The Millennial Conservative portfolio has fared quite well since its October 27th inception. The portfolio is beating the returns of the TSX composite by 2.60% and is backed by some huge gainers in Shopify (SHOP.TO) at 48.92%, Alimentation Couche Tard (ATD.B.TO) at 31.29% and Brookfield Asset Management (BAM.A.TO) at 20.22%.
The portfolio contains some heavy exposure to the oil and gas industry, and Parkland Fuels was bought at somewhat of its peak. We’ll need to be patient with this stock, as it is one of the driving growth companies within this portfolio.
Being a conservative portfolio, it is made up of some strong defensive stocks in Dollarama, Couche Tard and Fortis. However, we feel there is a little more room in this portfolio for growth. Before we get into changes for the portfolio, lets go over each individual security.
Alimentation Couche Tard(ATD.B.TO)
Back when I constructed the portfolios in October, I viewed ATD.B as a stock that was significantly undervalued. As such, the portfolio has been rewarded with a 31.29% increase in price. The company has managed to beat both earnings and sales projections 3 of the last 4 quarters, and this recent slip up in January where they missed revenue by 4.45% and earnings by 7% doesn’t have me worried too much. With a 5 year annual expected growth rate of 12.85% and a past 5 year annual growth rate of over 20%, the company has shown they are fully capable of achieving growth estimates.
**Daniel Kent is long ENB.TO**
Enbridge was a safer dividend play for this conservative style portfolio, and has returned much more than expected with 19.70% growth in share price since its October purchase. The stock is trading relatively cheap, at a forward price to earnings of 17.43 and a price to book of only 1.60. With a 6%+ dividend yield, this is about as good of a stock to hold as you’re going to see. The company has struggled to meet sales projections over the last year, missing all 4 quarters by an average of around 5%. However, earnings are strong, and the company has topped analyst estimates by wide margins over the last 5 quarters.
Dollarama has the smallest portfolio allocation in this conservative portfolio, and it was partly because I was hesitant with the direction the company was going, but still felt it was worth taking a chance on them. My main issue with Dollarama is their lack of same store sales, and their lack of overall store growth. The company is raising prices, and many people really don’t feel the company is a dollar chain anymore. Unfortunately, if they keep raising prices the store won’t be competing with other dollar chains, it will be competing with massive retailers like Wal-Mart, which as we have seen is near impossible. Dollarama will continue to be held in this portfolio over the next quarter, but this will be a stock I keep a very, very close eye on moving forward. Investors will need to see some steps in the right direction from the company in 2019 to reassure shareholder confidence.
Parkland Fuels (PKI.TO)
**Daniel Kent is long PKI.TO
Parkland is a company in this portfolio that we’re going to need a little bit of patience with. The stock was purchased at the high end of things back in October and is finally getting back to that price 6 months later. However, the growth prospects of the company are quite possibly the brightest within the portfolio. A 2.92% dividend yield (albeit a high payout ratio of 76.50%) is a huge bonus. The company has topped estimates in sales over the last 5 quarters, yet struggled with earnings, missing in the last two. With earnings growth over the last year of 151% and five year earnings growth of 20.9% on average, the company has proven it is capable of strong growth. So for that reason, we’re holding strong.
TD Bank (TD.TO)
**Daniel Kent is long TD.TO
In my opinion, TD Bank is one of the best dividend stocks in the country. If you’re looking for a bank with some strong North American exposure, they are a good bet. The company has a history of consistently outperforming expectations (only one earnings miss in the last 5 quarters, and no sales misses) and pays a very healthy 3.99% yield with a payout ratio of only 44.37%. With the threat of lower or at least stalling interest rates, I could see the Canadian banks facing some volatility in the future. However, there is absolutely no reason to lose confidence in TD over the long term. For that reason, the stock isn’t going anywhere in this portfolio.
Brookfield Asset Management (BAM.A.TO)
Our real estate play in this portfolio, Brookfield is in my opinion one of the strongest overall stocks to hold in the country. As individual investors, it’s very hard for us to gain international exposure. Buying foreign stocks is expensive, and often a nuisance. Brookfield gives us international diversity with a click of a button. The stock has returned over 20% since its October purchase, and its dividend yield of 1.36% is a nice bonus, albeit small. But the company has absolutely crushed both earnings and sales projections over the last year. The company has beat sales expectations by an average of 154.7% over the last year, and earnings projections by 1299%.
**Daniel Kent is long SHOP.TO**
The highest risk growth play in this portfolio has paid off massively over the last 6 months. Shopify has increased in price by nearly 50%, and is the driving force in this portfolio currently outperforming the TSX. The company has a track record of beating estimates, and I believe they will continue to do so in the future. Make no mistake about it though, the stock is expensive right now. With a price to book of over 13.50 and a price to sales of over 26, I wouldn’t be buying at these price points. However, I’m definitely holding. Analysts are predicting a 5 year annual expected growth rate of over 60% for the company. However, it may be a rocky ride to get there. At some point, investors are going to be expecting Shopify to post a profit, so we’ll have to keep a close eye on earnings in 2019.
**Daniel Kent is long FTS.TO**
If you’re looking for stability, Fortis is probably one of the best companies to look at. The company has a dividend streak that spans over decades (40+ years) and its 3.66% dividend with a 66% payout ratio is about as strong as it gets. The company does business in a highly regulated industry where cash flows are often consistent. The fact the stock has returned over 14% to investors since its purchase in October is just icing on the cake. However, much like TD, with stagnant or decreasing interest rates potentially on the horizon we could see some volatility in this utility giant in the future. But make no mistake, Fortis is the type of stock that often gets bought and sticks in an investors portfolio for a long time.
iShares U.S. High Dividend Equity Index ETF (XHD.TO)
Comprised of some of the biggest companies in the United States, this ETF provides this portfolio with some exposure to the markets south of the border. The ETF has returned over 8% since October, and with an expense ratio of only 0.33% and a dividend yield of 2.79%, it won’t be moving from this portfolio.
iShares S&P/TSX Capped Energy Index ETF (XEG.TO)
Somewhat of an educated gamble was taken on the Canadian oil and gas industry in October and this portfolio overall has a very heavy weighting on the oil and gas sector. My views on the oil and gas sector have changed since then, becoming somewhat bearish. Political uncertainty and the pipeline glut, along with the fact that companies like Exxon Mobil are reassuring investors they can get oil for much much cheaper elsewhere ($15 a barrel in the Permian Basin) have caused me to rethink the strategy within this portfolio.
In a weeks time, we will be selling our shares of this ETF and instead purchasing a company that can provide a little more growth.
New Addition: Park Lawn Corporation (PLC.TO)
**Daniel Kent is long PLC.TO
There are a number of things to like about Park Lawn. For one, it is the only publicly listed owner and operator of cemeteries, crematoriums and funeral homes in North America. It is in a prime position to take advantage of an aging population. Park Lawn is investing heavily in acquisitions and annual EBITDA growth projections of over 33% through 2022 are a huge bright spot.
I see Park Lawn as somewhat of a defensive stock. Regardless of economic conditions, people are going to be dying. And if there is one thing people don’t cheap out on, its funerals for their loved ones. This will provide some protection in market uncertainty, which is a huge bonus to its strong growth numbers.