The Prophetable Investor

The Prophetable Investor

The aim of almost every Investor is to obtain a combination of safety, income and capital growth

John Templeton 1949

Market Commentary

It had to pause at some point. The TSX was off 4.3% for the month of September. The downside came largely from the Energy Sector which was down 8% on the month. Energy accounts for about a quarter of the TSX weight. Materials were down better than 11% on the month, accounting for about 11% of the index. The broad-based Russell 2000 index was down 6% on the month. October isn’t off to a great start either with the TSX down 5% so far this month at time or writing (Oct. 17). There is a consensus forming that the US market may outperform for the balance of the year. A stronger US dollar would be a further reason to look south for buys. Having said that, there are values are starting to show up in the beat up sectors in Canada with some good yields attached

Preferred shares continue to be redeemed and re-issued at lower rates. So far this year, there has been a record 10 Billion in issuance and 8 Billion in redemptions.

T-Bill and GIC Rates as of 10/20/2014 1 month T-bills .683% 1 Year T-Bills .75% 1 Year GIC 1.50% 2 Year GIC 1.81% 3 Year GIC 2.01% 4 Year GIC 2.21% 5 Year GIC 2.45% Market Performance

– Year to dateOctober 17, 2014

Dow Jones Down 1.2%

TSX Up 4.5%

Nasdaq Up 2.0%%

S&P 500 Up 1.5%%

Gold Up 2.1%%

Oil (WTI) Down 14.3%

Basket Up 11.46%

Reset Ladder Model Portfolio

The overall yield on the portfolio is 5.70%. The re-set number is in basis points over Government of Canada five year bond yields. For example, the Transcanada Series A Preferreds will be reset to pay a dividend that yields 1.92% over the five year Government of Canada bond Rate.

Issuer Date Reset

Current

Yield Price Amount Value

2014 Reset

Transcanada series A trp.a 2014/12/31 192 5.24% 22.30 600 13170

Total 2014 Resets

2015 Reset

Fortis Series H fts.h 2015/06/01 145 5.22% 20.32 600 12180 Bank of Nova Scotia

S30 bns.y 2015/04/26 100 4.04% 23.82 600 14292

Total 2015 Resets $26 472

2016 Reset

Shaw Communication sjr.a 2016/06/30 200 5.16% 22.45 700 15267

Total 2016 Resets $33 257

2017 Resets

Birchcliff Series A bir.a 2017/09/30 683 7.70% 25.99 700 18193

Veresen Series A vsn.a 2017/09/30 292 4.34% 25.34 500 12670

Total 2017 Resets $30863

2019 Reset

Series E Efn.e 2019/09/30 472 6.40% 25.30 600 15180

Basket Update (prices as of close October 17, 2014)

The Basket returned 11.46% year to date. The outperformance can be attributed as much to the outperformance of some of positions as the underweight mining and energy stocks. I anticipate more re-positioning in the basket as there are valuations showing up in the market. The smallest company in the Basket is Eagle Energy Trust at a market capitalization of 163 Million. The largest company in the Basket is Apple at just under $600 Billion.

Historical Annualized Basket Returns as of September 30, 2014

3 Month Return 1.974% Benchmark .291%

1 Year 26.164% Benchmark 19.312%

3 Year 14.587% Benchmark 12.38%

5 Year 11.092% Benchmark 9.055%

Since Inception 4.566% (05/23/2007) Benchmark 4.475% The Benchmark is 75% TSX 15% Corporate Bond index and 10% S&P 500 Index

Recent Portfolio Changes

Buy of 250 Superior Plus Corporation at $13.75. Superior Plus has three business segments: Energy Services, Specialty Chemicals and Construction Products. The company pays a $.60 per share dividend for a 4.4% dividend. The payout ratio is about 40%. NBF is calling for a 15% dividend increase in a year’s time and the one year target is $16.00.

Basket Position Update (Price Close October 17)

Apple Computers (AAPL) $97.67 USD

Apple was upgraded this week by Credit Suisse (although still stubbornly ranked neutral) and bumped its price target to $110 owing to increased earnings

estimates ($6.35 per share in fiscal 2014 and $8.28 fiscal 2015) Their fiscal year is the end of October. The company has fully taxed $14 per share in cash. I haven’t held one yet but the reviews sound pretty good for the new Iphone; Better battery life, a Motion Processor (the M8), better camera, larger screen, and significantly longer battery life. The stock still looks inexpensive to me as it trades at less than sector multiples with better growth. Apple Pay might be a game changer.

Capital Power (CPX) $24.90

Capital Power has interests in over 30 facilities in North America totaling nearly 4000 megawatts of power generation capacity. Capital power remains on track and on budget to complete its $821Mln 800 Megawatt, Sheppard natural gas-fired facility in the first quarter of 2015.The project is now more than 97% complete. Capital Power recently bumped their dividend up 8% to $.34 per quarter starting with the next dividend. Our analyst forecasts another dividend increase in late 2015. With the strong price move, the stock is now ranked Sector Perform with a $27 one year target.

