order at a lower price. By using a trailing stop limit order, I get to lock in some gains and at the same time possibly gain some more if the stock rises in value.

The stock seemed to go sideways for over a week, which is normal. The sell order was filled at $47.60 per share. The profit from the trade was immediately sent to my line of credit. I was looking for a larger gain but decided to lower the sell price due to the falling stock prices. As I was only taking the profit out, I could use the capital from the sale towards investments.

The money "borrowed" from the trading account was returned.

This sale decreases my annual dividend income by $675.00.

For disclosure, I am long Telus Corporation (T.TO) in my TFSA.

Purchases

The markets went down a lot over a couple of days. I wanted to take advantage of this by buying stocks at a lower price. Buying a stock at a lower price, results in a higher starting yield as price and yield are inversely correlated. The higher the starting yield means money working harder for you.

On August 15, I put in limit orders on 2 stocks I was looking to increase my position size and further grow my dividend income.

First Purchase

On August 15, I purchased 50 shares of Bank of Montreal (BMO.TO) at $92.00 per share for a total cost of $4605.12 including commissions.

Currently, Bank of Montreal pays a dividend of $1.03 per share quarterly, or $4.12 per share annually. This purchase adds $206.00 to my annual dividend income. The yield on cost for this purchase is 4.47%.

This purchase is not eligible for Bank of Montreal's next dividend on Aug 27, 2019, as the record date is August 1, 2019.

This purchase brings total number of shares in Bank of Montreal to 85 shares.

Second Purchase

On August 15, I purchased 45 shares of Canadian Imperial Bank of Commerce "C.I.B.C" (CM.TO) at $98.00 per share for a total cost of $4415.11 including commissions.

Currently, C.I.B.C pays a dividend of $1.40 per share quarterly, or $5.60 per share annually. This purchase adds $252.00 to my annual dividend income. The yield on cost for this purchase is 5.71%.

This purchase will be eligible for C.I.B.C's next dividend payment which is expected October 28, 2019, to shareholders on record of September 26, 2019. This is listed on their investor relations page as future notice that is subject to approval of board of directors.

This purchase brings total number of shares in C.I.B.C to 110 shares. I recently added shares of C.I.B.C twice with in they past 3 or 4 months.

TFSA Account Activities

Sales

Continuing with markets going down over the period as per above, I decided to take action in this account as well. I noticed Dream Office REIT (D.UN.TO) was trading close to my adjusted cost base per share. Dream Office REIT has reduced their distribution a few times over the past 4 years. The distribution as remained at $0.083333 per unit monthly, or $1.00 per unit annually.

So, I sold my 168 units of Dream Office REIT at $26.41 per unit for a total net proceeds of $4431.69 from the sale. My adjusted cost base was $4489.30. Therefore, the net loss is $57.61 excluding distributions.

This sale decreases my annual dividend income by $168.00.

Purchase

On August 15, I purchased 25 shares of TD Bank (TD.TO) at $71.57 per share for a total cost of $1794.29 including commissions.

Currently, TD Bank pays a dividend of $0.74 per share quarterly, or $2.96 per share annually. This purchase adds $74.00 to my annual dividend income. The yield on cost for this purchase is 4.124%.

This purchase is eligible for TD Bank's next dividend which is expected to be declared on August 29, 2019.

This purchase brings total number of shares in TD Bank to 45 shares.

Conclusion

My plan with the Telus trade in my margin account was to not to hold for very long and take the profit and put on line of credit. I took a smaller profit than I was looking for due to the prices of stocks falling in value that I wanted to purchase.

These 3 purchases are all Canadian Banks.

The yield on cost on all 3 purchases is north of 4%. The starting yields are all higher than the yield of the broader market.

I have invested a lot of money in Canadian banks the past several months. Canadian banks are known to be some of the best and financially banks in the world. Then banks are traded on both the Toronto Stock Exchange and New York Stock Exchange. My purchases were all done on the Toronto Stock Exchange. 

I will update my investing spreadsheet in earlier September with these transactions. 

Disclosure: Long T.TO, BMO.TO, CM.TO, TD.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.

Recent Buy

Over the last few days, the stock market had a pull back.  People were selling out of fear. This is what an amateur investor often does.

When stocks fall in value without some major news about the underlying company, this means opportunity knocking at your door.  For days like the last few days in the capital markets, an investor should have some "dry powder" available to take advantage of the opportunity.

