Linda, I must admit that it is rather frustrating to watch the share price of IPL being dragged down with the whole energy sector despite the fact that the company has very little direct commodity price exposure. I guess sellers argue that if oil and gas prices keep going down, there will eventually no longer be any need for pipelines and storage facilities! I suspect that there may also be a fair amount of tax loss selling taking place.
Nevertheless, IPL recently published excellent results and is starting to reap the benefits of the large expansion program of the past few years. Cash flows were strong and the balance sheet solid. I encourage you to read the article in the July issue of the Canadian Edge and the quarterly results update published in the MLM of 12 November.
We consider the stock to be considerably undervalued, with a fair value of US$24/C$31. IPL currently yields 6.5% with a secure and growing dividend. This is one of our largest holdings in the Dividend Champions Portfolio and we plan to hold on for what we believe could be considerable upside even if we have to wait for several years.

Deon

Lastly Linda, the share price of WJA, as you rightly state, has not been doing well of late. Over the past 3 months the share price dropped by 12% in Canadian dollar.

Apart from Canadian system wide capacity increases (which used to be the scourge of airlines) and a resurgent competitor, Air Canada, I am struggling to pinpoint the reasons for the share price decline. After all, the share price of the most comparable North American low cost operator, Southwest Airlines, has been moving up nicely over the past few months and lower fuel costs should boost margins.

The company reported excellent quarterly results. Adjusted earnings per share increased by 24% year over year, and the dividend per share was increased by 17%.

Operating metrics mostly moved in the right direction, with passenger traffic up 4.5% and operating margins increasing nicely, to 15.3%. However, capacity also increased by 6.2%, which resulted in a slightly lower load factor of 81.8%.

Lower fuel costs boosted results, with the operating cost per average seat mile down 5.7%.

The balance sheet remains in excellent shape, with a debt-to-capital ratio of 37%. Operating cash flow increased 66% during the first nine months of the year and proved to be enough to finance all capital expenditures, dividend payments, and a considerable share-repurchase program, which reduced the share count by 3.5% over the past year.

The stock is cheap in absolute terms and also relative to its peers. The dividend yield is somewhat on the low side, at 2.7%, but growing rapidly and well covered by net profits and free cash flow.

We are comfortable holding the stock in the Dividend Champions Portfolio and estimate the fair value at US$20/C$26.

Deon

Hi Linda, you may have noticed that we replaced the old “Price Limits” with “Fair Value” in the Dividend Champions table.
Fair Value indicates the price level where we believe investors will get a reasonable return on their investment. A reasonable return takes into account the level of interest rates plus an equity risk premium.
For most of the Dividend Champions this equates to a return of between 6% and 11% per year if bought at the Fair Value level. Any price below Fair Value is buying territory.

Our Fair Value estimate for RioCan is C$28/US$. At the current price the dividend yield is 5.6%.
We will publish a full report on RioCan in the December issue of the Canadian Edge, due next week.

Deon