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STRATOSPHERE PREMIUM

Volume 9: September 2019

Finally, a flat-fee follow-along investment portfolio for Canadians. Grown as a community.


Discussion

  • Last month, we discussed how Equitable Group (EQB) smashed earnings. This month it is worth mentioning the stock has officially hit the Stratosphere by gaining 62%. The stock now almost trades for $100. Not to mention, the dividend has been hiked considerably. This might bring you the “should I sell question?”. This position is still massively undervalued to its growth and management is promising 20% dividend growth annually.

  • The market has been nothing but volatile. Fear not, as this should not scare a true long term dividend dividend investor.

  • The Portfolio is up 17.35% year to date.

  • Volumes will now come out on the first Tuesday of every month. I realized that so many first Mondays of the month line up on holidays, thus the market is closed.

  • Canadian big banks have underperformed the index this summer as the market is not in favor of the sector. This is mainly due to the fact that some US short sellers have been making a bunch of noise about their short position. Of course short sellers are a loud mouth bunch when they put a position on, they make money if the stock goes down.

  • Given that my success in investing has always been going against the grain when business fundamentals on their financial statements tell a different story than share performance on the market, This month’s pick is adding to TD Bank (TD). Canadian banks are undervalued given their dividend income, steady dividend growth, modest but solid top and bottom growth, reasonable total debt/equity.

    TD Bank is simply my favorite way to play the Big Banks due to its size, presence in the US, strong brand and slightly better fundamentals than its peers.

  • If you are very heavy on financials and still looking for this similar dividend yield, I really like Algonquin Power Utilities (AQN). This is a great way to play renewable energy and the growth story has been phenomenal. Do not be suprised if that is October’s pick. The Portfolio has zero energy in the portfolio (for a reason), this could be a great diversifier and defensive stock.

News in The Portfolio

  • WSP Global Inc. (WSP) announced that it has entered into a definitive merger agreement in connection with its proposed acquisition of Ecology and Environment Inc. (EEI) (“E & E”), a US-headquartered environmental consulting firm which provides professional services to governments and private customers worldwide. E & E has approximately 775 employees, predominantly in offices across the United States, with an additional presence in Latin America. With its US operations representing approximately 80% of its 2018 $US 73.5 million in net revenues, E & E’s portfolio includes work on the New York State Offshore Wind Master Plan, Climate Change Adaptation Planning in San Mateo County, California, and work on large federal programs with agencies including the US Environmental Protection Agency, the US Army Corps of Engineers, and the US Navy.

  • goeasy Ltd (GSY) announced that its easyfinancial division has surpassed a $1 billion consumer loan portfolio, its most significant milestone to date.

  • Equitable Group (EQB) announced a new partnership with Empire Life. Through the Equitable Bank CSV Line of Credit, Empire Life policy owners can borrow up to 90 per cent of the cash surrender value of their insurance policies without making ongoing payments and affecting the growth of their policy.

  • Toromont Industries (TIH) has made a notice of intention to buy back a lot of shares, which is great for investors. Toromont believes that from time-to-time the purchase of its common shares at prevailing market prices may be a worthwhile investment and in the best interests of both Toromont and its shareholders.

  • Open Text Corp (OTEX) I am very interested to see how their newest partnership with Google can affect the top line. I will be monitoring their next quarterly report.

  • TFI International (TFII) also thinks their shares are undervalued and have have repurchased a total of 6,630,000 shares in late August.

  • Alimentation Couche-Tard (ATD.B) will release earnings tomorrow, September 4.

  • Magna International (MG) celebrated the opening of a new electronics manufacturing facility today in Grand Blanc Township, Michigan. The facility consolidates three nearby locations into a single state-of-the-art facility that combines 21st-century manufacturing with people-first workplace design and functionality.

  • Allied REIT (AP.UN) Allied Properties Real Estate Investment Trust announced today that it has closed its previously announced offering of $300 million aggregate principal amount of series D senior unsecured debentures.


Video walkthrough coming soon. Mic broke abruptly during recording.

 

Quantitative TSX Analysis (SI Score)

Quantitative TSX Analysis

Download this month’s Spreadsheet.

 

$ 556.89

Dividend Income

Stratosphere Premium’s Portfolio has received $556.89 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 $12.36 of income last month.

  • ENGH paid their quarterly dividend resulting in $1.65.

  • MTY paid their quarterly dividend resulting in $1.49.

  • ATD.B paid their quarterly dividend resulting in $2.25.

  • BTB (sold in August) paid the last dividend of 6.97. If you own it after ex-div date, you still recieve the income.

 

This Month’s Activity

This Month’s Purchase

Canadian big banks have underperformed the index this summer as the market is not in favor of the sector. This is mainly due to the fact that some US short sellers have been making a bunch of noise about their short position. Of course short sellers are a loud mouth bunch when they put a position on, they make money if the stock goes down.

Given that my success in investing has always been going against the grain when business fundamentals on their financial statements tell a different story than share performance on the market, This month’s pick is adding to TD Bank (TD). Canadian banks are undervalued given their dividend income, steady dividend growth, modest but solid top and bottom growth, reasonable total debt/equity.

TD Bank is simply my favorite way to play the Big Banks due to its size, presence in the US, strong brand and slightly better fundamentals than its peers.

TD Bank Logo.png

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.

Sell Activity

No sells this month.

 
 

$1,527.94 Remaining

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.

September - 1x position weighting ($500) into TD Bank (TD). This bought 7 shares for a book value of $501.20.

 

$20,969.33

The Current Portfolio

The real money portfolio is currently worth $20,969.33 as of September 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 Position Weighting (%)

 

Click column headers to sort the data.

Index ETFs

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.

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Closed Positions

 

Returns

Returns YTD

 

Historical Returns since Inception

 
annual-returns
monthly-ytd
 

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.

Canadian TSX returns ended December 2018.

Canadian TSX returns ended December 2018.

 
 
 

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.

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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.