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Archive for May, 2011

The Beating the BTSX list for 2011 is ready. But first, let’s take a look at the results for 2010. Here are the results for the Beating the BTSX for 2010, updated with prices from May 13th 2011:

Name Price May 14 2010 Price May 13 2011 % Change Total Return (including Dividend)
Rogers Comm. $36.70 $35.82 -2.40% 1.09%
Power Corp. $27.29 $28.36 3.92% 8.17%
BCE Inc. $31.90 $37.87 18.71% 24.17%
Shaw Comm. $19.20 $20.00 4.17% 8.75%
TELUS $40.30 $51.59 28.01% 32.98%
Husky Energy $27.10 $27.78 2.51% 6.94%
Tim Horton’s $35.15 $46.40 32.01% 33.49%
Enbridge $48.36 $60.54 25.19% 28.70%
Sun Life $30.37 $30.18 -0.63% 4.12%
Royal Bank $59.98 $58.45 -2.55% 0.78%

The 1 year return is 14.92%. If we exclude dividends the return is 10.89%. The index outperformed both the TSX 60 (XIU) and David Stanley’s Beating the TSX. The closing price of the XIU on May 14 2010 was $17.74 and the closing price on May 13 2011 was $19.18 for a return including dividends of 10.60% (8.12% excluding dividends). The Beating the TSX returned 13.21% (8.42% excluding dividends) from May 14 2010 to May 13 2011. The outperformance of the Beating the BTSX can primarily be attributed to Tim Horton’s (+33.49%) which made the list because of a large share repurchase ($176 million) that resulted in a Net Payout of 4.34% despite having a relatively low dividend yield of 1.48% (a key differentiator between the Beating the BTSX and David Stanley’s Beating the TSX) see here.

This year the Beating the BTSX is faced with a conundrum: the conversion of income trusts to corporations means that the list is concentrated with former income trusts. Here is the Beating the BTSX for 2011:

Name Dividend Common Shares Stock Issuance/Repurchase Price May 13 2011 Div Yield Net Payout
Yellow Media $0.65 4079.84 -461.88 $4.42 14.71% 17.27%
Rogers Comm. $1.42 498 -1309 $35.32 4.02% 11.46%
Enerplus $2.16 5756.98 35.42 $29.47 7.33% 7.31%
BCE $1.97 12691 -461 $36.94 5.33% 5.43%
TransAlta $1.16 2211 295 $21.24 5.46% 4.83%
Can. Oil Sands $1.50 2587 0 $31.59 4.75% 4.75%
ARC Resources $1.20 3194.5 241.8 $24.05 4.99% 4.67%
Bank of Montreal $2.80 7001 -170 $60.81 4.60% 4.64%
Sun Life Financial $1.44 7407 295 $30.42 4.73% 4.60%
Shaw Comm. $0.92 2276.89 45.86 $19.90 4.62% 4.52%

In fact, 4 of the 10 names are former income trusts. In the past, David Stanley has excluded income trusts from the Beating the TSX index, I am not sure how he plans to deal with these companies now that they have converted to corporations. Their high dividend yields will skew both lists but I am inclined to exclude the former income trusts for precisely the same reasons David Stanley has done so in the past: namely because they have not been able to consistently maintain their distributions (now dividends). For example, all of the former income trusts in the list above have cut their distributions in the past 4 years which has the added negative effect of causing the stock price to fall. Given that the Dogs of the Dow strategy is designed to work on an index of stable large cap dividend paying companies I am inclined to continue the practice of excluding the former income trusts at least until their dividend payouts have stabilized. So, I have compiled the Beating the BTSX with the former trusts excluded:

Name Dividend Common Shares Stock Issuance/Repurchase Price May 13 2011 Div Yield Net Payout
Rogers Comm. $1.42 498 -1309 $35.32 4.02% 11.46%
BCE $1.97 12691 -461 $36.94 5.33% 5.43%
TransAlta $1.16 2211 295 $21.24 5.46% 4.83%
Bank of Montreal $2.80 7001 -170 $60.81 4.60% 4.64%
Sun Life Financial $1.44 7407 295 $30.42 4.73% 4.60%
Shaw Comm. $0.92 2276.89 45.86 $19.90 4.62% 4.52%
TELUS $2.20 5456 15 $52.26 4.21% 4.20%
CIBC $3.48 6951 489 $81.90 4.25% 4.16%
Power Corp $1.16 549 19 $28.18 4.12% 3.99%
TransCanada $1.68 11745 705 $41.42 4.06% 3.91%

Only two companies in this list, BCE and Sun Life, have cut their dividends in the last 4 years. This number would increase dramatically to 6 out of 10 if we included the income trusts.

Interestingly, this year’s list only has 3 companies whose net payout is greater than its dividend yield. In the past the number has been much larger. In 2009, 9 companies had a net payout larger than the dividend yield while in 2010 there were 5 companies. Recall that net payout factors in share buybacks as well as dividends (see here for a reminder on how to calculate net payout).Share buybacks can be an indication that management believes the share price in their company is undervalued. Perhaps the decreasing trend in net payout is an indication that the Canadian market is fully valued? My sense is that the Canadian market is overvalued and that the sky high commodity prices that have propelled it will be sensitive to a slowdown in developing markets. I have underweighted Canada in my own portfolio this year.

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