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Two Canadian Dividend Stocks on Sale

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In a nutshell:

  • The latest market drop did not create amazing opportunity because it only dropped five percent.
  • However, there are companies that have decreased to double-digits for a while during this bull market.
  • Here are two of my favorite Canadian stocks that are deeply undervalued.

I am not going to tell you that the market dropped like a rock last week or that there are “stocks on sale” due to the latest drop.  You have already been submerged by those kind of stories already, right?  In fact, I want to talk about companies that have been deeply suffering for a while now.  You may think the TSX is on sale right now, but in fact, it is only down five percent.  Would you rush into the store if Boxing Day could get you five percent off of your next TV?

Source : Ycharts

I am talking about real stocks on sale that are deeply discounted.

For reasons I cannot explain, Canadian stocks, especially dividend ones, are completely ignored right now.  Great companies that I found overvalued, or fairly priced at best, are now on deep discount.  The worst part is that everybody is passing by the shelves and leaving them there.  Halloween is in two weeks and if you sit tight, you will get spooked by stocks falling faster than kids eating candy.  I have a few suggestions for the most courageous.

Cineplex (CGX.TO); a Horror Movie

Cineplex is Canada’s largest movie theatre operator with a huge market share of seventy-eight percent.  Including one hundred sixty-four theatres with one thousand one hundred sixty-seven screens.  With the rise of home theatre, we would have thought that the classic cinema date would become outdated. However, Cineplex was able to improve consumers experience with various combo offers, games, and VIP treatments.

As Cineplex evolved its business model toward more premium services, it enjoys not only a huge market share, but is able to generate interesting margins.  Cineplex is also in line with a successful online streaming platform.  Finally, CGX is gradually building a serious bond with its clients through SCENE loyalty program.  From six hundred thousand members in 2006, SCENE now counts almost eight million members.

Potential Risks

A poor movie line-up, minimum wages going up to fifteen dollars an hour, and difficulties to convince the market its business model will thrive in the future; this is what is happening recently around Cineplex.  Cineplex is highly dependent on what Hollywood puts on screen for our entertainment pleasure.  2017 was a horrible year in term of blockbusters and CGX paid the consequences.  With minimum wages rising everywhere and massive reinvestment needed (in new concepts such as the REC room), margins may also get hurt.

Dividend Growth Perspective

CGX has the advantage of paying a monthly dividend around five percent, which is great for income seeking investors.  On top of that, CGX pays its distribution monthly.  While the market feared a dividend cut, the movie giant offered investors a pay raise of 3.57% a few months ago.

Management remains cautious about its payout and I have reduced our dividend growth perspective accordingly (2% for the next 10 years).  Considering its current yield, I think CGX is a great pick as its distribution will follow inflation.  A strong leadership presence and steady income should be enough to reward shareholders.

What Will Happen Going Forward

I believe that this dominant player in the movie theatre business in Canada will continue to thrive.  For a moment, investors did not believe in my investment thesis and the stock plummeted.  2017 was a terrible year in the movie industry with a lack of blockbusters and poor overall attendance.  However, this summer, CGX reassured the market with EPS up from $0.02 to $0.38 and revenue growth of +12.4% ($409M).

Source: Ycharts

CGX finally posted a great quarter and shares surged back to $30 and up.  Strong revenue growth was supported by higher attendance (+5%), stronger box office per patron (+4.4%) and higher concession revenues per patron (+9.3%).  Free cash flow surged by 142% providing more room for management to support its dividend.  After reading this, one should understand why CGX increased its dividend last month.  New Rec Rooms are also bringing additional diversification and strength to the Cineplex business model.

BCE (BCE.TO): Will it let you hang yourself in there?

BCE is the largest Canadian telecom by market cap and about twice the size of Telus.  It shows the most balanced business model among this small group.  BCE has shown a very solid dividend profile for several years and my analysis proves it will continue to rise in the future.  All BCE services are based on some sort of monthly subscription, generating a consistent base for cash flow.

When you have the possibility to invest in a strong yielder like BCE and still hope for a small stock appreciation growth, you must take a hold of it.  BCE shows a well-diversified business model and will continue to generate strong cash flow in the future.  The company is a real money printing machine.  As BCE is part of an oligopoly (Telus, Rogers and BCE controls about 90% of wireless market), there is limited competition and high barriers to entry.  Since BCE offers a wide array of products, it can increase revenue generated by each customer.

