No time for preamble, since I’m due somewhere in about an hour. Let’s just get to it.
After months of calling Genworth MI Canada (TSX:MIC) a terrific business and telling people I don’t see a massive U.S.-style housing crash in this country, I put my money where my mouth is and bought 100 shares. I paid a little over $43 each.
I just can’t get over what a great business mortgage default insurance is. You charge people up to 4% of the value of the house and then immediately get to put that money to work. Default rates have peaked at a hair over 1% but usually sit under 0.5%. It doesn’t take a genius to like those numbers.
Genworth has been operating long enough that it has build up massive reserves, which protect it from an inevitable correction. And even if houses fall 10-20% across the board, who cares? Most people will continue to pay their mortgages, bitching about the downturn the whole time.
I went off the board a little on this one, paying a little over $30 each for 120 Great-West Lifeco (TSX:GWO) shares.
I like a few things about the company. The valuation is compelling, with shares trading at just a hair over 10x earnings. I wanted exposure to the life insurance industry, which I didn’t really have in my portfolio before the purchase. And the yield was 5.6% with a recent history of increasing the dividend.
Management agrees with me that shares are undervalued. They recently announced a $2 billion share buyback that Power Financial (the largest shareholder with a ~65% stake) was quick to say they’d take advantage of. I’m sure Power Financial will take that capital and squander it on some more robo-advisor acquisitions.
The Great-West Life purchase added $198 to my annual dividend income, while the Genworth purchase added $204. That extra $400 will be spent on delicious Subway steak and cheese subs. Hot damn I love those things.
You can take the value investor out of the trailer park but you can’t take the trailer park out of the value investor.
Wait. That’s not how that goes. Oh well.
I went dumpster diving a little this month (last month?) by picking up 120 Kraft Heinz (NASDAQ:KHC) shares, buying for a little under $32 each after the big decline.
If anyone understands Kraft’s problems, it’s me. I do moonlight at a grocery store, and I can see we’re ordering fewer Kraft Heinz products. In fact, the whole center of the store is basically a very slowly melting ice cube. Folks are shopping the fresh departments and avoiding processed foods.
Despite this I went ahead and bought shares. Volumes can slowly shrink for a long time and Kraft Heinz will still be fine. The company has a dominant position and great brands. People are still buying Kraft Dinner and Heinz ketchup, and will continue to do so for decades. And the company has really only scratched the surface with discounting. Generic brands are the big competition these days, so look for better deals at your local store.
Oh, and the stock is trading at about 10x forward earnings, which I thought was pretty cheap.
The Kraft Heinz purchase added about $255 to my annual dividend income once converted back to Canadian Dollars. That buys a lot of Kraft Dinner, although I’ll stick with the store brand for $0.59.
Slate Retail REIT
I just bought Slate Retail REIT (TSX:SRT.UN) the other day, spending $12.68 each for 275 shares. The odd share count was to use up the remaining cash in my RRSP account. I’m not quite fully invested yet, I’ve still got some cash in my TFSA and I’ll make a new contribution to my accounts relatively soon.
I like Slate for a few different reasons. It owns grocery-anchored property in what it calls secondary U.S. markets, cities with under 1 million people. There’s plenty of growth potential there, and I like grocery in an Amazon world.
The valuation is compelling, The company figures they’ll do about US$1.30 in funds from operations per share in 2019, which converts to $1.74 per share in local currency. I bought shares at just 7.3 times FFO. It also trades a little under book value and the dividend — which is paid is U.S. Dollars — is approaching 9%.
There are a couple of red flags, including a high AFFO dividend payout ratio (which should be going down after a relatively big share repurchase, but will still exceed 90%) and the balance sheet has too much debt. Getting debt under control should be the company’s next step.
My 275 shares should provide me with approximately $312 in annual income once converted back to Canadian Dollars.