As investors seek sustainable income in an evolving market landscape, TSI’s own Scott Clayton has identified compelling opportunities in spinoffs for 2025. This analysis applies our comprehensive dividend sustainability framework to companies planning those strategic splits for next year.
While spinoffs often capture headlines for their short-term market impact, our research goes deeper as we examine the fundamental factors that support dividend reliability and growth potential. As a TSI subscriber, you know this already and that’s why you’re reaping the benefits of TSI’s Dividend Sustainability Ratings.
Excerpt from theglobeandmail.com, November 21, 2024.
What are we looking for?
Sustainable dividends from stocks with upcoming spinoffs for 2025.
The screen
Comcast Corp. shares moved up recently on news the U.S. conglomerate will go ahead with the $7-billion spinoff of its NBCUniversal cable TV network business.
Canadian investors reacted similarly when TC Energy Corp. last year announced plans for the now-completed spinoff of its oil pipeline operations, South Bow Corp.
While spinoffs may or may not lead to short term gains, those organizational splits – where companies set up profitable subsidiaries as independent firms and hand out shares to their investors – often outperform comparable stocks in the long term.
What’s more, our TSI analyst team notes spinoff firms frequently have above-average takeover appeal. That’s thanks to their smaller market caps and “pure play” focus. Meanwhile, their former parents also benefit from more-focused operations.
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From a list of U.S. and Canadian firms with spinoffs planned for 2025, we singled out those dividend payers with growth potential as well as takeover appeal. We then applied our TSI Dividend Sustainability Rating System; it awards points to companies based on these key factors:
One point for five years of continuous dividend payments – two points for more than five;
Two points if it has raised the payment in the past five years;
One point for management’s commitment to dividends;
One point for operating in non-cyclical industries;
One point for limited exposure to foreign currency rates and freedom from political interference;
Two points for a strong balance sheet, including manageable debt and adequate cash;
Two points for a long-term record of positive earnings and cash flow to cover dividends;
One point if the company’s an industry leader.
Companies with 10 to 12 points have the most-secure dividends, or the highest sustainability. Those with seven to nine points have above-average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.
Five dividend-paying giants announce 2025 spinoffs
What we found
Our TSI Dividend Sustainability Rating System generated five spinoff stocks primed for growth:
Comcast Corp. (with a 2.9% yield), based in Philadelphia, plans to spin off its NBCUniversal cable TV networks into a separate company. The media and telecommunications giant’s entertainment and news channels include MSNBC, CNBC, USA, Oxygen, E!, Syfy and Golf Channel.
Honeywell International Inc. (2.0%), based in North Carolina, already spun off two subsidiaries to shareholders in 2018 (Resideo Technologies Inc. and Garrett Motion Inc.). Now, it’s spinning off its Advanced Materials business. That division makes products ranging from body armour and pharmaceutical packaging to air-conditioning refrigerants and packaging films.
DuPont de Nemours Inc. (1.9%), headquartered in Wilmington, Delaware, is a global manufacturer of specialty materials, chemicals, agricultural products and more. Earlier this year, and almost five years since its last spinoff, DuPont announced plans to separate into three independent, publicly traded companies. Under the plan, it would spin off its Electronics and Water businesses. The remaining firm will keep the DuPont name and “DD” trading symbol, as well as most of its Industrial Solutions, Safety Solutions and Shelter Solutions businesses.
Unilever plc (3.2%), based in London, is one of the world’s largest makers and sellers of branded and packaged consumer goods. The company is now spinning off its Ice Cream business, which has five of the top 10 selling global ice cream brands including Wall’s, Magnum, and Ben & Jerry’s.
Spectrum Brands Holdings Inc. (2.1%), headquartered in Madison, Wisconsin, is focused on three segments: home/personal care, pet care, and home and garden. The company plans to narrow that focus and spin off its home/personal care (HPC) division.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
Aggressive investors looking at high-risk, aggressive stocks to invest in should only allocate a small part of their portfolios to those investments, including a ChatGPT-like stock
There are always investment-related worries to occupy the minds of investors looking for good Canadian stocks—but focusing on high-risk, aggressive stocks to invest in just makes it worse. That applies even to “hot” investments similar to a ChatGPT stock.
