It’s important for me to disclose my stock purchases in the interests of transparency but the last thing I want is for readers to lose money by following me into investments that don’t suit their risk tolerances or investment profile. So, in noting a new small position in open source software company Red Hat Inc., I’ll also warn that the stock is expensive in price-to-earnings terms and carries significant risk.
The bull case for Red Hat is based primarily on the proliferation of cloud computing and, to a lesser extent, the beginning of telecom spending on 5G wireless service. Corporate IT departments will continue to gravitate towards cloud computing, and software packages like Red Hat’s Openstack, for the simple reason that running software on the cloud is a lot cheaper than buying software and the hardware to run it on.
For those interested in learning more about cloud computing, the Red Hat corporate site provides an introduction. In late 2017, technology website ZDNet also wrote a quick corporate history for Red Hat in "From Linux to cloud, why Red Hat matters for every enterprise.”
Red Hat’s recently released fourth quarter earnings were highlighted by a 23-per-cent year-over-year increase in revenue that was boosted by telecom companies buying Network Function Virtualization software in anticipation of 5G spending, according to industry news source Light Reading. Morgan Stanley research believes that we’re a couple of years away from the big ramp up in 5G spending, but that it will require US$225-billion in telecom company investment.
I added a five-per-cent Red Hat position to my portfolio last Wednesday at about US$143 per share. The price is significantly higher since then, but now sports a disquietingly high trailing price-to-earnings ratio of 71 times. The price to forward 12 month earnings estimates ratio is currently 45 times, according to Bloomberg.
Elsewhere in the technology space, Morgan Stanley published an 104-page report on the next generation of technology growth which included their top stock picks in the sector. Red Hat, unfortunately, was not among them but the analysts believe that a data-driven future will see outsized gains for NVIDIA Corp., Cisco Systems Inc., Alphabet Inc., and Dassault Systemes SA.
-- Scott Barlow, Globe and Mail market strategist
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Ask Globe Investor
Question: Can you recommend a website where I can look up historical dividend payments for a company?
Answer: The best place to start is the investor-relations section of the company’s website. Many companies provide historical dividend data going back several years or even decades, and by going directly to the source, you can be assured that the information is accurate.
Morningstar.ca is another good source of dividend data. Enter the stock symbol in the “fund/stock” box, then click on “performance” and “dividends and splits,” and you’ll get a five-year chart of the company’s annual dividend payments. This is a quick way to determine if the company’s dividend has been growing (one of the key things I look for in a stock).
Below the five-year chart, you’ll find detailed information on each of the company’s quarterly (or monthly) dividend payments − including the declaration, ex-dividend, record and payment dates − over the past five years. (Tip: You have to click on the year to display the information).
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What’s up in the days ahead
Ian McGugan will give us some reasons to think twice before investing in the tech sector. Meanwhile, John Heinzl looks at the sizzling returns of InterRent REIT - despite a very modest yield.
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Compiled by Gillian Livingston