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Top consumer discretionary stock picks

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Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor at TriDelta Financial, was recently invited by the Globe and Mail to provide top stock picks in the consumer discretionary sector.

Special to The Globe and Mail, Published Tuesday, May 10, 2016

16413399_sConsumer discretionary stocks can capture the momentum of an improving economy. In good times, money flows into this sector as retailers, media companies and automotive manufacturers benefit from increased spending by consumers with more disposable income. In turn, investors are rewarded with rising share prices and dividends. Yet during a more uncertain economic environment – such as the one we are in now – the sector can be tricky to navigate, so we asked three investment professionals for their top picks.

Lorne Zeiler, portfolio manager with TriDelta Financial in Toronto

  • L Brands Inc. (LB-N)
  • Last close: $70.03 (U.S.)
  • Dividend yield: 3.43 per cent

Based in Columbus, Ohio, this retailer owns Victoria’s Secret and Bath and Body Works – two chains with global reach and leaders in their respective retail categories. “Both brands have strong customer loyalty, providing the company with pricing power and ability to maintain its strong margins,” Mr. Zeiler says. Benefiting from an improving environment in the United States, the company is also expanding rapidly into emerging markets, building its revenue overseas while increasing efficiencies in existing stores in North America and Europe to improve margins. Also of note, L Brands has “a history of dividend growth and trades at a reasonable valuation to its peers,” he says.

  • Tupperware Brands Corp. (TUP-N)
  • Last close: $55.49 (U.S.)
  • Dividend yield: 4.90 per cent

The world’s largest direct seller of plastic storage containers and cosmetics, the company has consistently strong sales in mature markets such as North America and Europe. Where the company’s real growth lies, however, is in emerging markets such as China, Brazil, Argentina and South Africa. “Tupperware offers a high dividend for yield-hungry investors and trades at an attractive multiple of less than 14 times forecasted earnings,” Mr. Zeiler says. A strong U.S. dollar did negatively affect earnings in 2015 because of Tupperware’s exposure to foreign markets where, despite increased sales, revenue was lower when converted back to dollars. “This headwind may now be a positive as Tupperware recently increased its earnings per share estimate for 2016 by 5 per cent solely based on the decline in the U.S. dollar.”

Here is the link to the original Globe & Mail article.

Lorne Zeiler
Written By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225

TriDelta Investment Counsel Q1 2016 Report: Signs of Light but No Need for Sunglasses Yet

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Executive Summary

1727060_s-300x240Where everything Canadian was bad in 2015, in terms of local currency, Canada was the place to be in Q1.  In an economy that still remains very commodity driven, Canada had the double benefit of better numbers in Oil, metals and mining, and with it the support of a stronger Canadian dollar.

Canadian Material stocks were up 17% on the quarter, while Energy names were up 7%.

The quarter also highlighted why all investors need patience.  By mid-February, Q1 seemed like a ‘total disaster’ (to quote Donald Trump), yet by the end of the quarter many markets were positive for the year.  The volatility involved this quarter was very high.  At one point in late January, the Canadian market was down 10% but moved up 14% from that point to the end of the quarter.

How Did TriDelta Clients Do?

Most TriDelta clients were up between 2% and 4% on the month, while on the quarter, conservative clients had a small positive and more aggressive clients were mostly a little down on the year to date.

The TriDelta High Income Balanced Fund ended the quarter up slightly.

Our continued focus on capital preservation in times of high volatility has continued to help clients lower their overall volatility and maintain peace of mind during market whipsaws.  The one thing to remember is that investors can’t be momentum investors and dividend growth investors at the same time.   Each style comes with positives and negatives, and one of our goals is to fit the right style with the right client. 

There could be a very positive run for the TSX as energy, metals and mining make a rebound.  If you are looking for less volatility and strong income, you will underperform the TSX during these periods.  This doesn’t mean that we won’t participate in some of these gains, but for those who are Pension style clients, expect that your portfolio will not gain as much as the TSX when companies with names like HudBay Minerals and Labrador Iron Ore Royalty lead the charge up (or down).

