Prime Restaurants was a hit, on to the next stock

Since I last posted Prime Restaurants (EAT) ended up being a real winner from an investment point of view. They got bought out and the shares paid out at $7.57 so shot up by 80% since my previous post about the company.

The current stock I've been increasing exposure to is CSE (Capstone Infrastructure). It's actually the same old MPT.UN (Macquarie Power & Infrastructure) that went through a rebranding / name change to Capstone. The shares currently trade at $3.87 (about a 17% div yield). They are planning to do a dividend cut in 2012 to bring the payout ratio lower (it's currently hovering over 100% which isn't sustainable). I'm expecting a worse case scenario of 50% dividend cut which would still give an attractive 8.5% div yield.

Once again I'm staying diversified, as not all the companies I've followed have been winners like Prime. Yellow Media and Priszm being the two stinkers outside of an otherwise excellent history of growth companies.

Prime Restaurants Royalty Income Fund

I had a stink bid for Prime Restaurants Royalty Income Fund (Stock symbol EAT on the TSE) get filled today at $4.17 per share.

That surprised me, since they recently successfully converted from a trust to a corporation and their dividends are set now at 48 cents per year.

Either some news has leaked out that I don't know about or some holders of this stock have gotten nervous and are selling at desperate prices.

At $4.17 per share I think I'm getting good value.

Time will tell.

In case anyone's wondering what a 'stink bid' is. It's usually defined as a limit order you have in place say for a rolling 30 day basis at a price thats well below the normal lowest trading range for the stock. It sometimes works well to snap up 'bargains' on stocks that are thinly traded.

Just a post of current holdings..

RPI.UN
TO.UN
TO.A
SCU.UN
YLO.UN
QSR.UN
HLR.UN
VIC.UN
CTD.UN
HR.UN
MPT.UN
ATP.UN
BPF.UN
SRV.UN
EAT.UN

I sold holdings like BAM.PR.J and SQP.UN. I still hold YPG.PR.B but will likely sell it too. The 2 preferreds (BAM & YPG) have appreciated in value to levels where distributions yields are now too low to keep on holding. While SQP.UN has now 'popped' high enough where I no longer wanted to hold it anymore.

Holdings like HR.UN, CTD.UN, VIC.UN, I'm no longer acquiring, just holding now. I tend to do a "buy and hold" mentality in most situations of high yield dividend or distribution stocks. So I sometimes stop acquiring a stock once it's yields are no longer attractive enough. I bent my rules when I sold the preferreds and SQP.UN, but they were mostly speculative purchases anyways (which did well) and didn't fit my overall model long term.

I'm currently acquiring (small monthly purchases)...
Inside RRSP - TO.A, RPI.UN

Outside RRSP - TO.UN

I made a purely speculative (high risk) small purchase of ZNN at $4.00 and $3.84 at different times this year. I don't plan to acquire more.

I also continue to maintain holdings in Index Funds (XIC/XIN/XSP)

I am also holding Sentry Select Diversified Income Fund. It used to be SDT.UN but it converted into a mutual fund (blech) but I continue to hold it for it's distributions. It's appreciated significantly though so I'm no longer acquiring more, but will hold what I have.

Most holdings are up. Holdings that have fallen the most are probably HLR.UN and QSR.UN. I still like QSR.UN at it's current price though. Allthough I'm being careful not to acquire too much more of QSR as I don't want it to be too significant a percentage of total holdings (i.e. keep diversified).

You may note a tendency to have a lot of Incume Trusts (.UN's) in my RRSP. I currently like them. Yes I know they're all going to convert to corp's sometime between now and 2011.

Yellow Pages Income Fund

Yellow Pages Income Fund (YLO.UN) hit a new all-time low today of $4.68 based on practically no new news.

There were 2 analyst comments made on Tuesday which might have affected the recent sell off.

http://www.stockchase.com/Company-sl--slq-ID-slv-Yellow--Pages--Income--Fund.php

Based on that current price, it's now at at 25% distribution rate.

On February 12th we'll hear from YLO.UN fourth quarter and year end results. If those results don't show a significant risk to their distribution and pay-out ratios, the share price will probably rebound much higher than today's price. The $4.68 price today is the market factoring in it's current belief that YLO's distribution is going to be cut significantly.

I find it's current price very attractive.

They do have a lot of "goodwill" on their books, which could lead to non-cash losses if those are get written down. But it shouldn't have a material impact on their cash flow. The current depressed economic atmosphere may of course reasonable be expected to hurt their revenue, but their pay-out ratio gives them some degree of a buffer.

Remember, irregardless of it's name (Yellow Pages), it does receive a significant portion of it's revenue from online/internet activities. It's not strictly the hard-physical paper directory people think of when they think of The Yellow Pages.

Investment strategy for your TFSA?

There's been a lot financial porn written about Tax Free Savings accounts, and how you can earn interest "tax free".

ING Direct says this in some of their advertising promos...

...let you save without paying tax on the interest you earn. This means that soon all Canadians will be able to save up to $5,000 every year without being taxed on interest earned. This is great news for savers. And we're very excited!

