Volume 8: August 2019
Finally, a flat-fee follow-along investment portfolio for Canadians. Grown as a community.
It has been a good year for The Stratosphere Investing Community with the portfolio up 19.29%. Over 5% outperformance of the TSX to date. In addition, we are outperforming the US market by over 4%.
The month of July, the portfolio returned 3.05%. In the same timeframe, the Canadian market returned (negative) -0.21% and the US market returned 1.28%.
Notable mention, Equitable Group smashed their earnings estimates with record financial results. This shot the stock up 16% in one day in addition to raising their dividend by 20%. This is why investing in companies that grow their dividend are long term winners. They have promised investors to raise it by 20-25% a year for the next 5 years!
Earnings earnings earnings, read all about it! Check out News in The Portfolio below on all of the reports that were released in July.
Our first sell this year as we lock in profits on BTB REIT and swap it out for Allied REIT (AP.UN). The reason for this switch is that BTB may have a very high attractive yield, they have demonstrated no growth in the distributions unlike Allied which is one of Canada’s dividend aristocrats. See below to this month’s buy and sell activity for more information.
News in The Portfolio
Equitable Group (EQB) reported record financial results for the three and six months on the strength of diversified growth in its wholly owned subsidiary, Equitable Bank. It also announced its intention to grow its dividend at a rate of 20% to 25% per annum in each of the next five years, up from its previously stated target of more than 10% per year.
Last month’s pick, Toromont Industries (TIH) released quarterly results with earnings increased $9.8 million or 14% in the quarter versus a year ago to $77.4 million or $0.95 EPS. For the first half of the year, net earnings increased 19% and EPS up 18%. Adjusted to exclude the non-recurring gain recorded in the first quarter described in note 9 to the financial statements, net earnings and EPS both increased 15%. The stock has rebounded because of this solid report.
TFI International (TFII) released earnings with record operating income from continuing operations up 21% over the prior year period to $149 million.
Open Text Corp (OTEX) released earnings with total revenues of $747.2 million, down 0.9%, and $769.3 million in constant currency, up 2.0%.
“Fiscal 2019 was a momentous year for OpenText as we delivered in constant currency $2.92 billion in total revenues, a record $918.6 million in cloud revenues, up 10.8% year-over-year growth and $2.19 billion in Annual Recurring Revenues, up 6.2% year-over-year growth, representing 75% of total revenues," said Mark J. Barrenechea, OpenText CEO & CTO.
goeasy Ltd (GSY) named one of Canada’s Top 50 FinTech Companies by the Digital Finance Institute.
Magna International (MG) has won new seating business in North America with a global automaker and will supply seat structures from a new manufacturing facility in Lancaster, Ohio.
Allied REIT, (AP.UN) (NEW HOLDING) completed a total of $504 million in acquisitions that compliment its portfolios in Montréal, Toronto, Kitchener, Calgary and Vancouver.
“We propelled strong internal and external growth in the first half of 2019,” said Michael Emory, President & CEO. “Percentage growth in same-asset NOI, FFO per unit and AFFO per unit was in the mid-single-digit range, and NAV per unit was up 11%. Perhaps most notably, we made $504 million of accretive acquisitions that fit squarely within our investment and operating focus.”
Quantitative TSX Analysis (SI Score)
Download this month’s Spreadsheet.
Stratosphere Premium’s Portfolio has received $504.18 in dividend payouts since inception.
The portfolio has Dividend Reinvestment Investment Plans (DRIPs) on all positions.
Dividend Income Paid Last Month:
The Portfolio brought in $40.39 of income last month.
TD paid their quarterly dividend resulting in $12.58.
WSP paid their quarterly dividend resulting in $3.00.
TFII paid their quarterly dividend resulting in $5.76.
BTB.UN paid their monthly dividend resulting in $6.93 and a share repurchase.
GSY paid their quarterly dividend resulting in $10.23.
TIH paid their quarterly dividend resulting in $1.89.
EQB paid their quarterly dividend resulting in $4.03.
This Month’s Activity
This Month’s Purchase
This month’s purchase is Allied REIT (AP.UN) which replaces BTB REIT. The reason is that Allied owns some of the best office space in the entire country and has consistently increased dividend payouts for investors earning them a spot on the list of Dividend Aristocrats.
They also focus on housing urban data centers which is becoming a very valuable and stable space for REITs.
“Through its urban workspace and urban data centre space, Allied provides knowledge-based organizations with distinctive environments for creativity and connectivity”.
ETF Deployment Schedule:
International stocks are held through broad based index funds and aims to make up 30% of the portfolio.
The US Total Market Index (XUU) will be balanced as required to 15% of the portfolio.
