Recent sell & buys – LIQ.TO, AGU.TO, SBUX, BEP.UN, HLF.TO

If you have been following this blog, you will recall that one of our goals for 2016 is to receive over $13,000 in dividend income. Given that we’ve only received $2,809.08 so far this year, we’re slightly behind in progress on this challenging goal. So it shouldn’t come as a surprise that we’ve been working hard to save more money each month so we can purchase more dividend stocks.

The stock market has rallied quite a bit lately compared to the beginning of 2016. This meant that some of the stocks we’ve been monitoring have increased in stock price. It’s difficult to justify pulling the buy trigger when the stock price was 10% less a few months earlier. Having said that, we’re not quibbling over eights and quarters. We are investing for the long term, so a few dollar difference in the stock purchasing price shouldn’t make a huge deal. The worst thing that can happen would be missing the chance to own a solid dividend paying stock completely. This can happen if we are only buying a stock at a specific target purchasing price and miss the chance to buy completely because the stock never gets to that price.

Another goal for 2016 is to balance our portfolio. This means selling some of the high yield, no growth dividend stocks that we purchased when we first started our dividend investing journey. You see, back then we didn’t know much about dividend growth investing and focused mostly on one parameter – dividend yield. We’ve since then learned there are more important parameters than the initial dividend yield. Over the last few months, we’ve sold some of these high yield stocks like EnerPlus and Chorus Aviation. One of the stocks that we’ve been wanting to sell is Liquor Store (LIQ.TO). We purchased LIQ.TO originally due to the attractive high dividend yield and what seemed to be a solid business. We figured that people will always buy alcohol so it’s a stable sector to invest in. The company has seen its sales decreasing due to a number of changes in the business landscape over the past year. Recently, Liquor Store decided to cut its dividend payout. Since there hasn’t been any dividend growth for a number of years and our yield on cost is quite poor due to the dividend decrease, we have decided to sell our position in Liquor Store. Fortunately we only came out slightly negative in this trade, when dividends received are included in the calculation. It’s sucks to end up with a losing trade but you learn and move on. 🙂

With the cash from the LIQ transaction and some newly added cash, we recently purchased the following stocks:

15 shares of Agrium Inc (AGU.TO)
20 shares of Starbucks (SBUX)
40 shares of Brookfield Renewable Energy Partners Ltd (BEP.UN)
100 shares of High Liner Foods (HLF.TO)

 

Agrium Inc
This is our second purchase of Agrium. Since our last purchase, the stock price has dropped by about 15%. Purchasing more Agrium shares is our way to average down our cost basis. The fertilizer sector has been under performing the last few months, so all the companies in this sector have seen their stock price decrease significantly.  Because the world population will continue to grow, we will always need food to eat. On this rationale alone, I believe it makes sense to purchase more Agrium shares while the sector is in the lows of its cyclical cycle. At a PE ratio of 12.29, a dividend yield of 4.2%, and a payout ratio of 51%, holding Agrium to collect dividends and wait for the sector to recover makes a lot of sense.

 

Starbucks
Starbucks is a company that doesn’t need much introduction. It is also a stock that I’ve been monitoring for a while but have not pulled the buy trigger until recently.

At a dividend yield of 1.3% and a PE ratio of 34, Starbucks isn’t considered as your typical sexy dividend stock. Typically I only consider a dividend stock when the dividend yield is 2.5% or higher, so Starbucks definitely failed this important criteria. In Starbucks’ case, one must look past the initial dividend yield to see the dividend growth potentials. The company has been raising dividends for 6 straight years with a 5 year dividend growth rate of 30.5% and a 1 year dividend growth rate of 23.6%. This is an extremely impressive DGR! We’re investing for the long term, so a high DGR is very beneficial, especially considering the power of compound interest. Sure, the dividend growth rate probably won’t grow at +20% forever but if it continues for another 5 years, the yield on cost would increase to about 3.2%. The yield on cost would increase to about 8% in 10 years if such growth rate keeps up. Can you imagine owning a stock that has a dividend yield of 8%?

