Thursday was a weaker day in the markets with the S&P 500 down 0.8% while Toronto was down only 0.2%.
On the positive side, Toll Brothers was up 2.0%. And CN Rail was up 0.8% and has has been trending up steadily since the December 24 low.
FedEx was down 3.0%.
Canadian Western Bank was down 2.4% to $29.33 despite its good earnings report and dividend increase. CWB has a book value as of today of $27.30. So it is trading at a premium of only about 7% over book value. And on its book value it has recently been earning an ROE of about 12%. That’s good, although not great and it is lower than it was a few years ago. And CWB has not lost money in any quarter going back close to 30 years. The company is no longer touting that steak perhaps because such a streak is likely to end at some point especially as accounting rules have generally resulted in more volatile earnings and more often the requirement for various write-offs from time to time. And certainly CWB could suffer higher loan losses and even more so could face a period of lower growth. But if it is assumed that it can continue to earn something close to 12% on its book equity on average and if you can buy in at what is quite close to book value, then that is going to work out well over time. The dividend yield is 3.7% which is certainly not the highest dividend around. But it does beat the yield on a GIC and that dividend is extremely likely to keep rising over the years.
Now, admittedly CWB share holders have not seen a great return at all since the stock was close to $42 almost five years ago (just before oil prices went down from the high levels of early to mid 2014) . The thing is back then the book value was only about $19. The lesson here is that it is now apparent that buying CWB at twice book value or more was not such a great move. And I will admit that at the time I thought it was reasonable to pay twice book value given the ROE at the time. Going forward I will be more hesitant to pay, for example, twice book value for a bank. But having had a bad experience in paying twice book value then does not seem like a good reason to refuse to buy CWB today at 1.07 times book value, much less to sell at that price.
Rate reset preferred shares have once again been declining as the 5 year bank of Canada bond yield falls. The market is continuing to demand what could be called quite a large yield premium over the five year rate. That higher required “spread” and the lower 5 year bond have both been responsible for pushing down the price of rate reset preferred shares. As someone who tends to look to “buy low”, I would be tempted to perhaps buy some of the discounted rate reset shares despite the unhappy track record. They could have a place particularly in a portfolio that is designed to generate dividend yield in a taxable account.