Thursday, August 28, 2014

Windfall - Book Review

Windfall from McKenzie Funk is a fantastic new book that I have been reading over the past couple of weeks - and it has been awe-inspiring and an eye-opener on a lot of subjects. This book is a must-read for all investors to understand the business of climate change. The book is unique in that Funk travels to dozens of countries following the money, exploring and reporting from the frontlines.

About the Author:
McKenzie Funk is an award-winning magazine writer and a founding member of the global journalism cooperative Deca. His stories appear in Harper's, National Geographic, Rolling Stone, Outside, and The New York Times. Website: www.mckenziefunk.com

About the Book:
McKenzie Funk has spent the last six years reporting around the world on how we are preparing for a warmer planet. Funk shows us that the best way to understand the catastrophe of global warming is to see it through the eyes of those who see it most clearly—as a market opportunity. Global warming’s physical impacts can be separated into three broad categories: melt, drought, and deluge. Funk travels to two dozen countries to profile entrepreneurial people who see in each of these forces a potential windfall.


Takeaways From the Book
  • Written like a thriller novel - the book is hugely entertaining and of course, resourceful based on the subject matter.
  • Climate change provides a plethora of investment opportunities - the author takes the reader on a world tour from the Canadian Arctic to the desalination plants in Israel to the wildfires of California to the eroding coastline and villages of Bangladesh. All the while exploring investment opportunities for the coming changes.
  • One of the two main takeaways from the book - There will be winners and losers. Winners will be the high altitude richer nations and the opportunities that arise from the warming climate. Funk pinpoints that countries stand to benefit from the oil & gas, minerals and other riches that will become available once the arctic ice melts. Another positive for the high altitude countries includes the longer farming seasons. Countries that stand to benefit include Canada, Greenland, Norway and Russia. Meanwhile, the poorer and low-lying countries like the island nations in the Caribbean and Pacific stand the most to lose. Climate data predicts that the dry places will become dryer, wet places will become wetter.
  • Lots of funds already exist and have been around for more than a decade and the author pinpoints Deutsche Bank and a few other hedge funds. Common across all are the big theme for investing - food, energy, and water. However, we still arent at a place where we can trade water futures like we do with oil, wheat or other commodities. Water futures trading is probably just around the corner, with Australia at the forefront of the water market.
  • Funk traces the steps of the rising climate asylum seekers from West Africa to Bangladesh and the hardships they face from the emigration. Such eco-refugees have a very low priority in first world countries compared to political, religious and violence refugee seekers; and countries will continue facing the onslaught of eco-refugee seekers over the decades.
  • A majority of the world's population lives at or near water bodies due to historical reasons. With the threat of flooding increasing every year due to rising water levels or storms (think Hurricanes Katrina and Sandy), some Dutch companies are at the forefront of design and innovation to deal with the problem. Funk interviews and explores how Netherlands has fought off the sea since the middle ages and how companies are using their expertise to market its technologies to not only low-lying countries such as Maldives, but also consulting for projects in the US.
  • The author finally wraps up by following the money with a company based in Seattle called Intellectual Ventures (a private company) that has been accused to be a patent troll in the past. But the company has the blessings (as investors) of the same companies that it threatens to sue and other interested parties in geo-engineering the planet with ideas ranging from pumping sulfur-dioxide into the stratosphere to cool the planet down to hurricane suppressors and de-acidification of oceans. What is interesting is that the company, although remains adamant that it wants to carry out these projects for the good of the planet, it continues to file of thousands of patents in the hope to commercialize the operations someday.

Recommendation
All in all, I give this book a resounding two thumbs up and really recommend every investor to read it. If you are looking for investing ideas for the coming years and decades, this will get you started on that path. Note that the author does nor provide a list of stocks that you need to pick up (although he does mention a few companies in the book - some of which have been bought out or defunct), but gets you thinking and kickstarts the thought process.

If you are interested in supporting this blogger, please consider buying through Amazon using my affiliate link: Buy here.

Have you read this book? What are your thoughts on the investment thesis considering climate change? Make sure to leave your thoughts and comments below. I deeply value your feedback.


Tuesday, August 26, 2014

Bank of Nova Scotia (BNS) Dividend Increase

Bank of Nova Scotia (BNS, BNS.TO) announced a 3.12% increase in its cash dividend. The quarterly cash dividend will increase from $0.64 to $0.66 per share and payable on Oct 29, 2014 to shareholders on record as of Oct 7, 2014. This is the second dividend increase in 2014 and the dividend increase YTD is 6.45%.

In the release of the third quarter results today, the bank reported the following figures (compared to Q3 2013).
  • Net income of $2,351 million, up 35% from $1,747 million
  • Earnings per share (diluted) of $1.85 compared to $1.36, up 36%
  • Earnings include $555 million or 45 cents per share related to the sale of a majority of the bank's investment in CI Financial Corp. ("the notable gain")
  • ROE of 20.6%, compared to 17.2%
  • Productivity ratio of 47.8%, versus 51.6%
  • Quarterly dividend of 66 cents per common share

The annual dividend rate goes up from $2.56 to $2.64. I have an ongoing DRIP plan with BNS.TO and based on yesterday's closing price, the current yield is 3.56% and my YOC is 4.05%.