The company came out with its quarterly earnings last week. As a result of reporting a weaker-than-expected revenue, the stock fell by as much as 6%. This was despite revenue being up by 9.4% compared to the same quarter a year ago. The company racked in $4.99 billion in the recent quarter, only slightly shy of a consensus analyst revenue estimate of 5.03 billion. That’s a miss of $40 million in revenue estimate, or 0.79%. I was shocked to see how the market reacted to the slight miss of revenue estimate. A miss of 0.79%, that shouldn’t be a big deal right? Well, Mr. Market was certainly very emotion over a 0.79% miss on estimated revenue. When I dug deeper into Starbucks’ numbers, I was impressed that EPS was up by 18% compared to Q2 2015, and a 9% increase in revenue year-over-year.

Three numbers caught my attention in the recent quarterly earnings: a 6% increase in same-store sales globally,a 7% increase in same-store sales in the US, and most importantly, an 18% revenue increase in China compared to Q2 2015. The increase in same-store sales both in the US and globally meant either more customers are coming to Starbucks stores or people are spending more on average. A good news regardless. This also a good indication that these stores are in good locations to continue attracting customers.

Because coffee drinking is the norm here in North America, Starbucks has a huge following. Starbucks may not offer the best coffee you can find, but Starbucks coffees are consistent. You’ll get the same product all over the world, whether you’re in New York City, or in Hong Kong. Consistency is a big selling point for major chain stores like Starbucks. Because people are familiar with Starbucks products, when they’re in a new city, many of them would go to a Starbucks store they want coffee, instead of trying an unfamiliar brand.

Having been to Japan frequently over the last 6 years or so, I’ve seen a tremendous growth in Starbucks stores in Japan. There are more and more Starbucks stores in Tokyo area and most of the stores were packed whenever I visited. Like many US companies, Starbucks is expanding into China. At a population of over 1.3 billion, China offers a huge growth potential for Starbucks. When I was in Shenzhen last late November, Starbucks stores weren’t as readily available compared to any US or Canadian cities. Considering Shenzhen is a major city in Guangdong Province and it’s very industrialized, with many high tech companies, I was surprised that there weren’t more Starbucks stores. What was more interesting was that many of the colleagues I talked to weren’t regular coffee drinkers. They didn’t understand the coffee drinking culture. After talking to them a bit further, it seemed that they haven’t been exposed to coffee like we are here in North America. With more time, I think more and more of the Chinese population will become regular coffee drinkers, and Starbucks is certainly in a great position to cash in. Interestingly enough, when I was transiting in Hong Kong, Starbucks seemed to be quite popular, especially in the airport. There was a constant long line up whenever I walked by while waiting for my flight to return back to Vancouver.

 

Brookfield Renewable Energy Partners Ltd
If you look at our portfolio, you’ll see that the only utility stock we own is Fortis (FTS.TO). For some reason, we have never put too much attention in the utilities sector. Trying to diversify our portfolio a bit, this is when I started looking into Brookfield Renewable Energy Partners Ltd.

From Google Finance:
Brookfield Renewable Energy Partners L.P. (Brookfield Renewable) operates as a pure-play renewable power platform. The Company’s segments include hydroelectric, wind and other. Brookfield Renewable operates renewable power generating assets, which include conventional hydroelectric facilities located in the United States, Canada and Brazil, and wind facilities located in the United States, Canada and Europe. Brookfield Renewable also operates two co-generation facilities. The company owns and operates approximately 250 renewable assets, diversified across 73 river systems and 14 power markets in North America, Latin America and Europe. Brookfield Renewable’s portfolio, primarily hydroelectric, totals over 10,000 MW and produces enough electricity from renewable resources to power 4 million homes each year.

This is our first investment in a pure-play renewable power company. I really like the idea of investing in hydro, solar, and wind power. Although we will continue relying on oil for the next few decades, I believe renewable energy will start becoming more and more main stream in the next 5 years. As of end of 2015, Brookfield Renewable Energy Partners own or manage assets with 7,285 MW of generating capacity and annual generation of 25,766 GWh with the assets mostly in wind and hydroelectric plants. The company has more than doubled the size of its asset base and expanded into four new countries and a new continent. The growth should continue into the future as the company continues to acquire other companies in other countries.