It’s only natural to worry about your investments, even good Canadian stocks, whether that’s during the kind of bull market we saw in 2021, or the COVID downturn of 2020 or the current volatile market. But being able to overcome that worry is one of the most important traits a successful investor can have. It’s especially important when investors are looking for high-risk stocks to invest in.
Anxiety recedes with investment quality, diversification and balance
You’ll find that many of your worries centre on things that are unlikely to happen; that are already largely discounted in current stock prices; and that probably won’t matter as much as you feared they would. That also applies when you’re looking for the best high-risk, aggressive stocks to invest in, like something similar to a ChatGPT-like stock or other AI star.
You get a much better return on time spent if you devote less of it to worrying about high-risk, aggressive stocks to invest in, and more of it on forming an investing strategy that focuses on good Canadian stocks, for example. Create a strategy that is built upon analyzing the quality and diversification of your investments, and the structure and balance of your portfolio.
There’s another advantage as well. A calm investor is much less likely to react in haste and make sudden decisions that could prove to be damaging in the long run such as devoting a large portion of your portfolio to a ChatGPT-like stock or another darling of momentum investors instead of focusing on good Canadian stocks.
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Pink sheet stocks are the Wild West of U.S.-based stocks—and only for investors looking for high-risk stocks to invest in … with money they can afford to lose
Companies that trade on the U.S. over-the-counter market are said to trade as “pink sheet stocks,” a holdover from the days when the quotes for these stocks were printed on pink paper.
Today, OTC Markets Group (formerly Pink OTC Markets Inc.), a private company, is the main provider of pricing and financial information for the over-the-counter (OTC) securities markets.
OTC Markets Group operates a centralized information network that includes services for market makers, issuers, brokers and OTC investors. This information aims to make OTC trading more efficient and improve access to capital for OTC issuers.
Unlike good Canadian stocks, many companies that trade “pink sheets stocks” usually don’t have sufficient market caps, or enough shareholders, to meet most stock exchanges’ minimum criteria. That includes several penny stocks that purport to be the next ChatGPT stock.
Over-the-counter shares are often sporadically or inactively traded. That can make buying penny stocks and pink sheet stocks (and selling them) more difficult and expensive than shares of larger stock exchanges.
As well, over-the-counter stocks trade through “market makers,” or traders who maintain an orderly market in a particular stock by standing ready to buy or sell shares. The market maker’s job is to maintain a firm bid and ask price for their assigned securities. If a broker wants to buy a stock, but there are no offers to sell it, the market maker fills the order by selling shares from their own firm’s account. If a broker wants to sell, but no one wants to buy, the market maker buys the shares.
Over-the-counter stocks may at times seem to offer extraordinary opportunities, but this can be an expensive illusion. Most legitimate companies with substantial growth potential will want to leave the over-the-counter market as quickly as possible, and move to the major markets. This tilts the odds against you.
That’s why we’ve always stayed out of the over-the-counter market, and are likely to continue to stay out as we focus on good Canadian stocks and good U.S. stocks. There are just too many attractive buying opportunities in major markets where risk is lower and your chances of making money are much better.
Patience, consistency and skepticism are at the heart of a successful portfolio investing approach
If you ask investors who have a few decades of successful investing behind them, few if any will credit their portfolio investing success to one big idea, like a stock similar to a ChatGPT stock. That’s especially true if the technique involves predicting the future, or trying to speculate on the price movements of volatile commodities like oil. Instead, most will talk about everyday qualities like patience, consistency and a healthy sense of skepticism—the kind of qualities that bring success in all aspects of life, not just investing.
These qualities help you apply our three-part formula for portfolio investing success: mainly invest in well-established, high-quality companies; spread your money out across most if not all of the five main economic sectors; and downplay or stay out of companies that are in the broker/media limelight. These are our guiding principles when we manage the portfolios of Successful Investor Wealth Management clients.
