Topic: How To Invest
Dividend Advisor Hotline – Friday, May 17, 2019
WESTJET AIRLINES LTD., $30.10, Toronto symbol WJA, serves over 100 destinations in North America, Central America, the Caribbean and Europe.
The stock jumped 62% this week after the company accepted a $31.00-a-share all-cash takeover offer from Onex Corp. (Toronto symbol ONEX).
Onex’s $31.00 takeover offer represents a 162.7% gain since we first recommended WestJet in our publications at $11.80 a share in December 2009.
Assuming WestJet shareholders and regulators approve, Onex expects to the complete the takeover in late 2019 or early 2020.
Until then, the company will continue to pay its current quarterly dividend of $0.14 a share. The annual rate of $0.56 yields 1.9%. That dividend has grown an average of 3.1% annually over the last 5 years. WestJet’s TSI Dividend Sustainability Rating is Above Average.
OUR RECOMMENDATION: WestJet’s shares are now trading just below Onex’s offer, which indicates investors do not expect a higher bid. Investors should wait to tender their shares to the offer and so get the full $31.00 and avoid paying brokerage commissions.
WestJet ‘s recent coverage:
CISCO SYSTEMS INC., $56.35, Nasdaq symbol CSCO, is a leading maker of hardware and software for linking and managing computer networks.
Starting with the April 2019 payment, Cisco raised its quarterly dividend by 6.1%. Investors now receive $0.35 a share instead of $0.33. The new annual rate of $1.40 yields 2.5%.
The company continues to benefit as more of its corporate customers shift their computing platforms to the cloud (remote servers that users access over the Internet). That has spurred demand for its networking gear and security software.
In its fiscal 2019 third quarter, ended April 27, 2019, Cisco’s earnings rose 8.1%, to $3.45 billion from $3.20 billion a year earlier. During the quarter, the company spent $6.0 billion on share repurchases; as a result, earnings per share jumped 18.2%, to $0.78 from $0.66, on fewer shares outstanding.
Those figures exclude costs to integrate recent acquisitions, one-time charges related to the new U.S. tax laws and other unusual items. On that basis, the latest earnings beat the consensus estimate of $0.77.
Revenue in the quarter improved 4.0%, to $12.96 billion from $12.46 billion. That also beat the consensus forecast of $12.89 billion.
In the past few years, Cisco has diversified its component suppliers in Asia. That has reduced the impact of higher U.S. tariffs on products imported from China. The company also continues to raise prices on certain products to protect its profit margins.
Cisco’s dividend has grown an average of 13.0% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Above Average.
OUR RECOMMENDATION: Cisco Systems is a top pick for 2019.
Cisco Systems ‘s recent coverage:
TELUS CORP., $49.35, Toronto symbol T, is Canada’s third-largest wireless carrier after Rogers Communications (No. 1) and Bell Mobility (No. 2). The company’s wireless business has 9.7 million subscribers and supplies about 55% of its revenue and 70% of its earnings.
The remaining 45% of revenue and 30% of Telus’ earnings come from its wireline business. That operation has 1.2 million landline phone customers in B.C., Alberta and eastern Quebec as well as 1.9 million Internet users and 1.1 million TV customers.
With the July 2019 payment, Telus will increase its quarterly dividend payment by 3.2%. Investors will then receive $0.5625 a share, up from $0.545. The new annual rate of $2.25 yields a high 4.6%.
Beyond this latest increase, the company now plans to raise its annual dividend rate between 7% and 10% each year from 2020 to 2022.
In the three months ended March 31, 2019, earnings rose 4.1%, to $453 million from $435 million a year earlier. Due to more shares outstanding, earnings per share rose at a slower rate of 2.7%, to $0.75 from $0.73. That matched the consensus estimate.
Revenue in the quarter improved 3.8%, to $3.51 billion from $3.38 billion. That also matched the consensus forecast.
The company added 60,000 new wireless subscribers (net of cancellations) in the quarter. That represents a 57.9% increase from 39,000 a year earlier. The jump is partly due to new promotions and retail channels. In addition, higher demand for Internet and TV services offset a drop in the number of traditional phone customers.
Including its latest increase, the company’s dividend has grown at an average annual rate of 8.2% over the past 5 years. The stock holds a Highest TSI Dividend Sustainability Rating.
OUR RECOMMENDATION: Telus is a buy.
