KeyStone’s Stock Talk Podcast Episode 110 – Summary
This week we start by talking dividend stocks and specifically dividend growth stocks. Why they are right for your portfolio, particularly in this environment. And we intro a new Webinar dedicated to this topic.
In our Your Stock, Our Take segment we take a look at two interesting companies. The first, Transalta Renewables (RNW:TSX), a renewable independent power producer. With the stock paying a 6.3% dividend a listener ask us the sustainability of that dividend and the growth potential for the business. Our second YSOT is on CloudMD Software & Services Inc. (DOC:TSX-V), a company which is helping digitize the delivery of healthcare by providing patients access to all points of their care from their phone, tablet or desktop computer. Telemedicine applications are hot, and a listener asks whether CloudMD’s revenue growth is leading to strong profit growth as well. We let you know how this small cap is progressing.
The first time ever Aaron will be hosting a Live Dividend Growth Stock Focussed Webinar on July 28th.
Why are we doing this?
So many reasons – but I will give you some key reasons.
- Bonds, GICs, & savings accounts pay less than 1%, – high-quality dividend growth stocks paying 3-7% are one of your best options near and long-term.
Why look at Dividend Growth Stocks? They Vastly Outperform Non-Payers
In fact, non dividend stocks on average on the TSX has average a paltry 0.4% annually for 33 years. Dividend paying stocks have crushed this at 9.2% annually, and Dividend Growth Stocks are best of breed at 11.1% each year. This is one of the major reasons we recommend select quality dividend growth stock to our clients and have put together this upcoming Webinar on July 28th.
Now this sounds like an infomercial, it’s not, it is just math! But it gets better…not only dividend stocks significantly outperform, they do it with significantly less risk.
Non-dividend payers, dividend cutters and the TSX index itself, are far more volatile than dividend stocks. And the least risky category among dividend stock is dividend growth stocks. This is the beauty of Dividend Growth stocks – better returns and less volatility.
Example: Brookfield Infrastructure (BIP.UN:TSX)
Brookfield Infrastructure (BIP.UN:TSX) was recommended at $14.50 and has paid KeyStone clients $19.46 Canadian in dividends and shares today trade at $57.77 for a 446% return!
Learn Tips Your Advisor Does Not Want You to Know: How to use the power of traditional Dividend Reinvestment Plans (DRIPs) or Synthetic DRIPs to dollar cost average with no broker fees & even buy shares at a 2-5% discount!
Core Strategy: How to build a simple 10-15 Dividend Growth Stock Portfolio, that creates both growth and cash flow and enriches you, not your advisor.
Bonus: Aaron will give you 2-3 great Dividend Growth Stocks to BUY today.
What else will Aaron and I talk about?
Not only will you learn everything you need to know about Dividend Growth Stocks from one of the countries foremost experts, Mr. Dunn will compare bonds to Dividend Growth Stocks, discuss the landscape for Dividend Growth Stocks in Canada & the U.S. including how many companies pay dividends, in what sectors, and what is the range of yields being offered. You will also learn what sectors are most suited to pay and grow their dividends and which you should avoid. Plus, you will receive specific BUY/SELL recommendations on top Dividend Growth Stocks including our top ranked Alternative Power Dividend Payer (paying 6.5%), our top ranked Dividend Infrastructure Stock, and more!
Your Stock, Our Take
I was wondering about your analysis of Transalta Renewables going forward for growth potential and a sustainable dividend.
- Dean. – via email.
Your Stock, Our Take
Transalta Renewables (RNW:TSX)
Current Price: $14.91
Market Cap: $4 billion
What does the company do?
TransAlta Renewables renewable independent power producer headquartered in Canada. The company’s assets consist of interests in 23 wind facilities, 13 hydroelectric facilities, seven natural gas facilities, one solar facility and one natural gas pipeline, representing an ownership interest of 2,527 megawatts of owned generating capacity. These assets are located in Canada, the United States and Australia.
Transalta Renewables was originally a spinoff from Transalta Corporation back in 2013.
We picked up coverage on the company in our Income Stock Research shortly after it became public and exited our position about 2 years later after earning a nice gain of 30% as well as the dividend payments.
The company today, yields 6.3%. This is an attractive yield although the company hasn’t increased its dividend since 2017.
