14 Year Track Record

 

Sacola                   176%

TSX                         76%

DJIA                        136%

S&P 500                  137%

Past trades total 29 wins and 3 losses with an average gain of 34%. The average holding period was 2.3 years.

Monday
Oct152018

You rarely hear investment advisors recommend portfolios based on dividends.  The main reason is because buyers of these types of shares rarely trade, generating very few commissions in the process.  A broker’s sole job is to turn over an account at least once a year, or put investor’s savings into mutual funds and ETF’s, especially if the firm owns and manages them.  These funds are designed to slowly, over several years, to transfer investor’s savings to the brokerage house via commissions and hidden management fees.  If the customer makes money, then it is a bonus.

I have a list of 14 Canadian companies and two American that have raised their dividends for at least the past 9 years.  There are around 80 American companies that have the same record.  It is rare for any brokerage house to recommend these shares.  When they do recommend it is usually because the brokerage house will be underwriting new shares for the company. As a result, the brokerage house will come out with a bullish stance to help unload these new shares.  The brokerage house will earn huge commissions in the process. The brokerage house represents the company not its clients.

In our financial publication we have two shares which we have held since 2004.  Both have raised their dividend once a year this century.  These two have increased in value by 125% since we first recommended them. Two others of our recommendations have also raised dividends yearly.  They have realized a capital gain of around 300%.  Another benefit of holding Canadian dividend paying shares you can benefit from the Canadian Dividend Tax Credit which can lower taxes you owe (this is only available outside of the TFSA and RRSP).  

This is a slow but steady way to increase wealth.  No matter what stock markets are doing, dividends continue to be paid and many companies will increase their payouts.  In severe down markets, like the one in 2008/09, the dividends continued to flow.  There might not be a dividend increase but one still gets an income.  We recommend people enjoy spending some of this money.  When have you heard your broker make this statement? 

If you believe in the future of Canada, you can buy Canadian dividend paying shares and hold through up and down markets.  In many cases you will be rewarded with an increase in payouts.  When a new bull market begins these types of shares move up faster than most companies because of the steady income.

Today, the governments of Ottawa, B.C. and Quebec have closed Canada to foreign investment.  When these negative governments are gone the Toronto stock market will be one of the world’s best performing exchanges.  All good dividend paying shares will join the party.  Hopefully, the new Quebec government will want development in the energy industry.  The previous government was only interested in supporting Saudi Arabia, Libya and other than ruthless countries by buying their oil, rather than supporting Canada by buying Western Canada’s oil and natural gas.

Saturday
Sep152018

Invest in Canada, or Don't

On August 30th the happiest person in Canada was the Prime Minister because the courts shot down the Trans Mountain Pipeline (TMP).  We wrote in the 225th issue that he and four of the provinces have been trying everything possible to close the whole energy sector.  They have continually told investors to take their money elsewhere.  And, they have.  Data shows that in 2017, Foreign Direct Investment (FDI) into Canada was lower than in any other year since 2005, other than 2009.  In fact, FDI jumped off a cliff as soon as Justin grabbed the reigns in 2015 and is expected to fall almost 15% in 2018.

Have you noticed before the Liberals took power there were no problems in expanding the energy sector?  Then Trudeau arrives and changes the rules.  TMP would in operation today if he had not interfered. Things will only get worse under T2.  Specifically, he has laws before the House of Commons giving the right for any person, group or local government to object to any major project via Bill C-69.  Before Ottawa had the right to issue every needed permit, but under this new bill it will give the power to the protesters.   

If TMP is to go ahead it will basically have to restart the process which will easily take 5 to 10 years, thanks to Bill C-69.  The TMP decision, while relative to this case, can now be used as evidence for all major developments like the building of dams, more pipelines, new mines and major infrastructure.  No business is going to waste years and millions of dollars to get approved maybe within a decade. 
In the meantime, Ottawa will go through the motions wasting taxpayer’s money trying to get the project restarted.  TMP did everything the courts required to avoid a Gateway Pipeline type rejection.  This time this same judge added a bunch of new regulations in rejecting TMP. 

The Greens are happy because now more oil will be shipped by safer means, like trucks and rail tanker (even though they are not). Not surprising, there has not been one protest about all the rail tanker cars that travel a few feet from many fast-moving rivers throughout Canada.  If one of these trains would ever have an accident and slip into the one of these rivers it would destroy the river for years to come plus cause chaos downstream.  But the Greens do not care. Soon one-mile long tanker rail cars will be the norm.  Most will be going to the West coast of the U.S. to be shipped elsewhere.  Americans will get thousands of jobs and Canada might get a few hundred.  

