• I don’t know about you, but I’m in line to have another very successful year on the stock market. Last year, my RRSP account showed a 21.7% jump (50% in Cdn stocks and 50% in US). This year, I’m already at 15.7% and counting! But it’s not a reason to stop looking at my portfolio. After all, in the middle of October I was only +9%… The wind changes direction in short order these days! This is why I made a small change in my portfolio last week; since I don’t have cash on hand, I sold a less performing stock and bought an amazing opportunity. Buy when there is blood on the street they say…

     

    Where There Was Blood – Bought 188 Shares of Black Diamond Group (TSE:BDI)

     

    There was a lot of blood last week in the oil industry. The price of a barrel dropped by 25% since its peak this past summer. Most oil companies dropped accordingly. I bought Helmerich & Payne (NYSE:HP) earlier this year and the stock is now down 20% in my portfolio. HP is specialized in drilling oil & gas wells. If oil prices drop, chances of having new exploration contracts go down along the way.

     

    A similar phenomenon had hit Black Diamond Group (TSE:BDI) this year. After an awesome ride in 2012-2013, the stock plunged like a rock since this summer:

    bdi113

    The stock price has fallen by 46% since July 1st 2014. Why is that? BDI is specialized in providing temporary and permanent modular buildings. Its biggest market is oil sand exploration in northern Alberta. If the oil sticks around $75 a barrel, there won’t be many new projects out there as the oil sand operations are very expensive.

     

    BDI not only meets my investing principles but shows a great growth opportunity. This is not a stock that would qualify in my core portfolio (as I don’t think I want to hold this position for 10+ years) but this is definitely a great time to buy the stock. I bought my 188 shares at $17.73 on Tuesday November 4th while the stock took an 11% hit on that day. The company is now trading under a 15 PE ratio and pays over 5% in dividend yield.

     

    The management team made two important moves showing they believe in this company. On November 5th, they published their quarterly report announcing a dividend increase from $0.075/share to $0.08/share (dividends are distributed monthly). On top of this 6.67% dividend increase, the management team also bought back $30M worth of shares lately seeing the same opportunity I do.

     

    What Can You Do When You Want to Buy a Stock but don’t Have Cash on Hand?

     

    I had spotted BDI a while ago and was following its every move. I knew it was the right time to buy it last Tuesday after the announcement that Saudi Arabia reported they would maintain their current production level to keep oil price low (in order to retain their market share). The problem is that I didn’t have new money to inject in my account.

     

    So I took an hour and looked at my portfolio. I reviewed each company I hold and see if there was an opportunity to sell a stock. My first analysis led me to think: I only hold good companies… there is nothing to sell right now. This is why I had to go further. I started to look at the short term potential of each company. My goal was to buy BDI for a 12-18 month horizon so I had to see which stock would probably be “underperform” during this period. This is often the case with stocks included in my core portfolio. They are very strong companies paying an increasing dividend but from time to time, they can be dormant for a year or two when they go through a tougher period. This is exactly the case with McDonald’s (MCD).

     

    The stock isn’t going anywhere right now as the company struggles with margin pressures, China’s problems and sales stagnation. It won’t hurt my portfolio if I get rid of MCD now and buy it back later. After all, I’m trading a 3% dividend stock for a 5% yielding stock with great upside potential.

     

    I know most of you didn’t like MCD that much anyways, what do you think of my new acquisition?

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  • Year after year, I study both the Canadian and American stock markets to find the best dividend growth stocks. For the past 4 years, I have noticed something sad; the choice for high quality dividend growth Canadian stocks is very narrow.

     

    Just for fun, I pulled out results using the following screener:

    dividend yield over 3%

    dividend payout ratio under 80%

    5 year dividend growth positive

    5 year revenue growth positive

    5 year EPS growth positive

     

    as you can see, I wasn’t very picky and simply started with an “acceptable” level of fundamental information. Basically, all I’m asking is to find stocks that show positive revenue, profit and dividend growth. In other words; companies that make money and have a strong potential to continue to to so.

     

    How many stocks do you think this filter showed? 21!

     

    What is even worse, is that you always get the same old picks: financials (7), energy (3) and telecom (3) and REITs (7) and one techno (Calian technologies).  Sometimes, readers tell me I’m taking stocks with small dividend yield… did you know that there are only 365 stocks with a dividend yield over 3% in Canada? and I that’s without adding any other filters!

     

    After this quick filter, I started to go a little deeper as I wanted to write about stocks that are somewhat unknown to the common investor. This wasn’t an easy task! But here are a few picks that don’t show perfect fundamentals but still follow my 7 DSR INVESTING PRINCIPLES.

     

    BLACK DIAMOND GROUP (BDI)

    I thought it was interesting to come back with this pick as it did very well in 2012 but is currently taking a real beating. BDI’s stock price is dropping like there is no tomorrow mainly because the oil barrel is dropping like a stone. They provide modular buildings mainly used in Northern Alberta where there are several drilling and oil exploration activities. In other words; if the price of oil drops; exploring further to produce more oil sand become risky and not profitable. Then, nobody needs modular buildings to live in for a few months/years.

     

    On the other hand, Black Diamond now trades with a PE ratio of less than 16, offers a 4.70% dividend yield and still show strong fundamentals. Will the future be brighter for this company? I think that if you are patient enough (and earning almost a 5% dividend is enough to wait), you can make a very good bet on this company.

     

    When I looked at the other 20 companies, I didn’t find anything very interesting worth mentioning. this is why I decided to sacrifice one metric – the earnings growth over 5 years – to see if we could find something interesting… and I did!

     

    AGRIUM (AGU)

    Agrium took a very important hit in 2012 when the price of potash dropped after a game changing event in this industry. This explains a small drop in the earnings of less than 4% over the past five years.

     

    This make the pick a less stellar choice, but helps many dividend investors who are willing to take additional risk to diversify. We can expect a great future for the company which delivers potash, a crucial product in the agriculture industry. We are continuously looking to improve our productivity to feed more people with less land used.

     

    The payout ratio is relatively low (50%) for a company that is slowly digging out of a big hole. With a dividend yield of 3%, this makes it another good pick.

     

    WSP GLOBAL (WSP)

    I recently wrote about WSP global (read the article here) and this stock is also part of our DSR portfolios. WSP went through a few difficulties in 2012 and the company is now “coming back from the dead”.

     

    Revenues grew by 39% and the payout ratio is under 60%. The company is getting more and more contracts as the industry is in need of more civil engineers to handle current and future projects.

     

    Unfortunately, even by removing the earnings growth criteria, I wasn’t able to find many companies. Once again, I decided to look in the low dividend yield area to see if there wasn’t one or two hidden gems…

     

    FINNING INTERNATIONAL (FTT)

    Finning International distributes Caterpillar products North of the border. Once again, if you are looking for a good company to diversify your portfolio, I think this stock deserves your attention. It meets all the DSR investing principles on top of showing one of the lowest payout ratios at 32% (considering a 2.44% dividend yield).

     

    We can certainly expect additional sales in the upcoming years as the mining industry has been pretty down lately. The next boom will drive FTT sales higher and the company will most likely increase its dividend payout at that time. the dividend increased by a total of 61% over the past five years.

     

    I’M CURIOUS – WHAT IS YOUR HIDDEN CANADIAN GEM?

     

    Do you have any “less common” Canadian dividend stocks in your portfolio that performed well over the past few years? let me know!

     

    Disclaimer: I hold shares of BDI and BDI, AGU, WSP and FTT are part of our Dividend Stocks Rock Portfolios.

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  • Here’s a quick post this morning that will give you some food for thoughts.

    Take a look at the graph below:

    household-debt-to-gdp-chart-canada

     

    When I look at this graph I think about two things:

     

    #1 Canadians’ debt keeps growing higher and higher

     

    #2 Americans seem to understand the importance of deleveraging

     

    More traditional banks such as TD Bank (TD),BMO (BMO) and CIBC (CM) will probably be at risk in 2015-2016 due to their important mortgage book. I think their provision for bad debts and default will increase. Other banks such as Royal Bank (RY), National Bank (NA) and ScotiaBank (BNS) should perform better. Why? because RY and NA show respectively 33% and 38% of their revenue coming from the stock market while ScotiaBank is well established outside of Canada.

     

    On the other side, as a Canadian, I look at the US and think: my dollar will drop and US economy will continue to bloom. This mean I should invest even more in US stocks to benefit from both dollar value and growing profits.

     

    What do you think? do you think Canada is the right place to invest right now?

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