Source: Ycharts

Potential Risks

BCE debt level is not be underestimated.  BCE is a giant with a giant debt.  That giant debt is sometimes compared to a $24.1B tab at the bar.  While BCE debt to equity ratio is lower than its peers (1.18 for BCE vs 1.47 for Telus (T.TO) and 2.17 for Rogers Communications (RCI.B.TO)), the dollar is a lot higher ($14.26B for Telus and $16.19B for Rogers).  This is not a perfect situation as interest rates are now rising.

As the Canadian Government keeps pushing for more competition in the wireless industry, BCE may see additional competitors adding more pressure on margins in the future.  One day or another, a major player will take its chance in the Canadian market and price will fall (good for customers, bad for BCE!). The simple mention of Verizon pushed the stock down a few years ago.

Dividend Growth Perspective

Management maintained a high, but under control, payout ratio over the past 10 years.  BCE’s current payout ratio is at 96%, but its cash payout ratio is at 82%.  Considering BCE is a real money-making machine, those ratios are manageable.

While distribution increased steadily since 2010, the payout ratio did not move much.  BCE should remain cautious, but there is room for dividend growth.  BCE is probably the best compromise for an income seeker.  While its stock is relatively stable, shareholders enjoy a steady yield.  Since payment is secure, BCE falls into the “buy and sleep” stock.

Want More?

If you are looking for high yield stocks, I suggest you read this article to understand how I pick them.  I make sure all of my picks show a safe dividend that will increase in the upcoming years.  A high dividend yield without growth is not interesting for me.  I am also hosting a webinar about my favorite stocks on sale this Thursday.  One would just have to follow-me to get all the information.

Do not get spooked by the market – here is my favorite Dividend Stocks On Sales

On Thursday, October 18th, I will be hosting a free webinar.  I will discuss more of my favorite dividend stocks on sale.  I aimed at companies with a strong dividend profile, but that has been ignored by the market like CGX.TO and BCE.TO.

Register to the webinar here (free)

Topic: Dividend Stocks On Sales

Date: Thursday, October 18th at 1pm EDT

You must register with Webinar Ninja to attend (if you did it in the past, no new registration is required). This is completely free and the webinar is free also. Webinar Ninja is the platform we use to run all our webinars. It works well and provide an optimal experience for everybody.

  • The presentation is about 30 minutes.
  • There will be a Q&A session of about 25-30 minutes.
  • The webinar works on Google Chrome or Safari from a laptop or computer. (not compatible with smartphones or tablets)
  • If you can’t make it on time, there will be a full replay available, but you must register to access it.

Register Here

Our webinar presentations are about 30 minutes long and the rest of the hour is dedicated to your questions.  We can discuss stocks, strategies or any economic events.  I will be happy to help you anyway I can, so prepare your questions.

Disclaimer: We hold CGX.TO, BCE.TO and T.TO in our Dividend Stocks Rock Portfolio

Video of the Week: Lazard (LAZ), An Asset Management Beast

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As you might have read about it here, I now do live webinars and certainly have fun doing so. I have been surprised by the positive interest attendees had towards many of my stock picks. This is how I came to the idea of sharing here some of my “Video of the Week”, during wich I go through a company recent news or results and explain why I believe it is currently a good or a bad pick for a dividend investor.

Lazard (LAZ) is an asset management beast like no other! Having 50% of its income coming from asset management and the other 50% from advisory, LAZ can perform during high and low economic times. It has been growing its market shares for the last 10 years and there is more to it!

Video

If you enjoy the videos format and want more of them, subscribe to my YouTube channel!

Verbatim

00:00 Mike Heroux: Hey, fellow investor, this is Mike Heroux from Dividend Stocks Rocks. I hope you’re doing well today. Welcome to this week Dividend Stock Pick. Today, we’re covering another asset manager, but this one is a little bit different than BlackRock that I’ve covered a few weeks ago. You can retrieve it in the note below. Basically, I wanna talk about Lazard Asset Management. Ticker is LAZ. Lazard is definitely a different beast because 50% of its revenue is coming from asset management and the other 50% is coming from its advisory firm business. Sorry, it’s a little bit hard to say for a French-Canadian.

