Brookfield Corp.

I like Brookfield in all its various forms. A fine corporation. Well run. Investor friendly. I owned some shares of Brookfield Asset Management (BAM) and then the announcement: Brookfield was splitting the asset management side of the business off. If that sounds puzzling, it was.

Brookfield Asset Management, the company, is now Brookfield Corp. (BN). Brookfield Asset Management (BAM) is now a pure-play alternative asset manager. TD WebBroker describes BAM this way: BAM is a leading global alternative asset manager that is well-positioned in higher-demand areas: real assets (which offer significant inflation protection), transition investing, and private credit.

In its new form, BAM is said to offer strong growth potential and is selling at a reasonable valuation. TD Securities has put BAM on their Action Buy List with the potential to deliver a gain of almost 50%.

The slimmed down Brookfield Corp. is now on the Action Buy List as well. The 12-month total return may possibly hit an incredible 88.1%.

I'm holding onto to my Brookfield investments and watching how they perform with great interest. If we have a bit of downturn, a soft recession as they are predicting, I may buy a little more.

 I don't own a lot of BAM (BAM) but it has done very nicely since its recent spin off from Brookfield Corp (BN).

TSX 60 Components

 TSX 60 Companies listed by dividend

Dividend Strategy: a blog worth reading

Click the link to go to a blog worth reading, especially if you own Algonquin Power & Utilities. And here is the link: Dividend Strategy -- The AQN Problem.

Don't stop with just checking out the AQN essay. Read about post on the investment method being promoted by this blog: The BTSX Method.

Algonquin Power down almost 50%

Algonquin Power & Utilities was the darling of the investment community for years. At the beginning of this month (November), MarketBeat called AQN a Moderate Buy. Two weeks later, it is a Hold. I wonder what it will be come December: a Sell?

I was slow to the AQN game but after years of watching from the sidelines, I bought into the play just over a year ago. Although I didn't pay the max, by today’s standard I paid too much. I bought on a dip and then that dip turned into a full blown retreat. AQN is now down almost 50% from its high of the past 12 months.

Yesterday AQN hit a new low for the year: $10.19. I added to my holdings. This averaged down my cost per share into the $15 range. At market open today, AQN jumped 2.8%. Although it was unable to hold on to its gains, it dropped to $10.07 in the afternoon, it did not lose more than a few cents. Maybe, just maybe, AQN is now struggling to get off its lows. I am crossing my fingers as some analysts are calling for AQN to fall to $7 or $8 Canadian.

Why has the bottom fell out of Algonquin? In a word, debt. I understand that too much of the AQN debt has a floating interest rate. Thanks to inflation-fighting increasing interest rates, the cost of servicing the AQN debt has been going up rapidly and dramatically.

TD WebBroker carried the following: We underestimated Algonquin's exposure to rising interest rates. Based on the current capital structure, 22% of the company’s debt has floating rates and a 100 basis point increase to reference rates affects annual net earnings by $16 million. This exposure is expected to increase as the company will utilize corporate borrowing facilities to fund a portion of the Kentucky Power acquisition in Q1/23.

The average price target at this moment appears to be about $15.30 (Cdn). A few analysts are telling investors to sell but most are saying to hold. Initiating a new position or buying more to average down, like I did, is not advised by the most analysts.

The bottom line here is that Algonquin may have trouble serving its debt and that means the dividend is expected to be slashed or even cut. If that happens, the stock price may suffer as well. But, it is possible an interest rate cut has already been factored into the price. Reducing, or even eliminating, the dividend will make AQN more profitable and thus the stock price may well increase on the news of a dividend cut.

For another viewpoint, please click the link: Should you catch the falling knife?

Recommendations discussed with a friend

Yesterday, I heard from a friend who is not a senior and yet both he and his wife are retired. I respect his thoughts on the market. This husband and wife team have a solid track record when it comes to investing. After our chat, I sent him an email listing some of the stocks we had discussed. The following is from that email.

• Cogeco (CGO) down 37% -- $54.24 at close Friday -- 4.61% dividend
• Brookfield (BAM.A) down 33% -- $52.64 at close Friday -- 1.36% dividend
• Quebecor (QBR.B) down 27% -- $23.87 at close Friday -- 5.03% dividend
• Restaurant Brands (QSR) Only down about 7% but be patient. May tumble.
• Vanguard ex NA High Dividend (VIDY) down 20% -- $22.21 at close Friday -- 4.82% dividend
• BMO Europe High Dividend Covered Call Hedged to Cdn (ZWE) -- $16.86 at close Friday -- 7.83% dividend
• I am mixing VIDY and ZWE for my ex N.A. exposure.
• You are right. TC Energy is down much more than Enbridge. TRP may be a better capital gain play than ENB and this may easily negate the dividend yield advantage enjoyed by ENB. My friend also mentioned that TRP is not carrying as much debt as ENB. With rising rates, the extra debt could be a deciding factor.
  
• Algonquin Power and Utilities (AQN) down 29% -- $14.24 at close Friday -- 6.82% dividend

I neglected to mention the one ETF that I actually tried to buy just a few days ago -- RIF. It is an ETF for those looking for REIT exposure. Most of the REITs are Canadian but about 10% are U.S. REITs. RIF is down more than 30% today and it is yielding more than 5%. I may buy 1000 shares in the coming week. And if drops another 10%, I will buy another 1000 shares at least.

Both Algonquin and Quebecor are begging to be bought at present prices. I'm trying to be patient and wait but I make no promises. I live on dividends and these two are looking damn good.

A Bear Market Discussion

The American market is nicely into bear market territory. The Canadian market, for the most part, is still in correction mode. Yet, Canadian REITs are well into bear market land and I have been buying. My average cost is well above the present cost of the REIT ETF I have been buying, RIF, but my average cost is still just entering correction territory. I am not put off by the fear of catching a falling knife.

If bear markets leave you frightened, click on the following link: Bear Markets by the Numbers: Sit Tight While Others Panic. Freelance Journalist Carla Fried, who specializes in personal finance and writes for a wide range of publications, does an excellent job with this piece from 2019.è

Fried's third paragraph nails it for me. She writes, "Bear markets are absolutely normal. They are a consistently recurring event. The more you understand about the mechanics and history of bear markets, the less you will panic when the next one arrives. Even better: If you are a long-term investor, there’s some upside to bear markets if you’re ready and willing to make a bold move. (More on that in a sec.)"ter

Following the thinking expressed above, this long-term investor may buy another big block of RIT if it is down again. I am a big believer in the upside of bear markets. Make the bold move and do not look back. The bull will coming roaring back sooner or later. I like to be ready.

How to recognize "too much risk."

I read this in a Morningstar publication: If you feel the losses suffered by your portfolio are too much to handle, you are probably taking on too much risk.

Or as I tell folk: If you are concerned that you may need the money you are investing in the market, don't! Only invest what you can afford to lose.

If you have followed those two pieces of advice, you will come through the present market turmoil just fine. 

________________________________________

In the spirit of the above intro, over the past year I have been cashing out some investments. I have a plan, a portfolio allocation, and I was holding more of some stocks than originally planned. I sold the excess. I deposited the resulting cash in a daily interest money market account (TDB8150).

I am watching the crashing stock values with a small war chest of investment cash and a new portfolio allocation model. I am tracking the crashing stocks using a spread sheet. When the spread sheet indicates my cash will cover my dream purchases, I will buy in. Of course, it is possible the market will not dip that low and I will be left holding cash. I can live with that.

And what stocks am I watching?

• BAM.A (Brookfield Asset Management Inc.)
• QBR.B (Quebecor Inc.)
• QSR (Restaurant Brands International Inc.)
• RIF (CI Canadian REIT ETF)
• VGH (U.S. Dividend Appreciation Index ETF (CAD-hedged))
• VIDY (Vanguard FTSE Developed ex NA High Dividend)

Note: My list will not be the same as your list. For instance, there are no banks on my wish list. Why? I am fully exposed to the banking sector. The same goes for pipelines, telecoms and utilities.

I sometimes fail to follow financial advice

 I follow the Canada Income Pick List published at the first of each month by Morningstar and carried by TD WebBroker in the reports section. I own many of the suggested stocks but not all. I sold my IGM. That proved to be a good move. I also sold my Restaurant Brands International. That proved to be a very poor move.

My point? It can be very hard to follow even the very best advice when it conflicts with one's personal beliefs. With a lot of companies, I do not have strong feelings. Oh, I like Telus and have mixed feelings about Bell. I see TC Energy as a winner and CIBC as well. While ScotiaBank, in my mind, is always struggling. Still, I hold all those recommended companies in my portfolio.

But IGM and Restaurant Brands are in a league of their own. For numerous reasons, I feel very negatively about both. Investing is not just about making money. It is also about living comfortably. I could not hold either of these today and feel comfortable but I feel very comfortable NOT holding them.

If Restaurant Brands should lose enough in market price, I could see holding QBR.B at some point. As for IGM, it is out and will stay out of my portfolio for the foreseeable future.

The pushmi-pullu stock market

Do you recall Dr. Doolittle's pushmi-pullu (pronounced push me-pull you)? The stock market is a bit of a pushmi-pullu creation but a mix of a bull and a bear rather than than a couple of llamas. 

The bull end of our creation has been leading the way for the past few years. But the bull has finally run out of steam and the bear now has control.

