Canadian Dividend Watch List: August 16, 2013

This is a list of Canadian dividend stocks that currently, or in the past, had a history of consecutive dividend increases. For those wishing to find the most complete fundamental information on these companies, we recommend visiting one of Canada’s leading financial websites, the Financial Post (found here). However, Yahoo!Finance probably has the better long-term charts and historical dividend data.

Watch List Summary

On this week’s list is Just Energy (JE.TO).  As a review, Just Energy was on our February 18, 2013 Canadian Watch List at $7.56.  We had projected that the $6 level had significant support (found here).  By late March 2013, on an intra-day basis, JE.TO traded as low as $5.89.  Afterwards, JE.TO traded close to $8 a share by mid-July 2013.  On July 31, 2013, we recommended that investors sell the principal of gains made in JE.TO (found here).  Since that sell recommendation, JE.TO has declined –13%.  Because JE.TO is trending lower, we recommend reassessing the stock when and if it declines to the $6.15 level.  The dividend for JE.TO should not be a consideration for this stock as there are continued risks to the dividend going forward.

Another stock of interest on our watch list is Ritchie Brothers (RBA.TO).  Although we’d like to provide original analysis each time we write our postings, we find that sometimes such a pursuit is completely unnecessary.  RBA.TO completely fits the billing on this matter.  On August 17, 2012 (found here), we said that RBA.TO had the pattern of falling to $18/$19 and then recovering to higher ground.  Below is a charting of RBA.TO one year later:

RBA.TO managed to fall to $17.84 on an intra-day basis on August 30, 2012.  Afterwards, RBA.TO rose as much as +24%, assuming a purchase of the stock at $19/share.  In addition, 2012 wasn’t the only run-in with RBA.TO.  On August 22, 2010, Ritchie Brothers appeared among our top 5 stocks on the watch list when it was trading at $18.94 (found here).  We’re giving investors the same advice as we had in last year’s remarks:

“consistency of RBA to rise from the $18/$19 level in the last 6 years has got to end somewhere.  The stock market is very quick to take away anything that appears too easy.”

“From a Dow Theory standpoint, RBA is dancing along that fine line of $17.84 and has successfully done so for the last 6 years.  This suggests that the stock has either pent up value or is going to get crushed to the downside.  Cautious as we might be under normal circumstances, we believe that RBA is worth considering at the current price with another planned purchase if the stock declines to the $13.78 level.”

Finally, some initial thoughts about REITs irrespective of the country:

“Many of the companies on this most recent list are in the real estate investment trust (REIT) sector.  We recommend careful examination of the listed companies in the REIT arena as they have less upside potential than is ideal.   As an example, the average upside to the prior peak is 12% above the present level.  As Dow Theory indicates, investors should expect only half of the upside potential based on the prior peak.  This suggests that capital appreciation of +6% is the most that can be garnered in the short-term.  A total return of +10% can be achieved if the dividend yield is 4% or greater.  However, we caution against seeking high yield and favor strong balances sheets instead.  A good starting point to determine the relative financial strength of a company is the payout ratio.”

In addition, we are worried that the REIT sector may spiral downward as was the case in the rising interest rate environment of the early 1970’s.  We will attempt to provide a more thorough background on this in future articles.

Watch List Performance Review

Below is our review of the top five stocks from the August 17, 2012 Canadian Dividend Watch List (found here):

The top five stocks smashed the performance of the Toronto Stock Exchange of the same 1-year period by 5 times.  The worst performing stock, SNC-Lavalin Group (SNC.TO), with a gain of +9.60% was almost double that of the TSX.  But don’t let the year-end totals fool you, SNC.TO had gains of over +30% by February 2013 for an annualized return of over +60%.  The stock that truly underperformed all year was Fairfax Financial (FFH.TO)with a gain of +10.08% being near the high end of the one year range.

Gluskin Scheff (GS.TO) was the clear winner in the last year with a gain of +51.26%.  This comes as no surprise to us as we highlighted the stock in our April 2, 2012 Canadian Watch List (found here).  At the time we said the following:

“Based on the current quarterly dividend of $0.163, GS.TO is bouncing along the undervalued range of $14.11.  Because the middle of the undervalued/overvalued range is $19.42 (fair value), we’re expecting that the next upside target is to the fair valued level or +31% above the closing price of $14.77.”

The Altimeter that we presented at the time suggested that GS.TO had an overvalued level of $24.77.  GS.TO reached a high of $23.37 as recently as July 18, 2013.  If you’ve managed to buy GS.TO at either the April 2012 or August 2012 levels, we recommend selling the principal to ensure that your gains secured.