Investing tip for high-risk stocks to invest in: Spread your money out
No matter what kind of stocks you invest in, you should take care to spread your money out across the five main economic sectors: Finance, Utilities, Consumer, Resources & Commodities, and Manufacturing & Industry.
By diversifying across most if not all of the five sectors, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or investor fashion.
Bonus tip: Avoid high-risk Canadian cannabis “pot of gold” stocks
Even with its continuing challenges, the marijuana industry now has a number of established producers, including Canopy Growth, but investors still need to look out for high-risk “pot-of-gold” penny stocks. These typically arise in new industries. Those stocks never become the good Canadian stocks we focus on.
Stock promotion is a take-the-money-and-run type of business. Most successful entrepreneurs value their reputations, and want to build a profitable, sustainable business that can pay off for investors. So they generally go into some other line of work, and stay out of stock promotion. Right now, cannabis stock investing is a risky area of speculative highly aggressive stocks.
We advise staying out of stock promotions of Canadian marijuana stocks businesses or anything else. They attract the wrong kind of people.
These days, it’s faster and easier than ever to launch a stock promotion, thanks to the Internet. One recent “penny pot” investing stock scam almost seems like an MBA-style case study on how to launch one of these frauds online. To avoid being taken in, it pays to read more, and to think before you invest.
Have you been looking for high-risk, aggressive stocks to invest in rather than what we term good Canadian stocks, for example? Share your experience with us in the comments.
This article was originally published in 2017 and is regularly updated.
We see IBM as a great way for investors to successfully tap the fast-growing artificial intelligence (AI) field. This legacy tech firm was in fact an early pioneer in AI. In 2011: representing an AI milestone, the firm’s Watson supercomputer beat human contestants on the Jeopardy game show.
More recently, rising client demand for AI services has lifted the stock by 45.9% in the past year. Its rising earnings also give it more room for dividend hikes.
The stock trades at 21.1 times the company’s forward earnings forecast, a very reasonable valuation for a diversified business model that’s focused on the fast-growing AI market. This is a very solid pick and relatively low risk path to capitalize on long-term AI benefits.
IBM (New York symbol IBM; www.ibm.com) is one of the world’s largest computer firms, with operations in over 175 countries.
In the past few years, IBM has shifted its focus to its more profitable cloud computing, consulting and mainframe businesses. It now gets 75% of its revenue from its software and consulting businesses.
As part of that strategy, IBM paid $34 billion in July 2019 for Red Hat—the leading developer of cloud-based software.
Despite the Red Hat acquisition, IBM’s revenue fell 4.6%, from $77.15 billion in 2019 to $73.62 billion in 2020. That’s mainly because some businesses deferred investments in new technology due to the COVID-19 pandemic.
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In November 2021, IBM spun off some of its legacy consulting operations as Kyndryl Holdings Inc. (New York symbol KD). As a result, revenue fell 17.8% to $57.35 billion in 2021; on a comparable basis, revenue actually rose 3.9%. In 2022, revenue improved 5.5% to $60.53 billion on stronger demand for its software and hybrid cloud products. Revenue gained a further 2.2% to $61.86 billion in 2023.
Earnings before unusual items fell 32.3%, from $12.81 a share (or a total of $11.44 billion) in 2019 to $8.67 a share (or $7.77 billion) in 2020. Earnings then improved 15.0% to $9.97 a share (or $9.02 billion) in 2021, but they fell 8.4% to $9.13 a share (or $8.33 billion) in 2022 because of the Kyndryl spinoff. Earnings rebounded 5.4% in 2023, to $9.62 a share (or $8.87 billion).
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In the three months ended September 30, 2024, IBM’s revenue rose 1.5%, to $14.97 billion from $14.75 billion a year earlier. Revenue rose 9.7% for IBM’s software businesses; that offset 0.5% lower revenue at its consulting unit and 7.0% lower revenue for its mainframe computers and other hardware (that business is at the end of a three-year product cycle, when sales cyclically slump).