00:46 MH: So let’s start with asset management. Lazard has been around for over a hundred of years. The company has grown up through several mergers and acquisitions, which is quite ironic because now they’re known for doing that. So Lazard has developed its expertise in real assets, so those assets are not traded on the stock market, they’re more likely like infrastructures, like bridges and tolls on highways and stuff like that. Those assets are hard to invest in if you don’t have the real expertise, if you don’t know how it works and Lazard has been doing that for so many years now that it has become an expert into it.

01:28 MH: A great thing about those type of assets is that they don’t necessarily follow the stock market. I mean when you’re building a bridge, it’s for the next 25, 30, 50 years in front of you, same thing with a toll or any kind of infrastructure. So it’s a long-term play where you already know about your finance stake structures, so you know about your cost because you’re going to issue bonds that will last at least 20 years, and you also have a good idea of what your revenue will look like and your maintenance. So it’s a little bit different than investing in the stock market where any kind of announcement overnight can put the market by up 5% or down the hole and issue a bear market.

02:14 MH: So the other part of Lazard which I found even more interesting is that they’re well-known for their advice in regards to mergers, acquisitions, restructuring plans. So basically when you’re running into a bull market and there are plenty of companies that are looking to do mergers and acquisition, when Lazard will help setting up the deal and they’ll analyze if it’s worth it or not, how you should do it, how you should get your financing. So let’s just say that during your bull market, Lazard guys are very busy. During downturns, during recessions and bear market they are also busy. And this is what I really like about it is because when companies are struggling with their finances, they’re looking for cost-cutting initiative. They’re looking for a restructuring plan, and this is where, once again, Lazard guys are coming into play. So they’re helping out businesses to restructure, to save on cost and to become more efficient and eventually, when thing turns around and now that they’re efficient and making money during the next bull market, guess who they are going to call when they’re making a merger and acquisition? They’re not gonna call Ghostbusters, they’re gonna call Lazard.

03:32 MH: This is why this company has been there for so long, and even during 2008, 2009, 2010 when several asset manager got hit, their stock price got hit as well, but what was really interesting is that they were gaining market shares during that time. So that means that the quality of their service is better than a lot of their peers and they have been growing their market shares for the past 10 years. So, I’m not really afraid to pick up shares of Lazard right now even though we’re at the summit of the bull market ’cause even then, even if it start dropping, they will do well in the end.

04:17 MH: Right now, the stock price is slightly under 50 bucks. It’s a very good timing right now. There’s a bit of a wrought over asset manager. If you look at BlackRock, if you look at Invesco, most of them they are losing a few dollars on the market mostly because investors are worried about asset under management not growing fast enough, but remember half of Lazard business is not about managing assets, so you don’t have to really mind about that.

04:50 MH: The other point that is very interesting about Lazard is its dividend growth profile. The company is currently showing a double digit dividend growth rate for the past five years. And on top of that, around February, you get another candy because on top of being a nice 3%, 3.5% yield on a quarterly basis, Lazard also reward investors with a special dividend that is paid in February. In 2008, it was $1.30 per share, which is about 2.5% dividend paid right up front.

05:31 MH: So if you’re looking for a financial stocks paying 3% as a base and then a potential of getting 5% to 6% yield each year on top of great growth performance and perspective, I think Lazard could be a very great pick right now, especially under 50 bucks. At DSR, we value it at over $60 right now, so there’s a good chance that the stock will go up in the upcoming months. Once again, this is not a stock recommendation, this is not a financial advice. I am not your broker or your financial adviser; therefore, you cannot sue me or sue DSR if you’re losing money by picking shares of Lazard or any other companies that you hear me talking about. But in the good side of things, you just have to thank me and you don’t have to pay me a dime if you’re making some money.

06:24 MH: So don’t forget to subscribe to my news channel right below and to go to Dividend Guy Blog, the dividendguyblog.com to register to my newsletter as well. The link is right on the note below. So in the meantime, happy investing and take good care.