Protesters have told us that all oil tankers in the waters of B.C. are a threat to whales and are too noisy for marine life.  The TMP was going to add just over 1 extra tanker per week on average when the new pipeline was completed.  Why is it that container ships and cruise ships are not a threat to the whales, only oil tankers are? Plus, all the international boat traffic going up and down our coast are not viewed as threat to marine life.    During the summer months it is possible to see up to four cruise ships a day enter the Vancouver harbour, and not one of these is a threat to whales. 

We noticed that immediately after the announcement that pipeline shares, which should have jumped in value due to being full for years to come, resulting in higher profits and future dividends, but they were flat to down slightly.  This is a perfect sign that the markets believe Ottawa and Trudeau will continue to do everything in their power to close all pipelines and the energy sector.  Of course, it will never happen due to the energy sector being the biggest tax generator in Canada.  Afterall, politicians love to spend.

Prediction:  Trudeau until election day will show us he “is going to get TMP built.”  If he wins the election he will cancel the TMP.  It will be a victory for Trudeau and a major loss for all of Canada.

Wednesday
Aug152018

I am beginning my 54th year in the investment business.  The stock markets so far this year are the most expensive ever during my career.    The average Price-Earnings Ratio(P/E) of the Dow Jones Industrial Average (DJIA) was 14.2-times over the last century.  Between 1950 and 2000 the average was 12.9-times and the average dividend yield was 4.4%. 

This century the DJIA price-earnings ratio has been just above 18.  This past January saw the price earnings ratio hit an all time high of 28.45.  Since then it has traded around 24-times earnings, or roughly 61% above its long-term norm.  The S&P 500 Index is over valued today by roughly the same percentage as the DJIA. 

At the peak of the market that led to the Great Depression, on the last Friday of August 1929, the P/E ratio was 15.6.  From that day to the bottom, in May 1932, the index lost 90% of its value.  Only once has this been equalled when the NASDAQ Tech-bubble peaked at 183 times-earnings in March 2000.  This implosion saw this index also fall 90%. 

I never hear Wall Street and Bay Street mention corporate earnings.  Today, the only thing that matters is whether sales are increasing.  This makes absolutely no sense unless it results in profits.  Without growing earnings there can be no dividend increases and companies cannot re-invest in their business.  Growing sales means nothing if they are not translated into earnings. 

The brokerage industry is probably scared to mention profits because they know the stock markets are too expensive and they do not want to scare away investors.  Their sole job is to sell securities.  That is why you never hear them suggest selling securities for being too expensive. 

The reason for this change is that with the Dow trading at 23-times earnings today it means the stock markets expects corporate profits will double in 3.1 years. This has never happened in the history of any stock market, plus it is probably impossible to achieve with taxes and government regulation always changing, mostly for the worst. 

This is the second longest bull market on record, so its days are probably numbered.  The best result would be if the P/E drifts calmly down to 18 times earnings (23% decline).  If a quick drop occurs the stock markets will fall further than they should.  The collapse in the stock markets after the Hi-Tech implosion saw the Dow fall to a P/E of nine. 

Not only are the stock markets very expensive, real estate, especially in big centres like Vancouver, San Francisco, London, Toronto, Sydney, and Zurich to name a few, bare no relationship to household income.  This is an accident waiting to happen.  It is a matter of when, not if.  If the stock markets and real estate fall at the same time a world-wide recession will begin.  With personal and government debt in record territories it is not hard to see a possible decade long correction.  President Trump is determined to plunge the world into a deep recession.  He will probably be very successful.We believe the world is about to enter a new era. 

Monday
Jul162018

According to Jennifer Winter (U of Calgary), at $50-per-tonne, BC families will pay at least $603 a year (0.68% of household family income) in Carbon Tax.  This may not sound like much, but it is $1.15b that could be put towards local spending and investment across the province every year. 

  By 2022,  a Nova Scotia family will pay around $1,120 (1.25%).  Alberta, which is the biggest financial contributor to the eastern provinces and Quebec, will pay $1,111 (1.14%).  These numbers could be low if a family has more than one vehicle.   The Saskatchewan government estimates the tax will grab $16b from its consumer’s pockets over the next 11 years.  This will weaken the overall economy by lowering disposable income and scaring away investment.

If Canada is to progress, the new Premier of Ontario, Doug Ford, must fulfill his promise to do away with the Carbon Tax.  He has already started eliminating the Cap and Trade part of the tax.   His most recent move was to scrap the incentive program for electric and hydrogen vehicles, which costs Ontario taxpayers up to $14,000 per car. Scrapping the Carbon Tax completely will save Ontario families $707, annually.  Hopefully the rest of the provinces will follow suit.  Alberta, Saskatchewan, and Manitoba are already on board.  Our negative and destructive B.C. government only believes in raising taxes, scaring away investment throughout Canada, and wasteful spending.  These clowns love the Carbon Tax.  

