Dividend news has definitely slowed down this month. I have three interesting dividend increases on my radar, and one dividend cut. I always like to analyze the circumstances around dividend cuts as much as dividend increases. Dividend cuts may not be the end of the company, but they certainly impact shareholder returns for a long time.
|Ticker||Name||Dividend Increase||New Yield||P/E||Payout||1 Year Return|
About The Increases
Dollarama (TSE: DOL) has been a top performing retail company over the last five years since it went public around $20 a share (it now trades close to $90). Dollarama is well on its way to becoming a future dividend achiever with three annual increases, averaging over 20% growth in the dividend per year. The dividend is still very low, however, at just 0.7%. If Dollarama can maintain 20% dividend growth for 10 years (which is very rare indeed), the yield on your invested capital today would still only be 4.3%. There could be substantial capital gains, but I think there is a lot of growth already built into the stock price. Dollarama will run into expansion problems in Canada and US expansion is unlikely (competition is extremely strong in this market). So, DOL is not for me at this price. Perhaps if the P/E was lower (definitely below 15, which is a stock price of $52, well below their 52 week low.
Contrans Group (TSE: CSS) is a truck freight transportation business. I own shares in Trimac Transportation (TSE: TMA), which is in a somewhat similar business. CSS has nearly doubled its dividend since 2008 and has a very healthy 4.6% yield. TMA is very close in numbers with a 4.5% yield, but has a lower payout ratio (~55%) due to its higher earnings per share. There hasn’t been a lot of growth with either of these companies, so it is good that investors are receiving a healthy dividend.
AlarmForce Industries (AF.TO) has now made its first appearance on my website. Most people in Canada are probably familiar with their advertisements on television. The stock isn’t cheap at a P/E of 20, but has done very well in the long run. The dividend was first initiated in 2012 and this is the first increase. The yield is quite low but it will be interesting to see if they can continue to increase their business.
|Ticker||Name||Dividend Cut||New Yield||Old Yield||1 Year Return|
|AET.UN||Argent Energy Trust||77.1%||7.6%||22.4%||-58.1%|
Argent Energy Trust (TSE: AET.UN) cut its dividend two weeks ago. The company is an oil producer that is designed to pay out all of its cash flow in distributions. Because they only have US assets, they can do so in Canada without paying Canadian income taxes. However, unlike other energy trusts (like Parallel and Eagle), Argent intentionally decided to pay even more money out and try to grow through acquisitions. This strategy has failed and investors sold so much that the yield rose to as high as 22% before the cut was announced. Even with a 77% cut to the dividend, the yield today is still 7.6%. Is it a buying opportunity? The stock has been very volatile since the announcement and is down another 10% from the day after the announcement.
Assessing high dividend oil producers is not easy, and I admit to having some difficulty in doing so myself. I would recommend paying attention to the dividend and avoiding any company with yields above 6%. There is a high likelihood that you will lose capital on oil-producing stocks with yields much higher than that. The real risk is a commodity price shock – if oil prices fell 30% or more (which is entirely possible within any 5 year time period), dividends could be suspended and these companies could be left with high debt that they can’t service – meaning bankruptcy.
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