BEP.UN currently has a 6.6% dividend yield and a 5 year dividend growth rate of 5.2%. Given the high yield, the below 10% growth rate is expected and acceptable. The company plans to distribute on average 70% of funds from operations and 5 – 9% annual growth in cash distribution. This bodes well for long term dividend growth investors like us.

 

High Liner Foods
We have been wanting to increase our exposure in the consumer defensive sector and High Liner Foods has been popping up in our watch list for the last few months.

From Google Finance:
High Liner Foods Incorporated is a Canada-based company engaged in processing and marketing of prepared and packaged frozen seafood products. The Company’s retail branded products are sold across the United States, Canada and Mexico under the High Liner, Fisher Boy, Mirabel, Sea Cuisine and C. Wirthy & Co. brands. The Company operates in manufacturing and marketing of prepared and packaged frozen seafood segment. The Company offers its products to restaurants, institutions, food retailers and foodservice distributors under Icelandic Seafood and FPI brands. It operates in two business units: the United States and Canada. The United States operations include the distribution of products across the United States and in Mexico through grocery stores and club stores. The Company’s Canadian business includes the brand High Liner, which consists of over 100 individual products from its battered and breaded fish portions to products that offer various seafood species.

I quite liked High Liner Foods because I’m familiar with the brand. I’ve seen their products in grocery stores and have purchased some of the products before. In fact, the company has strong relationships with every major supermarket chain, club store, and food service distributor in Canada and the US. The stock currently trades at a PE ratio of 13.78, a Price/Book ratio of 2.0 and a Price/Sales ratio of 0.2. The stock has a dividend yield of 2.9% and a low payout ratio of 40%. What excites me about this stock is its dividend growth potential. The company has a 8 year dividend increase streak with a 5 year dividend growth rate of 23% and a 3 year dividend growth rate of 30.3%. Just last year the company had a 14.2% dividend increase. Considering the low pay out ratio, I believe High Liner Foods will be able to continue its high dividend growth rate for many years.

All these transactions resulted an increase of our annual dividend income by $204.40.

Dear readers, what do you think about our purchases?

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39 Comments

  • Reply
    Norm
    April 27, 2016 at 3:57 pm

    I have bone to pick with Brookfield. They bought a hydro-electric dam and attached park in my city. The park overlooks a waterfall, the second largest in New York (after Niagara Falls!). But they only let people in the park from May to November. So if you want to see beautiful Cohoes Falls right now, you can’t. Because they won’t open the park until May when they have their volunteer guy there. There’s no danger at all, they just keep us from seeing our natural treasure for some reason. I’m sure they’re a fine company to invest in, but I see their name and bristle.

    • Reply
      Tawcan
      April 28, 2016 at 3:40 pm

      Sorry to hear that they didn’t open the park to the public for the entire year.

  • Reply
    Dividend Reaper
    April 27, 2016 at 5:25 pm

    Whew! I was expecting SBUX to be grabbed up by a lot of the DGI community but I didn’t quite expect your move yet. That’s great though. As long as they stay low, I’ll probably be right behind you on either that one or I’ll be throwing some money at LB which is also trading at a discount because of management changes.

    • Reply
      Tawcan
      April 28, 2016 at 3:41 pm

      I’m sure if the price stays this low more and more ppl in the DGI community will be buying SBUX.

  • Reply
    a.c.a
    April 27, 2016 at 6:05 pm

    I was wondering how long it would take you to clear those low/no growth trust’s. Good move.

    The stars need to align for SBUX to compress that P.E ratio, but I get the whole ” I like knowing my dividends are paying for this coffee” attachment many amateur investors behold in making decisions.

    • Reply
      Tawcan
      April 28, 2016 at 3:42 pm

      Thanks a.c.a. SBUX’s PE ratio is significantly higher than most of the holdings in our portfolio but I guess the high PE is due to the high hopes for this specific stock.

  • Reply
    Fab
    April 27, 2016 at 7:03 pm

    Nice buys! I was looking potentially at BEP for one of my last weekly investment but did not go for it because I was unable to really understand the above 1700 Price to Earnings I was seeing at capitaloneinvesting website (https://research.capitaloneinvesting.com/research/main/Stocks/Snapshot?symbol=BEP)…
    maybe I should re-consider it :). I am also trying to add more into alternative energy sector. I own CAFD for solar and recently started small position in NEE.

