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Investment Ideas Liquor Stores investors will be crying in their beer for foreseeable future

A liquor store sign in New Westminster, B.C.

Richard Lam/Canadian Press

Hi Lou,

Could you please offer your thoughts on Liquor Stores N.A.?

I have some in my TFSA, chasing the yield through their DRIP Plan, and I wonder if that yield might be safe, or adjusted.

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Also, any thoughts as to their potential for a take-over?

Regards,

Glen

Hey Glen,

Thanks for the assignment.

This will be the third time that I undertake an analysis of Liquor Stores N.A. Ltd. The last examination was conducted on Oct. 3, 2012, when the shares were trading for $18.55. Olena was wondering what had caused the slide in the stock. What was identified was that the uptrend line had been breached as the shares met resistance near $20.00. The sudden resignation of CEO Rick Cook on Aug. 30, 2012, also had investors hitting the sell button.

What came out of the analysis as well was the advice to treat your stock like a puppy. If you decided to bring a puppy into your life you would spend a lot of time attending to its care and feeding. You would check on it daily, observe its behaviour, and tend to its needs. Make sure to take the same approach to your investments they need your attention as well! As to the sanctity of the dividend you need to understand that dividends on common shares are issued at the discretion of the board of directors based on their evaluation of operations and profitability. The company cut the dividend in 2011 which if nothing else should bring the lesson home.

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An investigation of the charts will help identify the trend, support, and resistance that underlies this file.

The three-year chart illustrates the selloff that began in March of 2013 as the shares were trading near $17.75. A death cross surfaced in April of last year and was followed by the stock repeatedly meeting resistance along the 50- and 200-day moving averages until support at $16.50 was breached in August. From there the decline gained momentum, taking the stock to a 52-week low of $11.04 in March of 2014. What is also worth mentioning is the established downtrend line and the resistance along the 50-day moving average.

The six-month chart highlights the big fall off that followed the announcement at the end of January by the British Columbia provincial government of their interest in allowing the sale of liquor in grocery stores by 2015. The shares caught a bounce off the 52-week low but haven't been able to rally through resistance.

The market cap for LIQ is $277.75-million and the dividend yield is 8.99 per cent. The next earnings report is scheduled for May. I haven't found any chatter regarding a possible takeover but that's not unusual. In my opinion LIQ has a lot of work to do before it becomes a buy. Keep an eye on your puppies on a daily basis so they don't turn and bite you on the leg.

Make it a profitable day and happy capitalism!

Have your own question for Lou? Send it in to lou@happycapitalism.com.

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