Will the Company Still Pay Its Dividend? A Quick Guide to Avoid Dividend Cuts

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Exactly a year ago, I started investing the sum of $100,000 in the stock market. It took me about three months to complete my portfolio. Today, 100% of this portfolio is invested in dividend paying stocks. I can’t predict what is going to happen on the stock market, but I decided to invest my money anyway. I did it following a complete investing plan, including a methodology to avoid dividend cuts.

Any dividend investor’s worst nightmare is a dividend cut. After all, we invest to receive these precious distributions and we base our retirement plan on them. The last thing we want to see is a company slashing their dividend and leaving us on the side of the road. If you are like me, you love dividend stocks. However, you may fear that some of your stocks don’t hold their end of the deal.  Let me explain how I built my portfolio avoiding all companies with potential dividend cuts.

Dividend Cuts: A Good Defense is a Strong Offense

When it comes to investing, the best way to avoid picking rotten apples  who cut their payouts, is aiming for those who intend to grow it. Your best protection against dividend cuts is dividend growth. When you look at the market with a set of dividend glasses, here’s what you see:

Dividend Growers

Dividend Payers

Dividend Cutters

Non-paying dividend stocks

I don’t know about you, but it seems a lot better to be part of the first group than others. You don’t have to believe me. You can believe financial analysts conducting pages of research coming to the same conclusion: dividend growers are the best breed of stocks.

Source: Earning dividend income just makes sense, AGF Investments

Think about it: what was a company doing with its dividend before a dividend cut?

The answer is clearly not increasing it. As I’ve mentioned in a previous post, the first type of dividend cut is one in disguise. Before cutting its dividend, the company will maintain it for several years. When a company starts paying a dividend, it carries a burden forever. Investors will expect the company to keep distributing a part of its profits. If the company is struggling to grow, it will maintain its dividend and try to find solutions. After a few years, the company could hit another bump in the road and management will be forced to cut its payment.

Tip #1; an absence of dividend growth is a red flag for a dividend cut.

When you look for dividend grower, you are not completely shielded against potential dividend slashes, but you wear a good armour against it. You can start looking for dividend growers with the dividend achievers list.

Find business growth vectors; you’ll find how it will protect your dividend

Another way to avoid picking potential dividend killers is to pick companies showing several ways to grow their business. During any market crashes, most companies will see their stock price fall. However, those which will maintain and increase their dividend during those periods are the ones with the most solid business model.

There are plenty of companies that recuperated very fast from the 2008 crisis. Companies like Disney (DIS), Starbucks (SBUX), Johnson & Johnson (JNJ), Royal Bank (RY.TO), National Bank (NA.TO) and Canadian National Railways (CNR.TO) have all recuperated in less than 12 months. Not bad for one of the worst stock market crash, huh?

Source: Ycharts

Tip #2; if you can’t find growth vectors, chances are the company won’t increase its dividend.

Here’s a short list of bullet proof metrics to follow prior to selecting your stocks.

High yield stocks must be selected with moderation

We all like stable companies like Real Estate Income Trust (REIT) that pays a juicy yield and show solid balance sheet. But what will happen with those REITs when the economy shift? You guessed it; dividend cuts!

One of the best examples just happened recently. Would you invest in a REIT that is specialized in renting offices to the #1 renter in the world; the U.S. Government? Imagine if this REIT would pay you close to 10% yield. Don’t you think I just defined the most amazing investment for any income seeker? This sounds like the deal of the century, right? I guess it was, until Government Properties Income Trust (GOV) announced a merger with Select Income REIT (SIR). In the process, oh surprise, shareholders will see their dividend being slashed. Here’s what GOV looks like this year:

Source: Ycharts

And what did the dividend looked liked before the cut? You are right! It was flat for several years…

Source: Ycharts

Final Tip: When a company is offering a high yield; be careful

If you are looking for high yield stocks, I suggest you read this article and select among our retirement stock list.

Want to make sure your companies will continue paying their dividend?

On Thursday, October 11th, I’ll host a free webinar. I will discuss dividend safety in your portfolio.

I will address major concerns we all have regarding our holdings: how do we make sure our stocks continue paying their dividend? Even better, how can we make sure companies we hold will increase their dividend going forward? I will dig into how earnings and payout ratios are calculated, and I’ll also have a special section about REITs too!

