Look to Canadian Banks for A Strong Financial Exposure

A country with a population of 35 million and growing at the rate of 1.2% annually, one of the least densely populated countries in the world, Canada is home to some very strong and resilient corporations in the world. The resource rich country is placed well to take advantage of macro trends such as warming climate providing access to the melting Arctic amongst other advantages. The climate change allows Canada to take advantage of controlling the shipping lanes (the Northwest Passage providing shorter and more efficient shipping routes between the east and the west), expanded farmland (longer growing seasons), underwater mineral and oil/natural gas resources (the melting ice caps provides easier access). While each of these can be targeted as an opportunity to invest in, an easier and safer way to expose to the bright future of the growing economy is to invest in the financial sector – a key to any strong and growing economy. Canadian banks are some of the safest banks in the world and have been rated very highly in global rankings by countless organizations.To continue reading, click here.

Kinder Morgan Inc (KMI) Consolidation

Kinder Morgan announced that it is consolidating its vast oil and gas pipeline empire in a $70B single company. The company announced that it is shedding its tax-advantaged legal structure it had popularized during the US shale boom; the MLP into one company. This will transform Kinder Morgan Inc into a $92B market cap mega-corporation. This combined entity will be the largest energy infrastructure company in North America and the third largest energy company overall.
The affected units include Kinder Morgan Energy Partners LP (KMP), Kinder Morgan Management  LLC (KMR) and El Paso Pipeline Partners LP (EPB). KMP shareholders will receive 2.1931 shares of KMI and $10.77 in cash; KMR shareholders will receive 2.4849 shares of KMI; EPB shareholders will receive 0.9451 shares of KMI and $4.65 in cash. Both KMP and EPB shareholders will be able to elect cash or KMI stock consideration subject to proration.
There is also some great news for KMI shareholders (including your truly) – the expected dividends for 2015 are $2.00, a 16% increase over current $1.72 KMI pays at a yield of 4.76%. In addition, KMI is expected to grow dividends at a rate of 10% each year from 2015 to 2020.

The current and simplified company structure is show below (source: Kinder Morgan presentation):

Full Disclosure: Long KMI. My full list of holdings is available here.

Chatter Around the World – 56

Chatter Around the World is a weekly curated link update of articles related to economics, investing, dividends and personal finance. In these weekly updates, I also capture my blog updates and news related to my holdings.

Video – Growth of $1 in stock market since 1927 seen through Time magazine covers

New Blog Posts

Let’s dive into the links that caught my attention this week.

Updates from My Portfolio Holdings

General Reads

Dividend Reads

Dividend Stock Analysis

A Frugal Family’s Journey maintains a centralized list of dividend stock analyses from around the community. Be sure to check out the page here.

July Updates

< All Previous Weekly LinksHave a wonderful weekend.

 

Recent Buy – AT&T Inc (T)

I initiated a new position in AT&T Inc (T). AT&T barely needs an introduction being the behemoth ($184B market cap) in the telecommunications sector. AT&T is one of the 30 companies that compose the Dow Jones Industrial Average (DJIA), a yardstick to measure the health of the economy. This is my fourth DJIA stock in my portfolio following Chevron (CVX), General Electric (GE) and Johnson & Johnson (JNJ).
I initiated a position in AT&T with 40 shares, and with a yield of 5.16%, which adds $73.60 to my annual dividend income. This is about half the position I am comfortable owning in each stock and will be looking to add more in the future if better opportunities appear.

Corporate Profile (from Yahoo Finance)

AT&T Inc. provides telecommunications services to consumers and businesses in the United States and internationally. Its Wireless segment offers various wireless voice, data, text, and other services, including local wireless communications services, long-distance services, and roaming services. This segment also sells various handsets, wirelessly enabled computers, and personal computer wireless data cards through its owned stores, agents, or third-party retail stores; and accessories comprising carrying cases, hands-free devices, batteries, battery chargers, and other items to consumers, as well as to agents and third-party distributors. As of December 31, 2013, this segment served approximately 110 million wireless subscribers. The company’s Wireline segment provides data services, such as switched and dedicated transport, DSL Internet access, network integration, managed Web-hosting, packet, and enterprise networking services, as well as local, interstate, and international wholesale networking capacity to other service providers. This segment also offers voice services consisting of local and long-distance services; wholesale switched access services to other service providers; and outsourcing services, integration services and customer premises equipment, and government-related services. This segment served approximately 12 million retail consumer access lines, 10 million retail business access lines, and 2 million wholesale access lines. The company has strategic relationship with IBM to provide businesses with a source for network security and threat management. The company was formerly known as SBC Communications Inc. and changed its name to AT&T Inc. in November 2005. AT&T, Inc. was founded in 1983 and is based in Dallas, Texas.

Dividend Profile

AT&T is a Dividend Aristocrat & Dividend Champion having raised dividends for 30 years in a row. The stock is a high yielder (current dividend is 5.31%) and as a result, the dividend growths are comparatively smaller. The 5-yr dividend growth rate (DGR) is 2.4% and 10-yr DGR is 4.9%.

Recent Buy Decision

Investing in AT&T bolsters my portfolio with more exposure to the telecom sector – which I am bullish on. The company is the leader in the telecom world, but the current environment provides for some interesting points. Some of the factors that contributed in my decision to initiate this position.

