Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
Income-oriented investors should have a roster of key holdings, especially during these difficult times.
Those may include big, steady performers such as BCE Inc., Fortis Inc., Emera Inc. and TC Energy Corp.
But there are many smaller companies that may have been overlooked by investors, even though they are performing well in the COVID-19 era. Here are three of them.
Current price: US$24.17
Annual payout: US$1.90
Yield: 7.8 per cent
Risk: Higher risk
Comments: Most companies in the food business are doing well these days and this little-known American firm is no exception. The stock is up 35 per cent year-to-date, while all the major indexes are down.
Net sales during the first quarter were up 8.9 per cent, to US$449.4-million, and the uptrend has accelerated since then. Sales in May came in at US$160.1-million, an astounding increase of 50.5 per cent over the same period last year. The company expects net sales for the second quarter of 2020 to be in the range of US$510-million to US$525-million.
Stay-at-home orders as a result of COVID-19 drove these impressive results.
The company produces a wide range of brands, the best-known of which are Green Giant and Cream of Wheat. Others include Back to Nature, B&G, B&M, Dash, Maple Grove Farms, Spice Islands, New York Style and Victoria.
Adjusted net income for the first quarter was US$29.2-million (46 US cents a share, fully diluted), compared with US$29.1-million (44 US cents), for the first quarter of 2019.
Adjusted EBITDA was US$80.7-million, an increase of US$4.9-million, or 6.4 per cent, compared with US$75.8-million for the first quarter of 2019. The increase was primarily attributable to the impact of the COVID-19 pandemic on the company’s net sales, as well as the acquisition of Clabber Girl Corp. in the second quarter of 2019. Adjusted EBITDA as a percentage of net sales was 18 per cent for the first quarter of 2020, compared with 18.4 per cent a year ago. (EBITDA stands for earnings before interest, taxes, depreciation and amortization.)
The stock pays a quarterly dividend of 47.5 US cents a share and that hasn’t changed since June, 2018. I don’t expect any increase in the near future, but the sales growth makes the financial position of this company more attractive. The yield of 7.8 per cent says the market is still attributing considerable risk here, but I like the general direction we’re seeing and recommend the stock to more aggressive investors.
Current price: $61.59
Annual payout: $1.32
Yield: 2.1 per cent
Comments: This business isn’t very glamorous – glass and plastic manufacturing and distribution – but its units have taken off, climbing to $61.59 from $45.29, for a gain of 36 per cent in four months. Why? A favourable movement in the Canadian/U.S. dollar exchange rate boosted returns on U.S. sales. But, more important, sales of health care-related products associated with combatting the coronavirus were up dramatically. Overall first-quarter revenue was up 33 per cent year-over-year, of which 25 per cent was organic growth.
Actual net income for the quarter was just under $15-million ($1.03 a unit, fully diluted) compared with $4.6-million (41.9 cents a unit) the year before. The payout ratio for the first quarter was 32 per cent, which means there is potential for an increase in the monthly distribution of 11 cents.
Current price: $70.06
Annual payout: $2.904
Yield: 4.1 per cent
Comments: Real estate investment trusts as a group have been hard-hit by the COVID crisis. Retail REITs have seen their malls shuttered, office REITs have been hit by work-from-home rules, apartment REITs risk rent defaults. As a result, most have dropped in price.
But not Granite. It was spun out from Magna International in 2011 and owns the properties on which Magna’s plants were built. Management pledged to diversify to other industries, and it has been delivering on that promise. But the main reason the REIT has held up well is the high credit quality of its clients. In mid-May, management reported that 99 per cent of its April rents had been paid and the May figure at that point was 95 per cent.
First-quarter funds from operations (FFO), a key measure of a REIT’s financial health, was $56.8-million ($1.05 a unit) compared with $40.7-million (89 cents) in the year before. Excluding one-time items, FFO for the quarter was $53.2-million (98 cents).
The REIT increased its monthly distribution in December to 24.2 cents from 23.3 cents.
Granite continues to acquire properties even during the height of the pandemic. On June 3, it announced the acquisition of eight income-producing properties in the United States comprising approximately four million square feet at a combined purchase price of approximately $332-million.
“These acquisitions … advance our strategy of acquiring and developing modern e-commerce and distribution facilities in Granite’s U.S. target markets,” Kevan Gorrie, chief executive of Granite, said in a news release.
The REIT has a strong balance sheet position with estimated pro forma liquidity of approximately $1.1-billion.
Full disclosure: The author has a position in Granite REIT.
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