The Canadian Investor - Trump's Win and What It Means for Canadian Investors

Episode Date: November 14, 2024

In this episode of The Canadian Investor Podcast, Simon and Dan dive into the potential impacts of a Trump presidency on Canadian investors.  From the threat of tariffs on softwood lumber and dairy to the potential benefits for certain industries, they discuss the uncertainty ahead. Will capital flow to the U.S. due to deregulation, or could it benefit Canadian investors in specific sectors like oil, gas, and crypto? They also cover the latest earnings reports, including Stella Jones’ struggles in a slower economy, BCE's acquisition of Ziply Fiber and its financial challenges, and Telus' positive performance despite sector-wide telecom pressures. Tickers of stock discussed: BCE.TO, SJ.TO, T.TO Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Sign up for Finchat.io for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm back here with Dan. Actually, back-to-back episodes with Dan because we had to rearrange the publishing of the podcast. So, we did release the last one Monday, which was a listener question. Been a couple of weeks,

Dan. How have you been? Pretty good. Just got back from Arizona a while back. I was down there for the election, got to watch all the news networks. The news networks are definitely a different beast down there. Here, they're so leaning towards one side. It's just kind of, especially live during the election, just swapping in between channels just to see the different perspectives was just, so like leaning towards one side it's just kind of especially like live during the election just like swapping in between channels just to see the different perspectives was just it was crazy yeah and i mean i think arizona's kind of last it was kind of considered the swing state i think yeah i think the democrats won it last election right they did well they won it last and i think they won it no was it republican this time i know it was so close it

took like two or three days after the count yeah yeah yeah people are not tuning in for our elections analysis here the one thing i will say is and i'm sure some people are aware of it so i was definitely i was watching it i was in calgary i was traveling and essentially i was looking at polymarket a whole lot and uh super interesting for those not aware, it's like kind of a blockchain betting market, where people will bet against each other basically on whether in this situation, whether they thought Trump or Harris would win. And it's interesting how quickly the odds really went in Trump's favor when the election results started coming in. Like essentially it was Calgary time. It was probably around 10 p.m.

I think Trump was like a 90 plus percent winner. So it's interesting how that might actually change the future of elections. And I'm sure we'll probably have a polymarket right with our next federal election here too. So it'll be interesting how that starts diverging from polls. But as a math nerd, definitely I was curious with that. I find it kind of weird that they even, they were taking bets. I mean, just overall for election winners. It's kind of weird to me, but. Yeah. I mean, at the end of the day, it's the market, right? Whether betters have some kind

of election, maybe they're looking at certain kind of data that pollsters are not really factoring in. I'm not quite sure, but it was interesting how quickly the betting markets were actually kind of giving it over to Trump. But having said that, I think it's a good transition for with the Trump election, what it means for Canadian investors. So, well, first of all, I mean, I don't know about you, but I think it's this is probably pretty good advice is just to make sure that, you know, don't make any rash decisions just because Trump won. If you were kind of your bet, your investment thesis was more like, you know, you were kind of pricing it more Harris win or vice versa. I think it's important to remember

that. Yeah, you want to make sure investments will do well regardless of who is president. kind of pricing it more a Harris win or vice versa. I think it's important to remember that, yeah, you want to make sure investments will do well regardless of who is president. Sure, of course, the big thing with Canada, I think the elephant in the room, I think you'd probably agree with me, is what would happen with tariffs. There seems to be a lot of people freaking out in the Canadian mainstream media. We really don't know what will happen. Yes, Trump did say he would. I think I saw 10 and 20 percent tariffs across the board to all countries. But at the end of the day, I think it's important to remember I went on the U.S. website and 34 U.S. states actually have Canada as their largest export market in 2022.

So that's the most recent data I could find. So all that to say that a lot of states are dependent. Obviously, Canada is extremely dependent on the U.S. I'm not debating that the other way around as well. But all I'm saying is a lot of states are actually very dependent. And, you know, tariffs that would impact trades with trade with canada would not be good for those states so i think it's it's really important to uh just remind yourself of that before you know you start making any rash decisions um anything you want to

add before i continue no i mean i guess like there he will be putting tariffs on some things. That's like almost a guarantee. I'm pretty sure like he word for word said that tariff was his favorite word in the dictionary. I think he said that. And I mean, the thing is. He says a lot of stuff. Yeah. And I'm pretty sure I don't exactly know what Canada retaliated with last time.

