An Energy Spin-off for October, 2024

 

It's that time of year on the East coast of Canada with cool mornings, warming by noon and fall colours on the trees. Spring and Fall are my favourite seasons.

It's October and the S&P/TSX Canadian index is over 24,000 for the first time with a current year to date growth rate of 15.77%. I have to like those numbers but there's that old saying ... prepare for the worst but hope for the best. 

Being an income investor, the Markets will take a dive at times but I look at the positive side with the opportunity to buy my stocks at a lower price for an eventual rebound while collecting dividends. That happened over the last couple of years and depending on sectors, stock prices are currently inching up when the interest rates were cut during 2024 with more cuts planned.

An interesting development within the stocks I hold where the majority are in the top 25 among the the top 60 stocks in the TSX by dividend yield. 

TC Energy, TRP has spun off part of their company last week into South Bow Corporation, SOBO with the Globe and Mail having a decent article on that developement by David Berman for subscribers but below are some highlights while doing personal research is always recommended about debt load and the ability to maintain and grow the dividend in the future.

"The Calgary-based energy infrastructure company separated its oil pipelines from assets that include natural gas pipelines and storage. For every one share in TC Energy, investors received an additional 0.2 shares in a new company called South Bow Corp. SOBO-T

Canadian utilities are no slouches right now. The sector has rallied 12 per cent over the past three months, outperforming the S&P/TSX Composite Index as investors warm to attractive dividends and economically defensive stocks.

What’s more, South Bow’s annualized dividend is a big one, at US$2 a share. When the stock officially launched this week – conditional trading began on Sept. 25 – the implied yield based on future dividend payments was a dazzling 9.3 per cent."

South Bow's stock price is currently below $30 while SOBO will be an interesting watch for possible future buys when their Board announces the first dividend payments with an ex-dividend date. I assume it will be on the same date as TRP being on December, on the 27th.

From what I understand ... TRP and SOBO will split the dividend payments that TRP has been paying, proportionality.  

                                                                 TC Energy Pipeline Map

On the Your Ever Growing Income blog by Henry Mah I read and noticed that he started buying the Bank of Montreal, BMO being the laggard of the Banks in Canada from the last quarterly reports. BMO is also into the US and looks like a smart move by Henry where Banker management mentality is all about making more money and fixing issues for BMO in the future.

BMO is expensive at a current $124.30 CDN with a 52 week low of $102 and has moved up in price recently with an ex-dividend date of October 30th. Both TD and Wealthsimple Trade offer partial share buying as an option to build on stocks over time.

Mid October, I'll be thinking ahead to November and old reliable ... Fortis, FTS with a recent 4.2% dividend increase for it's 51st year of dividend increases. Fortis is a good foundation stock to build a portfolio on in my opinion.

Also, JP Morgan ... a US based bank recently ranked as the 12th largest corporation has moved up my way into Canada with the introduction of two interesting ETF's I've been watching on their US site for several months, The new to Canada, JEPI.TO and JEPQ.TO (Nasdaq - Techs) offer growth and income with US holdings. 

They may offer high yields which means more risk but their US counterparts are performing well since launching in 2020 for JEPI and 2022 for JEPQ.  They pay cash distributions monthly so interesting to see how much the first distributions will be and the yield plus any withholding tax when announced in this month of October. 

Interest Rates and The Rise of The Banks

 

It's good to see the interest rates came down in the US as well as here in Canada which is currently favourable for the stock market in September, 2024. 

High interest savings accounts will pay lower rates as more cuts by the central banks are announced. Will some investors eventually decide to shift funds into higher dividend paying yield stocks? History has shown this will probably happen with similar scenarios from the past where interest rates climbed and then reduced later.

What comes with an enticing reward in a 5% yielding stock, is the added risk to consider.

With that in mind, the big banks of Canada are on my radar once again for additional buying. 

The Bank of Nova Scotia has an ex-dividend date of October, 2nd, 2024 with a $1.06 dividend payment per share. As of today, I'll be paying $11 more per share for the stock since my last buy in July. My dividend and capital gain is a good thing as the Banks rise in price overall for now. Except for the Bank of Montreal, BMO which fell with their latest quarterly report but has gained over the last week with the short term moves.

That recent BNS share increase reminds me of browsing through the meat aisles in the grocery store. They did report inflation is near or at 2%? I'm not seeing it when it comes to groceries, insurance and up to 5% rent increases per year. I guess it's what they call the "new normal". 

The 10th of October, 2024 is the ex-dividend date for TD Bank and the stock price has increased recently. News about a new CEO, Raymond Chun taking over in April, 2025 seems to be a positive move with some TD investors while the ongoing US issues plague the current CEO, Bharat Masrani.

Both banks continue to be undervalued when looking at their Graham Numbers at this time but near their 52 week highs while I buy at a dollar-cost-averaging pace. 

I also look at the Bank prices before the Bank of Canada hiked the interest rate to a high of 5%. Makes me think they got room to go higher in price over time as interest rates drop. Just my opinion.

For fun, I asked the Microsoft AI Copilot to find the Top Canadian Bank ETFs and a list displayed within a second or two. Many familiar ETFs I've come across in the past. 

BMO's Equal Weight Banks Index ETF, ZEB is at the top of the list among others with a reasonable 0.28% MER compared to mutual funds. Decent growth over time and a yield of 5.8% with a start date of 2009.

Where I don't rely on AI, and do my own research, ZEB is at a yearly high in price so yield is currently at 4.21% where the yield fluctuates with price.

However, I prefer to own the Bank stocks for the dividends. Dividend growth and the capital gains when they happen. 

They all run into issues from time to time and eventually work them out but worth billions so when they do have short term issues, it's usually a good time to buy at a lower price. So far, Royal Bank and National Bank are the exceptions the last few years.