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Not for the faint of heart. It is very whippy, but is a good quality name. It may have gotten a little ahead of itself, so he wouldn’t be jumping in right now. Not sure if there are options on this, but he would be Selling Puts to gain entry at $53-$54.

This strips out the common shares on one side, and give the dividends to the preferreds. The preferred people get the dividends, but the common gets the preferreds’ money giving them a more levered play in the timeframe on life insurance companies. The bad news is, you are putting a bit of a gun to your head in terms of timing. If you buy at the right time, you can really get some outsized moves.

He doesn’t cover this closely. This is Sobey’s, which is going through some operational concerns. He is pretty confident in management and that they are going to get through that. You want to buy a good quality name when it has kind of fallen on itself. This is a good time to be picking away at this, particularly during the tax loss selling season.

Just reported and made $2.10 versus the consensus of $1.89. Bank operating leverage was up 2.7%. This has really been on fire, and he has not been modelling a lot of growth from this. Trading at a slight premium. There are better ones out there. All the banks are good. He would be Selling Calls on this.

Their acquisition of Spectra gives them better growth visibility beyond 2018. He likes the deal. Sees the name growing 10% 2016-2018. If you are long-term and have big capital gains, stick with it. You might consider Selling a Call, in order to buy it cheaper. Doesn’t think it is the hottest stock right now. Dividend yield of 3.8%.

Reached an agreement with Alberta for transition payments of about $97 million a year from 2017 to 2030. That news was better than expected and he upgraded it to a $7.50 target. It is a little higher than that, but still pretty cheap on a free cash yield. Trading at 15.3 versus its peers at lower levels. Its payout ratio on a free cash flow is 14%. He would prefer one with a bigger yield and one with the drop downs, Transalta Renewables (RNW-T).

A great name. It has very visible growth at 8% between now and 2018. Has big US exposure. There is an LNG project which is probably going to go ahead in Squamish BC, that they are going to benefit from. Nice dividend. 56% payout ratio. Trading below its five-year average, pretty cheap relative to its peers at around 18 times. However, this is a yield proxy, and rising bond yields are going to hurt it a little. However, it is trading low enough and its growth is good enough that you could just hold onto this and look to accumulate on weakness.

An economically sensitive name, and he thinks this is the right environment for that. Up until very recently, the whole group was trading at 20 year lows, at levels that would indicate we were coming into a recession, and he doesn’t think we are. Still very cheap relative to its peers. It has good growth and a buyback. On Q3 they beat in Europe and were in line in North America. Its Getrag acquisition is performing ahead of expectations. Dividend yield of 2.18%. (Analysts’ price target is $64.52.)

2016 was definitely a step-back year. They had negative same store sales growth. There was weakness in Alberta. However, it is trading at a substantial discount now of 17X, versus its highly-franchised peers of around 25 X. He is modelling 17% EPS compounded annually over the next couple of years, from a combination of new store openings, innovations and digital marketing, as well as integrating their St Hubert acquisition. Dividend yield of 1.61%. (Analysts’ price target is $31.63.)

He likes banks, and wants the one with one of the best capital ratios and one of the best growth rates, and at one of the best valuations. Thinks there is more upside. Dividend yield of 3.86%. (Analysts’ price target is $78.67.)

Market. Trump has some very good economic policies, which is positive for the economy. The issue we are going to face is, are we going to have the candidate Trump in the president’s office or are we going to have a president Trump. He assumes that he is what his family says he is. If so, his policies on the economy are very good. He will get tax cuts through fairly quickly. Believes that in his first 100 days he will stop regulations in their tracks, and do a review department by department to find out how many of those regulations they actually need, and which ones they can get rid of. Corporate tax cuts are going to be important for the bottom line of earnings, and the economy may actually pick up some steam next year. The first 3 or 4 weeks following the election was a sector rotation moving out of dividend paying. The banks along with everything else are starting to react, and he thinks that is the shift that is coming out of the bond market. The credit quality of borrowers has improved. We have now been 6 years since the financial crisis. There has been massive deleveraging going on in the US. People that couldn’t get loans 3 years ago, actually qualify today. Banks are now loaning pretty close to where they were at the time of the financial crisis, which has been a short-term phenomenon within the last 6 months. A 1% rise in interest rates has a 16% hit to the bottom margins of a bank, an amazing leverage factor. The banks are well positioned and well capitalized.

What do you think of Scotia Bank Split Shares? Scotia essentially bought their own stock and managed it as a fund. They basically split their shares in half, which means investors can buy capital shares which participates in the growth of the bank and any growth in the dividend; or they can buy the preferred shares which captures the excess dividends that the company pays. The preferred shares are very safe in this product. Think of them as a deep in the money covered call write. The capital shares are effectively a Call option, and the way you make your money on that is that they distribute the excess gain and dividends to the unit holders, on a monthly basis, which is why there is a fairly hefty dividend. He likes the banks.

Is Black Scholes still relevant? Black Scholes is the model used to price options. One of the factors in this model is interest rates. In theory, if interest rates are declining, you would suspect option premiums to be lower. That is not exactly true. Interest rates are only one factor in the equation. The other offsetting factor is dividends. So really, when you are pricing an option, you are pricing a Call versus a Put. That is the arbitrage Play. If he buys a stock, collects the dividend, and sells a Covered Call against it, he is getting a dividend and that is part of the pricing of what affects that Call option. He can write a Put option, and put the money that he would’ve put into the stock into cash, which is exactly the same position. The Put option needs to pay him more in today’s environment, because if the underlying stock has a 4% dividend, the risk-free rate of return on that cash is actually only 1% or less. Because of this, he gets a higher value for the Put and a lower value for Calls. If interest rates rise, one would think that that parity would start to narrow.

An ETF that tracks the Russell 2000 or one that tracks US regional banks? In a stronger economy, small caps are going to benefit. One would look at a number of regional banks in the US, and they would actually fall into that small-cap category. Neither one of these is a bad play on the US economy. His inclination would be to move to the Russell 2000, as he thinks it is more diversified.

This has a number of reset preferreds in it, which is why he thinks it took a big hit. If you are looking at this today, he thinks it is a reasonable Buy as an income component of your portfolio. He prefers preferred shares and high dividend paying common shares at this point, relative to the bonds. Thinks the next resets you will see on a number of these instruments are going to be higher as interest rates are rising.