Earnings excluding one-time items gained 6.1%, to $2.16 billion from $2.03 billion. Due to more shares outstanding, per-share earnings rose 4.5%, to $2.30 from $2.20. The higher earnings growth is largely due to a plan to improve productivity.
Meantime, IBM often buys other companies to enhance its expertise. It cuts the risk of using acquisitions to expand by targeting smaller firms that are easier to absorb.
For example, IBM recently agreed to buy Accelalpha. Based in Bellevue, Washington, this firm helps businesses implement and manage their applications that run on the cloud platforms of software developer Oracle Corp. (New York symbol ORCL). The purchase price has not yet been disclosed.
This acquisition expands IBM’s Oracle consulting expertise in supply chain and logistics, finance, enterprise performance management and customer transformation.
The acquisition builds on IBM’s nearly 40-year collaboration with Oracle.
IBM is also buying HashiCorp Inc. (Nasdaq symbol HCP). That firm makes software to help companies set up and manage their cloud-based computer networks.
Assuming HashiCorp shareholders and regulators approve, IBM will pay $6.4 billion when the deal closes, probably by the end of 2024.
IBM’s shares have gained 45.9% in the past year due to investor enthusiasm for AI. They now trade at 21.1 times the $10.74 a share the company will probably earn in 2025. That’s a particularly attractive multiple, as IBM spends a high 12% of its revenue on research and is adding artificial intelligence features to its software products.
With the June 2024 payment, IBM raised your quarterly dividend by 0.6%, to $1.67 a share from $1.66. The new annual rate of $6.68 yields 3.0%. The company has paid regular dividends since 1916 and has increased the annual rate yearly for the past 29 years.
Campbell Soup Co’s portfolio of well-recognized food brands provides a diversified and resilient revenue base. These household names have demonstrated enduring consumer appeal, offering stability and growth potential even in challenging economic environments.
Meanwhile, ongoing cost optimization efforts include the realization of $950 million in annual savings from a key acquisition and an additional $50 million from an integration. Both should drive meaningful margin expansion.
The stock trades at 14.4 times the company’s forward earnings forecast. That’s an attractive multiple considering the company’s strong brands and market share.
CAMPBELL SOUP CO. (Symbol CPB on Nasdaq; www.campbellsoupcompany.com) plans to change its name to “The Campbell’s Company,” reflecting its broader array of products. It also recently transferred its stock listing from the New York Stock Exchange to Nasdaq (the shares continue to trade under the “CPB” symbol.) The move should lower its administrative costs.
Under its new strategic plan, which began in 2018, Campbell sold most of its international and refrigerated-foods businesses. That let it focus on canned soups, pasta and V8 vegetable juices. Campbell also kept its snack food operations. They were significantly expanded in March 2018 when the company paid $6.1 billion for snack-foods maker Snyder’s-Lance.
In March 2024, the company completed its $2.9 billion acquisition of Sovos Brands Inc. (Nasdaq symbol SOVO), the maker of Rao’s pasta sauces. The new operations will add $1 billion to its annual sales.
As a result of that purchase, Campbell’s sales in its fiscal 2024 fourth quarter ended July 28, 2024, rose 10.9%, to $2.29 billion from $2.07 billion a year earlier. That missed the consensus forecast of $2.31 billion.
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If you exclude businesses that Campbell bought and sold, sales fell 1.2% in the latest quarter. That’s because lower selling prices (down 2%) offset a 1% improvement in volumes.
If you factor out costs related to the Sovos purchase and other unusual items, the company’s earnings rose 26.0%, to $0.63 a share from $0.50 a share. That beat the consensus estimate of $0.62.
Value Stocks: Substantial cost savings bolster the outlook for these iconic brands
Campbell also continues to realize savings in the wake of the Snyder’s-Lance acquisition. So far, it has reduced annual costs for its continuing businesses by $950 million. It expects those yearly savings to reach $1 billion by the end of fiscal 2025.
In addition, Campbell realized $10 million in savings in the latest quarter by combining its operations with those of Sovos. It expects annual costs savings will total $50 million by the end of fiscal 2026.
