December 3, 2014 Comments

Wednesday was a better day for the Canadian stock market with Toronto up 0.9%. Meanwhile, the S&P 500 was up 0.4%.

Canadian winners today included Canadian Western Bank up 2.0%, Stantec up 1.9%, and FirstService up 3.6%.

After the close of trading Canadian Western Bank released its Q4 earnings and reported another record quarter. Here are some value ratios calculated based on its trailing earnings as at Q3 (When I enter the Q4 numbers the value ratios will improve slightly). It’s trading at 1.85 times book value. It’s ROE is 14.2%. It retains 68% of its earnings and pays out 32% as a dividend. The dividends yield is modest at 2.3%. But if you have an earnings engine that that is making 14% on equity it’s questionable if it should pay out any dividend at all. If you had a bank account paying double digit returns would you withdraw any money?

One can always come with scenarios of doom. What if the Alberta economy tanks due to low oil prices? What if the bank suffers huge loan losses. Well anything is possible but the question is, is this company more likely to suffer that problem or more likely to keep growing its earnings? I have been tracking it for just over 15 years. During that time its stock price is up 604% or a compounded average of 13.6% per year. It’s had its downs as well as its ups in those 15 years. I certainly like its chances for being a good investment over the next ten years. As far as the next 10 days or ten months that is harder to predict. But I am happy to climb aboard and see what happens.

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