    • Reply
      Tawcan
      April 28, 2016 at 3:43 pm

      Hi Fab,

      BEP is a partner trust so you can’t just look at the PE ratio along. This is similar to evaluating a REIT.

  • Reply
    Dividend Hustler
    April 27, 2016 at 8:44 pm

    Solid companies Tawcan. Keep it up. Agrium is looking awesome.
    Thanks for sharing and keep hustling hard for the kids Tawcan 🙂
    Cheers bud.

    • Reply
      Tawcan
      April 28, 2016 at 3:43 pm

      Thanks Dividend Hustler.

  • Reply
    Team CF
    April 28, 2016 at 2:21 am

    Nice analysis, we are partially in the same boat as we own several of the same shares. Have not had the guts to liquidate the LIQ yet after the dividend decrease. Maybe we should. Did however also buy some HLF and AGU not too long ago.

    • Reply
      Tawcan
      April 28, 2016 at 3:44 pm

      We’ll see if my move of selling LIQ is a good move or not in the long term. Nice buy on HLF and AGU.

  • Reply
    helen7777
    April 28, 2016 at 7:29 am

    I really enjoyed this article. A seasoned investor also suggested HLF to me very recently. Also, BIP.UN, a dividend All-Star.

  • Reply
    helen7777
    April 28, 2016 at 7:44 am

    How do you handle currency conversions? Or. do you have some US cash for new purchases? I was triggered by what you said, that you used the proceeds of the LIQ sale to buy a US stock; SBUX.

    • Reply
      Tawcan
      April 28, 2016 at 3:46 pm

      We typically use Norbits Gambit for converting CAN to US cash but having a bunch companies paying dividends in US currency helps us getting some US cash as well.

  • Reply
    jd
    April 28, 2016 at 9:21 am

    Looks like some good moves; I’ve also been looking at AGU recently and have owned BEP.un and its predecessor for a few years. Did the fact that a couple of those Canada-listed companies (BEP.un, AGU) pay their dividends in USD influence your purchases? Getting USD dividends does make it slightly less painful to purchase more US stocks.

    • Reply
      Tawcan
      April 28, 2016 at 3:46 pm

      Hi jd,

      These companies paying dividends in USD did not influence my purchase decision at all. 🙂

  • Reply
    ambertreeleaves
    April 28, 2016 at 1:46 pm

    SBUX is a company that interests me as well. I used the be a regular customer of the Brussels Central station outlet. It is amazing to see how many people go there and how much they spend. Good for the share holders I would say.

    • Reply
      Tawcan
      April 28, 2016 at 3:47 pm

      Exactly the reason why I thought SBUX is a great buy. 🙂

  • Reply
    Weekend Reading – Pricey mutual funds, $1 million TFSAs, Tesla and more - My Own Advisor
    April 28, 2016 at 5:35 pm

    […] Tawcan made some recent buys and sells. […]

  • Reply
    DivHut
    April 29, 2016 at 12:06 am

    Seems like many are jumping aboard the SBUX train. I have them on my watch list but still have no position. Still think it’s a nice growth story with lots of runway ahead. AGU is an interesting buy. Nice yield too. I think I might have to look at that name more closely and see how much overlap it has with ADM. Thanks for sharing.

    • Reply
      Tawcan
      April 30, 2016 at 9:06 pm

      Hi Keith,

      We’ll probably be looking at AGU more closely in the next little while to see whether we should buy more shares or not.

  • Reply
    Dividendsdownunder
    April 29, 2016 at 6:02 am

    Congrats on the buys Tawcan, lots more income there 🙂 Good job for pulling the trigger.

    Tristan

    • Reply
      Tawcan
      April 30, 2016 at 9:06 pm

      Thanks Tristan.

  • Reply
    Paul
    April 30, 2016 at 11:02 am

    Nice pick ups Tawcan. I had been looking at HLF a while ago as well as CLR. I ended up not picking up either, but I did just recently pick up some EMP.A shares as they are trading at a 52 week low and picking shares up on the cheap is an idea I like. With the recent drop in AAPL and a pick up in the Canadian dollar I have been taking a closer look as I have money just waiting to be deployed.

