Dividend Stocks
Dividends can produce as much as a third of your total return over long periods, and you can even retire on dividends.
There are 4 key stock dividend dates that are involved with dividend payments:
1- The Declaration Date is several weeks in advance of a dividend payment—it’s when company’s board of directors sets the amount and timing of the proposed payment.
2- The Payable Date is the date set by the board on which the dividend will actually be paid out to shareholders.
3- The Record Date is for shareholders who hold the stock before the payable date and receive the dividend payment. That date is set any number of weeks before the payable date.
4-The Ex-Dividend Date is two business days before the record date and it’s when the shares begin to trade without their dividend. If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That’s when a stock is said to trade cum-dividend. If you buy on the ex-dividend date or later, you won’t get the dividend. The ex-dividend date is in place to allow pending stock trades to settle.
We think very highly of stocks that have been paying dividends for five or more years, at TSI Network. Many of these stocks fit in well with our three-part Successful Investor philosophy:
1- Invest mainly in well-established companies;
2- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
3- Downplay or avoid stocks in the broker/media limelight.
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One of the most concrete things about an investment is its dividend yield — the percentage you get when you divide its current yearly dividend payment by its price. It’s an indicator we pay especially close attention to when we select stocks to recommend in our Canadian Wealth Advisor newsletter. But yield, high yield especially, can give you a false sense of security. Investors in high dividend stocks have a natural tendency to think that all investment income is nearly as safe and predictable as bank interest. In fact, investment income can dry up in a heartbeat. Companies are sometimes unable to honour their commitments, and they sometimes spring the bad news on you with no warning. Rather than a sign of a bargain, high yield may be a danger sign. It may mean insiders are selling and pushing the price down. A falling price makes yield go up (because you use the latest dividend to calculate yield). When an investment does cut or halt its dividend, its yield collapses....
Many people come up with unrealistic answers to the question of how much risk is right for them. For instance, when they’re young and just starting out, many investors decide to move away from safe investing principles and speculate. They expect to build a small portfolio into a big one in a hurry, then shift their money into boring, but more dependable safe investing selections.
As a newcomer in any field, however, it’s easy to fall victim to ruses and snares that a veteran would spot right away. Later on, you’ll know better than to bid on an ugly painting just because it’s the work of a noted artist, or invest in a building that faces expensive repairs due to delayed maintenance, or buy a promotional stock due to rumours or touting....
Rookie mistakes can be doubly costly
CANADIAN TIRE CORP. $50 (Toronto symbol CTC.A; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 81.6 million; Market cap: $4.1 billion; Price-to-sales ratio: 0.5; SI Rating: Above Average) operates 476 stores that sell automotive, household and sporting goods. These account for around 60% of the company’s revenue, and 45% of its earnings. Canadian Tire also owns other retail chains, including 374 Mark’s Work Wearhouse casual-clothing stores, 274 gas stations (many have car washes and convenience stores) and 87 Part-Source auto-parts stores. Mainly on the strength of its store renovations, Canadian Tire’s sales rose 29.2%, from $7.1 billion in 2004 to $9.1 billion in 2008. Earnings jumped 43.1%, from $3.53 a share (or a total of $291.5 million) in 2004 to $5.05 a share (or $411.7 million) in 2007. The retailer’s 2008 earnings fell to $374.2 million, or $4.59 a share, because of writedowns of currency hedging contracts and gains on the sale of property and equipment. Without these non-recurring items, the company would have earned $572.5 million, or $4.85 a share....
CAE INC. $6.68 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 255.1 million; Market cap: $1.7 billion; Price-to-sales ratio: 1.0; SI Rating: Average) stands to gain from both developments. CAE makes flight simulators and operates pilot-training facilities. Lower fuel prices leave its airline customers with more cash to spend on new simulators and training. Falling oil prices cut consumer costs, leaving more funds for travel. In addition, CAE gets 90% of its revenue from customers outside of Canada. A low Canadian dollar increases the value of these sales....
TRANSCONTINENTAL INC. $8.17 (Toronto symbol TCL.A; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 80.8 million; Market cap: $660.1 million; Price-to-sales ratio: 0.3; SI Rating: Average) gets 50% of its revenue, and 40% of its profits, from its direct-marketing business. Through this division, Transcontinental designs direct mail and other advertising campaigns. It also analyzes customer-purchasing data. These services help its clients increase their sales and build customer loyalty. The company also has a commercial-printing business (25% of revenue, 30% of profits), and publishes newspapers and magazines (25% of revenue, 30% of profits). The recession continues to drive down demand for Transcontinental’s direct-marketing services, particularly in the U.S., where direct-marketing revenue is down 50% from a year ago. In response, the company recently closed a direct-mail plant in Pennsylvania. It has also merged some printing plants and scaled back on newspaper and magazine publishing. These moves should save Transcontinental $100 million a year. It expects to realize $75 million of these savings in its current fiscal year, which ends October 31. The company was also forced to write down $169.3 million of goodwill related to acquisitions, mostly at its commercial-printing division. Transcontinental has experienced a drop in volumes as customers print fewer newspapers, books, magazines and advertising flyers during the recession. This was a non-cash charge, and had no impact on Transcontinental’s cash flow or cash balances....