Campbell’s expect sales in fiscal 2025, excluding the Sovos purchase and the recent sale of its Pop Secret popcorn business, will rise about 1%. It also expects its earnings will rise between 1.0% and 4.0%, to between $3.12 and $3.22 a share. The stock trades at 14.4 times the midpoint of that range. That’s an attractive multiple considering the company’s strong brands and market share.
Longer term, Campbell expects its sales will rise 2% to 3% annually. It also expects earnings per share will improve between 7% and 9% annually through fiscal 2027.
Campbell last raised your quarterly dividend with the February 2021 payment. Investors now receive $0.37 a share, up 5.7% from $0.35. The current annual rate of $1.48 yields a solid 3.2%.
Your dividend has grown an average of 1.1% annually over the last 5 years. Campbell Soup’s TSI Dividend Sustainability Rating is Above Average.
The recent divestiture of Conagra Brands’ majority stake in its Indian snacks subsidiary allows it to focus resources on its core North American brands.
This strategic move simplifies the business model and positions the company to capitalize on growth opportunities in its key markets. As the company leverages its powerful brand equity, it’s poised to navigate industry headwinds, withstand challenges and emerge as a leaner, more profitable organization.
Meanwhile, the stock trades at 10.4 times the company’s forward earnings forecast.
CONAGRA BRANDS INC. (New York symbol CAG) lets you tap the maker of some of North America’s most popular food brands. They include Chef Boyardee canned pasta, Hunt’s tomato sauce, Birds Eye frozen meals, Orville Redenbacher popcorn and Reddi-wip whipped cream.
The company reported weaker-than-expected sales and earnings for its latest quarter, as cost-conscious consumers switched to cheaper alternatives. A manufacturing problem also cut production of its Hebrew National hot dogs during the busy summer grilling season. However, Conagra continues to benefit from improving supply chains and a cost-cutting plan.
Conagra’s sales in its fiscal 2025 first quarter, ended August 24, 2024, fell 3.8%, to $2.79 billion from $2.90 billion from a year earlier. That missed the consensus forecast of $2.84 billion.
If you exclude businesses it bought and sold, as well as currency rates, Conagra’s organic sales declined 3.5%. That’s due to lower prices (down 1.9%) and volumes (down 1.6%).
The lower sales also cut earnings before unusual items by 19.7%, to $0.53 a share (or a total of $252.6 million) from $0.66 a share (or $315.9 million). That also missed the consensus estimate of $0.59 a share.
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Value Stocks: Conagra Brands’ cost-cutting plan helps navigate supply chain and inflation challenges
The company’s restructuring plan should cut $1 billion from its annual costs by the end of fiscal 2025. It now expects to earn between $2.60 and $2.65 a share for the full year, and the stock trades at a moderate 10.4 times the midpoint of that range. The $1.40 dividend looks safe, and it yields a solid 5.1%.
Meanwhile, the company has completed the sale of its 51.8% stake in Agro Tech Foods Limited. Based in India, this firm makes a variety of foods such as breakfast cereals, snacks and candies.
Conagra did not say how much it received, but earlier disclosed it expected proceeds of $78 million.
The sale will let the company focus on its main businesses in North America. A deal to license some of its brands to Agro Tech will also let it continue to benefit from rising demand for snack foods in India.
A Member of Pat McKeough’s Inner Circle recently asked for his advice on a food-making company that’s best known for its Smucker’s and Jif brands and now an assortment of Hostess brands following last year’s major acquisition.
Pat likes the relatively solid dividend, growing revenue and earnings as well as its improved exposure to the convenience store market. However, Pat notes the company is highly dependent on Walmart as its biggest customer and is also subject to changing consumer whims about unhealthy eating habits.
J.M. Smucker Co., (Symbol SJM on New York; www.jmsmucker.com) is the largest maker of jams, jellies and peanut butter in the U.S. Its top brands include Smucker’s and Jif. It also makes pet food and many other consumer products. The company has over 30 offices and manufacturing facilities across North America.
