August 20, 2019

Tuesday was a moderately negative day in the markets.

The S&P 500 was down 0.6% and Toronto was down 0.5%.

Shopify was up 3.6% to $499 and traded above $500 today.

Toll Brothers was up 1.4% to $36.91. It then reported Q3 earnings after the close of $1.00 per share, beating expectations of 83 cents. As expected earnings and sales are running below the level of last year. The company indicated that they are off to a good start in Q4. It’s not clear how the market will react. I would suspect not a whole lot of reaction. The comp[any believes its shares are under-valued and bought back almost 4 million shares during the latest quarter at an average of $35.74. That’s a reduction of 2.7% in the share count.

The Enbridge rate reset preferred share ENB.PF.A is down to $13.86. I thought it was attractive in my last update at the end of June at $15.81. But since then, the FED has lowered interest rates and in general interest rates around the world are lower and talk of negative yields is pervasive. The 5 year Canada bond yield at my last update was 1.38%. Today it is down to 1.20% and it seems it is expected to go lower. At 1.20% the ENB.PF.A would reset on December 1 to (1.20 + 2.66) 3.86% of $25 paying 96.7 cents per year. That would be a yield of 6.96% of the current price of $13.86. I would view that as quite attractive in a world that pays 1.20% on a five year government bond and where the yields on high interest savings accounts and GICs are expected to head lower. And if the Canada Bond yield is way down at 0.50% on December 1, then ENB.PF.A will reset to pay 79 cents or 5.7% on the current price. Assuming there is not much chance that Enbridge will ever fail to pay the dividend it appears that the market is either pricing in an even lower reset yield or “feels” that 5.7% to 6.96% is insufficient. Investors have been continuously and repeatedly “burned” by these rate reset shares. At some point (now?) investors will have driven them down in price to the point where they offer very good value.

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