October 3, 2017

Tuesday was another positive day in the markets with the S&P 500 up 0.2% and Toronto up 0.1%.

Linamar was up another 1.5%.

The Canadian Western Bank series 5 preferred share was up 2.0% to $23.77.These shares were issued at $25 in 2014 yielding 4.4%. They traded above $25 for most of 2014 but declined through 2015 and reached a bottom of just under $16 in early 2016. The recovery since then has been relatively steady.

I mentioned these share favorably at $18.85 on December 23, 2016 and at $19 as well as at $18.25 on September 4 and in an update on March 13 at $16.61 and on February 23. It was disappointing to see these shares decline the way they did (along with almost all rate reset preferred shares). But those the declines also provided opportunities for bargains.

At this point there is not much upside left in these shares. But if interest rates continue to rise they could get back to $25.

Warren Buffett / Berkshire Hathaway today announced it will acquire 39% of the company that owns the Flying J truck stops. Berkshire’s ownership is set to rise to 80% in 2023 with the controlling family continuing to be involved and owning 20% at that time. This is a typical Buffett acquisition, a very large successful and simple family owned business. It seems to me that the business has some similarities to Alimentation Couche-Tard. On highway trips most people like to stop at the biggest and brightest and cleanest service stations.

The news today was that Jean Coutu will be sold to Metro and the family will receive some $2.5 billion dollars. The family deserves great praise for the business it has built up. But one thing that never seems to be mentioned in situations like this is the income tax the founding family will pay. Possibly it’s not mentioned because they have managed to shelter most or all of that gain from taxes. Whenever the founder of a huge family-owned company dies you might think there would be a huge income tax bill. But maybe estate taxes are only for the little people? I really don’t know. (P.S. to clarify, I used the term “estate taxes” quite loosely here, I refer to the deemed disposition on death and resulting capital gains on cottages and investment rental properties and financial investments and small business value gains above the $830,000 exemption and the full taxation of the RRSP /RIF of a the last surviving spouse.)

RioCan announced on Monday that it will sell properties in smaller places to concentrate on the six largest cities in Canada. This will take place over a couple of years. They intend to buy back some units and will suspend their dividend reinvestment plan. I would definitely consider buying these units if I had much cash in my accounts. This REIT seems to be very well managed. I would not be surprised if they increased the distribution before too long. The unit price is up less than 2% on the news. Apparently analysts and the market are not overly excited by the news.