U.S. Dividend Watch List: July 24, 2015

Top Five Watch List Performance Review

In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from July 25, 2014 and have checked the performance one year later. The top five companies on that list can be seen in the table below.

Symbol Name 2013 Price 2014 Price % change
SCL Stepan 49.88 47.00 -5.8%
TR Tootsie Roll Industries Inc 27.31 31.64 15.9%
FCBC First Community Bancshares 13.60 17.84 31.2%
WWW Wolverine World Wide 24.27 28.81 18.7%
YORW The York Water Company 19.20 21.26 10.7%
      Average 14.1%
         
DJI Dow Jones Industrial 16,960.57 17,568.53 3.6%
SPX S&P 500 1,978.34 2,068.26 4.5%

Our top five gained an average of 14.1%. This far exceeded the market performance. The only company that failed to meet or exceed the market performance was Stepan (SCL) which fell -5.8%. The other four companies had gains ranging from +10.7% to +31.2%. Our commentary about Stepan and Tootsie Roll is worth reviewing. Regarding Stepan, we said the following:

When we look at the price level compared to various fundamental figures (cash flow, earning, and book value), you will see that price has risen far beyond the fundamental. From 2003 to 2013, the stock has risen around 17% on an annual basis. Compared that to 5.6% for cash flow, 13% for earning, 10% for bookvalue, and 5.5% for dividend. While stock purchased at the low will mark a better entrance than stock at the high, we think that this stock will have some catching up to do on the fundamental front.

As for Tootsie Roll (TR), we all know there isn't anything exciting to write about the company other than it managed to gain nearly +16% while the S&P 500 had risen only +4.5%. The stock of Tootsie Roll has always appears to be 'expensive' on P/E basis but time after time, the company manages to maintain a consistent level of appreciation. That may be due to the predictability of their revenue and profit. We stated that the stock was worth a look at the current price while making note that it wasn't a screaming buy.

U.S. Dividend Watch List: July 24,2015

It was a train wreck for the market this week as the S&P 500 fell -2.2% while Industrial average lost nearly -3%. For those with cash on the sidelines, this is music to their ears. A pullback in the market will allow long-term investors to accumulate assets and utilize our dividend watch list to position themselves for income investing. Continue reading

Dow’s Theory on What exactly is an Industrial Stock

Charles H. Dow defines what Industrials stocks are

"The stocks of trust companies and banks are simply industrial stocks... (Dow, Charles H.Wall Street Journal. Review and Outlook. October 12, 1900)."

Continue reading

Chesapeake Energy is on Target

On April 26, 2012, we posted an article titled “A Warning For Chesapeake Energy Stockholders”.  In that article we said the following:

“While it appears that Chesapeake Energy  (CHK) has seen all the punishment that could possibly lay ahead, we’re concerned that the previous technical pattern in the period from 1993 to 1999 is about to repeat.”

The period from 1993 to 1999 saw (CHK) decline from as high as $27 to under $1.00.  The 2012 article was written when CHK was at $18.10 and had already fallen more than –66%.  So far, CHK is on track to replicate the decline achieved from 1993-1999.  The next downside target for Chesapeake Energy is $4.50.

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IBM: A Value Investor’s Delight

In April 2012, we published an article titled, “What Does Warren Buffett See In IBM?”  At the time we concluded the article with the following thought:

“…just imagine what IBM will look like after falling to a 52-week low.”

A reader of our article took exception to the idea of IBM declining in price with the remark:

“I have no idea why you think you could buy IBM on a 52 week low. There is nothing fundamental about the company that would lead one to think that might happen. IBM is a difficult company to short because people who own it primarily intend to hold it for a longer term, do not trade on margin, and do not sell their shares based on fear (Momintn. What Does Warren Buffett See in IBM? April 19, 2015. link.).”

Since our article, IBM has declined from $207 to $161 with upside movement being limited to $213.

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In spite of the price decline of nearly –22% since 2012, IBM has increased the dividend by +53%.   This has resulted in a situation where the price of IBM has becomes very compelling from a value perspective.  As indicated in our original article on IBM, the growth of the dividend has become an overpowering force which is creating a stock that could eclipse all expectation for long-term investors.  This leaves aside the topic of IBM share repurchases which Warren Buffett discussed in his 2011 shareholder letter.

Our premise of IBM’s valuation is narrowly perched on the work of Edson Gould’s Altimeter.  Below is an update of Gould’s Altimeter since our April 2012 article.

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According to Gould’s Altimeter, IBM is now undervalued below the levels of the 2008 low.  We think that a value investor would have fun pouring over the data to determine the actual value of IBM.   Gould’s Speed Resistance Lines [SRL] indicate that the conservative downside target for IBM is $130.  However, we think a process of accumulation at the current price, and below, is a prudent long-term strategy.

Canadian Dividend Watch List: July 2015

Performance Review

Below is the performance of the Canadian Dividend Watch List from July 2013:

symbol name 2013 2015 % chg
D-UN.TO Dundee REIT 31.77 24.7 -22.25%
REI-UN.TO Riocan Real Estate Investment Trust 25.11 27.06 7.77%
CUF-UN.TO Cominar REIT 20.83 17.97 -13.73%
CAR-UN.TO Canadian Apartment Properties REIT 22.31 28.45 27.52%
CWT-UN.TO Calloway REIT 26.09 30.17 15.64%
AX-UN.TO Artis Real Estate Investment Trust 15.1 13.68 -9.40%
IFC.TO Intact Financial Corporation 57.53 90.17 56.74%
FCR.TO First Capital Realty Inc. 17.79 18.29 2.81%
FTS.TO Fortis Inc. 32.34 36.99 14.38%
BEI-UN.TO Boardwalk Real Estate Investment Trust 60.3 59.78 -0.86%
EMA.TO Emera Inc. 33.75 42.55 26.07%
LB.TO Laurentian Bank of Canada 45.05 48 6.55%
TRP.TO TransCanada Corp. 46.77 49.34 5.49%
FTT.TO Finning International Inc. 22.68 21.9 -3.44%
NA.TO National Bank Canadian Equity SP 36.14 45.51 25.93%
CM.TO Canadian Imperial Bank of Commerce 77.15 91.18 18.19%

The average return for the entire watch list was +9.84% compared to the Toronto Stock Exchange Composite index change of +13.33% in the period from July 19, 2013 to July 22, 2015.  At the time, we said the following of the watch list:

“We recommend careful examination of the listed companies in the REIT arena as they have less upside potential than is ideal.”

Since July 2013, the REIT related companies on the watch list generated a return of +0.94% while companies not in the REIT sector gained an average of +18.94%.

July 2015 Canadian Dividend Watch List

Below is the Canadian stocks of interest: