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One of the leaders in the low-cost space. Their margins run at about half of what their competitors do. That model only works if there is high turnover of your products. They have been successful in picking the right products, pricing them and moving them very quickly. The risk is, if you do get into a slowdown, there really isn’t any room to cut prices. They generate about 25% of revenue from membership fees, and with so many members, it is difficult to grow revenue. Membership fees are going up, which is a way to have that side of the business stay strong. Trading at about 29X Price to Earnings. For him, the dividend trajectory growth is not there, and trades too rich for him. Dividend yield of 1.1%.
This owns Appleby’s and IHOP restaurants. They are fairly saturated in the US, and the growth opportunity is their expansion into some of the emerging-market countries, especially Mexico. Recently sold his holdings because he was tired of waiting for management to execute. The stock is cheap, and continues to get cheaper. He doesn’t like the selloff that it is experiencing, and doesn’t see any stability in sight. Wait for the freefall to end, or just take a half position. Dividend yield is close to 7%.
Rates are going up which is great for financials. The bad news is when you look at this over the last 52 weeks, it is up about 90%, so a lot of that is priced in. The big question is, how much of it is priced in. If you are light in US financials, this is one of the best ways to get exposure to rising rates. The interest margin will continue to skyrocket if interest rates stay where they are or continue to rise. Trading at about 15X, which is not cheap nor expensive. If buying at these levels with a 3-4 year hold, you will be fine. Dividend yield of 1.25%.
(A Top Pick Jan 29/16. Up 8%.) The idea was that this was trading at such low levels. He started buying at about $100. The company needed to go through a transformation, and he had confidence they were going to do that. Sold his holdings. A lot of the easy money has been made and it is trading at fair value now.
High-quality. Everyone understands the business and everyone understands age demographics. The service this company provides is going to continue to be in demand. What has helped them, is what he believes is hurting them at this point. Some of the names such as this have seen a real inflow of capital, so are trading at all-time high multiples. When there is a correction, it tends to be quite sharp. Too expensive at this time. Dividend yield of 3.8%.
The only reason he doesn’t own this is that it doesn’t pay a dividend, which is part of his strategy. If you look at share price over the last 10 years, you could essentially have bought it at any point, and seen a nice return over a few years. They are leading in their industry, continuing to innovate and have lots of cash.
Thinks the 5% dividend is safe. You have to look past the dividend and at the fundamentals of the business. Their business is 50% generation and 50% distribution. On the generation side, they continue to reinvest. On the distribution side, they continue to grow their customer base.
The opportunity here is that smart phone penetration in Canada is still lower than the US. Canadians continue to do more and more on their phones, and which tends to be on the data side. Because of this, average revenue per user is going up. The negative is their lack of ability to raise the dividend. They have a new CEO and although he doesn’t expect the CEO to shake up the landscape in the near term, we just have to wait and see. You can own this in your portfolio and over the long-term you are going to be fine. The dividend is safe, but this is a fairly slow growth business. Dividend yield of 3.5%.
Market. We are in such a choppy period that a week from now the market could be either up or down and people wouldn’t be that surprised. Given that there isn’t a real clear path of where the markets are going, you have to be nimble. It is important to have a little bit of cash. He recently added gold for the 1st time since December 2012, and has a 4% weighting in bullion, which provides him with some defence if there is a pullback. At the same time, he is still invested in high quality dividend paying equities. If the market goes up, his clients will be participating. If there is a correction, he is able to step in and do some selective buying. This is not an environment where you want to be sitting in 30%-40% cash. At the same time, it is a mistake to be overly bullish.