Canadian Banks – US Investors Should Look Out For This Threat

The Canadian banks are old legendary institutions that have stood the test of time. They remained a beacon of stability during the financial crisis and came our relatively unscathed. This is because, the Canadian institutions have always remained focused on long term growth and always been a bit conservative than their US counterparts. It is for this reason, that the Canadian banks almost always find a spot or two featured in the list of safest banks in the world.

However, the Canadian economy is facing plenty of headwinds thanks to the collapse of the oil and commodity markets, recent recession and the possibility of a housing bubble bursting. As a result, the Canadian dollar (Loonie) has suffered losing approximately 50% of its value since its peak in the post financial crisis years.

In this article, I discuss two major threats facing the Canadian banks and provide an outline for both Canadian and US/International investors on what to expect.

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Cummins Inc – Now Approaching Deep Value Territory

Cummins Inc (CMI) is a well diversified global diesel engine manufacturer. The company designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, after treatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems. The company boasts huge market shares around the globe and has grown its business via acquisitions, partnerships and joint ventures. The technical leadership and supply chain system gives it an edge over its competition. While the industry faces cyclical weaknesses, the company firmly believes future growth to come from emerging markets and remains focused.

The stock has been punished severely and is down 38% since a year ago. The forward guidance has been for a slightly lower revenue (down 5.5% for FY2016) and earnings are expected to suffer 9%. While this is bad news for investors, the market, as it usually does, over-punished and the stock remains primed for a delicious return. F.A.S.T Graphs predicts a rate of return of 113% if the company returns to its normal P/E of 15. Based on the combination of valuation metrics described in the article, the fair value calculated is $155.16, indicating the stock is undervalued by 45%.

Why You Should Average Down On Existing Positions

Following is a guest post from Dividend Beginner

Hello R2R readers, I am The Dividend Beginner, a 22-year old Canadian dividend growth investor from Montreal. I started following other DGI bloggers after I made my first stock purchase in the Vanguard US Total Stock Market Index ETF (TSE: VUN). Once I realized the benefits of dividend growth investing from an assortment of blogs, Roadmap2Retire being one of my favourites, I decided I too would become a dividend growth investor, with a focus on Canadian stocks. I sold my shares in VUN shortly after and began my DGI journey. In less than a year I’ve built up a passive income stream consisting of an average dividend income of $100 per month. I plan to be financially independent in my 30’s, though I don’t have it all planned out in full detail now. By day I’m a full-time medical software developer, and in my free time I enjoy reading about finance, the economy, and stocks, investing in dividend growth stocks, and developing apps and websites. You can view all my writing on The Dividend Beginner blog (www.dividendbeginner.com), and engage with me on twitter, @dividendbegin.

What is “Averaging Down”?

The process of averaging down on your stock investments is a technique wherein you purchase more shares of a currently held stock at lower prices than which you originally purchased. Through this process, you bring down the per share cost basis of your investment in that company; this makes it easier to break even or to turn a profit, but also makes it easier to lose more money as you’ve built a larger concentration of shares.

Chatter Around the World – 131

Chatter Around the World is a curated weekly 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 portfolio holdings.

Offshore Cash Held by Companies totals $2.1T

Image Source: CNBC

New Blog Posts

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

Realty Income Dividend Increase

Realty Income Corp (O) announced a 3.92% increase in its cash dividend. The monthly cash dividend will increase from $0.191 to $0.1985 per share and payable on Feb 16, 2016 to shareholders on record as of Feb 01, 2016. Compared to the dividend a year ago, the current dividend rate is up 5%.

This is the 84th dividend increase from Realty Income since the company went public in 1994. The annual dividend rate goes up from $2.292 to $2.382. Yield going forward based on yesterday’s closing stock price is 4.56%.

Realty Income Corp Dividends & Dividend Growth Rates

From the press release statement:

“We are pleased that the continued strength in our operations allows us to increase the amount of the dividend we pay to our shareholders, while still maintaining a comfortable dividend coverage ratio,” said John P. Case, Chief Executive Officer of Realty Income. “With the payment of the February 2016 dividend, shareholders will enjoy an increase of 5% in the amount of their dividend as compared to the same month in 2015.”

My portfolio consists of 60 shares of Realty Income, which increases my annual dividends from $137.52 to $142.92, an increase of $5.40.

Roadmap2Retire