How did the World do in Q1 2016?

On a Canadian Dollar basis, stock returns were very mixed.

The TSX was up 3.71%
The US S&P 500 was down 6.12% (despite being up 0.77% in US dollars)
The Euro Stoxx index was down 10.16%

As mentioned, Canada was the place to be in the first quarter.

The DEX Canadian Bond Universe was up 1.4%

Canadian Preferred shares finally saw a big positive move in March, up 9.9%.  Even with this tremendous return, the index was still down 4% for the quarter.

The Canadian dollar went from 72.2 cents to 76.7 cents vs the US dollar.

The price of WTI Oil started the quarter at $40, went under $28, back to $41, and dipped to $36 and change at the end of the quarter.  Of course it has risen back to $42 in the first couple of weeks of Q2.

Items Worth Noting – Interest Rates and Oil
  • A German 10 Year Bond is now paying just 0.11% a year. This tells us a few important things.  The first is that with Canada at 1.24%, there really is still room for interest rates to go lower.  The second is that for many, simply the safety of their capital is of such importance that they are essentially willing to earn nothing on their money as long as it is safe.
  • Interest rates can even go negative. Today, Switzerland 10 year bonds pay MINUS 0.40% annually.  The chart below shows rates in 1995 in the 5% range, steadily heading down until it went under 0%.  While that may seem crazy to many of us, many of us are invested to some degree at similar rates, as bank accounts pay 0% in interest and then charge us fees for the privilege of holding our money there.
    14apr16_01
  • U.S. Oil Inventories are still going up. Despite cuts in Oil production and supposed agreements among OPEC nations, Oil and Petroleum inventories haven’t stopped growing.  It will stop at some point, and there are some positive signs in terms of increased demand, but this current Oil rally is very tenuous.  We believe that even small negative comments from key OPEC producers can cause a meaningful pullback, and we believe this will happen.  While we do believe that two years from now, Oil will be a fair bit higher than today, it will be a very bumpy ride with many pullbacks along the way.

    14apr16_02
  • Canadian Banks are Cheap. The chart below is the Price Earnings ratio for Royal Bank of Canada for the past 12 years.  What it shows is that the company has generally traded between 10 and 16 times earnings.  Today it is at 11.5 and was down close to 10 in February.  There are not that many companies that have such long term strength and happen to pay 4%+ dividend yields along the way.  There are always reasons for lower valuations, but the past 20 years have shown that if there are low valuations the best response is simply to grab it.

    14apr16_03

What TriDelta is Doing Headed into Q2
  1. The Big Picture: While the World is always changing, your investment approach shouldn’t be. Our most important job is to ensure that your portfolio is built to meet your long term financial planning needs, your risk profile, your cash flow needs and personal tax situation.  If we are doing those things correctly, then you are will be in good shape over the long term regardless of whatever is happening in the market this day, week or month.
  2. The Smaller Picture –
    1. Global Stocks: We are seeing some strengthening in Emerging Markets and some strength in China.  As a result we are reinvesting a little bit back in Emerging Markets, pulling the money from developed economies in the EAFE (Europe, Australasia and Far East).
    2. North American Stocks: We remain ready to add more back into Canada but don’t feel that this is necessarily the right time. We believe that there will be a better entry point after there is a little pull back in Oil and likely in the Canadian dollar as well.  In addition, US Multinationals may see some positive earnings coming up as the US currency decline will improve their Foreign earnings – when converted back to US dollars.
    3. Preferred Shares: We continue to believe that this sector is undervalued, and when you combine undervalued prices, with 5.5%+ dividend yields, and tax preferred income, we see a number of benefits.  It is a tough sector to love, but we do remain very comfortable holding beaten down names.  We believe that the rally seen in March has some room to continue.
    4. Bonds: For now we have moved away from Government Bonds and back to Corporate Bonds.  There seems to be more comfort level with Corporate Bonds in the market place and the increased yield certainly helps.  While we believe that the Bank of Canada will remain steady and that long term interest rates will be fairly range bound, we believe that shorter term bonds may be a safer place to be in the short term.
    5. Alternative Income: We are continuing to add to Alternative Income streams where we can. We believe that in a low yield world, it is worth taking a little added risk in the Private Lending, Factoring and Mortgage space to achieve higher returns.
Dividend Changes