Our rationale for exiting the company back in 2016 was that there wasn’t much growth on the horizon. The stock price had risen and we saw an opportunity to lock in those profits and move the capital to other names which provided both income and growth. Transalta Renewable’s stock price also has not done much since that time…which was about 4 years ago.
Recent Financial Performance
- Financial results for the first quarter of 2020 were generally flat year over year.
- Adjusted EBITDA was $118 million compared to $116 million in the first quarter of 2019.
- Distributable cash flow per share was $0.34 compared to $0.35 last year.
- Performance in 2019 was a similar story.
- Adjusted EBITDA was $438 million compared to $430 million and distributable cash flow per share was $1.11 compared to $1.15 in the previous year.
- The company’s balance sheet is strong with very reasonable debt leverage ratios.
- The payout ratio is also okay at about 85%; ideally this would be brought under 80%.
- On a trailing 12 months basis, distributable cash flow per share was $1.10 which equates to a price to distributable cash flow ratio of about 13 times.
- With respect to the outlook, there are 2 new projects that were brought online in the previous quarter and the company is looking to do acquisitions. However, there doesn’t appear to be anything significant planned which would really accelerate growth in the near term.
The question on Transalta Renewables was specifically about the sustainability of the dividend and growth.
With respect to the dividend, we do believe that it is relatively sustainable. Clearly, no corporate dividend is risk free but Transalta Renewables does have a healthy balance sheet, the payout ratio is at a reasonable level and cash flow is generally supported by longer-term contracts. We don’t see major reasons to be concerned about the dividend at this time.
Growth is another matter. Our rationale for exiting the company years back was due to lack of growth and it doesn’t appear that the prospects have improved much since then with generally flat financial performance over the last year and no big development projects or acquisitions on the horizon.
In conclusion: We continue to see Transalta Renewables as a nice source of dividend income but we do not consider it to be a growth stock.
Your Stock Our Take
Simon Via Email
CloudMD Software & Services Inc. (DOC:TSX-V)
Current Price: $0.62
Market Cap: $57.7 Million
What does the company do?
CloudMD Software & Services Inc. is digitizing the delivery of healthcare by providing patients access to all points of their care from their phone, tablet or desktop computer. The company offers SAAS based health technology solutions to medical clinics across Canada through the combination of connected primary care clinics, telemedicine, and artificial intelligence (AI).
Looking at the company’s past share price performance, following the outbreak of COVID-19 the stock surged roughly 100% from where it was trading at around $0.45 cents, but over the last couple of months this enthusiasm has faded, and the stock erased these gains.
The company has been primarily growing through acquisition and in recent news it actually announced that it planned to acquire a medical clinic in Ontario (which uses online booking/telemedicine).
Recent Financial Results: (Q1 2020)
- Revenue was up 178%, to $3.06 million compared to the same quarter last year.
- Revenue from SAAS digital services increased 77% to $427 thousand – driven by organic growth. (This revenue growth might first appear impressive, but it is important to understand that it is a very small base of revenue to be growing off of).
- Adjusted EBITDA was a loss of $914 thousand compared to a loss of $917 thousand for the same period last year.
- Net Loss Per Share (EPS) came in at a loss of $0.02 which was the same for Q1 of 2019.
Covid-19 has likely accelerated the technological shift for telemedicine, so it is positive that CloudMD will be able to benefit from this advancement. But something to keep in mind is that the barriers to entry into this space are relatively low – so competition is expected to remain high.
As I mentioned before, the company has been growing primarily through acquisition, which considering it is not generating a profit – it will either have to continue to issue shares or raise additional debt in order to continue to grow. Which could come at a cost to current shareholders. Just looking at the dilution over the past year, the company’s share float has increased over 50% to 110 million shares outstanding and it currently has net-debt of $1.96 million dollars on its balance sheet.
Since the company is neither making a profit nor posting positive EBITDA, to get a relative valuation of the company we must value it based off of its sales. With that said, the company has a trailing EV-to-sales multiple of approximately ~6.8 which is pricey. We would like to see this multiple priced in the range of 1-3 times before we would consider the company priced relatively attractive.
To conclude, although revenue growth is occurring in unison with the company’s dilution, it is difficult to determine whether this growth strategy is proving accretive. And considering it remains profitless – it is not a stock that we would recommend. It is not to say that this company will not do good going forward, but I believe there are much better technological healthcare companies to invest in.