The U.S. accounted for about 94.8% of Smucker’s total sales in the latest quarter. Walmart, its largest customer, represents about 33% of its sales.
Acquisitions have helped Smucker expand in the past few years, particularly into faster-growing businesses like pet foods. Key acquisitions include the March 2015 purchase of Big Heart Pet Brands for $6.0 billion. That business makes a variety of well-known pet foods, including Milk-Bone (dog treats), Kibbles ‘n Bits (dog food) and Meow Mix (cat foods).
In May 2018, Smucker acquired Ainsworth Pet Nutrition, which makes premium pet food and snacks under the Rachael Ray Nutrish brand. It paid $1.7 billion for Ainsworth.
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In November 2023, Smucker’s completed the acquisition of Hostess Brands (symbol TWNK on Nasdaq) for $5.6 billion. Based in Lenexa, Kansas, Hostess was founded in 1930 and is behind several iconic household brands, including Twinkies, Ho-Hos, Ding Dongs, Zingers, and Voortman cookies and wafers.
On October 22, 2024, Smucker’s announced that it would sell its Voortman cookie brand to Second Nature Brands for $305 million. Second Nature is controlled by Capvest Partners LLP, a U.K.-based private equity firm.
Burlington, Ontario based Voortman has annual sales of about $150 million.
The sale is part of Smucker’s focus on its core growth brands, such as Folgers, Smucker’s, Jif, Milkbone, and Hostess.
Inner Circle: Latest results reflect the net effect of multiple corporate transactions
Meanwhile, in its fiscal 2025 first quarter ended July 31, 2024, Smucker’s sales increased 17.7% to $2.13 billion from $1.81 billion a year earlier. Revenue rose from acquisitions as well as higher volumes sold.
Excluding one-time items, earnings rose 14.3% to $259.5 million, or $2.44 a share, from $227.0 million, or $2.21.
Going forward, the Hostess purchase is a plus—but there could also be longer-term challenges with this acquisition. For one, Smucker’s, whose portfolio was focused on peanut butter and jelly spreads, coffee and pet food, has limited experience in snacking. And that could be a factor if consumer tastes veer back toward healthier snacks, and that requires a product shift for Hostess.
Plus, retail giant Walmart is Smucker’s biggest customer, supplying around one third of its sales. This leaves Smucker at risk if Walmart decides to bargain more aggressively on pricing.
On the positive side, the Hostess deal gives Smucker’s greater exposure to the convenience store market and convenient snacking foods. It also provides its Smucker’s Uncrustables sandwich product with another significant distribution network. Uncrustables is on track to generate $800 million in sales in 2024 and $1 billion by 2026.
At the same time, Smucker believes that demand for Hostess’s products will remain high. Smucker says that snacking is among the fastest-growing areas of the consumer food business, and that “indulgent” snacks have grown 20% faster over the past three years than those marketed as being healthier. As well, about 70% of consumers are eating at least two snacks a day.
Smucker’s shares yield a solid 3.9%.
Recommendation in Pat’s Inner Circle: J.M. Smucker Co. is a hold.
Russell Metals’ recent $225 million acquisition of seven strategic service centers is a sound one, expected to be a strong fit with the company’s current footprint.
The stock trades at 10.5 times the company’s forward earnings forecast. This reasonable valuation, combined with significant revenue growth from the recent acquisition, suggests substantial upside potential for investors entering at current levels.
The company’s recent 5% dividend increase to $0.42 quarterly ($1.68 annually) also demonstrates its commitment to shareholder returns.
RUSSEL METALS INC. (Toronto symbol RUS; www.russelmetals.com) is a leading metals distributor in North America, with 33,000 clients at 48 locations in Canada and 16 others in the U.S.
Russel has now completed its acquisition of seven service-centre locations from Samuel, Son & Co. for $225 million. The purchase closed in August 2024.
Russel has acquired Samuel’s metals service centres in Winnipeg, Calgary, Nisku (Alberta), Langley (BC), Surrey, Buffalo (New York) and Pittsburgh. Samuel will retain its location in Delta (B.C.) and conduct an orderly shut-down of that facility.