As always, we believe that Dividends and Dividend Growers play a key role in long term returns and lower volatility.  This quarter, the dividend growth continued.

Leading growers were:
CCL Industries 33%
Canadian National Rail 20%
L Brands 20%
Enbridge 14%

We actually saw a dividend decline in one of our holdings.  Cal-Maine (an Egg producer) directly ties their dividends to annual profits, and lowered their dividend 41%.  Largely as a result, we sold the stock.

New at TriDelta

One other Q2 note for TriDelta is the introduction of our TriDelta Fixed Income Pool.  Clients will be hearing more about it shortly, but we believe it will allow us to deliver better returns on Bonds for clients.  Through the ability to do better currency management, getting better pricing on trades, and easier liquidity for clients adding or withdrawing Fixed Income money, it should add up to stronger returns.

Summary

We believe that while things seem more positive in the investment markets, we are trying to pick our spots.  With a possible pullback in Oil and CDN dollar from here, the possible Brexit or British exit from the European Union, and ongoing Terrorism risks, we are taking only small steps out of our more conservative positions.

  

TriDelta Investment Management Committee

 

Cameron Winser

VP, Equities

Edward Jong

VP, Fixed Income

Ted Rechtshaffen

President and CEO

Anton Tucker

Exec VP and Portfolio Manager

Lorne Zeiler

VP, Portfolio Manager and
Wealth Advisor

TFSA comes of age in retirement strategy

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lorne_bnn_24mar16Lorne Zeiler, VP, Portfolio Manager and Wealth Advisor at TriDelta Financial, recently appeared on BNN’S Market Call to discuss when it is more tax-efficient to contribute to your TFSA vs. RRSP.

Click here to watch the interview.

Lorne Zeiler
Posted By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225

Buying vs. renting when downsizing after retirement

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Buying vs. renting when downsizing after retirementTriDelta President TedRechtshaffen was on BNN TV to discuss whether Retirees should buy or rent when they downsize their home.

Ted Rechtshaffen
Posted By:
Ted Rechtshaffen, MBA, CFP
President and CEO
tedr@tridelta.ca
(416) 733-3292 x 221

Two types of retirees: dreamers and savers

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lorne_bnn_feb16Lorne Zeiler, VP, Portfolio Manager at TriDelta Investment Counsel was a recent guest on BNN’s Your Money Month to discuss sources of income for retirees featured in TriDelta’s ‘Canadian Retirement Income Guide’

Click here to watch the interview.

Lorne Zeiler
Posted By:
Lorne Zeiler, MBA, CFA
VP, Wealth Advisor
lorne@tridelta.ca
416-733-3292 x225

The five things to do after you win the lottery

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By: Olivia Glauberzon, Special to the Star, Published on Tue Jan 26 2016

When it comes to buying lottery tickets like ones this month’s $1.5 billion Powerball, players put plenty of thought into picking their numbers. But how much goes into the plan if they actually win?

In 2001, Vicki Damant was close to the dream that many lottery players have: second place to the jackpot. A Torontonian living in the U.S. at the time, to her shock, her ticket had five of the six winning numbers.

lottery“It was 7:30 a.m. on a Sunday morning. When I check the numbers on the computer, I had one match, then another, then another . . . then I started screaming,” says Damant. “I was so loud that my husband came running into the room thinking he had to kill a spider.”