Investors want their money to work hard for them.  The lower the stock price, the harder your money will work for you.  This is because the price of the stock and the yield has an inverse correlation.  An investor must first search for any news about the stock that might of cause some investors to sell.

Purchase

On October 25, I placed a limit order to purchase 3 shares of  Royal Bank of Canada ( RY.TO) at $94.57 for a total cost of $288.67.  This position was made inside my TFSA.  For full disclosure, I went long RY.TO in my trading account on the very same day as well.

RY.TO has traded between $93.13 and $108.52 over the last 52 weeks.  The stock has fallen by about $10 over the last month.

Royal Bank pays a dividend of $3.92 per share per year, or $0.98 per share quarterly.  This purchase adds $11.76 to my annual dividend income.  The yield on cost for this purchase is 4.07%.  For comparison, the annual interest rate on my high yield savings account is 1.25%.

I would of like to have bought more shares but didn't have the dry powder available.

The stock traded ex-dividend on October 24, therefore I will not receive the quarterly dividend payment in November.

I will update my investing tab spreadsheet in early November with this new position.

Did you advantage of the market pull back during the last week?  

Disclosure:  Long RY.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.

Recent Buy

You walk down the frozen section of any supermarket you will likely see High Liner Foods products under the High Liner Brand or another brand.

High Liner Foods is in the business of frozen fish products in the grocery story and provide fish products to restaurants. One of the most successful businesses in the world is McDonald's. High Liner Foods provides the fish burgers to McDonald's for the Filet-O-Fish sandwiches. 

High Liner Foods reported there earnings in the morning on August 14.
 
The President and CEO, Rod Hepponstall, has this to say:

"The Company's financial results for the second quarter of 2018 reflect continued challenges in the business related to soft sales volume, a shift in product mix from higher margin value-added products to lower margin commodity products, raw material cost increases not fully passed along to customers and inefficiencies in our supply chain.  The impact of these challenges in the second quarter was most acute in our U.S. business."

Second quarter (ending June 30 2018) Highlights ( all numbers in USD unless noted).
 

• Sales increased $12.9 million to $245.3 million of Q2 2018 compared to $232.4 million in Q2 2017
• Gross profit increased by $5.5 million to $43.3 million in Q2 2018 compared to $37.8 million in Q2 2017
• Net income increased by $2.2 million to $2.8 milliion in Q2 2018 compared to $0.6 million in Q2 2017 and diluted EPS increased to $0.08 in Q2 2018 compared to $0.02 in Q2 2017
• Adjusted Net Income decreased by $2.3 million to $3.8 million in Q2 2018 compared to $6.1 million in Q2 2017. Adjusted Diluteed EPS decreased to $0.11 in Q2 2018 compared to $0.19 in Q2 2017.
• Canadian-Equivalent Adjusted Diluted EPS decreased to CAD $0.14 in Q2 2018 compared to CAD #0.26 in Q2 2017
• The net interest-bearing debt to rolling 12 month adjusted EBITDA was 5.6x at June 30, 2018, which is roughly the same on end fiscal 2017.

High Liner Foods trades on the Toronto Stock Exchange under ticker symbol HLF.TO. The company is headquartered in Lunenberg, Nova Scotia.
 
High Liner Foods reports its earnings in US dollars approximately 75% of sales are in the US.
 
The CEO says the company is in the process of re-structuring to make the company operate more efficient. This will be a huge positive going forward, so the stock price should rebound in the next 12 months.

Warren Buffett says, "Be greedy when others are fearful, and fearful when others are greedy".
 
Prior today I owned 200 shares of HLF.TO at an adjusted cost base of $16.06 per share. After earnings the share price fell about 15% which led me to place a limit order. My bought 90 shares at $7.70 for a total cost of $698.27 including commissions.
 
HLF.TO currently pays an annual dividend per share of $0.58 Canadian. Therefore the yield on this purchase is 7.46%. This purchase adds $52.20 to my annual dividend income.
 
I will update my investment tab portfolio with this purchase in early September.

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.

Stock Analysis: - Telus Corporation

Most people wake up and go to work at least 5 days a week.  People trade their time for money.  If you are not at work, you do not get paid. Most people do not think is there a way this way of making a living.