But I know in his first presidency, mean can he issued tariffs in canada you know kind of came back with retaliatory ones so i mean as you mentioned like a lot of u.s states rely on canada i mean canada relies gigantically on the united states i think it's what like 75 of our exports go i don't know yeah yeah i don't know the exact number but i would yeah i wouldn't dispute that as extremely i mean a lot of metals a lot of energy uh softwood lumber things like that so i mean it's going to be interesting but the one the one thing is is like he hasn't said anything yet like there's been no official uh tariffs no you know it's still pretty early i don't think he takes office until what january so

yeah i mean obviously don't overreact but also be prepared for some things to uh to be hit for sure yeah and i think that's really the key here is just to be diversified because you don't want to be concentrated in one you know industry or asset that could really take a hit before a tariffs and speaking of energy i think this one is the one that's really up for debate i've seen people saying oh the u.s would never impose any tariffs on the energy flowing there and i believe it was rory johnston if i he's a an expert when it comes to oil and gas highly recommended if people are on x to follow him and he posted something he was kind of the he was just posting his thoughts saying that look around like i think it's 95 of oil experts from canada go to the u.s and a lot of these pipelines actually flow to the

u.s so there's really nowhere else to go so the u.s could definitely you know kind of you know make it make canada feel it but at the same time the issue of the impulse tariffs on oil then i would probably hit the refineries uh their margins refineries that are located in the u.s it would probably be passed to some extent to the u.s consumer at the pump as well so there are downsides with that impact. Whether it is applied or not, it's hard to say. It could be used as a negotiation tool. I've seen experts say there's no way as well that they would impose tariffs on Canadian oil and gas just because they wouldn't want that to be felt by US consumers. So it is really up for debate. We'll have to see. I just wanted to mention that because there is a divergence of opinion. So we'll have to see what happens. But

one of the likely industries, and I know you'll talk about another one here, is dairy. I think dairy will be one that will be in the crosshairs if people are not aware. so under the USMCA, UMSCA, or whatever we want to call it, American producers of dairy can export tariff-free less than 3%, 3.6% of the value, the total value of the dairy market in Canada. So afterwards, there are significant tariffs imposed. And the US have been very vocal that they're not fans of that. The U.S. have been very vocal that they're not fans of that. And, you know, whether which side you stand on this, you know, I don't really care. But, you know, as someone who's not dependent on the dairy market, I see that. And I don't think it's unreasonable for them to say like, OK, like Canada is going to have to give us some concessions here. Canada did. I think it went from 3.25 to 3.6 with the new USMCA agreement. But I feel like this is

probably one area that Canada will have to do some concessions in order to avoid tariffs elsewhere. I know you were talking to me about lumber as well. It could be another area of impact. Yeah, I haven't paid attention much to the uh to the dairy end of things i mean i know i'm pretty sure that they put trump put tariffs on on dairy during his first first uh term as well so i mean i mean the one thing that would concern me as a canadian really is his i mean he wants to pretty much ramp up production significantly, which ultimately wouldn't really be all that good for prices. And I mean, obviously, we depend so heavily on oil here. I mean, lower prices is ultimately not what we want to see.

And I mean, from the sounds of it, he wants to get oil lower. Obviously, that would benefit the consumer. of it he wants to get oil lower obviously that would that would benefit the consumer obviously you'd probably see lower prices overall but ultimately you know canada kind of relies on higher oil prices and i mean the the softwood lumber issue which i get i'll get to when we finish this on stella jones but i mean that's another issue and that's something that he put huge tariffs on during his first term there that, you know, kind of hit that industry pretty hard. Obviously, obviously he's doing all this to encourage domestic production. I mean, that's, that's really, he's really pro America, which is, you know, ultimately that could hit us

obviously with being 75% exports to the United States. So, uh, I mean, it's hard to tell how good this will be or how bad this will be for canada but yeah yeah yeah no and that's a great point and look at the end of the day too like we have to keep in mind that trump is very transactional so oftentimes he will use leverage and he's gonna ask for concessions he's probably also going to probably, you know, say, look, we're going to start imposing. The U.S. will start imposing massive tariffs on, for example, China are countries that the U.S. are not very friendly with or they really have in their crosshairs. And maybe I wouldn't be surprised if one of the U.S. asks will be like, look, Canada, you have to also impose those tariffs. If you do, then we'll go