The Carbon Tax is a job destroyer.  Our competitors in the world economy do not have this negative tax.  Furthermore, Canada is the ONLY country trying to reach the Paris Accord on Climate Change.  All other countries talk the talk, but so far have done nothing.  Given his stance on the environment, Trudeau sure lacks the ambition to go after much bigger concerns such as pushing for China, Russia, and India to cut down on their carbon creation.  Every day, 365 days a year, pollution from these countries flows across the Pacific Ocean, down to Oregon and the West Coast, and then flows directly to Ontario, with a bit hitting Quebec and the Maritimes.

If you were to ask 10 experts what is a safe level of carbon, you will get 10 different answers.  Some experts call for zero.  These people do not realize at zero the planet dies.  Greenpeace and all other money hungry organizations who preach doom and gloom will never admit that maybe Mother Nature is giving us perfect weather.

Ottawa’s Carbon Tax is a 100% tax grab.  It has zero to do with cutting down on the amount of carbon in the atmosphere.  All governments can see is how much money they can raise to waste on their useless spending.  Trudeau is one of Canada’s biggest deficit creators and wasteful spenders in history.

While they give out more of our money it is of little benefit.  Ottawa continues to pass on too many made up expenses on business and the so called rich.  These costs have to be passed on to the consumer via higher prices, so there is zero gain from exuberant social spending.  It is time for the politicians to be told we are over taxed.  Getting rid of the carbon tax is a good start to trying to place, rather than grab, money back into the hands of the taxpayer.

Friday
Jun152018

Trudeau Mountain Pipeline

It is a good and bad deal for Ottawa to buy Kinder Morgan’s Trans Mountain Pipeline (TMP).  The bad news is that it will cost Canada short term; money it does not have.  If the protesters continue their tactics trying to delay the pipeline it will mean higher costs to the Canadian taxpayer, including the protestors.

The destructive B.C. Premier, literally minutes after the takeover announcement, told the world he will continue to try and stop the TMP.  Indirectly, he was telling investors do not invest in B.C. or Canada for that matter.  By never talking to Kinder Morgan management, it was obvious he refuses to talk to anyone who supports the TMP. He only represents the job destroying protesters.

We have held pipeline shares in our portfolio for over a decade.  Pipelines are regulated by governments and must get permission for rate increases.  Since governments, led by Ottawa, refuse to build new pipelines, energy companies have no major means to ship their liquids to market, except by rail, which obviously the Greens believe to be safer than pipelines even though it is not.  “Specifically, based on petroleum product transport data from 2004 to 2015, pipelines were 2.5 times less likely than rail to result in a release of product when transporting a million barrels of oil (Fraser Institute).” While incidents are more frequent by pipeline, the amount spilled by rail is nearly three times larger. 

Oil is still going to continue to be shipped by Kinder Morgan.  The company not only ships liquids by pipeline, but by rail and trucks.  Most oil companies in Alberta are forced to ship their oil via trucks to the U.S. border, where it is then put into U.S. pipelines. 

The outcome of not building enough pipelines is already visible.  Imperial Oil wanted to expand one of their tar sand operations by 50,000 b/d.  A month ago Imperial cancelled the project because they “had no means to ship the oil”.   This is the loss of thousands of high paying jobs.

Ironic to their stance on the environment, Quebec, mostly from Montreal, dumps raw sewage into the St. Lawrence River every day.  At the same time they help defeat the West to East Pipeline so they can continue to buy oil from their friends in Saudi Arabia, Nigeria, Algeria and other dictator run countries.  Our Fairy Tale Prime Minister also likes these countries and gladly killed the pipeline to their benefit.  It should be noted that everyday Quebec happily accepts money transfers from Alberta but refuses to buy Alberta oil.

Ottawa created the TMP mess.  When they first passed the pipeline they could have legally issued all necessary permits.  Instead, they passed this onto the province and cities, which is the problem today.  At the time the Prime Minister hoped the protesters would stop the TMP.  Make no mistake about it; he did not want the TMP built and still does not today.  He obviously never thought of the consequences he would face.  The Canadian economy badly needs more pipelines to supply the world with oil and Ottawa with much needed tax revenue.  This is the sole reason the Prime Minister okayed the TMP today.

The good news is that the TMP, for six decades, has made money and will continue to do so, just as all other Canadian pipelines do.  The oil will also continue to be shipped from Vancouver waterways without incident.  TMP will be a constant source of growing dividends for Ottawa.  Many mutual and pension funds will be buying into TMP for the dividends to come.  We may also one day.