    • Reply
      Tawcan
      April 30, 2016 at 9:10 pm

      Hi Paul,

      I’ve been looking at EMP.A and Metro as well, may pick some up later, we’ll see. AAPL looks interesting with the recent drop for sure.

  • Reply
    Investment Hunting
    April 30, 2016 at 1:01 pm

    Interesting buys. Agrium was a stock I was watching, but I decided to buy POT instead. the company, not the smoking type 🙂

    • Reply
      Tawcan
      April 30, 2016 at 9:11 pm

      LOL. I’m looking at POT right now as well but unclear what’s going to happen with their dividends. They’ve already cut it once recently.

  • Reply
    Jayson @ Monster Piggy Bank
    April 30, 2016 at 6:15 pm

    Another buy, Tawcan. Nice assessment on each. Congrats!

  • Reply
    Stefan - The Millennial Budget
    May 1, 2016 at 8:39 am

    Never heard of AGU before you mentioned it here. Looking forward to exploring this stock more as I agree with you that this company will increase in importance. I have a quick question. You are buying a company like Starbucks which is no doubt a great company. But for dividend investing purposes is it worth buying it as it has a low yield?

    • Reply
      Tawcan
      May 2, 2016 at 2:31 pm

      Hi Stefan,

      I’m buying company like Starbucks with low yields because the high dividend growth potential. Think long term. 🙂

  • Reply
    DivGuy
    May 2, 2016 at 7:57 am

    Great Buys!

    I like AGU (I own it too ;-)) and HLF as well. I always wondered why it was beaten up by the stock market over the past 12 months while the company shows strong metrics. Any idea?
    It looks like a great buy opportunity to me!
    Cheers,
    Mike

    • Reply
      Tawcan
      May 2, 2016 at 2:31 pm

      I think HLF has been lower due to concerns on the weakness of CAN dollar. AGU probably simply because the sector overall has been weak.

      • Reply
        BC_camera
        May 17, 2016 at 5:39 pm

        Hi gang, just noting that I was looking at POT and AGU recently, and found a UN study on fertilizers. It appears that the glory days for Canadian potash may be behind us; there is a world oversupply right now, and more and more is being generated closer to the countries that require it, and with cheaper labour. AGU is a more diversified company (more Nitrogen etc) and likely a safer bet, but the share price reflects that.

        I’m keeping away from POT until there’s evidence of more worldwide use for Canadian potash, or the company contracts to the size of its current customers. I’d not be surprised to see more operations closing and dividend drops.

        At some point, I agree that the hungry world will need more fertilizers, but the earnings might take time to materialize.

        Just my two cents! I’ll be watching AGU for now.

        • Reply
          Tawcan
          May 18, 2016 at 12:00 pm

          Thanks for the input. I’m slightly worrisome about POT at this point as I’m uncertain if the dividends are safe. AGU is a more diversified company for sure.

  • Reply
    Dividend Gremlin
    May 2, 2016 at 8:44 am

    Tawcan,
    Nice moves. I like the SBUX one the most, but the others do merit (esp. AGU) further research.
    -Gremlin

    • Reply
      Tawcan
      May 2, 2016 at 2:32 pm

      Thanks Gremlin.

  • Reply
    Jack Luo
    May 5, 2016 at 9:33 am

    Good buy Tawcan,

    None of these 4 stocks are considered “sexy”, but they definitely align with your objectives.

    I do wonder about your approach on diversification and how frequent you make any transactions. I understand the commission rates for most brokers are relatively lower ($10 per trade, $5 on Questrade.) however, they do seem to add up especially when the capitals are quiet small for each transaction.

    Would it make more sense if we simply purchase more shares of a particular stock to reduce the commission cost?

    • Reply
      Tawcan
      May 5, 2016 at 10:25 am

      Hi Jack,

      Good call on the commission rate, that’s why I try to keep the commission to be less than 1% of the transaction cost. I try to purchase more shares of a particular stock if I can. 🙂

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