Telus’s recent coverage:
CANADIAN TIRE CORP., $140.71, Toronto symbol CTC.A, owns 503 Canadian Tire stores. They sell automotive parts and products, and household and sporting goods. Franchisees run most of the outlets. The company’s other operations include 297 gas stations and 104 PartSource locations; those stores are entirely focused on automobile supplies.
In the past few years, the company has acquired other major retail chains: Mark’s sells casual and work clothing through 385 stores; and the Sport Chek Group sells sporting goods and athletic wear through 404 outlets, including Sport Chek and Sports Experts.
Starting with the March 2019 payment, Canadian Tire raised its quarterly dividend by 15.3%. Investors now receive $1.0375 a share instead of $0.90. The new annual rate of $4.15 yields 2.9%.
Factoring in all its businesses, overall revenue in the first quarter of 2019 rose 2.8%, to $2.89 billion from $2.81 billion a year earlier.
However, that missed the consensus forecast for $3.03 billion due to a 2.7% drop in revenue for its main chain, Canadian Tire. The company gets most of that revenue from selling goods to its Canadian Tire franchisees (or dealers), and it had trouble shipping enough spring merchandise to those stores.
The higher overall revenue is largely due to the recent purchase of the Helly Hansen sportswear business for $985 million. Based in Oslo, Norway, it makes a variety of clothing for outdoor activities such as skiing and sailing. It also operates retail stores in over 40 countries.
More specifically, Helly Hansen contributed $140.8 million to overall revenue in the latest quarter.
Despite reduced contributions in the quarter from Canadian Tire department stores, same-store sales for the chain (which includes PartSource stores) jumped 7.1%. That gain was driven by harsh winter weather, which spurred strong demand for snow shovels and ice melter in central Canada. Early spring weather also fuelled sales of seasonal merchandise in Western Canada and the Atlantic provinces. (Note—the strong same-store sales were largely based on merchandise sold by the company to its dealers in previous quarters.)
Same-store sales for Sport Chek stores gained 3.4%, thanks to higher sales of clothing and footwear, including new Helly Hansen products.
At the Mark’s chain, same-store sales rose 4.9% on better demand for winter footwear and clothing. However, revenue at Canadian Tire’s gas stations dropped 9.1% due to lower gasoline prices in the quarter.
Earnings fell 10.6%, to $69.7 million from $78.0 million a year earlier. Per-share earnings declined at a slower rate of 5.1%, to $1.12 from $1.18, on fewer shares outstanding. That missed the consensus estimate of $1.37 a share.
The lower earnings are mainly because the company’s interest payments jumped 118.2% as a result of the loans it used to buy Helly Hansen. However, selling and administrative costs fell 1.7%.
The company’s dividend has now risen an average 18.9% annually over the last 5 years. Its TSI Dividend Sustainability Rating is Highest.
OUR RECOMMENDATION: Canadian Tire is a buy.
Canadian Tire’s recent coverage:
INTACT FINANCIAL CORP., $116.27, Toronto symbol IFC, is Canada’s largest provider of property and casualty insurance. The company insures more than five million individuals and businesses. Its major brands are Intact Insurance, Canada BrokerLink and belairdirect.
With the March 2019 payment, Intact raised its quarterly dividend by 8.6%, to $0.76 from $0.70. The new annual rate of $3.04 yields 2.6%.
For the quarter ended March 31, 2019, the company’s revenue rose 4.4%, to $2.66 billion from $2.54 billion a year earlier. The gain in part reflects Intact’s September 2017 acquisition of OneBeacon Insurance Group for $1.7 billion U.S.
Overall earnings per share in the quarter jumped 55.9%, to $1.06 from $0.68. However, if you exclude a one-time gain, Intact earned $0.54 a share in the latest quarter. That still beat the consensus forecast of $0.46.
The lower earnings are because the company paid out higher claims as a result of severe winter weather in Canada. In the latest quarter, Intact reported a 101.5% combined ratio (the claims paid out divided by the premiums taken in—the lower, the better). That’s worse than the 99.2% it reported a year earlier.
The stock trades at 17.5 times the forecast 2019 earnings of $6.64 a share.
The company’s dividend has now risen an average 9.6% annually over the past five years. Its TSI Dividend Sustainability Rating is Above Average.
OUR RECOMMENDATION: Intact Financial is a buy.
Intact Financial’s recent coverage:
