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.