Volume 5: May 2019
Finally, a flat-fee follow-along investment portfolio for Canadians. Grown as a community.
News and Discussion
Another solid month in the market with the TSX up ~2.5% in April. Meanwhile, The Premium Portfolio gained 3.65% in April.
This month’s pick is adding to our TFI International (TFII) position. They just released another monster earnings report and are executing with acquisitions. This will continue to be a strong dividend growth play.
Open Text (OTEX) came out with quarterly earnings beating the consensus estimate.
This quarterly report represents an earnings surprise of 8.47%. A quarter ago, it was expected that this software provider would post earnings of $0.70 per share when it actually produced earnings of $0.80, delivering a surprise of 14.29%.
Over the last four quarters, the company has surpassed consensus EPS estimates four times.
Open Text is also coming out with some exciting expansion of cloud technologies. OTEX continues to be undervalued compared to other Canadian tech. Especially for a company firing on all cylinders.
Last month’s pick, Toromont (TIH) is having a rough few days in the market as they released earnings as of writing this. They missed expectations by a slight margin. This is often hilarious to me when stocks tumble because they missed some intern working for free on Bay Street’s estimate of earnings for the quarter. Revenues were up slightly and earnings are up 28% when compared to Q1 of 2018.
MTY Food Group (MTY) has acquired Allô! Mon Coco. The network currently has 39 franchised restaurants in operation, 38 of which are located in the province of Quebec and 1 in the Province of Ontario. The network has generated approximately $57 million in system sales in the last 12 months.
Magna International (MG) has opened a new mirrors facility in Morocco. As the auto industry continues to develop in Morocco, Magna also continues to expand its footprint in the country. The company recently broke ground on construction of a new facility in Kenitra, Morocco, to supply global automakers with exterior and interior mirror systems.
The 61,400-square-foot facility represents an investment of $11.3 million by Magna and is expected to create up to 275 jobs. Production at the new plant is projected to begin in spring 2020.
We have a name for the new metric on the quant analysis spreadsheet. “Dividend Adjusted Earnings Yield.
Quantitative TSX Analysis (SI Score)
Download this month’s Spreadsheet.
Stratosphere Premium’s Portfolio has received $417.23 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 $53.21 of income this 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 $3.12
GSY paid their quarterly dividend resulting in $10.23
ATD.B paid their quarterly dividend resulting in $2.25
VEE ETF paid the quarterly dividend resulting in $2.06
VEE ETF (now replaced by XUU) paid the quarterly dividend resulting in $13.14
BTB paid their monthly dividend resulting in $6.83 and a share repurchase (DRIP).
This Month’s Activity
This Month’s Purchase
The position size will be increased in TFI International (TFII). TFI had a very positive quarter and the market has rewarded it handsomely since it was a position added to the portfolio earlier this year. Record operating income up 41% over the prior year period to $106.3 million was posted this Q1 report.
“The year is off to a strong start at TFI International, continuing our momentum that grew throughout 2018. We produced record first quarter results due to our relentless focus on strong execution and profitable growth, regardless of the economic cycle,” said Alain Bédard, Chairman, President and Chief Executive Officer.
Next time you are on the highway look for their transport trucks or small courier vehicles under various different subsidiaries. They will all have the red swoop over the title, though. A very good operator and consolidator in this transportation and logistics space.
No ETF activity this month.
No positions are being sold in this month’s volume. See past “Closed Positions” below.
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.
April - 1x position weighting ($500) into TFI Internationalal (TFII). This bought 11 shares for a book value of $481.25.
ETF Deployment Schedule:
International stocks are held through broad based index funds and aims to make up 30% of the portfolio. Some months will include rebalancing these funds to desired allocations and will be featured in “This Month’s Purchase”.
The US Total Market Index (VUN) will be balanced at end of Q1 2019 to approximately desired portfolio allocation (15%).
The International Index (XEF) will be balanced at end of Q2 2019 to approximately desired portfolio allocation (10%).
The Emerging Markets (VEE) Index will be balanced at end of Q3 2019 to approximately desired portfolio allocation (5%).
The Current Portfolio
The real money portfolio is currently worth ç as of May 3, 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 Recommended Position Weighting (%)
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
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 a 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.