Register to the webinar here (free)

Topic: Make Sure Companies Pay Their Dividend and Don’t Cut It

Date: Thursday, October 11th at 1pm EDT

  • You must register with Webinar Ninja to attend (if you did it in the past, no new registration is required). This is completely free and the webinar is free also. Webinar Ninja is the platform we use to run all our webinars. It works well and provide an optimal experience for everybody.
  • The presentation is about 30 minutes.
  • There will be a Q&A session of about 25-30 minutes.
  • The webinar works on Google Chrome or Safari from a laptop or computer. (not compatible with smartphones or tablets)

If you can’t make it on time, there will be a full replay available, but you must register to access it.

Register Here

Our webinar presentations are about 30 minutes long and the rest of the hour is dedicated to your questions. We can discuss stocks, strategies or any economic events. I’ll be happy to help you anyway I can, so prepare your questions.

September Dividend Income Report

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In September 2017, I received slightly over $100K as a result of the commuted value of my pension plan. I decided to invest 100% of this money into dividend growth stocks. Each month, I publish my results. I don’t do this to brag, I do this to show you it’s possible to build a portfolio during an all-time high market. The market will crash… eventually. In the meantime, I rather cash some juicy dividends!

***UPDATE*** In September 2018, I hosted a live webinar on how I used my investing methodology to build this portfolio. I’m going back to my screening methods and how I invested the full amount in the market to get the result I’m presenting today.

Click here to view the webinar replay (it’s free)

Portfolio holdings

The month of September is always a great month for me. First, it has a meaning of a “fresh start” after summer. I always enter in this month with great motivation. Plus, it’s my birthday! And this year, I have something to celebrate; my pension portfolio is 1 year old! When I started investing this money a year ago, I was confident of doing a good job, but I would have preferred to start in September 2009 rather than 2017! Still, I fearlessly invested my money following my 7 investing principles. Let’s take a look at the latest numbers…

Numbers are as at October 3rd, 2018:

Canadian portfolio (CAD)

Company Name Ticker Market Value
Alimentation Couche-Tard ATD.B.TO $5,471.32

 

 
Andrew Peller ADW.A.TO $6,814.30
National Bank NA.TO $5,144.00
Royal Bank RY.TO $6,173.40
CAE CAE.TO $5,180.00
Enbridge ENB.TO $6,997.06
Fortis FTS.TO $4,093.65
Intertape Polymer ITP.TO $5,775.00
Lassonde Industries LAS.A.TO $5,011.65
Magna International MG.TO $4,830.70
Cash $731.53
Total   $56,214.36

My account shows a negative variation of $588.12 since the last income report.

I didn’t make any trade this month as the portfolio is fully invested. Small variations here and there were mostly caused by the NAFTA negotiation (and resolution). At this point, I don’t feel I will move any money around. I’m quite satisfied with this portfolio and the results that were published by my companies.

Lassonde is on a bad slump lately mostly due to US sales underperformance. Sales from OOB (Old Orchard Brands) added $12.4 million to the Company’s second-quarter sales. Excluding OOB’s sales and a $9.5 million unfavorable foreign exchange impact, the Company’s second-quarter sales increased by $4.7 million (1.2%) year over year, largely due to sales price fluctuations that had a favorable impact on national brand sales. EPS drops are partially due to OOB sales and weaker margins in the U.S.

Magna International is also going sideways on the market lately. However, their latest earnings were great. Double-digit EPS and revenue growth (including a record quarter in sales) weren’t enough to please the market as analysts were expecting more. What’s the problem? The market fears Magna will not be able to keep up with this pace going forward. Tariffs and a strong US dollar are at the center of those concerns. We think the company will continue to do well and this small pull-back is just a buying opportunity.

Numbers are as at October 3rd, 2018:

U.S. portfolio (USD)

Company Name Ticker Market Value
Apple AAPL $7,199.44
Disney DIS $5,265.90
Gentex GNTX $4,954.97
Hasbro HAS $4,744.43
Honeywell HON $5,293.12
Lazard LAZ $4,866.42
Microsoft MSFT $6,917.70
Starbucks SBUX $4,725.15
Texas Instruments TXN $5,424.00
United Parcel Services UPS $4,353.05
Visa V $7,476.13
Cash $664.89
Total   $61,884.13

The US account shows a positive variation of $477.55USD since the last income report.

