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Mullen Group Ltd. trading in a range Add to ...

Hi Lou,

I have a large GIC coming due and I am thinking of buying Mullen Group for the yield.

Thanks in advance,

John



Hey John,

Thanks for the assignment. Mullen Group Ltd. operates in the specialized transportation sector servicing the oil and gas sector in Western Canada. In addition they also provide clients outside the oil patch with logistics and trucking.

First thing I want to suggest is that you embrace diversification with the money that is coming out of your GIC. When you invest in a GIC you accept a lower rate of return for the guarantee of a return of capital. That is not the case with a dividend paying common stock.

MTL offers a 5.2 per cent dividend yield but with that greater return you have to accept the possibility of a loss of capital. The best way to mitigate that risk is by holding a basket of dividend paying stocks from sectors that are likely to benefit from the economic environment.

A review of the charts will provide some depth to your considerations.

The three-year chart indicates the shares have been range bound for the last year with resistance at $20.50 and support at $18.50. What puts a caution flag on the track for me is that the stock is trading below the 50 and the 200-day moving average which adds more risk than if it were trading above those levels.

The MACD on the six-month chart has been generating reliable buy and sell signals over the period. At this writing the indicator appears to be turning lower as is the RSI.

On a fundamental basis the company has been delivering earnings that beat the street in the last five quarters but hasn’t really benefited in a substantial way from the effort. The next quarterly report is scheduled for Feb. 22, 2012.

If you are going to buy MTL with a portion of your GIC assets, I would wait until the MACD generates a buy signal before jumping in. From there you will have to pay more attention to the basket of dividend paying common stocks then you ever spent on the GIC. Higher returns require more effort.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lschizas@globeandmail.com.

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