The International Index (XEF) will be balanced as required to 10% of the portfolio.
The Emerging Markets (VEE) will be balanced as required to 5% of the portfolio.
August 2019 - ETF Rebalancing occured with extra cash of XEF international market and VEE emerging markets. This is also advantageous as they have been lagging behind North American markets.
BTB REIT (BTB.UN) was sold at a total return of 21.88%.
BTB is a great REIT if you want the monthly income (retiree investors). However, they were not able to increase distributions after waiting 2 years, so I am parting with the REIT for Allied, a distinguished distribution grower and a TSX dividend aristocrat.
2019 Capital Deployment Schedule
$6,000 is to be invested in 2019 (current TFSA Contribution Limit).
$500 each month will be deployed as advised in monthly volumes and email updates.
History Year to Date:
January - 1x position weighting ($500) into WSP Global (WSP). This bought 8 shares for a book value of $468.08
February - 1x position weighting ($500) into TFI International (TFII). This bought 13 shares for a book value of $507.65.
March - 1x position weighting ($500) into MTY Food Group (MTY). This bought 9 shares for a book value of $533.70.
April - 1x position weighting ($500) into Toromont Industries (TIH). This bought 7 shares for a book value of $477.89.
May - 1x position weighting ($500) into TFI International (TFII). This bought 11 shares for a book value of $481.25.
June - 1x position weighting ($500) into Enghouse Systems (ENGH) . This bought 15 shares for a book value of $505.05.
July - 1x position weighting ($500) into Toromont Industries (TIH). This bought 8 shares for a book value of $497.44.
August - 2x position weighting ($1,000) (funds from sell of BTB.UN) into Allied REIT (AP.UN). This bought 20 shares for a book value of $993.40.
The Current Portfolio
The real money portfolio is currently worth $20,815.52 as of August 1, 2019.
You may invest as much or as little as you wish within contribution limits. Maximize TFSA contribution limits first.
Returns are since inception in July, 2015.
The Portfolio by Position Weighting (%)
Click column headers to sort the data.
Why the international ETF exposure? As Canadians, it would be unwise to be wholly invested on stocks only bought on Canadian exchanges. 100% Canadian Home Bias is an ineffective way to manage a portfolio. The beauty of these ETFS is that they are all traded in Canadian Dollars (CAD). The exposure from these three ETFs will provide investors global diversification from markets as seen from the maps below.
Historical Returns since Inception
Returns are calculated via the Modified Dietz Method which is a money weighted return on investment (the way all portfolios should be measured) calculation that incorporates cash flow contributions.
Stratosphere Premium’s Rule-Based Management Philosophy:
A defined set of rules to maintain discipline in our strategy.
The Buy Rules:
1. Buy companies trading below determined upper limits of valuation multiples.
2. Buy companies that have demonstrated recurring top line revenue growth.
3. Buy companies that pay a growing dividend.
4. Buy companies with a history of profitability and high return on equity.
5. Buy companies with an obviously recognizable qualitative moat.
6. Buy companies that have demonstrated a history of share repurchases.
The Avoid Rules:
1. Avoid companies trading above determined upper limits of valuation multiples.
2. Avoid companies that have demonstrated meager or no top line revenue growth.
3. Avoid companies with high total debt to equity ratios.
4. Avoid companies with high payout ratios.
5. Avoid companies that depend on factors in the political landscape and macroeconomic conditions.
6. Avoid companies that do not have an easy to identify competitive advantage.
7. Avoid companies with business models that produce unpredictable generation of free cash flow from operations.
8. Avoid companies that are well without a circle of competence.
The Sell Rules:
1. Sell held companies that have exceeded determined upper limits of valuation multiples.
2. Sell held companies that cut dividend payouts.
3. Sell companies with consistently declining top line revenues.
4. Sell companies with an identifiable slipping of competitive advantage.
*The Questrade trade credit is for users looking to open an account or switch over to the service from another discount brokerage. You will recieve a rebate up to $150 rebate from Questrade if switching brokerage providers incurs a transfer fee. In my experience, this covers the entire transfer out fee from all brokerages.
Nothing contained on this website should be considered investment advice, an offer to sell, or a solicitation of an offer to buy any security, nor shall Stratosphere Investing offer, sell or buy any security to or from any person through this site or reports on this site. Stratosphere Investing is not registered as an investment advisor in any jurisdiction. The content and materials contained on this website are provided for information purposes only and nothing contained therein is investment advice nor should it be construed as such. Prior to making any investment or subscribing to any of Stratosphere Investing free or premium services and products, you should consult with professional financial, legal and tax advisors to assist in due diligence as may be appropriate in determining the appropriateness of the risk associated with a particular investment.