We trust that everyone had a fantastic Thanksgiving holiday weekend with friends and family. There really is nothing like those turkey sandwiches the next day.
The last couple weeks have seen the markets correct, causing considerable angst among many investors. While corrections are “natural, normal and healthy” they do present challenges to remaining focused on the longer term goals as outlined within the majority of our clients’ investment policy statements.
However, this market weakness also presents opportunities to strengthen dividend yields and enhance the expected longer term appreciation as fundamentals remain strong and lower prices should be taken advantage of. While we could not stop the correction from coming, we were prepared for it by holding elevated levels of cash over the summer months. We have already put some of those funds to work as we identify opportunities within the weaker market. We will continue to look put additional funds to work over the coming weeks, taking advantage of strong fundamentals and what we feel are short term elevated dividend yields.
Leon Frazer, who manages the Clarington Canadian Conservative Equity Fund that many of our readers hold in their portfolio’s sent us the following commentary earlier this week. Leon Frazer Investment Counsel is one of Canada’s longest tenured and most respected institutional money managers, and we have found their counsel to provide excellent value for our clients. In their most recent quarterly client note they wrote, “The recent equity market weakness does not concern us. In fact, a pullback is always healthy and volatility provides opportunity. Fundamentals for North America remain strong as they have been since before last decade’s recession. We believe this creates opportunity to accumulate resource-oriented companies at attractive prices. Short term volatility occasionally creates opportunity to reposition portfolios and we have used this time to increase the compounding power of client portfolios over time.”
Our view is similar. Accordingly, we have remained focused on the longer term and are looking to exploit the recent market fluctuations in share price for your advantage. A few weeks back we wrote that our portfolios are not the index and that we look for unique opportunities to provide investors with strong dividends and capital appreciation over time. The current correction has provided us an opportunity to increase our ownership of one such company, namely Stuart Olson Inc. Stuart Olson provides commercial and industrial building construction along with related services in Canada, and is expected to grow earnings by nearly 250% over the next 3 years. Given the last few weeks of negative markets, we can now look to acquire this company at below book value and receive a dividend yield of nearly 6%. While Stuart Olson may not be appropriate for everyone who is reading today’s commentary, this is an example of an opportunity that we are looking to take advantage of.
Anytime we can acquire a company at less than what it is worth and receive better than a 5% dividend, knowing that the fundamentals of the company are solid and growing, we will look to do so.
Now we are certainly not trying to sidestep the emotional impact that we all feel when we open our statement and see a lower value than we did last month, but what we are trying to emphasize is that during stressful market periods such as these, we must remain focused on the longer term goals that your portfolio was built for and take advantage of these periods by adding high quality holdings that the markets is offering at a discount.
Our crystal ball works just about as well as everyone else’s and we are not about to say that the correction is over and it is all up from here, although it feels like it has run its course. But, what we can say with very high conviction is that the global economy continues to expand, currently led by North America, which should translate into higher corporate values over the coming months and quarters. Thus we are recommending that investors take advantage of these market dips to increasing and compound high dividends, as this weakness will certainly pass.
Thank you for your trust.
As always, we welcome your feedback. Have a great weekend.
The Dekker Hewett Group