Inter Pipeline Fund L.P. (IPL.UN) $ 34.79

In July, IPl completed the 1.1 Bln first phase expansion of the Polaris pipeline on schedule. This is estimated to add $90 Million in EBITDA( Earnings before Interest, depreciation and amortization). With lower oil prices, pipelines have sold off; however, 90% of cash flows come from lower risk cost of service and fee for service contracts. Our analyst is calling for a 15% dividend increase for the last quarter of this year and another 15% increase to $1.71 per share for 2015. The target on the stock remains $36.00.

Horizon’s Enhanced Income Gold producers (HEP) $5.15

This Exchange Traded fund holds equal weights of the top 15 gold and mining exploration companies and provides monthly dividends from writing covered calls on the portfolio. The units are showing some life with the very recent bump up in gold prices. While the monthly distributions are highly variable, the last 12

payments total $.597 for an 11% trailing yield.

BCE Inc. (BCE) $47.33

The latest quarterly results came in slightly below expectations again at 82 cents per share. Next quarterly results are due on Thursday November 6. Since the last newsletter, BCE has acquired Astral Media and that portion of Bell Alliant that it did not already own. BCE is doing better at its wireless division offsetting lower contributions from wireline and media. The cash flow per share is estimated at $3.40 per share and with a 2.47 dividend provides a stable 5 ¼% dividend at current prices. NBF rates the shares outperform with a $51.50 target.

WSP Global (WSP) $33.14

The company announced the acquisition of Parsons Brinckerhoff, a US headquartered engineering firm with a significant presence in the US transportation market. The acquisition price was $1.35 billion. With this acquisition WSP will become the seventh largest design firm in the world with revenues of over $3.8 billion. At current prices the stock yields 4.5%. NBF has a $41 target on the stock and an outperform rating.

Morneau Sheppell (MSI) $15.99

The quarterly numbers continue to impress for this HR outsourcing company. The stock continues to be a steady performer for the Basket and has held up well through the recent market downturn. For the latest quarterly results, revenue and earnings were up 19%.The company continues to see growth from both new and existing clients as well as the U.S outsourcing platform. The payout ratio for the dividend is about 69%.With the current dividend of .78 per share the yield is just under 5%. Next quarterly results are due on November 12

Davis Henderson (DH) $31.52

This is a leading Financial Technology provider to the North American markets. The company provides banks and credit unions with software and related technology to serve their customers. The company has a customer base of approximately 7000 banks and credit unions. National Bank Financial is one of them. The US now accounts for better than half the company’s net income. The company is rated outperform based on the fact that revenues are largely

recurring; a dominant market position, solid financial health and high cash flow that permits the company to pay attractive dividends. The current dividend on the company is $1.28 per share giving a 4% dividend. The payout ratio is about 54%

Eagle Energy Trust (EGL.UN) $4.70

The one saving grace about owning Eagle Energy to date has been the low weighting in the portfolio. Eagle accounts for about 3% of the basket at current prices. This has been the worst performer in the portfolio down some 44% over a year and 41% year to date. This has been dampened by the biggest percentage yield in the basket. With a dividend of 1.05, Eagle Energy has a 22% dividend at current prices. There has been some recent good news with the stock. On August 13 the company announced the sale of some assets for $140 Million and

transformed the company from a borrower to a company with a net cash position of $54 Mln. With the tumble in the energy sector overall Eagle is in a position to go shopping and according to our analyst there are lots of deals to be found.

MCAN Mortgage Corporation (MKP) $14.17

MCAN Mortgage Corporation is a Mortgage Investment Corporation. As an

investment corporation, all dividends paid to shareholders are fully tax deductible to the company. Consequently, the company distributes substantially all of its earnings to shareholders. The company invests primarily in residential mortgage and construction loans. The company has held up surprisingly well in the current market downturn. The yield on the units is just under 8% and NBF maintains a one year target of $16.00 with a sector perform rating due to appreciation of the units over the last year.

Current Basket Portfolio

80 BCE Inc

100 DH Corp

100 WSP Global Inc.

200 MCAN Mortgage Corporation

200 Morneau Shepell Inc.

100 Capital Power

200 Eagle Energy

100 Inter Pipeline

250 Horizon’s Enhanced Income Gold ETF

42 Apple

250 Superior Plus Corp.

Retirement Snapshot?

Call me to arrange a meeting to run through In Sync retirement planning software. The program is easy to use and will produce a snapshot of what you need to put away or what kind of retirement income you can expect depending on what you can save for retirement. I have found that more than not, it puts clients at ease with their current retirement situation. It’s also quick at less than ½ hour to produce projections.

Receive you monthly statements online – Call Lucy Wentworth at 604-541-4931 to arrange.

Admin Notes

Basket and partnership fees are tax deductible when charged in non-registered accounts.

Articles of Interest

Five reasons retirees should love dividends

Disclaimer:

The particulars contained herein were obtained from sources we believe reliable, but are not guaranteed by us and may be incomplete. The securities mentioned in this article are not

necessarily suitable for all types of investors. National Bank Financial is a wholly-owned subsidiary of National Bank of Canada and is publicly traded on the Toronto Stock Exchange (TSX – NA). National Bank Financial is a member of the Canadian Investor Protection Fund.

 This is not a recommendation for any security or investment sector as it may not be suitable for all types of investors. Please contact your investment advisor before purchase to discuss you investor profile and to further discuss these risk factors.