easier on you for, you know, potentially other industries. So it's going to have to be some give and take like that. A lot of people were freaking out. I just don't think it's going to be 10 or 20% tariffs across the board. I think you will see some tariffs. I think that's a safe assumption. But again, I think you'll probably see a bit more friend shoring as well. So I think the U.S. may try to get Canada and Mexico a bit more on its influence and rely less on the rest of the world. Canada is a natural resources rich country. So we do have a lot of resources. The U.S. does as well. But Canada and the U.S. combined, you know, can really be a force.

well but canada and the u.s combined you know can really be a force so i think from a kind of geopolitical standpoint there's a lot that the u.s can benefit from canada but it's going to have to be give and take and there's going to be some tariffs we just don't know the extent so we just have to to keep that in mind the last thing a couple lasting obviously and i'll do a bit more of a deep dive on this with Braden on next Monday. But one industry that should benefit is the crypto industry. Without going too much into detail, I mean, at the end of the day, if people have been following the SEC in the U.S., the Security Exchange Commission under Gary Gensler has been extremely hostile against the crypto industry. And Trump has definitely been a lot more pro

crypto during in this campaign we'll have to see you know politicians lie all the time you know whether it's no but it's true trump or any other politician show me a politician i'll show you a liar so um that's pretty much how i i approach things and we'll see if he follows through but i think it's safe to say that at the very least, it won't be as bad in terms for the crypto industry going forward. And you smile because obviously, I think Bitcoin has been completely ripping since the election. 27%.

So it's been nice. It's been insane. Yeah, it's been nice. So if you have some Bitcoin exposure, you definitely have been liking the orange man being elected. And it's just crazy. And then so and I guess the last thing I would say here is some potential impact. So one thing he did mention during his campaign was that he wanted to have more say into what the Fed decides.

I don't know to what extent that can be done. I'm not an expert when it comes to that at all. But obviously, whether it's just giving some input and Fed still takes the ultimate decision, whether that doesn't happen at all, we'll have to see. But it is something that could impact the Bank of Canada if, you know, this Fed starts making, you know, different decisions because they're getting pressure from the Trump administration. So again, I do not know whether that will be the case or not, but it is something to consider. And at this point, I would just say, you know, make sure your portfolio is well diversified.

You just don't want to be in one thing that could be really negatively be impacted by trade invest in the US, that could definitely have a negative impact on Canada unless Canada starts, you know, making more attractive for companies and encouraging investments here as well. That's exactly what I was going to say. I was going to mention the dollar. I mean, it like dollar. Yeah. His policies are definitely something that could fuel the US dollar, which I i mean in terms of diversification i think like you know potentially if if it fits you know within what you want to do is is currencies as well i mean holding you know holding some canadian dollars holding some u.s dollars because the canadian dollar is pretty weak right now but it can get weaker and i mean a lot of his

policies are definitely pro u.s dollars so you could see i mean we even seen that right after the election the canadian dollar kind of took a hit because just the strengthening of the u.s dollars so i mean it's pretty tough to buy u.s dollars right now considering how weak it is but i'm i mean this is obviously just a complete prediction by me but i would expect the canadian dollar to continue to get weaker relative to the U.S. dollar. Yeah, I think your dog agreed. So, yeah, yeah, he agreed on that point. And I mean, a weaker Canadian dollar may be actually a bit of a counter argument to what I just said, right?

Because if it's weaker, it could actually encourage U.S. dollars to come and invest in Canada because their capital can actually go further. So there's just so many moving parts. I think just what we wanted to say is like, look, I think you can't make any rash decisions. Take what you read with a grain of salt until we know who's going to be at the head of these various departments. We just don't really have an idea until it really happens and he takes office in January. So I would say we have to relax and just make sure you're diversified and not all in one category, one industry, one asset class. If you're well diversified, you should do relatively well no matter what happens

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Let's move on to some lumber. Yeah. Okay. Yeah. So this isn't normally a company that we would talk about, but I figured it was pretty much kind of had to talk about it just because of the whole potential tariff issue. I mean, Stella Jones, it's a pretty boring lumber company. I mean, they make railroad ties, utility poles, not so much a lot of exposure in terms of residential lumber.