But depending on your age, current holdings, and investment horizon (when you think you'll want to spend the money) this might not be the right strategy.

I'm using the TFSA to hold individual stocks. In particular some income funds, that are yielding around 12% in distributions, with possible future growth. I'm not saving money to then spend it in a few years on a new house or other large purchase. Instead I'm using the TFSA as an investment vehicle for my future retirement.

With the stocks being so cheap currently, why would you want to hold GICs, bonds or other fixed income low-yielding investments in it? Heck, put the $5000 in either XIU or XSP (Index funds). Something that will actually grow at a reasonable rate, especially given the current market prices.

If you put $5000 per year in your TFSA, and it grew at 12% per year, then in 20 years you'll have about $400,000. That's more savings than some people nearing retirement now have in their RRSPs!!

If you were playing it 'safe' and instead had that money sitting in some "high interest" earning vehicle at 3% then after 20 year's you'd only have about $140,000.

Hmm.... $400,000 or $140,000...I'll say thanks, but no thanks, to that 'high interest' savings option.

Some may think 12% yearly return is unrealistic, alright, bring it down a notch and say you earn 9% a year in a broad-market low-MER index fund. After 20 year's that's still about $280,000 built up versus the $140,000 3% interest earning option.

The only reason I'd go with the lower return interest earnings that the banks are offering is if you felt you needed that money in the short term. If you were say already elderly and about to retire, or if you were going to make a large purchase in the short term and would need to withdraw the money in the next few years.

Anyways, there's a very good discussion on this topic taking place at http://www.financialwebring.org/forum/viewtopic.php?t=109217

November and December were great months

Past two months were fantastic with great buying opportunities.

I'm fairly happy with just about all the purchases I made there. VIC, SRV, BPF, EAT, YLO etc. I don't know if I'll see share prices that low in the future though. I'm hoping they might fall back down. Right now I'm making monthly purchases based off of my monthly RRSP deduction from my salary, and based on dividend streams from current investments.

As mentioned on the Financial Webring Forum I also made some preferred share purchases of BAM.PR.J and YPG.PR.B (YPG being the parent company of YLO). These preferreds due to what I believe was tax-loss selling fell to absurdly cheap prices which made their tax-efficient yields approach 12% which is crazy in my opinion for what I feel are low-risk tax-efficient investments. That doesn't even include the future capital growth (since these are retractable preferreds meaning they'll be bought back in the future at $25.00 per unit). Also thanks to Hymas for some of his educating postings on the forum's preferred thread. Although I'm not a subscriber to his newsletter I do read his blog and forum postings. I usually ignore preferred's as I'm much more interested in common shares for future growth. But couldn't help reading some of the outrageous price activity that occurred on some with these 2 in particular. Since then their prices have rebounded back up, so no new purchases planned but will keep holding these 2 for their safer income streams.

I made a small purchase of Strongco (SQP.UN) today at $1.41. This company over-extended itself in 2008 and got squeezed by their creditor's into suspending their dividends. They took a loss in their last quarter (paper-loss only though with them doing write-downs on their inventory, still cash-positive). I think it's a good purchase based on my belief that by 2nd quarter of 2009 they'll get back into black, and eventually have earnings of 50 cents per share or more for the 2009 year. So at their current share price it's very enticing. I don't expect them to do well in 4th quarter 2008 or 1st quarter of 2009, but I think that lowered expectation is already baked into their cheap share price.

It's raining money!

It's been a fantastic month to save money with some of the bargains out there in the current crashed market.

Priszm is still a good bet, with prices around floating under $2.00 per share today you're looking at over 30% yearly distribution on any purchased you make.

Other individual income trusts I like...

VIC.UN at $6.50 you're getting a 24% yearly distribution and they're giving out a 'bonus' top-off distribution in December over and above their regular monthly distribution

YLO.UN (Yellow Pages Income Fund)at $6.85 that's over 17% a year cash distribution returns. This Canadian income trust owns AutoTrader, Canada411.ca, yellowpages.ca and several other websites. Over time it's starting to get a significant portion of it's revenue online versus the printed yellow page directories. They continue to have growth and have already increased their distributions once this year.

Casual restaurants like BPF.UN (Boston Pizza), SRV.UN (Jack Astor’s,Alice Fazooli’s, etc) and EAT.UN (East Side Mario's, Casey's, etc) also have their share prices at attractively low levels giving you 17%, 24% and 22% annual cash distributions at their current prices. I don't think BPF.UN or SRV.UN will lower their distributions, rather I think there will be future distribution increases in 2009.

There are so many other good income trusts out there trading at very low share valuations. My only hope is the share prices stay low for a continued period to give me time for month by month share purchases.

Remember, buy low, sell high. i.e. buy stock in companies (that look solid with future growth) when their share prices are crashing as they are now. Don't follow the crowd. When I hear people talking about taking their money out of the market and putting it into savings accounts *after* the market has already crashed I always cringe inside. They're doing the reverse, as they bought when the share prices were high and are now selling when they're low. Unless you are really confidant that the downward price trend, selling in the middle of a crash is in most cases unwise.

Warning - I'm not qualified to give investment advice. The above is for entertainment purposes only ;-)