Decreasing oil price and US unemployment rate had a negative impact on the market and took the price of most of the stocks with it last week. Probably many investors think that stronger jobs report would indicate an interest rate hike in US could come earlier than later. Good news is bad news for the market although for me it is an excellent news as I couldn’t pass great buying opportunities of dividend stocks that are on my watch list. I love the short-term declining volatility as I am confident that the overall market will eventually recover and be better. I have no idea where the oil prices will go and so many professional analysts won’t know either. I never time the market. I just look through the companies that are on my watch list when I have some capital to deploy then purchase them when their current prices seem attractive.
I purchased 270 shares of Ensign Energy Services Inc (ESI) last week and introduced to you. Today I will introduce you another stocks that hit hard due to oil price fluctuation. I just love short-term fluctuation. Last week, I purchased 141 shares of Canadian Western Bank (CWB) at $28.50 and added another 84 shares at $27.10. This purchase will add about $190 to my annual dividend.
Many of you may be thinking “Why the heck didn’t you purchase big 5 Canadian banks?” I thought you said you purchased solid dividend growing companies stocks last week. I expected that you purchased may be one of those big 5 Canadian banks such as BMO, TD, RY, CM and BNS” I know that Canadian Western Banks is not one of big 5 banks but it is one of the strongest Canadian dividend aristocrats. It has raised its dividend for last 23 years even during 2008-2009 sub-prime mortgage crisis when all the big 5 banks stopped their dividend growth and its EPS has been growing substantially over the years. It is priced at just around 10 of P/E ratio close to 5 years low which triggered me in adding initial position on the bank by purchasing 141 shares and added another 84 shares when its share price dropped due to its net income not meeting analysts’ expectations which is really excellent.
Let’s go over it in more details.
Canadian Western Bank has 40 branch locations mainly in Western Canada. The bank offers full bank services such as personal banking, business banking, investing service, mortgage service, credit card service, business insurance, cash management service etc… The oil price brought down the bank’s share price with it for last 6 months or so due to oil industry’s heavy presence in Western Canada.
1. CWB has increased its dividend from $0.1075 per share in 2002 to $0.8000 in 2014. That’s 740% increase during 12 years. It survived through various crashes and constantly increased its dividend during that time and continued its growth over 20 years. Would it continue? I strongly think so.
2. CWB’s direct exposure to the energy industry is small at around 6% of total outstanding loans at this time.
3. Despite poor economic conditions in western Canada, CWB posted net income of $54 million in 2015 Q1 increased by 3% compared to the same quarter in 2014.
4. Sold Canadian Direct insurance for $197 million and Valiant Trust’s stock transfer business for $33 million resulting combined gain of $1.25 earnings per common share. The sales are to focus on primary services.
5. Dividend yield of whooping 3.1% at current market price and the current dividend ($0.21 per share) is 11% higher than 1 year ago. Its payout ratio is only 30%. It is substantially lower than Canadian Big 5 banks (46-53%).
6. P/E ratio of 10 is very appealing. Considering its strong performance, it is seriously a bargain regardless where the oil price goes in the future
7. Currently traded in around $27 mark which is close to 5 years low. This stock lost one-third of its value in the past 6 months. I just love when investors get emotional and flee hard and fast which brings stock price down. Short term stock price fluctuation is seriously all about psychology and my favorite time to add my position. “Be fearful when others are greedy and greedy when others are fearful” Warren Buffett…
8. CWB was in good hands and is in good hands. Larry Pollock who used to be the CEO of CWB for 23 years just won 2015 Canadian Business Leader Award. He grew the bank when it had only a few branches to one of the bigger banks in western Canada. The current CEO, Chris Fowler has been helping Larry Pollock over the years to position CWB to be where it is at.
1. Its business is too much focused on Western Canada where quality of the commercial loans can be volatile in the face of substantial financial challenges in the west. 42 % of bank’s loan portfolio is based in Alberta however this also means that 58% is diversified outside of Alberta. British Columbia accounts for 33% and Ontario accounts for 15%.
2. In 2015 Q1, its impaired loan rose to $80 million representing 0.44% of total loans due to an energy loan defaulting suggesting some recent deterioration. This is the highest level of impaired loan at CWB since 2010
Low oil price has created mixed impact across Canada. Oil producing provinces have been temperately hit whereas the rest of the provinces have improved their economic outlook. Job creation and housing sector would mildly suffer in 2015 in Alberta but positive impact from lower interest rates and general expected economic growth in Canada will support CWB’s profitable growth. It the short-term, the share price is purely based on emotion and psychology and therefore will be impacted by the price of oil however its solid performance over the past especially growing its business as well as dividend in toughest times provides me full of confidence in the company to add initial and supporting positions of the stocks when it is well priced.
I can easily see that current uncertain time will make the stock price to fluctuate even more considering it being a mid-cap sized company but I am thinking it as a very long-term investment and I am quite confident that the stocks will do very well and will increase its dividend substantially in the long-term. I think Canadian Western Bank is an excellent stock to buy and forget if you are a long-term investor. My purchases of Canadian Western Bank stocks will add $190 to my annual dividend.
What do you think about my purchase? Do you have more appealing stocks on your watch list?
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