I think that's under 20% of the business. a lot of exposure in terms of residential lumber i think that's you know under 20 of the business um so it looks like they you know they've been a pretty outstanding company to hold over the last few years just due to a large valuation gap that existed like back during kovid a lot of lumber producers kind of took a massive hit you know after you know the big boom the big housing boom things like that in 2021 and stella jones kind of followed them down even you know, the big boom, the big housing boom, things like that in 2021. And Stella Jones kind of followed them down even, you know, despite the fact it doesn't really have all that much exposure to residential lumber. But over the, you know, they reported this quarter, this was probably their first weak quarter in quite some time, and it was fairly weak. So revenue came in at 915 million and earnings per share at $1.44. So this was a double digit miss

on revenue estimates and a 20% miss, just under 20% miss on earnings estimates. The company also saw margins decline pretty much across the board as it's realizing lower volumes across pretty much every single segment and higher input costs. Its utility pole segment did grow in terms of revenue. However, this was due to the company increasing prices, which offset just declines in volume. This is half of the company's business. So it's certainly a bright spot that they can kind of offset slower volumes right now due to just utility companies. They're very rate sensitive. They're very debt heavy. They're not expanding as much at this point in time just with higher interest rates so obviously you know as rates continue to decline this might improve but for now they're definitely you know they they kind

of set it out right utility projects they're being delayed uh things like that the railways they're cutting back as well uh railway tie sales declined by double digits as well on the backend of lower volume due to railroads reducing overall maintenance. This is smaller, but still a relatively decent portion of the company's business coming in at around, it's typically between 22 to 25% of sales. And residential lumber saw a double digit decline in sales as well.

This will probably be the, I believe it will be the third straight year of residential lumber declines from Stella Jones. And to be honest, I mean, just for the double digit, I'm kind of surprised it didn't decline, you know, even further declined by low double digits. I mean, slower housing starts, lack of renovations just due to economic conditions. and again lumber lumber sales on the quarter made up 22 of the business but i think overall it typically hovers under 20 and just overall it really wasn't that good of a quarter but again i did want to go over it because of the uh total the potential for tariffs so stella they reported i believe it was the morning of november 6th so

obviously the election was november 5th so i mean it was just kind of a double whammy that i don't think so the stock price fell from 88 to under 70 just off the earnings report and i don't really think it was purely because of that earnings report i I also think it was just potential. We had a Republican Party win. Obviously, Trump's first term, he put pretty harsh tariffs, 20% tariffs on softwood lumber products. Eventually, it was reduced down to 9%. I think it went... Yeah, they cut it back down to 9%. I believe it was during COVID just because lumber prices were skyrocketing. So they got it back down. And the difficulty here is over 70% of Stella Jones's business is in the United States. So a tariff on softwood lumber, which I mean,

I wouldn't say is a guarantee, but I would imagine this is going to be a segment that he does target because I think it's pretty easy for them to ramp up domestic production in terms of this. I didn't follow Stella much during Trump's first term, but when I did look at the numbers, it seemed like it did reasonably well, even post-tariff. It grew revenue at a reasonable pace. Earnings went through a bit of a flat line for the two or three years there. bit of a flat line for the two or three years there and uh ultimately i mean can tariffs imposed on canadian imports to the united states in terms of softwood lumber would make stella's products less attractive but i think just because they're so niche and i mean i don't really know if this is the case but i would imagine you know there's a boatload of residential lumber production

companies but i mean how many companies are specializing in utility poles, railway ties? I don't really know if that would shelter them a lot from potential tariffs to the point where maybe US companies would still buy them, but it's definitely, it's something to keep an eye on and is definitely something that I would imagine the market is pricing in. We even had, I looked to just forward estimates and a lot of analysts kind of downgraded their earnings per share to effectively be flat over the next few years, whereas it was previously projected to grow. So I think it's being priced in to an extent. Yeah, it sounds like it.

You texted me the morning of and I was like, oh, like they also released their earnings. I wasn't sure, like, you know, this name more than I do. So I was like, oh, maybe it's a combination of election kind of results as well as earnings not being as good as they probably projected. Yeah. I mean, it was trading, I think at one point over $97 and now it's down to $70 a share. So, I mean, there's definitely, there's some pressure there from an earnings perspective. Plus, I think there's no doubt some, you know, uncertainty moving forward right now. And I mean, we'll see.