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In Western Canada, Samuel’s five locations will be a strong fit with Russel’s current footprint, including providing new opportunities to benefit from Samuel’s focus on non-ferrous products and Russel’s focus on value-added processing. In the U.S. Northeast, the two locations will provide an eastern extension of Russel’s existing operations in the U.S. Midwest.
In the three months ended September 30, 2024, revenue fell 1.8%, to $1.09 billion from $1.11 billion a year earlier. The company’s sales mainly declined because of lower steel prices.
Overall earnings in the latest quarter were $34.5 million, or $0.59 a share. That’s a 43.1% decrease from $60.6 million, or $0.99, a year earlier. The drop came from the lower sales as well as lower sales of high-profit-margin products due to industry competition and current oversupply in the market.
Meanwhile, the long-term outlook for Russel is positive, and the stock trades at just 10.5 times the 2025 forecast earnings of $4.10 a share.
With the June 2024 payment, Russel raised your quarterly dividend by 5.0%, to $0.42 a share from $0.40. The new annual rate of $1.68 yields an attractive 3.9%.
Russel Metals has now increased its dividend by an average 2.0% annually over the past five years. Its TSI Dividend Sustainability Rating is Above Average.
Oil and gas stocks moved up as the U.S. and other economies recovered after the pandemic. The war in Ukraine also spurred prices. Prices have softened on fears of slowing global economies, but we still recommend that most investors maintain exposure to the oil and gas industry as part of a balanced portfolio.
To cut risk, you should focus on producers with positive cash flow even at lower energy prices. Here’s a firm that meets that requirement—and pays solid dividends too.
The stock trades at just 8.2 times the company’s forward earnings forecast and its solid cash flow supports share buybacks plus a generous dividend.
DEVON ENERGY CORP. (Symbol DVN on New York; www.devonenergy.com) is a leading producer of oil and natural gas from wells in Wyoming, Texas, Oklahoma and New Mexico.
Devon continues to use acquisitions to expand its operations in its core areas. The company has now completed the acquisition of Grayson Mill Energy for $5 billion. That firm is an oil-and-gas producer in the Williston Basin, in western North Dakota and eastern Montana.
Oklahoma City-based Devon paid $3.25 billion in cash and $1.75 billion in stock to acquire Grayson Mill.
Devon reports that the acquisition will add immediately to its earnings and cash flow as it expands its position in the Williston Basin by more than 307,000 acres. Production from the acquired acreage is expected to hit about 100,000 barrels of oil a day in 2025. That will boost its output to an average of 765,000 barrels of oil equivalent per day from 664,000 barrels.
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Meanwhile, in the three months ended September 30, 2024, the company produced an average of 728,000 barrels of oil equivalent per day. That output was up 9.5% from 665,000 barrels a year earlier.
Devon earned $1.10 in the latest quarter, down 33.3% from $1.65. The decline was due to lower oil and gas prices, which offset the higher output.
With the December 2023 payment, the company raised its fixed quarterly dividend by 10.0%, to $0.22 from $0.20. That gives the shares a 2.3% yield.
At the same time, Devon aims to pay out as much as 50% of its excess free cash flow in the form of dividends—on top of its fixed dividend.
However, in the latest quarter, the company elected to not to declare a variable dividend. Instead, it will direct its cash flow to paying down its debt and buying back shares.
Devon continues to repurchase shares. In the latest quarter, the company bought back $295 million of its common stock. Since program inception in late 2021, Devon has repurchased $3.0 billion of common stock.
Leon’s Furniture continues to pay investors regular dividends with above-average yields. Its leading positions in a niche (but key) market continues to spur earnings, and that gives it more room to keep raising your dividend.
We’re highlighting this because dividend investors tend to avoid small cap stocks over concerns that they are riskier than bigger firms. However, you can cut than risk with high-quality firms such as this one.
Not only is its core business strong, but the company is also planning a REIT spinoff of 429 acres of prime real estate holdings. This represents a major catalyst for share price appreciation.
Meanwhile, the stock trades at 12.8 times the company’s forward earnings forecast.