Some of these people have discovered a way of making money besides their job.  If you are reading this article, you are interested in investing.  You do not read a blog about investing by accident.  You are here for a reason.

You cannot walk down a street, take public transit, or visit a coffee shop without noticing the amount of people looking down at their smart phones.  It was not like this until 2007.  In 2007, Apple came out with the iPhone are changed peoples life forever.  The iPhone was the first smart phone without a physical keyboard.  That meant a bigger screen.  Since the release of the iPhone in 2007, the world has changed.  People basically are carrying a computer in their hand.

Nowadays, almost everyone has a smart phone.  Senior citizens are likely the only people who do not have cell phones of any sort.  

In Canada,  we have 3 big communication companies and 1 that is quite large.  The big 3 are Bell Canada Enterprises , Roger's Communications and Telus Corporation.  The other major communication company is Shaw Communications. Shaw Communications is trying to branch into wireless with their purchase of Wind Mobile, which they renamed Freedom Mobile.  Freedom Mobile has a very small foot print and customer base. Freedom Mobile does not have customers nation wide.  

Telus is the local exchange carrier and the telephone provider in Alberta and British Columbia, providing services such as television, Internet, and land line services.  

Telus also is in the wireless communications business.  Telus and its subsidiaries provide wireless services all across Canada. Telus has its own cell phone towers in western Canada and use cell phone towers belonging to their competitor Bell Mobility ( a part of Bell Canada Enterprises) in the rest of the country.  This agreement also allows Bell Mobility to use Telus towers out in Alberta and British Columbia.

Right now, Telus Corporation is installing fiber optics in buildings. For example, my building is wired for fiber optics.  The wiring ends just above the inside of my entry door to my apartment.  If I decide to switch to Telus, a technician would be dispatched with the equipment and would just have to wire form the modem to the fiber optic junction just about my apartment entry door.

More and more people are ending their use of landlines and going to only cell phones for their telephone services.

 The basic cell phone plans allow people to call locally wherever they are and not be charged long distance. Instead of searching for a payphone and individual could use their cell phone to make a local call but would be using air time minutes. They calls they would receive outside their local calling area would be classified as incoming long distance and be charged as long distance.

In recent years, cell phone planes have changed. Now cell phones plans often have unlimited local or national calling and text messaging. This alone has made people drop the land line altogether and just have cell phones.

On May 31, 2017, Telus no longer used CDMA has their type of wireless signal. Their wireless was switched to a more update signal that will allow it to expand and offer better wireless services to its customers. So all the phones and other wireless devices that used CDMA would not longer work.  So their customers either upgraded to newer model phones and possibly switched carriers if a better pricing plan was found.

Telus is upgrading their network in Manitoba, which will mean an large increase in capital expenditures.  Telus acquired about 25% of the customers of Manitoba Telecom Services from Bell Canada Enterprises after Bell Canada Enterprises takeover of Manitoba Telecom Services.

Now, we will look at some fundamentals of the stock.  Telus Corporations trades on the Toronto Stock Exchange and New York Stock Exchange as T and TU, respectively.

As I am in Canada, I will be using the Toronto Stock Exchange stock T for my analysis.

Currently Telus is trading at $47.17 as of the close on July 7, 2018.  Telus pays a dividend of $2.10 per share.  The stock is currently yielding 4.45%.  This yield is 45 bps above the stocks own 5 year average and 155 bps above the broader market.  

The EPS for the trailing twelve months is $2.45.  The dividend payout ratio is 85.7%.  This is rather high so this requires a more in depth look over the past years.  By looking at Morningstar for Telus we see the dividend payout ratio was between 50% to 62% from 2008 to 2013 and then increased afterward.  In the final quarter of calendar year 2014, the price of a barrel of crude oil started to fall.  The price of a barrel of crude oil continued to fall over the next 3 years.  Telus has a large customer base in Alberta and British Columbia.  So, as the price of a barrel of crude oil continued to fall, businesses directly involved in the oil and gas sector started doing layoffs and continued with more layoffs from 2014 to 2017.  The crash in oil prices also affected companies servicing the oil and gas sector which trickled down to hotels and restaurants.  This meant Telus has some customers scaled back their wireless and non-services or eliminated them all together.

The 5-year dividend growth rate comes in 10.1% and the 10-year dividend growth rate comes in 9.6%.

Telus has increased the dividend for 14 consecutive years. Their main competitor in Western Canada, Shaw Communications, has not increased their dividend in about 3 years.

With oil prices rebounding over the past several months trading above $70 a barrel, Telus will strongly benefit from people upgrading the wireline or wireless services.

Now, we will look at some fundamentals over the past 10 years.  Although 3rd party information, like Morningstar is quite accurate, it is best to use the annual reports from Telus to guarantee the correct numbers. The fiscal year for Telus ends December 31, which is the same as a normal calendar year.

Telus grew operating revenues from $9.653 billion in 2008 to $13.202 billion in 2017.  This is a compound annual growth rate (CAGR) of 3.54%.

This CAGR is good considering the amount of jobs that were lost over the past 3 years due to the huge collapse in oil prices and the corresponding layoffs as a result.  Telus is targeting revenue growth of 4 to 6 percent for 2018.  Some of increase in revenue is increasing prices on the current residential and business customers.

Next, we look at EPS over the last 10 years.  Quickly looking at the numbers we see the EPS for 2008 is higher than EPS for 2017.  This is a red flag that required some investigation. Looking at number of shares outstanding which drastically different leads to looking at a 10 year chart of Telus.  We see Telus did a 2:1 stock split around 2013. So, to reflect this we dividend the EPS in 2008 by 2.  Therefore, Telus grew EPS from $1.755 in 2008 to $2.46 in 2017.  This is a CAGR of 3.82%.

This a somewhat good.  Telus has reduced their share count approximately by 10% since 2012.

Besides their major customer base in Alberta and British Columbia being affect by the oil price collapse, these markets were drastically affected coming out of the worst recession  of 2008-2009 since the great depression.

I would expect the EPS to grow over the next couple of years as increases to their average revenue for residential and business customers and as more new customers.  With western Canadian having people migrate from others parts of Canada to find better paying jobs, the demand for Telus services should increase.

Telus has spent money on their build out of fiber to the home.  Telus's wireline division surpasses their main competitor Shaw Communications in this space.  As the increase of fiber optics on their networks means Telus is well positioned for the expansion of 5G networks, which likely be very fiber intensive.

The long term-debt to equity ratio comes in around 1.48.  The interest coverage ratio is 4.54.

The higher the interest coverage ratio the better.  As the economy in western Canada is rebounding with price of oil over $70 dollars. With more people moving to Alberta and British Columbia, the need for Telus's services will increase.  So, I am not too concerned and believe Telus is have no issues with regarding to servicing their debt.

The profitability of Telus remains very consistent.  The loss of customers is offset to the average revenue of ongoing customers increasing. With the economy of western Canada improving, the addition of new customers will make sure the profitability remains stable and possible increase.

Telus has an average annual net margin of 11.03% over the last 5 years.  During this time, Telus had 2 years of negative free cash flow in 2015 and 2016. The average revenue per customer gets reduced as people cut back or eliminate services altogether when the job market is bad.  Telus also  had a lot of capital expenditures with upgrading their networks such as more fiber optics.

The average annual Return on Equity over the last 5 years comes in at 17.39%.

Investing in Telus Corporation has served investors well over the past 10 years. Wire line and wireless communications are a part of everyday life. Customers are looking for quicker and reliable Internet at reasonable prices.

We do not want to over pay for a stock. Ultimately, we want to purchase a stock well below what we think the stock is worth.  By doing this, we have a large margin of safety.  The lower you buy a stock, the higher starting yield which means your money is working harder for you right from the start.

Valuation

The stock is currently trading at P/E of 19.3.  This is in-line with the stock's own 5-year average of 18.4 and much greater than that of the broader market of 15.9.  The industry average P/E ratio  is 18.6.

The stock is basically on par in terms of price to book and price to sales when compared to the stock's own 5-year average.

The stock is currently trading at P/CF (Price to cash flow) of 6.9.  This is on-par with the industry average and lower that the stock's own 3-year average of 7.5.  The current P/CF is lower than the broader market of 9.3
.
The stock does not look appealing at current price of $47.17.

I will attempt to value the stock using a dividend discount model analysis.  I am going to use a discount rate of 10%. I am going to use a dividend growth rate of 6.5% for the first 5 years and 5.5% growth rate for the next 5 years after.   I am using a dividend growth rate lower than the 5-dividend growth rate as I believe the growth of earnings to be smaller over coming years.  

The Dividend Discount Analysis gives me a fair value of $51.42.

I want to compare this to a 3rd party to see if my analysis is reasonable.

Morningstar currently rates it as a 3 star stock.  This would mean the stock is equally valued.

Morningstar has a fair value of $47.00.

I take the average of these 2 numbers to get a fair value of $49.21.

Conclusion:

The stock could be possibly around 4.3% undervalued.

I would not be a buyer currently as I believe the margin of safety is too low.

Disclosure:  I do not own T.TO shares in any of my 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.

Stock Analysis - Bank of Nova Scotia

What is one of the things that Canada is known for?  When it comes to banks, the big 5 banks in Canada are known as some of the best banks in the world.  The big 5 banks are known as Royal Bank of Canada (RY), Canadian Imperial Bank of Commerce (CM), Bank of Montreal (BMO), Toronto-Dominion Bank (TD) and the Bank of Nova Scotia (BNS).  Canadian Bank of Commerce is more commonly known as CIBC.

All 5 of these banks trade on the New York Stock Exchange and Toronto Stock Exchange.

I previously did an analysis on RY and TD.  These 2 banks I have owned in the pass, but do not currently own them.

Nowadays, an individual needs more than one source of income.  The job wages have been stagnant for the most part since the 70s, but adjusted for inflation.  In fact, the generation right behind the baby boomer's generation is believed to have it worse off than their parents.  This is the first time in history that this will occur.  In the early 1990s, the federal government of Canada has increased the amount of student loans that a student could possibly borrow by over $5000.  The government wanted anybody the opportunity to attend University.  The downsides to this is students have crippling student loan debt and the market is saturated with university educated people.

One of the sources of income could come via investing in the stock market.  See, when an investor buys shares of stock in a company, they become part owner of that specific company.  Being a part owner of a company means you can receive a share of the profits via a dividend.  Each company has a board of directors that determine if a dividend is paid or not paid.  The board of directors also determine the amount of dividend and the payment day of the dividend.  As the company grows over time and becomes more profitable, the dividend could be raised.  Collecting dividends is a great source of passive income and requires very little work on your part.

Bank of Nova Scotia (BNS)

Bank of Nova Scotia trades on both the New York Stock Exchange and Toronto Stock Exchange under the ticker symbol BNS.  BNS has paid dividends since 1833.  It has increased the dividend 42 of the last 45 years.  The dividend was not raised or cut in 2009 or 2010.  This was due to the fact that the world just went through the biggest recession since the Great Depression.

The Bank of Nova Scotia provides various financial services in North America, Latin America, the Caribbean and Central America, and the Asia-Pacific. It offers financial advice and solutions, and day-to-day banking products, including debit and credit cards, chequing and saving accounts, investments, mortgages, loans, and related creditor insurance to individuals and small businesses; and commercial banking solutions comprising lending, deposit, cash management, and trade finance solutions to medium and large businesses, including automotive dealers and their customers. The company also provides a suite of investment and wealth management advice, services, products, and solutions to customers, as well as advisors. Its asset management business focuses on developing investment solutions for retail and institutional investors; and wealth management solutions include private customer, online brokerage, full-service brokerage, pension, and institutional customer services. In addition, the company offers corporate lending; trade finance and cash management; investment banking services comprising corporate finance, and mergers and acquisitions; fixed income and equity underwriting, sales, trading, and research services; prime brokerage and stock lending services; foreign exchange sales and trading services; commodity derivatives; precious and base metals sales, trading, financing, and physical services; and collateral management services for corporate, government, and institutional investor clients, as well as international banking services for retail, corporate, and commercial customers. Further, it provides mobile, Internet, and telephone banking services. The company operates a network of 963 branches and approximately 3,600 automated banking machines in Canada; and approximately 1,800 branches internationally, as well as contact and business support centers. The Bank of Nova Scotia was founded in 1832 and is headquartered in Toronto, Canada  (source:  Yahoo Finance)

This analysis is going to be done using the stock on the Toronto Stock Exchange.  Bank of Nova Scotia was trading $77.00 per share as of June 22, 2018 at the close of the trading day.  The current annual dividend is $3.28 per share.  Therefore, the current yield is  4.26%.  This yield is higher than of the broader market (S&P TSX Composite Index) of 3.0% and greater than the stock's own 5 year average of 4.0%.

