Reposted from Seeking Alpha
By Brian Langis
I have provided an overview of 4 non-banking Canadian dividend stocks. They also trade on a U.S. exchange. Full the full article click on the link here: 4 Solid Canadian Dividend Stocks
My portfolio is structured in 3 segments:
- Cash and liquidities, short-term investments, bonds, guarantee certificates.
- The purpose of this segment is to have an emergency fund, savings, and to take advantage of potential opportunities.
- The drawback is having zero returns or negative growth after inflation and taxes.
2. Income Portion
- As the name indicates, this segment is built around a stable recurrent growing dividends payout. The goal is to build permanent growing passive income. A large portion of the investments are in Canadian companies because that’s my daily currency.
- I have an infinite time horizon. It’s a classic buy and hold.
- The downside is that dividend investing is boring and slow. Also, I’m mostly limited to Canada. However, many Canadian companies are trading in the U.S. like the ones mentioned below.
- The mindset you need when investing for income is similar to watching a tree grow. You can’t look at it every day. You do need to take care of it but you can’t take it out of the ground to check on the roots all the time.
3.Growth Portion
- This is my favorite section but it also requires more work. The objective is to achieve long term capital appreciation and returns superior to its benchmark. I focus on buying businesses that I believe are trading under their long term intrinsic value. Intrinsic value is measured by taking all the future cash flows into and out of the business and discounted at the proper rate. This is the section where money goes to work to achieve long-term capital growth. There’s no limitation on the opportunities. Some of my investments are domestic and foreign.
- The time horizon of this segment is long-term but not infinite. If the price exceeds value or the fundamentals are deteriorating, I would consider exiting.
The article will focus on the income segment of the portfolio. It’s time to feed the dividend machine. My goal is to allocate capital based on securing a reliable growing income. My next investment needs to be a dividend paying Canadian company because it’s my everyday currency. This segment generates liquidity that allows me to take advantage of opportunities. The reallocation of that cash is based on opportunity. My liquidity is replenished by the cash of my dividend generating companies. Today I’m focusing on growing my income section because I have a goal of maintaining a growing minimum of dividend income. Good old dividend paying companies are pretty much uneventful and boring until you get that dividend cheque and then you are hooked! Then you want these dividend cheques to keep growing. A good dividend company is a gift that keeps on giving.
My model enables me to possess a long-term horizon combined with a flexible opportunity framework. Right now I’m searching for a solid company that will distribute growing dividends over a very long time. Its dividend also needs to weather a storm. I need to approach this with the mindset that I can’t lose the money and that I depend on the income. I need to build this dividend machine as if I would own them forever. I also don’t mind paying a little more if it means that I have a higher quality business. The premium that I pay today is going to pay off over the long-run. The long-term focus also helps me eliminate the everyday market noise.
My window of solid dividend paying opportunities also shrinks because I’m eliminating Canadian banks off the radar. I already have my dose of capital allocated to banks. Also, there’s plenty of coverage and articles dedicated to Canadian dividend paying banks.
Finally, I have selected four large companies that have plenty of coverage. Below is a snapshot of the four companies that are candidates for my next dividend investment. Most of you are probably familiar with the names proposed. Further analysis valuation is required.
TransCanada (TRP)
TransCanada is more than just pipelines. It has a lot of diversified operations. They are involved in power generation through natural gas, nuclear, coal, hydro and wind generation. TransCanada owns, controls or is developing more than 10,800 megawatts of power generation and also stores natural gas. The company is also involved in electricity trading and marketing. Keystone XL or not, this company is plowing through with plenty of growth projects.
TransCanada’s diversified business model offers a reasonable dividend yield. The regulated pipeline business tends to be stable and there are significant barriers to entry. Potential catalysts are improving natural gas prices, the realizations of several on-going projects, and approval of the Keystone XL. Uncertainties surrounding the approval of the Keystone XL are already baked in the stock price. TransCanada also proposed a natural gas pipeline to the B.C. coast, and a decision is pending on the project. Another risk to TransCanada and to the industry are pipeline leaks and mounting opposition from environmental groups.
Source: TransCanada Investor Relation. Nice chart.
Above is a chart of the last ten financial years. Over ten years, income and revenues have grown but have been flat the last five years. Actual cash flow would need to be analyzed to give a proper picture of the company since earnings are probably distorted. TransCanada has several on-going projects in the pipeline that should fuel further growth.
For the full article and the rest of the picks you must click here (Redirected to Seeking Alpha)
Brian Langis 