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Time to open up the mailbox again, and answer a few of your questions.
Q – I own Enbridge and BCE. I see they don’t earn enough income to cover their dividends. Consequently, there are no retained earnings, and the deficit continues to grow.
As investors, should we flee these situations? Or are these companies large enough to run deficits for several years with little consequences? – Geoff O., Ottawa
A – I wouldn’t flee these stocks (I own both), but I’d monitor them closely and take nothing for granted.
BCE currently yields 9.9%, which is clearly a red flag. The company recently had its credit rating cut by Moody’s and the announced sale of its stake in Maple Leaf Sports and Entertainment to Rogers for $4.7 billion. It’s investing that money in a U.S. telecom and freezing the dividend at the current level through 2025.
In the second quarter, BCE reported adjusted earnings per share of $0.78, well below the quarterly dividend of $0.9975. The company guided to full year adjusted EPS of -2% to -7% below 2023.
But BCE doesn’t calculate its dividend payments on earnings. It uses free cash flow as its base, saying, “Free cash flow shows how much cash is available to pay dividends on common shares, repay debt, and reinvest in our company.”
Second-quarter free cash flow was $1.097 billion. BCE has 912.3 million shares outstanding. On that basis, the total cost of dividends in the second quarter was $910 million. That’s 83% of free cash flow. There’s not much wiggle room there and very little left over for debt reduction and reinvestment.
Enbridge pays a quarterly dividend of $0.915, or $3.66 a year, to yield 6.4%. It’s second-quarter adjusted earnings per share were $0.58, again well below the payout.
Base business distributable cash flow was $2.798 billion. The company had weighted average common shares outstanding of 2.137 billion, which works out to a total dividend cost of about $1.96 billion. That’s a better position than BCE, and Enbridge’s lower yield reflects that. But continue to keep a close eye on both situations.
Q – Just wondering if I can make any money by buying a rental property in Florida. I think prices will be very depressed as a result of the recent hurricanes. – Gojko B.
A – Many Canadians have Florida properties, but some saw their homes destroyed by Hurricane Helene and Hurricane Milton and don’t plan to rebuild. So yes, prices should be depressed in the affected areas, at least for a while. But there are a lot of considerations for a Canadian thinking of owning a rental property in the state. Among them:
Can you get a mortgage? U.S. mortgage lending requirements are very strict, and some financial institutions will not lend to non-residents. Before you make an offer on any property, make sure you can arrange financing.
Are you prepared to file U.S. tax returns? Renting a Florida property means you’ll have to collect state sales tax and file a federal tax return, which for non-resident can be a hassle. My advice is to get an accountant who can handle all this for you – although of course that will add to the expense.
Who will manage the property? Also, can you find a 12-month renter, someone who will provide cash flow all year?
Consider the cost of insurance. They’re skyrocketing, especially for flood insurance (if you can get it).
Can you make a profit? Check out the rental rates on comparable units in the area you are considering. Do the math to determine if you can make a few dollars after all the expenses have been calculated.
Hurricane anxiety. Finally, can you deal with the anxiety that every Florida experiences when a new hurricane approaches? I lived with that for several years. It’s not fun!
Q – Do you have any thoughts on Evertz Technologies (TSX: ET), a Canadian tech company with a 6%+ dividend? – John D.
A – The stock is cheaper than it was five years ago at this time, but it has looked a little stronger recently. The company specializes in producing hardware and software solutions for the telecommunications industry.
Recent financial numbers look good. The company reported record revenue of $514.6 million for 2024 fiscal year to April 30. That was up from 13% from the prior year. Net income was $71 million ($0.91 per diluted share), up 10% from the year before.
The stock pays a dividend of $0.195 per quarter ($0.78 a year), to yield 6.4%. The company has a solid dividend history, including some special payments over the years.
Based on history, this stock offers good cash flow, but the capital gains potential is minimal despite a low p/e ratio of 14.51.
If you have a money question you’d like answered, send it to gordonpape@hotmail.com and write Fund Library Question on the subject line. I can’t guarantee a personal response but I’ll answer as many questions as possible in this space.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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