I mean, they might be able to offset potential issues with, you know, interest rates are coming down. The railroads will probably pick up. Utility projects will probably ramp up again. So maybe they're able to offset it because it's not only the tariffs right now, but just overall economic headwinds that are impacting pretty much every segment of the business. I mean, there's only so much they can raise prices in terms of their utility pulls before. I mean, they're going to just need demand to pick up again but yeah it's uh it's gonna be an interesting quarter for them moving forward or an interesting couple of years i would say yeah no i think i totally agree with that especially with uh you know the u.s election

so we'll have to see where it goes well now we'll we'll shift over uh to bc so a couple things so obviously we've been we haven't recorded in a few weeks, so this may be a bit older news. It was reported on November 4 that BCE was announcing, well that they announced that it was in an agreement to acquire Ziply Fiber, a leading fiber internet provider in the U.S., the Pacific Northwest to be more precise, for approximately Canadian $5 billion in cash. They'll also assume $2 billion Canadian in debt from Ziply. So I guess total the transaction costs would be $7 billion. Ziply's fiber network currently has about 1.3 million fiber locations in the four US states. And BCE is hoping to expand that to3 million in the next four years as they invest in the SIPLE network. They are pausing the dividend increases to make sure that their net debt leverage, and I see you laughing and I'll finish reading and give my thoughts here, net debt leverage ratios are tracking towards their target policy. They intend to finance the transaction with the

proceeds from the MLSC transaction and some share dilution. Just to be clear, there will be some share dilution because they are issuing shares directly. And what they are doing is they are offering a 2% discount drip. So dividend reinvestment plan for a shareholder, which will help them retain cash. So pay out, I guess, less net dividends, if you want to put it that way. And I was watching a passive investor. I think it was called the passive income investor video on YouTube because he seemed to be very bullish on BC following that. I'm like, OK, I'll try to see if there's, you know, an argument to be made.

I do try to look at both sides of the story, even though when I saw this announcement, I thought it was completely reckless. But nonetheless, most of the argument, unfortunately, that he said were just plain incorrect. He said that it wouldn't be diluted. It will absolutely be diluted because if you're a shareholder and you just take the dividend, the people get your dividends reinvested because they get that discount clearly and increases the share count. So whether, you know, it's more of an indirect way to dilute it, but the end result will be dilutions. And the same YouTuber was also saying that their debt levels are fine because the Bank of Canada will be cutting rates even more. And I just like the

number of times that I hear this argument, it just baffles me because probabilities are yes, the Bank of Canada will likely be cutting rates. However, we've talked about this time and time again. If BC refinances on fixed-term debt, the BOC overnight rate has very limited impact on that. Credit spreads, which are the difference between government bonds and corporate debt, and the difference will vary depending whether it's high investment grade or low investment grade or a junk bond. That spread will be higher depending on how well rated that debt is. That will be what will impact the actual rate they'll be able to get on their debt. So saying that overnight rates will automatically mean lower interest. If they refinance at variable rate, yes, there's a good argument to be made

because variable rate is dependent on the overnight rate. But, you know, there are also other factors. But saying that that will automatically reduce the debt is definitely, you know, that's just misleading and it's not really true. Yeah, I mean, these companies, like especially these high debt companies, utilities, telecoms, like most of their debt is fixed. They won't have a lot of, you know, floating rate debt, which would have an immediate benefit from, you know, interest rates coming down.

One thing that I will mention is you had mentioned they're pausing dividend increases to make sure that their leverage ratios are tracking towards their target policy they couldn't hit their target policy last year so they just bumped it up and now they're kind of finding that they maybe can't even hit this target leverage ratio so i mean they already couldn't achieve one so they bumped it up and then they now they're you know kind of tracking towards the higher end of things i mean this this acquisition makes little to no sense for me i mean there's there's definitely the potential for it to work out i mean they're obviously i think they're doing this because you know there's a lot of canadian regulations coming down the telecom sector and obviously they feel they need to kind of get out of canada to a certain degree not get out of canada but you know find other

