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Birds Poop

Apparently I’m a lucky man, but I’m not entirely convinced yet. I recently returned from a vacation in Europe where a good deal of time was spent in Italy. It was there that I learned about a superstition about bird poop … yep, you heard right. Apparently if a bird poops on you, it will bring you good luck. I did some Googling and found some more info on the topic from this website:

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“Many people the world over believe that if a bird lets loose on you, then good things are coming your way. One idea is that it’s a sign of major wealth coming from heaven, based on the belief that when you suffer an inconvenience (albeit a pretty gross one), you’ll have good fortune in return.”

The part about major wealth coming from heaven sounds alright to me, but you’ll understand why I’m still a bit skeptical that a bird shitting on you is “lucky”.

Anyways, so here I am doing my zombie walk to work, when I stop at the intersection and wait to cross the street. I’m standing there, minding my own business, when PLOP … a seagull lets loose right on top of my head. Who needs coffee, eh? Now wide awake, I had to decide whether to go home or deal with this situation at work. As I was about 2 minutes from work and could feel things starting to move in my hair, I opted for work. It made for an interesting start to the day with my head under the sink pumping hand soap and water into my hair. I survived, albeit with some interesting looks in the bathroom and an unorthodox hairdo for the day, lol.

You may be wondering at this point, what this has to do with dividend growth investing. Well … it just so happens that on the same day,a limit order I set up a few weeks ago to purchase Home Capital Group Inc. [HCG.TO Trend] at $41 was triggered. On June 16, 2015 I purchased shares of Home Capital Group Inc. for an average price of $41.02 when you include the commission. Here’s hoping that the bird incident is a good sign for my investment.

Home Capital Group Inc. is a Canadian alternate mortgage lender with most of its business in Ontario. I’m not going to go into too much detail about the company right now as I plan to post an in-depth dividend stock analysis in the next few days.

Related article: Home Capital Group Dividend Stock Analysis

For now here are some of the reasons why I purchased Home Capital Group Inc.

  • They have increased their dividend for 16 calendar years in a row.
  • Consistent earnings growth. Both revenue and earnings have increased year over year for the past decade.
  • Return on equity has been over 20% for more than a decade.
  • The dividend yield is low at 2.1%, but the dividend growth is very high. According the Canadian Dividend All-Star List the 5 and 10 year average annual dividend growth rates are 19.3% and 27.8%.
  • The payout ratio is low. It’s currently around 20% of earnings.
  • They currently have mid term targets to grow EPS by 8% to 13%. Analysts are predicting a similar level of growth. This coupled with a low payout ratio suggests that their history of strong dividend growth is sustainable.
  • They have a history of increasing their dividend more than once a year.

The company does have its risks. It has a reasonable financial strength and enough for me to invest, but it could be better. Most of its business is in Ontario so a housing crash there would be rough on the company. They survived 2008 and 2009 relatively well, but it is still a valid risk.

There seems to be a mixed results out there right now. Some seem to think it is a good company with strong dividend fundamentals, others seem to think it’s a risky company because the Canadian housing market is over-valued and ripe for a crash.

What do you think of my purchase?

 

Photo credit Brad Clinesmith / Foter / CC BY-SA

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11 Comments

  1. I bought Home Capital back in March at about the same price. I got it from your Excel list of dividend stocks. I used the lowest of the 1, 3, 5 and 10-year dividend growth rates (the 5-year rate) to calculate that my yield on cost will be over 16% in ten years. Not bad if the company continues to prosper.

    Those who consider the company to be risky, because business is centred on the Ontario housing market, are being overly cautious, in my opinion. That market is less frothy, less dependent on a single factor (oil and immigration respectively) than other markets like Alberta’s and B.C.’s.

    Nice work.

  2. One additional comment. Your article started with an account of seagull poop (guana) in your hair. Translation: “hair today guana tomorrow”.

    Let’s hope that Home Capital is more stable.

  3. While I am of the opinion that Canadian residential real estate is very overvalued, I have no idea how long before a correction could happen. There’s always stagnant prices as a possibility for a while instead of a big drop. I know you are a good value investor so I am very curious to read the follow up article showing the valuation.

  4. I was wondering if you have heard of Emera Inc (TSE:EMA). I was wondering why they might not be on your top dividend investing stocks.

    DB

    1. I’ve heard of Emera Inc. I’m not sure what you mean by top investing stocks?

      I don’t recommend stocks. Do you mean my watch list of stocks I’d consider investing in? I’ve only added stocks to that watch-list when I’ve completed a dividend stock analysis. Keep in mind that these are not my recommendations. They are just a list of some stocks that I personally would consider investing in. Don’t take it as a recommendation to go out and buy a stock just because I’m considering it. Do your own due diligence first. Since I haven’t completed a dividend stock analysis on Emera Inc. it’s not on the watch list.

      Hope that answers the question?

  5. Hey DGI&R,

    Congrats on your purchase in HCG… It’s caught my eye a few times, but I am somewhat bearish on Canadian Real Estate, primarily in Vancouver and Toronto area so I think I will wait on this one… while there are definitely other deals to be had on the TSE.

    1. There is always a reason not to invest – aka risk. If no risk, no return. The issue is, how resilient might the company be if there indeed were a housing crash in Vancouver and Toronto areas? Well, we have the answer: in the 2007-2008 recession, housing values declined drastically, I am told (I was out of Canada at the time). Yet HCG was able to increase dividends. So, why would it be different this time?

      In fact, there is an argument to be made that in the Vancouver area (I am more familiar with this housing market than the Toronto market), prices are buoyed up by immigrants’ coming into the country and spending massive amounts of money buying properties. This buying pressure should continue, and would counteract downward pressure on house prices.

      When might this trend stop? Who knows for sure, but not soon at any rate. Perhaps if China imposed currency controls on Hong Kong residents, this might choke off Chinese immigrants’ source of funds to buy properties, but this exogenous event is not something one can plan for. Nor is it a likely event.
      So, I look at the company, see how it did with dividends in previous difficult situations, and invest accordingly.

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