Bank of Nova Scotia  has paid a dividend since 1833.  That is longer than Canada has been a country!! The dividend have been raised 8 consecutives years.  The dividend was not raised or cut in 2009 and 2010, which was coming during and shortly after the great recession.

The 5-year and 10-year dividend growth rate 6.8% and 5.8%, respectively. The 10-year dividend growth rate includes the 2 years that BNS did not raise or lower the dividend.  The dividend growth beats the average rate of inflation.

The stock looks great so far.  But, we do not want to buy the stock just because the yield is good.  An analysis of the stock with some key fundamentals and then try to value the stock allows an investor to see if the stock is undervalued or overvalued.

Bank of Nova Scotia grew revenues from $11.876 billion in fiscal year 2008 to $27.155 billion in fiscal year 2017.  That is a CAGR of 9.62% over the last 10 years.  Morningstar has 2017 revenue of $ 26.748 billion as they did not include $407 million in net invested income from the bank's investment in other associated corporations.

The CAGR of 9.62% for Bank of Nova Scotia's over the last 10 years is impressive.  With interest rates were kept low ever since the great recession of 2008.  The interest rates by the Federal Reserve and Bank of Canada only started to be raised in the past year.  With so low interest rates, this is enticing to people to borrow money.  When people borrow money, it means more revenues to the bank from the interest collected on loans, mortgages, credit cards and lines of credit.

Bank of Nova Scotia grew earnings per share (EPS) from $3.05 in fiscal year 2008 to $6.49 in fiscal year 2017. That is a CAGR of 8.75% over the last 10 years.

The EPS CAGR of 8.75% is even more impressive as Bank of Nova Scotia was affected the great recession in 2008-2009. With growing earnings, some of those increased earnings are passed on to investors with increasing dividends.

The long-term debt to equity ratio comes in  0.10.  The interest coverage ratio comes in 2.16.

I would of liked to see an higher coverage ratio.

Is the Bank of Nova Scotia profitable?  Let's take a look at couple of fundamentals.

The average Return on Equity over the last 5 years comes in at 15.1%.  The average net margin over the 5 years comes in at 29.1%.

At net margin of 29.1% is great.  Net margin tells me the after everything is accounted for this is the amount of each dollar that is net profit.

Valuation

As of June 22, BNS is trading at P/E ratio that is slightly lower than the stock's own five year overage of 11.9. The current P/E ratio of 11.2 is lower than in industry average and is greatly lower that the broader market, which is the S&P TSX Composite Index
.
The stock is currently trading at a price to cash flow (P/CF) of 3.7. This is drastically lower the the stock's own 3 year average of 487.  The current P/CF of 3.7, is lower than the industry's 3-year average of 6.4 and that of the broader market of 9.2.

We do not want to pay any price of a stock.  We now must do valuation exercise to determine a fair value of the stock.  Valuing a stock is not an exact science.  As investors, we want to buy stock much lower than the fair value of a stock which gives us a larger margin of safety.

A dividend discount model will be used.  The dividend discount model analysis is a procedure for valuing a stock's price by discount predicted dividends back to the present day. If the fair value price determined from the dividend discount analysis is higher than the stock's current price, than the stock is considered under valued.

A dividend growth rate of  5% annually for the first 5 years and then at 7% for the following 5 years. and a discount rate of 10%.

The dividend discount analysis gives us a fair value of $107.00.

We looked to look at a independent 3rd party research for fair value to judge if we valued the stock correctly. Ideally, we would like to use more than one 3rd party.

Morningstar rates BNS.TO as a 3-star stock and gives it a fair value of $80.00.

The average of these 2 values gives us a fair value of $93.50

Currently the stock is trading at $77.00 per share.  This indicates that Bank of Nova Scotia shares are possibly 21% undervalued.

A chart that shows the YTD for BNS.TO

Click to Enlarge

Summary:

The Bank of Nova Scotia is one of the best banks in the entire world.  The great part of it is that we can become a part owner of this bank.  As the world's population increases, so will the need for banking services.  The stock is down over 5% year to date.  As the chart shows, there seems to be a line of support around the $76 dollar mark for the calendar year 2018.   The stock could be possibly 21% undervalued.

BNS has been raising its dividend after every second quarter for the past several years. The current yield is very attractive as stock prices have been generally considered overvalued in this bull market.

Disclosure:  Long 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

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