OPTIMISM #23 - December 21, 2020

Dear clients and friends,

Finally.  The days start to get longer again.  Or … the biggest night of the year!  Good either way.

Its nice to see more recent dividend increases:

Leon’s Furniture +14%. 

Dollarama +7%

Mullen Group +33%

Altagas +4%

I sense that Canadian banks would have increased dividends had the financial regulator not asked them to refrain from doing so.

Some of you know Ryan Bushell well. He’s a big advocate of dividend growth investing.  It was nice to see him mentioned in the Globe and Mail recently. When will Canada’s big banks resume dividend hikes? - The Globe and Mail

There was quite a story on Canadian Tire this weekend.  The new CEO Greg Hicks took over on March 12th this year. You will recall, this was right when the pandemic hit.  Can you imagine? 

The story goes on about two brothers, AJ and JW Billes that started a business during the depression.  Now more than 90% of Canadians live within a 15-minute drive of a Canadian Tire store.  During the last ten years they have increased their dividend by 15.7% per year, with 17.3% increase in 2019.  The ten-year increase means dividend income more than tripled, an increase of 330%.

They have purchased other companies and cross sell products throughout.  They own Helly-Hansen outer wear, Atmosphere, Mark’s Work Wearhouse and Sport Chek to name a few.  Their Outbound and Woods camping gear brands used to be a ten million dollar per year business, this year it’s a quarter billion.  Remarkable.

It’s nice to see the soon to be former US President far in the rear-view mirror.  Watching him fly by government-supplied helicopter to his 100 rounds of golf per year while ordinary working class tax payers can’t get access to healthcare is hard to watch.  Democrats just might win both election seats January 6th, allowing them to control to make meaningful positive change for average Americans.  Good news.  Stock markets should like it as well.

There’s lots of chatter in the media these days about deferring CPP and OAS to age 70, with a carte blanche sort of attitude, which I strongly disagree with.  If I am married or common law and have full CPP and OAS, the death of my spouse would mean a complete loss of his /her pension benefits, with zero survivor benefits.  Yes… zero.  Many of the articles are suggesting people spend their savings and defer the pensions, which to me presents a giant risk no one is talking about.

I read a super article this morning in the Globe about Prem Watsa, CEO of Fairfax, a large Canadian Insurance conglomerate.

Its about how growth stocks have prices these days that make no sense and he predicts that value-based investing will become popular again soon.  Here is a snippet from the article, full article is attached as well.

Mr. Watsa, Fairfax’s chief executive officer, shared his reservations on Shopify Inc. , with a “market cap in excess of Royal Bank, even though Royal Bank earns more money annually than Shopify has revenue.” He highlighted the soaring share prices of Peloton Interactive Inc., Pinterest Inc. and everyone’s new favourite meeting place, Zoom, “with a market value of US$130-billion, yes, US$130-billion,” on revenue of US$1.8-billion [and likely zero profit] over the past nine months.

“These are all wonderful companies, but their valuations are insane,” added Mr. Watsa in an interview last week, as he described his speech to staff earlier in the month. “As in the past, this will end – and it will not be pretty.”

Since most of our holdings are value-oriented, a downturn in growth stocks will like drive the prices of our dividend payers up, much like it did after the tech bubble and subsequent crash of the late 1990s.

Have a wonderful Christmas season.

All the best to you and yours.