LEON’S FURNITURE LTD. (Toronto symbol LNF; www.leons.ca) sells furniture and appliances through 299 stores, mainly under the Leon’s and The Brick banners. Franchisees operate 98 (32.8%) of those outlets.
Leon’s has built its chain of furniture stores on four main strengths: a huge selection of furniture, appliances and electronics; a lowest price guarantee; strong after-sales service; and aggressive TV, radio and print advertising.
With the October 2024 payment, the company raised your quarterly dividend by 11.1% to $0.20 a share from $0.18. The new annual rate of $0.80 yields a solid 3.0%.
In the third quarter of 2024, Leon’s sales declined 1.4%, to $661.0 million from $662.2 million a year earlier. Same-store sales also fell 1.4%. Those drops are due to weaker consumer spending on non-essential goods due to higher interest rates and inflation. Overseas shipping disruptions also hurt inventory levels.
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Earnings fell 28.0%, to $0.54 a share (or a total of $37.2 million) from $0.75 a share (or $51.7 million). That also missed the consensus estimate of $0.55 a share. If you factor out a one-time gain in the year-earlier quarter, earnings rose $700,000, or $0.01 a share, in the latest quarter.
As of September 30, 2024, the company held cash of $125.0 million, while its long-term debt of $82.5 million is a moderate 5% of its market cap.
Value Stocks: Leon’s major REIT spinoff on the way to unlock real estate treasure
Leon’s still plans to transfer its real estate holdings, which total 429 acres across the country, to a real estate investment trust (REIT) that it aims to set up. It then plans to hand out units in the REIT to its shareholders or sell units to the public through an initial public offering. The company will probably complete the spinoff in 2025.
As part of that plan to unlock the value of its real estate, Leon’s will also re-develop 40 acres of its land in central Toronto.
Under the proposal, that parcel of land will house its new corporate headquarters and a flagship retail store. The company will also build 4,000 residential housing units, including townhouses and apartment buildings.
Leon’s expects to begin construction in 2025 or 2026. It has not yet said how much this project will cost.
The company’s earnings will probably improve from $2.00 a share in 2024 to $2.11 in 2025. The stock trades at an attractive 12.8 times that 2025 estimate.
RioCan REIT’s strategic focus on necessity-based retail and mixed-use developments has positioned it well within Canada’s six largest urban markets.
With ongoing population growth and limited new retail supply due to zoning regulations, the demand for quality retail space is expected to remain robust, further enhancing long-term growth potential.
The stock trades at just 10.6 times the company’s cash flow forecast, presenting an attractive valuation for investors seeking income
RIOCAN REAL ESTATE INVESTMENT TRUST (Toronto symbol REI.UN; www.riocan.com) owns all or part of 187 shopping centres and other properties across Canada, including nine projects under development. Its overall occupancy rate is a high 97.5%.
RioCan continues to benefit from its October 2017 strategy to focus on six major urban markets: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver.
As well, the trust’s focus on grocery stores, restaurants and theatres as tenants—businesses that encourage repeat customer visits—cuts your risk. It also has expanded into mixed-use (retail, office and residential) projects. Its high-quality properties are helping it attract new tenants at higher rental rates.
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In the three months ended June 30, 2024, revenue rose 5.8%, to $292.2 million from $276.1 million a year earlier. That’s mainly because it sold residential condominiums for $12.9 million in the latest quarter (there were no sales in the year-earlier quarter).
However, higher interest costs cut RioCan’s cash flow per unit in the quarter by 2.3%, to $0.43 from $0.44. That matched the consensus estimate.
The trust still expects its cash flow per unit will rise about 2% in 2024 to between $1.79 and $1.82 per unit. The units trade at an attractive 10.6 times the midpoint of that range.
With the March 2024 payment, RioCan raised your monthly distribution by 2.8%, to $0.0925 a unit from $0.09. In the past 12 months, the trust paid out 61.5% of its cash flow as distributions, which is within its target payout range of 55% to 65%. The units now yield 5.8%,
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