Experts worry that the recent interest rate cut in Canada will lure people to rack up even more debt. Bankruptcy trustee Doug Hoyes warns, “the more debt you have, the greater your chances of going bankrupt. It’s simple math.” He predicts bankruptcy numbers will “skyrocket when interest rates rise and people are saddled with ballooning debt payments.” Yikes. That doesn’t sound good. 😐
Anyway, last week I borrowed $1,420 from the bank to purchase 100 shares of Corus Entertainment (CJR.B) for $14.20/ share in my non-registered account. Normally I wouldn’t buy a stock with 100% borrowed money but with credit this cheap how can I say no? 😀 Besides, the dividend from CJR.B is twice as much as the interest I pay on the margin loan so it’s totally sustainable as long as the dividend doesn’t get cut, lol.
CJR.B Dividend Payout History
Corus is a large media company in Canada that operates both TV networks and radio stations. It owns brands including YTV, Treehouse, Nickelodeon Canada, W Network, OWN Canada, and Movie Central (including HBO Canada and Encore Avenue.)
You’ve probably heard on the news about the stock market correction in China. Last year, Chinese stocks experienced huge gains and surged more than 140%. Oh my Buddha, that’s insane! 😯 But since June 2015, the market has dropped by almost a third in value. Some people in the media claim this is some sort of catastrophic event comparing it to the Great Depression.
But we know better. 😉 First of all, a 33% drop, after a 140% gain is not such a bad thing. In fact that’s a net positive return of 60% in about 18 months, so who’s complaining? Secondly, due to strict foreign investment regulations only 1.5% of all the stock market shares in China are owned by foreign investors like Canadians and Americans. So this recent market decline has very little direct impact on investors outside of China. And lastly corrections inevitably happen after a parabolic upward trend, so this shouldn’t be a surprise to any informed investor. “Those who cannot remember the past are condemned to repeat it.” ~George Santayana
The Boom and Bust of China’s Stock Market
It all started a couple years ago when the Chinese government wanted to boost the country’s economy. It implemented policies making it easier for retail investors (average folks) to invest in the stock market. Things worked out even better than expected and the market quickly became detached from the fundamentals of the underlying economy. Last month the Shanghai Composite Index (SSE) started to fall. To make things worse many investors were investing on margin and had been forced to sell their stocks as their shares lost value which only perpetuated the downward momentum. 😕 Within a few weeks the SSE had dropped almost 33%. Here’s a comparison of stock markets over the last 12 months. (blue line = China, red line = Canada, yellow line = U.S.)
Earlier this month I blogged about my plan to help make this world a greener place by supporting renewable energy initiatives. One way to do this profitably is to invest in green companies. On Thursday this past week I purchased 50 shares of Brookfield Renewable Energy, (BEP.UN) for $38.05 CAD each for a total cost of roughly $1,900. It also trades as BEP on the New York Stock Exchange for interested investors in the U.S.
This is my first investment in a pure-play renewable energy company. Brookfield Renewable develops, owns, and operates renewable power generation facilities. It’s one of the largest and most diversified publicly traded green companies in the world. BEP has a diversified portfolio of high quality assets and over 100 years of power generating history.
The Business of Brookfield Renewable Energy
I’ve always like the idea of investing in B.C. Hydro or Ontario Hydro because the idea of creating electricity through the power of nature itself (water and gravity) and then selling that electricity to make money sounds like a great business model. The profit margin must be very profitable because once a hydro dam is built it doesn’t cost much to maintain it. But there’s no practical way for me to invest in crown corporations and government operated hydro facilities. Luckily, Brookfield Renewable has the solution.
BEP has over 7,000 MW of installed capacity, predominantly from its large hydroelectric portfolio. This means I can invest in water dams via BEP. 80% of the company’s assets is hydro projects, the highest quality renewable asset class. The other 20% is split between solar farms and wind farms with a compelling total return profile. In total Brookfield Renewable has $20 billion of assets under management (AUM,) mostly in North America, as the map below shows.