Companies I picked from the top dividend tech stock list continue to do extremely well. There is definitely a strong wind of optimism around any businesses using cool buzzwords such as “cloud”, “AI” or “big data”. I think we are not done with this wave and many companies are not even at the “bubble” stage yet. But with AAPL, MSFT, and TXN, I’m already well served in the tech sector.

While my overall portfolio didn’t move much over the past 30 days, I’ve almost matched my record month in term of dividend received. With the help of a special dividend paid by Lazard, I’ve made $408 in February. This month, I was only nine bucks short of beating that record…

Dividend income: $400.15 CAD

Starting next month, I’ll be able to compare my dividend received with last year. I’m fairly confident to beat October as it was my smallest month. What I like about this real-life portfolio example is that I can’t blind you with some extra savings abilities that would increase the money invested in the portfolio (and therefore its dividend paid each year). The final amount that has been invested will always remain $108K as it is a “locked” account.  We will then see the power of dividend growth in real action without being supercharged by additional capital.

Let’s take a look at which companies paid me this month:

Canadian Holdings payouts: $280.38 CAD

  • Alimentation Couche-Tard: $8.60
  • CAE: $20.00
  • Intertape Polymer: $54.63
  • Lassonde: $17.01
  • Magna International: $30.03
  • Enbridge: $108.03
  • Fortis: $42.08

U.S. Holding payouts: $93.21 USD

  • Visa: $10.50
  • UPS: $33.67
  • Honeywell: $23.84
  • Microsoft: $25.20

Total payouts: $400.15CAD

*I used a USD/CAD conversion rate of 1.2850

Since I started this portfolio in September 2017, I have received a total of $2,506.89 in dividend. This is good for an average dividend yield of 2.32% based on my cost of purchase. But keep in mind that I started investing my money in September, but I’ve completed my portfolio around January the year after. Therefore, I expect my dividend income to be a lot more in 2019.

I don’t have the full calculation (because I spend more time looking at companies than tracking numbers that already happened in my portfolio), but I think my holdings grew their dividend by roughly 12% on average over the past 12 months. Therefore, I can expect to receive more than $2,800 in dividend.

Final thoughts

Overall, we can say that my global portfolio didn’t do much in term of variation. This is partially due to the fact that the currency movement affected my US portfolio by about 1% and my Canadian portfolio didn’t perform that well.

On the other side, I can appreciate the $400 in dividend payment that helped me going through a lesser good month. This is one of the many advantages of having a dividend portfolio; when you are having a bad month on the market, your dividend payment takes over and make you forget!

 

Video of the Week: The Dividend Cut in Disguise

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As you might have read about it here, I now do live webinars and certainly have fun doing so. I have been surprised by the positive interest attendees had towards many of my stock picks. This is how I came to the idea of sharing here some of my “Video of the Week”, during wich I go through a company recent news or results and explain why I believe it is currently a good or a bad pick for a dividend investor.

This week’s video is a bit different however! I wanted to address a very important topic for all dividend investors: the dividend cut in disguise. I covered it last week on the blog, but video gives me the opportunity to comment a little more on the topic in less time. I hope you’ll enjoy!

Video

If you enjoy the videos format and want more of them, subscribe to my YouTube channel!

Verbatim

00:00 Mike: Hey, fellow investors. This is Mike Heroux from Dividend Stocks Rocks. I hope you’re doing well today. Instead of talking about specific dividend stocks this week, I decided to discuss a completely other matter. We’re going hear about what I call a dividend cut in disguise. So this video is a little bit more for retirees, people that are 60 years old and up, income-seeking investors, most likely not working anymore or not working much and depending a lot on their investment income to support their lifestyle. Those kind of investors usually prefer to invest in REITs or other companies paying 8%, 9%, 10% dividend yield mostly because they need that kind of money to sustain their retirement.

00:56 Mike: And now that it’s been 10 years that we haven’t went through a recession, a market crash, or any bubbles I’d say that pretty much all companies look good, right? The numbers are there, the growth is there, the appetite for debt from the market is there so most companies are able to grow by acquisition or by refinancing their debts to increase more, to have more money, and then generate additional cash flow. So, all those reasons makes you believe that a lot of your companies are not cutting their dividend and they’re just flying under the radar paying you those high yield and you don’t even realize that those dividends are being cut right now right under your nose. ‘Cause the thing is, it’s not only about income and it’s not only about keeping the same dividend payout quarter after quarter or month after month, it’s about increasing it.