While the couple hadn’t won in the millions, Damant did win $103,682 (before tax, as it was a U.S. lottery; in Canada, lotto winnings aren’t taxed as income).

“That’s when we started making all of our phone calls,” she says. “It wasn’t a life-altering amount of money, but it was enough that we were able to buy ourselves new cars, invest in an annuity and send both of our parents on vacation.”

Whether you’ve won a modest amount like Damant or $528 million (U.S.) like one Tennessee couple this month, here’s what the financial experts say you should do next:

1. Cool off for 30 days

That’s the suggestion of Larry Moser, regional manager with BMO Investor Line, based in Ottawa: “You don’t want to start writing cheques before you have a chance to figure out how you want to spend your prize.”

Since most lotteries are required to make the winners’ names public, the prize announcement (depending on its size) can wreak havoc on your personal life. “All sorts of people are going to come out of the woodwork. I’ve even heard of people getting blackmailed,” says Moser. “You need to be prepared for how you’ll handle various situations.”

A cooling-off period also gives you time to reflect on how the winnings will add to your happiness, says Ted Rechtshaffen, president and CEO, TriDelta Financial, a Toronto-based independent financial planning firm. “Whether you’ve won $500,000 or $500 million, it’s not about the investments you make, it’s about how the money helps your lifestyle going forward.”

Rechtshaffen recommends using the old adage of “Spend $1, save $1 and give $1” to allocate the winnings to your personal and financial goals. Just be warned, adds Rechtshaffen, that deciding how much you want to spend, save and give can be a complex psychological and emotional undertaking. “You may want to talk to a psychologist before doing anything else . . . that could be the best investment with your winnings you’ll ever make.”

2. Get professional help

Once you’ve figured out how to divvy up your winnings, find a lawyer or financial advisor who can help structure a financial plan for you.

“Whatever you do, don’t go flipping through the phone book and call the first lawyer or investment advisor you see,” says Moser. “Ask your friends and family for someone they recommend and trust.”

Another way to screen for a good advisor is by noting the balance of personal versus financial questions he or she asks you. “The best advisors will always spend more time figuring out who you are as a person before structuring a plan,” says Rechtshaffen.

3. Calculate your income needs

Depending on how much you’ve won, you may decide to stop working or splurge on a big-ticket item like a house, trip or boat.

Just don’t blow all of your winnings on one big trip to Vegas, says Moser. “Every dollar you spend today is less you have to invest for tomorrow.”

A financial plan will help you determine how much money you need to maintain the lifestyle you want to lead without working, especially if it includes a larger home or second property with bigger annual expenses.

4. Sort out your give-aways

Decide how much money you’ll give away to charity, family and friends. Like Damant, it’s not uncommon to want to share your newfound fortune with family and friends, or your favourite charity.

“With family and friends, one idea might be to share your good fortune in the form of a one-time only gift,” says Rechtshaffen. “If you are disciplined about it, you will be less vulnerable to being asked for money down the road.”

For charities, giving can be complex depending on the amount of the donation.

If you are planning to donate over $5 million, Rechtshaffen recommends setting up a private charitable foundation. “By donating through a foundation, you have an ability to generate large tax credits you can use to offset any investment income you may have.”

If you want your foundation to continue donating long after you are gone, Moser says it’s also critical to hire an estate lawyer for the set-up. “You won’t be able to set this up yourself with a $29.99 kit you buy at a store.”

5. Invest tax efficiently

Once you’ve determined how much money you’ll need for your lifestyle and how much you can part with, chances are the amount left over may be too much to place in a registered savings account. This leaves your wealth in unregistered territory, which makes minimizing tax exposure on income-generating investments a priority.

Investments can range from a diverse equity portfolio — which takes into account your risk tolerance — to a permanent life insurance policy, which allows you to grow your money tax-free.

“An advisor will help you navigate your investment options and do so in a way that minimizes your tax exposure,” adds Rechtshaffen.

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