avenues for growth but the one thing that is just crazy about this and i mean i guess you'll probably speak about it but the the fact that they sold MLSE and they literally stated that they were going to use the acquisition capital to pay down debt. And the thing is, is like this Ziply acquisition, this would have been well in talks before the sale of MLSE, right? Like this wouldn't have just happened over the course of 30 days. So they knew that there was the potential they were going to spend this net $7 billion on this acquisition. But they sold MLSC for $4.7 billion and just outright stated that it would go towards

reduced debt levels. And then they went out and spent it all 30 days later. So, I mean, there's got to be, if you're a shareholder of this, there's got to be an element of trust here that is gone. Cause I mean, they say one thing, they do the other. Yeah, exactly. And originally I was like, Oh, maybe it's a, it's a bit of kind of a panic move. You know, they're trying to, you know, just try to get growth somehow because the Canadian government announced they would

be reducing immigration levels and clearly that will impact you know potentially new subscriber that was always one of the arguments for bc bulls is population growth you know more people needing internet services cell phones because they're almost like an essential service right now but again i think someone on twitter reached out and oh, like who had been doing these kind of deals, involving these kind of deals in the past and said, oh, these type of deals start like months and months in advance. So I was definitely wrong on that. But now I think they even said that they hadn't the work. I think he said the CEO in an interview that they hadn't a for like over a month this kind of deal, which would have been prior to the MLSC announcement. So, yeah, it's just disappointing.

Yeah, there's definitely a trust element. And then obviously a couple of days later, they released their Q3 results and it wasn't good. It was not good. The stock since is what down like 15 percent since the the release of um the ziply acquisition and then the result something like that yeah it's just it fell like 10 or 11 percent on the acquisition then i think five percent uh on earnings yeah because it's now it's yielding yeah it's yielding over 10 percent yeah yeah i mean the market is it's definitely pricing in a dividend cut. You kind

of see this with a lot of companies. When they're healthy, they're growing the dividend at a decent pace, but then that dividend growth starts to slow in the case with BCE. I mean, it got down, crept down to the low single digits and next step is typically suspending dividend growth which they did and then ultimately i mean it's never a guarantee but you obviously know the next step after suspending dividend growth is you know to just cut it which it's the right move i've been saying it for a long time i mean i've said it time and time again it was going going to be, and it probably still will be, but now I feel like it's less of a bold prediction, but it's going to be my bold prediction. Yeah. Yeah, I don't think it's bold anymore that I was going to say it's going to be cut in 2025.

I think it was bolder when they announced the MLC divestiture a month and a half ago, but now less and less. They spent it all. Yeah, because I mean, at 10%, the market's telling you something is that they are placing a very high likelihood of a dividend cut here. And operating revenues were down 1.8% for the quarter to a bit less than 6 billion. One of the few bright spots was operating costs that were down 5% to 3.2 billion. Again, now, if we remember, they did some layoffs. I think it was late last year, I think if I remember correctly. So there's still a lot of severance being paid out, but that is actually winding down. You can see it in their financial statements. So at some point, if these costs don't stay low, you can't say now, like you

won't be able to say for much longer that there's still kind of severance, including with that. It's already winding down quite a bit versus the previous quarter. Interest cost was 440 million for the quarter. That's up 3% versus the previous quarter and up 18% year over year. And that's what we've been saying is when you have so much debt, this interest cost just can spiral out of control. And I think it's safe to say that that's what's happening right now. I mean, they're not there yet. I think they're about like half of what they pay out in dividend is actually, you know, their interest cost is half of what they pay out in dividend.

Just for people to wrap their heads around it. Yeah, there's a lot of, a lot of interest expenses for BC right now. And I mean, we'll go over, tell us later on, but they've pretty much, they've kind of flatline their interest expenses over the last three,

four quarters. It hasn't really moved all that much. Whereas BC, it's just, it's continuing to grow pretty much on a sequential basis. Like every single quarter they're reporting increases. And that's obviously because they're also taking out more debt. Most of the telecoms have scaled back, but BCE, I think, has added 15 plus percent now.

