Black Friday Shopping

The American Thanksgiving holiday is known for many things. From a time to gather together as friends and family to enjoy turkey and treats to the full Thursday lineup of NFL football, there is much to look forward to. This also marks one of the largest shopping extravaganzas of the year; Black Friday promises sales for the spender in each of us.

At this time last year I examined what Black Friday is and whether people should take part.

For 2015, however, I decided to simply get in on the action and put some of my own money to work! As such, earlier today I put in a Buy Order for 50 shares of Canadian Utilities Limited (CU).

About CU

CU is a utility and energy company based in Alberta, Canada. It currently has assets of ~$18 billion CAD and boasts a credit rating of “A” from Standard and Poor’s. It is majority owned by ATCO Ltd. (ACO.X) which operates likewise in many of the same areas and capacities as CU. This reminds me very much of an Imperial Oil Limited (IMO) which is largely owned by Exxon Mobil Corporation (XOM). CU is its own independent firm which may benefit from also having an affiliation with another similar business entity which has a vested stake in its success.

The utility side of the business focuses on transporting and delivering natural gas and electricity. Its operations span Canada and Australia, serving more than two million customers. With the energy business segment, CU has ownership positions in a number of power generation plants.

Valuation and Dividend Growth

With high quality companies, there is the ongoing issue of trying to achieve low prices at which to get invested. After all, good companies tend to carry a premium based on their superlative operations and financial strength. Given this, I am sometimes willing to overpay for a stock which I am planning to hold for years to come. In doing so, I tend to simply initiate a small position around which I plan to eventually add more shares.

For example, if I wanted to own 200 shares of a given equity, I might only buy 50 shares at a certain price in the hopes that it does decline by 10% or more so that I could add another 50, and then perhaps the final 100 upon a subsequent decline. This way, I am also hedged in that if the stock should rise indefinitely, at least I am not sitting on the sidelines in the cold.

With CU, the share price has declined from above $40 to $32.69 at the time of writing. The drop below $35 has happened rather abruptly and pushed the dividend yield above 3.6%. When deciding between a purchase of Fortis Inc (FTS) and CU earlier this year, it was FTS’s yield that really tipped my hand. CU has finally entered a territory where a good starting yield will provide a healthy base for future dividend increases to generate meaningful income for my portfolio.

As for dividend growth, CU has posted an increase consecutively for over forty years. Given the highly regulated nature of the utility industry, CU has been able to reasonably forecast profits and cash flows into the future. There are also incredibly high barriers to entry in this field as it would be difficult for an upstart to simply begin its own power generation operations and supplant the incumbent CU which is already providing energy to millions of consumers.

While dividends have been growing in the ~10% range with CU over the past few years, I would be comfortable earning even mid-single digits on this steady performer. Given the healthy starting yield and reliability of operations, I am content to allow my investment to grow steadily rather than in leaps and bounds. My main concern is the company allowing itself room to raise the payout without risking it.

While governments can mandate how much profit is allowed in many circumstances, there is a profit threshold built in which does provide the opportunity for investors to reap the benefit of investment in this space.

On the current annual dividend rate of $1.18 per share, this purchase adds $59.00 of forward annual dividend income to my portfolio. Given how late in the year I have made this purchase, it won’t be until 2016 that I actually begin receiving this cash flow. Also, since CU tends to increase its dividend payment leading into the first quarter of each year, my shares should be in line for a dividend increase before receiving my first payment.

Conclusion

Even the spendthrift among us such as myself can enjoy Black Friday and get in on the shopping spirit! Adding CU to my portfolio is something I have been looking to do for a few years and finally with the pullback over the past year, I have found a satisfying entry point.

CU is an example of an investment which lacks the flash of a tech stock. It won’t raise any eyebrows or cause excited discussion at a dinner party, but it should provide a nice cushion to allow me to sleep well at night knowing my investment dollars are being well taken care of.

Thank you for reading, and most of all, Happy Thanksgiving and be sure to spend time with the people you care for.

– Ryan

What sort of shopping did you get done this Black Friday?

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