  • Dividend income – AT&T provides great current income with prospects of dividend growth in the future.
  • Dogs of the Dow – Some people use this investing strategy to beat the market. While my main goal is not to beat the market, this strategy provides some visibility into the under-to-fairly valued stocks in the DJIA. The strategy, for those unfamiliar, is simply to invest in the highest yielders of the DJIA called the Dogs of the Dow. AT&T is the currently the highest yielder in DJIA.
  • Solid revenue growth & EPS growth: After minimal gains from 2009-2012 in revenue, and a dip in diluted EPS from 2010 to 2011, AT&T has turned the ship around and the current trend is pointing upward.
  • DirecTV (DTV) acquisition – AT&T announced that it intends to acquire DTV, which could provide with considerable amount of revenue growth in the future.
  • Possibility of REIT spinoff – The recent news of Windstream (WIN) spinning off a publicly traded REIT resulted in speculation that other telecom providers would follow suit. If AT&T follows in the footsteps of WIN, that would result in unlocking a lot of value for shareholders.
  • In-Car 4G LTE – AT&T has been at the forefront in this field having secured deals with car manufacturers such as Audi, Tesla (TSLA), General Motors (GM) etc. AT&T could potentially add millions of new subscribers to their customer base as the current and future generation of cars come with a 4G LTE-capability.

The bottom line is that the companies that control the data pipes in an ever-connected and integrated digital world will command the marketplace. Telecom service providers (alongside cable service providers) will be able to throw their weight around and demand a piece of the pie from the hi tech media companies, as was evident from the recent announcement from Netflix (NFLX) – that Netflix has agreed to pay AT&T a fee to provide better streaming services to customers for an undisclosed amount. Read more about my thoughts here.

Risks

  • The DirecTV merger comes with a lot of unknowns. AT&T is betting that they can grow their revenues and business with the acquisition of DirecTV. However, it remains to be seen how this will play out once approved.
  • Capital expenditure is high and while T had indicated earlier this year on a free on capex, they have been forced to spend more in order to keep up and compete with others in the marketplace.
  • Free cash flow has dropped this year.

A summary of the stock

  • Symbol: T
  • Quote: $34.62
  • 52-week range: $31.74 – $37.48
  • P/E: 10.17
  • Forward P/E: 12.73
  • Debt/Equity: 0.91
  • Yield: 5.31%
  • 5-yr average yield: 5.5%
  • 5-yr DGR: 2.4%
  • Book value: 17.75
  • Graham number: 36.85
  • Chowder rule: 8

Do you own T? What are your thoughts on the sector and the industry? Make sure to leave a comment below.

Full Disclosure: Long CVX, GE, JNJ, T. My full list of holdings is available here.

Liebster Award

Dividend Dream and Pollies Dividend nominated me for the Liebster Award, something that I was unaware of. Turns out that its an award bloggers give each other to get to know him/her better. The goal is to answer their questions and then invite five other bloggers with my own set of questions. Thanks for the nomination again, Dividend Dream and Pollies Dividend.
Since I got questions from two different bloggers at the same time, I will pick a couple from one and the rest from the other nomination. Here are the questions I was asked:
1. Did you try other methods of investing before getting into DGI?
I sure did. When I first started, I was growth focused and was going after the hot emerging markets like China and India. Lucky for me, I didn’t dive straight into stocks and chose expensive mutual funds, which minimized my losses. Later, when I first started with stocks, I started with banks and financial institutions in 2008 – and we all know what happened to them. The first three stocks I picked don’t exist anymore (so, a great learning experience there). I wrote a post about it and you can read more details on My First Stock Investments.

2. What is the best advice you could give to someone unfamiliar with investing in stock markets?
Every investment should be well understood. If you do not understand how a company generates revenue and don’t understand its business model, then you shouldn’t be investing in it. 
Having said that, I realize that new starters find it hard to find the info and dig into the details. The best option here is to read as much as you can. There are hundreds of blogs like this one that show how to evaluate companies and what to look for; if you still have questions – there are plenty of investors in online discussion forums willing to help each other – seek help and learn what works for you.

3. What kind of other blogs do you fellow on a regular basis (financial or otherwise) and why do you like it so much?
I follow a lot of investing and personal finance blogs that are available here. Some blogs follow a similar approach to mine and it validates my investment ideas – but I also like to follow some blogs that disagree with my investing style to keep myself in check.
Some of my other favorite blogs include Brain Pickings, Seth Godin and a few other entrepreneurial blogs.

4. Do you have any foreign investments and why?
Currently, most of my holdings are companies based in Canada and USA. So, technically the US-based stocks are foreign holdings (I live in Canada). The exposure I get from Canadian-based companies is very limited. When investing in financials, commodities and service sectors, Canada has some great stocks to offer, but options are limited for other sectors and I get exposure to great companies by owning US-based stocks. Some of the stocks I own have a global footprint and provide great diversification. I would also like to own stocks that aren’t based in US or Canada to achieve better diversification – and that is in the plans for the future. Why diversify? I wrote about the importance of diversification a few weeks ago…read details about it here.

5. What is the first investment/financial book that pops into your mind when I say, “What’s your favorite book?” and why?
I have read a few books and of course there’s the Intelligent Investor from Benjamin Graham that everyone loves. While I haven’t completely read the book cover-to-cover, I learned a lot from it and find myself going back to it over and over. But everyone says that, so lets drop that book for now.
I have two other books that pop into my mind simultaneously. First is The Wealthy Barber from David Chilton, who is a popular figure in Canada. He has a very easy style of writing and it was one of the first books I read, thanks to my first boss/mentor.
But I am reading another book currently that I picked up recently and it is hugely entertaining and filled with some fantastic ideas. I wont spoil it and give away as I want to write a full book review about it on this blog. So, stay tuned 😉


For my nominations, I’d like to nominate the following blogs.

My questions for the nominees are:
1. Who has been your biggest inspiration (investing or otherwise)?
2. What is your best advise to other investors (new and/or seasoned)?
3. Which is your favorite city in the world?
4. If someone would take anything away from your blog, what’s the one thing you wish they would?
5. What kind of music do you listen to?