Saturday, August 23, 2014

Chatter Around the World - 58

Chatter Around the World is a weekly curated link update of articles related to economics, investing, dividends and personal finance. In these weekly updates, I also capture my blog updates and news related to my holdings.

Search term iPhone slow shoots up coinciding with new iPhones releases. Apple's software "updates" forcing users to upgrade to latest iPhones?

New Blog Posts

Let's dive into the links that caught my attention this week.

Thursday, August 21, 2014

Recent Trades - Options

Last week, I wrote two covered calls on the following positions.

IAMGold Corp (IMG.TO)
IAMGold has been the dog in my portfolio. When I first started the position in my portfolio, the stock was paying a healthy 5% yield and had a 5-yr dividend growth rate of 33%. But last year saw the decline in gold prices which started cutting into the operating margins at the company - which resulted in IAMGold suspending its dividends. I have continued holding the position as it is still a great company and continues to be one of the most efficient companies in the sector. However, the weakness has resulted with this stock ending up in the red and I have decided to sell it to move my commodities exposure to some other company. However, instead of directly selling at today's prices, I decided to write covered call options instead and let the market decide for me. I wrote seven Sep 20th calls with a strike price of $5.00 resulting in a total of $49.00 in premium. If the stock stays below $5.00, I keep the premium. If it rises above $5.00, the option will get called and I sell and exit my position. Considering that this is high season for gold stocks, the likelihood of the stock going north of $5.00 is higher.

The Jean Coutu Group (PJC.A.TO)
The Jean Coutu Group is a great stock, but with a current yield of 1.85%, I feel that there are better options out there. Although the stock has a great dividend growth rate, I have enjoyed a significant jump in unrealized profits. I ended up writing one Sep 20th call with a strike price of $22.00 resulting in a $30.00 premium.

This adds $79.00 to my monthly income, which will handsomely bump up my overall passive income for the month of August.

Disclosure: My full list of holdings are available here.


Tuesday, August 19, 2014

Recent Buy - Kinder Morgan Inc (KMI)

I added to my position in Kinder Morgan Inc (KMI). Kinder Morgan has been hard to miss if you've been watching the business news lately. Kinder Morgan, which was the parent company for Kinder Morgan Energy Partners LP (KMP), Kinder Morgan LLC (KMR) and  El Paso Pipeline Partners LP (EPB), announced that it was consolidating all its businesses under one roof which is Kinder Morgan Inc (KMI).

KMI runs 80,000 miles of pipelines and 180 terminals and is now the third largest energy company in the United States after Exxon Mobil (XOM) and Chevron Corp (CVX). I ended up adding 40 shares to my portfolio (bringing my total to 100 shares in KMI) at a price of $38.50/share. This increases my annual dividend income by $68.80.

Corporate Profile (from Yahoo Finance)
Kinder Morgan, Inc. operates as a midstream and energy company in North America. It operates through Natural Gas Pipelines, CO2—KMP, Products Pipelines—KMP, Terminals—KMP, Kinder Morgan Canada—KMP, and Other segments. The company owns an interest in or operates approximately 80,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, carbon dioxide (CO2), and other products; and terminals store petroleum products and chemicals, and handle products, such as ethanol, coal, petroleum coke, and steel. The company was formerly known as Kinder Morgan Holdco LLC and changed its name to Kinder Morgan, Inc. in February 2011. Kinder Morgan, Inc. is headquartered in Houston, Texas.

Recent Buy Decision
Kinder Morgan is one of the best ways to play the energy boom in North America and the decision to add to my position has been an easy one.
  • Kinder Morgan, which was a leader in the MLP industry, has decided to consolidate and bring everything under one roof - which removes all the confusion for the shareholders on which stock ticker to choose.
  • The consolidated company is more focused on cash flow and provides shareholders with increased revenues year after year.
  • With the integration of EPB pipelines, KMI's 54% of the business now consists of natural gas pipelines (largest in North America) - which I am bullish on.
  • In addition, KMI is the largest independent transporter of petroleum products (2.3MMBbl/d), largest CO2 transporter (1.3 Bcf/d), largest independent dry bulk terminals, and only oilsands pipe serving the west coast.
  • The consolidated company will have a market cap of $140B, even though the stock doesnt reflect that yet.
  • Most importantly - the payout and returns to shareholders. The expected payouts are $2.00 (2015), $2.20 (2016), $2.42 (2017), $2.66 (2018), $2.93 (2019), and $3.22 (2020). If KMI can keep its promise (and it has, in the past) and raise/beat those dividends in the future - that amounts to a salivating income play to investors.
The detailed presentation from Kinder Morgan provides more insight on the future. Click here to access.

Risks
Investing in KMI faces the following risks
  • There have been rumors circulating that the consolidation of the businesses could face litigation from LP shareholders as they are forced to sell their shares and incur taxes. Dividend Growth Investor shared his thoughts recently about the huge tax bills KMP/KMI will face due to the consolidation. Read his post here.
  • KMI assumes $27B in debt that the other entities had taken on.
  • KMI faces some regulatory roadblocks with the Trans Mountain pipeline in Canada, which could incur delays in the project.
  • Any increase in interest rates will result in headwinds for stocks in the sector.

Full Disclosure: Long CVX, KMI. My full list of holdings is available here.