Bear markets are not a surprise. Bear markets are simply part of our investing universe. Some call bear markets rare. I'd rather say they are not as common as bull markets but they do appear with a certain regularity.

Historically, bear markets do not last as long as bull markets but psychologically they seem to carry more clout. For this reason, many people are tempted to get out of the market during a serious downturn. This is usually a mistake locking in losses.

No one knows when market sentiment will flip from bear to bull. When it does flip, it is usually quick. If you are out of the market, you may miss some of the biggest gains as the recovery kicks in. 

I get through bear markets by focusing on the benefits of being invested during both bull and bear markets: dividends. Today Enbridge is yielding 6.7% and the yield promises to go even higher over the coming days and weeks (assuming the bear market continues to gain strength.)

The TD bank is yielding 4.1%, while the CIBC yielding 5.2%. If one likes REITs, the ETF RIF is yielding 4.9% today. Telus is yielding almost as much at 4.8%. Emera, a much loved utility, is at 4.6%. I may be getting greedy but I think this bear has some still untapped strength. Stay the course and one my well be rewarded with some truly generous dividends and then some solid capital gains as stocks slowly regain their former values. 

The Morningstar star system reflects how a stock's price today compares to its fair market value as calculated by Morningstar. The more stars the more attractive the price. With the market collapsing, more and more stocks followed by Morningstar are getting into four and even five star territory.

Stocks I'm watching today

There are a number of stocks and ETFs that I follow rather closely. If the price drops my interest grows. If it drops enough, usually something in excess of ten percent off it high of the past year, I buy a little. 

If it drops another ten percent I consider buying more but at this point I have some exposure and I don't feel the same pressure to buy. If it surprises everyone and stops dropping and starts climbing, I am already on for the ride. If I can muster the strength to resist, I try and put off a purchase until it has dropped 20% or more since my initial purchase. At this point, the pull to add to my holdings is almost impossible to resist.

BAM.A: Brookfield Asset Management-A LV (BAM.A is down about 23.73% from its high of the past year.)

BMO: Bank of Montreal (BMO is down about 17.45% from its high of the past year.)

CM: Canadian Imperial Bank of Commerce (CM is down about 19.61% from its high of the past year.)

RIF: CI Canadian REIT ETF (RIF is down about 17.45% from its high of the past year.)

MFC: Manulife Financial Corp (MFC is down about 18.87% from its high of the past year.)

QBR.B: Quebecor Inc CL-B SV (BMO is down about 19.11% from its high of the past year.)

QSR: Restaurant Brands International (QSR on TSX is down about 25.03% from its high of the past year.)

TD: Toronto Dominion Bank (TD is down about 16.01% from its high of the past year.)

XUS: iShares Core S&P 500 Index ETF (XUS is down about 18.92% from its high of the past year.)

ZRE: BMO Equal Weight REIT Index ETF (ZRE is down about 16.84% from its high of the past year.)

Except for BAM.A, all these stocks deliver a generous dividend. As a retiree, dividends, generous dividends, are very important to me. The large Canadian banks are wonderful stocks to have in a retirement portfolio as these banks, other than National Bank, have a history of never cutting or reducing their dividend. Bank dividends promise solid income. TD is yielding 4.93% at today's close.

The two REIT ETFs are also fine places to park retirement investment funds. I am betting that these ETFs will not cut their dividend payment by more than 15% no matter how poor the economy. I could be wrong, I'm human, I make errors, but in this case I feel quite confident that I am right.

Turning a sow's ear into a silk purse

One often reads how awful it is to lose money in the market. Well, it's true; it is awful. But, and it is a big but, the passing of time eases the pain—and I mean completely eases the pain. I bought some Manulife stock a few months back. Since then it has fallen on hard times. The stock has diminished in value to the point that it is living in bear territory and promising to put down roots there.

So, am I going to sell, accept my loss and move on? No. Absolutely not. The price today is the price. Period. But, this new price comes with a few perks. A big perk is the yield: 5.88%. If I were to sell, where could I move my money and earn as much income?

Furthermore, at its new, and arguably improved price, Manulife has more room to grow in value. If it hits the target value envisioned by financial advisors, even taking as much as three years to get there, I will realize $3.96 in dividends for each share, plus I'll benefit from an increase of $4.78 in stock value. This is a total gain of $8.74 or 13% annually when calculated over three years.

If I insist on dwelling on the inflated price that I originally paid, then I clear $6010 over three years for an annual gain, dividends included, of 8%.

The trick to winning in the market is to buy decent firms paying good, solid dividends and then holding as planned. Play the long game. Do not fritter away your profits with too many trades. My Manulife is a sow's ear today but in three years I hope to see it replaced by a silk purse.