But ultimately what I really want to know is will this company be profitable in the future. First let’s look at its historical returns. Thanks to the experienced management team at the Brookfield Asset Management company (BAM), the parent company of Brookfield Renewable, BEP was able to return to its investors 16% compounded annualized return since inception in 1999. Hey not bad at all! 😀 It outperformed both the Canadian and U.S. stock market indexes.
When choosing a potential investment to put our money in it’s important to look at all the usual financial metrics like profitability, management, history, and forecasts. But a less conventional measurement to consider and is usually harder to quantify, is employee sentiment. 😀
The world’s largest asset manager, BlackRock, which has more than $4.65 trillion of investments under management, includes employee happiness data into its models for evaluating holdings and investment prospects. “We look for companies that have solid employee rankings and want to buy companies that have improvements in employee opinions,” says Paul Ebner, a portfolio manager at BlackRock. “Happy and engaged employees lead to more wins and more sales opportunities.”
It makes sense from a practical point of view. People who enjoy their work tend to be better at what they do and are more focused. And companies that are known to keep their workers happy will naturally attract the best talent in the industry. Research appears to back up the findings. Alex Edmans, an associate professor of finance at Wharton School of Business, discovered that companies that made Fortune Magazine’s list of the “100 Best Companies to Work For in America,” outperformed their peers by more than 2% on average annually between 1984 to 2009 (25 years.)
I have looked at the most recent Fortune list of best companies to work for. The top 3 publicly traded names are Google, Salesforce, and Roche (Genentech.) Over the last 5 years (from June 2010 to now) the stocks of all 3 companies have outperformed the Dow and the S&P 500 indexes.
GOOG = +118%
CRM = +197%
RHHBY = +115%
Dow Jones Industrial Average = +75%
S&P 500 = +92%
However other studies have shown there is little to no correction between employee happiness and the profitability of a company. Some critics say it’s an imperfect and unreliable indicator, arguing that the idea of happy workers is just fluffy. I’m not sure if we should gauge a stock by how happy its workers are, but I do think that disgruntled employees can create a toxic work environment which could lower a business’s earning potential.
Last week I blogged about how renewable energy is the cat’s jammies right now. It’s growing rapidly all over the world and may be one of the best investing opportunities of our life time. Today we’ll take a closer look at how to invest in them.
Why Invest in Renewable Energy
In 2005 cell phone manufacturers didn’t have a clue how the mass adoption of smart phones would change everyone’s lives. 📱 We literally have the entire internet in the palm of our hands today! YouTube was also created in 2005, by a few young chaps in their twenties. But nobody could have predicted that 8 years later video streaming would make up more than half of all internet traffic by data usage. You guys, 2005 was only 10 short years ago!
My point is the world is advancing quickly, and when it comes to making money, we have to position ourselves accordingly to ride the waves as they come and get in on the ground floor before the opportunities mature. And right now, I believe the next big wave that’s coming is in renewable energy. World leaders at the G7 Summit recently said they want to “de-carbonise the global economy” by the end of this century. This means ditching fossil fuels, and moving more towards green alternatives like solar, wind, and hydro electricity. With climate change being a major global priority, now is the time to focus on a greener future. ☀
Imagine investing in Apple in 2005 before the release of the first iPhone or being one of the YouTube founders. That’s the kind of opportunity we have right now with green energy.
Hipsters are all about Eco-friendly trends. We can be like hipsters too and invest in this industry before it becomes cool. 😀 Over the next 10 years I believe we’ll see a revolution in green technology. So let’s act now. When 2025 rolls around, renewable energy will be a lot more mainstream. But early investors like us can look back at 2015 and feel proud knowing that we were pioneers of this technology. Let’s work together to reduce humanity’s carbon footprint, and make some money doing it.💸
By investing in green energy we help raise capital for businesses to expand wind and solar power which will lessen the reliance for the demand of coal, and natural gas, which currently still make up the majority of the U.S. electricity needs. When we invest in renewable energy, we facilitate lower carbon emissions, create jobs for people, and profits for companies. We accelerate the speed of innovation making green technology more efficient and cheaper to produce. And on top of everything we can expect to make a 4% to 10% annual return from our investments.
Below are 5 different ways to invest in green energy with varying degrees of risk and expected returns. Let’s go over them one by one.