TORSTAR CORP. $5.04 (Toronto symbol TS.B; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 78.9 million; Market cap: $397.7 million; Price-to-sales ratio: 0.3; SI Rating: Above Average) publishes The Toronto Star, which is Canada’s largest daily newspaper by circulation. The company also publishes three other daily papers and over 100 weeklies, mainly in southern Ontario. Newspapers and web sites account for about 70% of Torstar’s revenue, and 60% of its earnings. The company’s other main business is wholly owned Harlequin Enterprises Ltd., the world’s leading publisher of romance-fiction books. Harlequin also publishes non-fiction titles, such as self-help and diet books. Harlequin sells 95% of its books outside of Canada, which helps reduce Torstar’s reliance on Ontario, where the recession has had a significant impact. It also helps Torstar benefit from a lower Canadian dollar. Torstar continues to suffer from lower advertising revenue at its newspapers, with real-estate and employment ads particularly hard hit. However, Torstar’s management feels that demand has stabilized following a sharp drop in the first two months of 2009. As the largest newspaper in its market, The Toronto Star is in a good position to attract advertisers as the economy recovers....
THOMSON REUTERS CORP. $32 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 828.6 million; Market cap: $26.5 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) divides its operations into two divisions: Markets accounts for 60% of the company’s revenue and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%). Thomson Reuters took its present form when the Ontario-based Thomson Corp. bought the U.K.-based Reuters news agency in April 2008 for $17 billion in cash and shares (all amounts except share price and market cap in U.S. dollars). In the three months ended March 31, 2009, Thomson Reuters’ revenue soared 70.3%, to $3.1 billion from $1.8 billion. However, if you assume that Thomson bought Reuters at the start of 2007, sales would have declined 3.3%. The drop was due to the negative impact of the higher U.S. dollar, which hurts the value of the company’s overseas sales. If you disregard exchange rates, revenue would have risen 3%....
CANADIAN PACIFIC RAILWAY LTD. $40 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 168 million; Market cap: $6.7 billion; Price-to-sales ratio: 1.4; SI Rating: Above Average) ships freight over a rail network between Montreal and Vancouver. It also operates in the midwestern and northeastern United States. CP’s first-quarter earnings fell 31.1%, to $62.5 million, or $0.39 a share, from $90.7 million, or $0.59 a share, a year earlier. If you exclude foreign-exchange gains and losses, per-share earnings fell 54.7%, to $0.34 from $0.75. Revenue fell just 6.6%, to $1.07 billion from $1.15 billion. However, that was mostly because CP bought a railway that operates in eight U.S. states last October. Without this, CP’s revenue would have fallen 13%. The company is stepping up its cost cutting in response to weak shipping volumes. This includes laying off 2,400 workers, or 16% of its workforce. CP has also put more trains into storage....
CANADIAN NATIONAL RAILWAY CO. $45 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 468.4 million; Market cap: $21.1 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) operates the largest freight-rail network in Canada. It also serves 16 U.S. states. In the three months ended March 31, 2009, CN’s revenue fell 3.5%, to $1.86 billion from $1.93 billion a year earlier. The recession cut freight volumes, and CN lowered its fuel surcharges in response to the drop in oil prices. Earnings rose 0.7%, to $302 million from $300 million. Earnings per share rose 3.2%, to $0.64 from $0.62, on fewer outstanding shares. These figures exclude several one-time items, including a gain on the sale of a Toronto rail line and expenses related to CN’s recent takeover of a Chicago-area railway. Still, the company benefitted from a lower income-tax rate and a weaker Canadian dollar, which increased the contribution of its American operations....
A stock with a high corporate profile may provide investors with a feeling of security, but it doesn’t pay them any dividends. Instead, owning a lot of in-the-limelight stocks can work against safe investing. Lots of smart people work in the public relations and the brokerage business. They do a highly effective job of publicizing and promoting their clients’ stocks. Many stocks in the broker/public relations limelight go up more-or-less steadily for years at a time. But when they come down, they can fall much further than you ever thought possible. That’s why it’s a mistake to stuff your portfolio full of them. On the other hand, at any given time, lots of prosperous, well-established companies are out of investor fashion. Some of the biggest profits you ever make will come from buying these stocks before they find their way into the limelight....