01:55 Mike: When a company stop increasing its dividend, it’s making a dividend cut in disguise. Why is that? Because Mr. Inflation comes into the party. So imagine that you bought shares of a company back in, I don’t know, 2013 let’s say, so five years ago, almost six years ago and the payout has been the same for the past five, six years. You used to make 10% yield and now the market goes up and down, but based on your investment today you’re still making that 10% return on your investment because you’re receiving your quarterly paycheck. The problem though during that time is cost of living is increasing year after year. You pay more for your food, you pay more for your gas, you pay more for traveling, restaurant, pretty much any activities cost more in 2018 than it used to cost in 2012 or 2013. So while your budget is going like this over time, your dividend payment is going like this. So, at one point in time, what happened is, if you used to need $30,000 a year to live up in a comfortable retirement, now you need 35, and then you’ll need more but if your portfolio still generates the same 30,000 you’re starting to get cut.

03:20 Mike: And this is why they’re cutting their dividend without you knowing it because they are not able to grow fast enough, they’re not able to increase their cash flow in a matter to share the wealth with investors and keep up with inflation. Now, keep in mind that what I said at the beginning of this presentation, we are running in a super nice market, the economy’s doing well, unemployment rate is down, everybody’s happy on the stock market, which means that they’re willing to buy more debt, so the appetite for debts, for bonds is very good. So, any companies can issue more units or ask for more bonds and the market will give it to them.

04:05 Mike: One day, this part of the market will slow down. It might eventually crash. And I’m not telling you this because I want to scream with my red flag that the next market crash is coming for December 31, 2018. I’m just telling you that the market evolves in a cycle so we have upsides and downsides, and we’ve been running on a upside for several years. Therefore, what’s gonna happen if this company in a great economy is not able to increase its dividend? What is it going to happen when the economy is not so great anymore? Well, you guessed it, a real dividend cut. The problem with companies that are not increasing their dividend for five, six, seven years is because that they put their dividend payment on just some kind of artificial respirator, so basically they’re just waiting the right moment to pull out the plug and cut the dividend.

05:10 Mike: When you think about it, if management adds financial issues to increase the payout, what are they gonna do? They’re gonna try to find additional growth vectors, they’re gonna try to refinance their debts, make an acquisition to increase their cash flow, issue more units so they can somewhat prove you that they’re growing. But at one point in time, if all those strategies doesn’t come to a steady dividend growth policy, this means that at the first speed bump, at the first problem, the first recession, the first thing that is not paying, they will have to cut their dividend. So they’re waiting the last moment to do it, but fear not, if a company cannot increase its dividend they’re the first in line to cut their payout.

06:01 Mike: So thinking about that, now look back at your portfolio, look at all your companies, pull out the past three and five years and check which companies haven’t increased their dividend. And I’m telling you, those are having a high chance of being the first to cut their dividend. If they do that, you’ll not only lose a part of your revenue but you will also lose a part of your portfolio because upon a dividend cut, most company shares are going down. So you’re not only losing the revenue that is coming in the future, you’re actually losing real value today, and this you cannot come back from it. So while the market is up, what I’m telling you is, look back at your portfolio, identify the non-dividend growers and start selling them. Look for better alternatives.

06:52 Mike: I hope that you enjoyed this video. If you wanna read the whole study behind it, the whole article, the link is right below in the note and on to my blog, thedividendguyblog.com. Register to my newsletter to get that. If you wanna be notified for my other videos, don’t forget to subscribe to the new YouTube channel and hopefully that you have enjoyed it. I’ll end it up with this small disclaimer, everything that is being said on this video or by Mike Heroux at Dividend Stocks Rocks cannot be taken as a buy or a sell recommendation. I am not your financial broker or your financial adviser, therefore, you cannot sue me if you’re losing money after watching this video. And on a good side of things, you won’t have to pay me a dime if you’re making some money and avoid some dividend cut. So, until next week, I’ll tell you, take good care of your portfolio, watch the market, and happy investing. Cheers.

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