And that actually is probably higher with the acquisition. So that's just this year, they've added that much debt. So I mean, obviously, when you just continue to spend, spend, spend, there's only like, you can only pay out more than you bring in for so long until it just ends up biting you at some point. Yeah, exactly. And I mean, at the end of the day, that's what it is, right? It's just, I think they've just put themselves in a really, really tough situation. We'll have to see whether they'll be able to come out of it. But I think, again, I think the smartest move would just be to cut the dividend here.

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Now they had a big loss because largely due to an impairment of Bell Media assets. This was a non-cash impairment item of 2.1 billion. This is to reflect a decline in advertising demand for those assets. Another bright spot was that free cash flow

was up 11% to 888 million. But again, I think it's just, you know, it's not enough. That's the reality of it. No, it's not even close. And they have $7.6 billion of debt due in the next 12 months, for example, and I went into their financial statements here just to have a look. They have $600 million maturing in January at 2.75%. I can guarantee you this will be refinanced at a higher rate. And another $1.5 billion maturing in March at 3.35%. And I can guarantee you, again, this will also be refinanced

at a higher rate. So these are just things that you should be looking at if you're considering this because you're getting really enticed by the yield. The payout ratio is not sustainable, and they have a lot of debt coming up. And with the Ziply acquisition, that's the issue is that they said they will be investing. Remember, they were saying that they would pull back investment and capital expenditure. CapEx would be kind of slowing down in Canada just because they didn't see as much ROI because of regulations and other things. But now they're going to be ramping that up. So it's not just the Ziply acquisition. To get that extra, I think, 1.8 billion in new customers that they're looking to get, they will have to make some significant investments in the US. So you

have to keep that in mind. And I guess what really hit the stock was, well, on top of all these things, is they revised their revenue guidance down for the year so up until the previous quarter they were projecting between zero and four percent revenue growth for 2024 and now they adjusted that to one point negative 1.5 percent for all of 2024 which they said was wireless competitiveness pressures are affecting their average revenue per user, which, again, this still the part of trust with management. Like, come on, you didn't know before this quarter that, you know, your sales were trending, like probably on the lower end. You could have at least say, OK, it's going to be last quarter between like minus two and two percent.

Like we've adjusted it. last quarter between like minus two and two percent like we've adjusted it there's just all these things happening to me that like i would have zero trust in this management team i've said it before i think they're just come like a management team the board i think they're just completely incompetent they're not able to take the hard decisions instead they get rid of staff instead of you know sure you want to create efficiencies, that's fine. But look at your biggest expense, which is the dividend. And why don't you cut that to, you know, just in the short term? Sure, it's not great, but long term, it will make the business much, much stronger. Yeah, I think it's just kind of a situation where, you know, post financial crisis, money was cheap, and these telecoms could spend spend happy and now they're you know kind of

showing their cards i guess operating in a much higher rate environment and they're just getting kind of crushed i mean bce so they got it to revenue declines now so i mean they have they have earnings guidance and free cash flow guidance that remained unchanged. But the thing is, is it's so wide. I think their free cash flow guidance was anywhere from an 11% decline to a 3% decline. So you would think with this revision in revenue downwards, the free cash flow is probably coming in at the lower end and earnings is probably coming in at the lower end. So I it's it's going to be a pretty rough 2024 and i think one of the key things is going to be their 2025 guidance when they probably issue it you know in their annual report or something like that and then even then when

they're doing all this stuff even if they issue guidance like how reliable are those numbers going to be you just trust it yeah yeah and i guess the last thing i'll finish here is um just a funny story so on the day of so i guess they scheduled an interview with bnn bloomberg to announce a ziply announcement and for those not aware they own bnn bloomberg bc so it's just oh yeah so they do state it i'll give it that but it was the most softball interview i've ever seen like clearly the gankers like enter like interviewing his ultimate boss like what is he gonna ask him like he's gonna ask him some really hard questions like yeah okay sure um so i tweeted and i was like oh if you want uh you know confirmation bias this

is the video for you that's hilarious i didn't know that but yeah yeah they're not throwing the hard questions out there they're throwing the no that's for sure you mentioned i think one thing about the debt but nothing about like the interest payments not being sustainable the dividend and all that like just not no pushback, just like super softball. But anyway, so we'll move on. We harp enough on BCE. I think it's good that you're doing TELUS because it'll kind of give people a bit of context on one of the competitors. I mean, I think it's safe to say and you can tell me if I'm wrong, but that's, you know, the telecom industry. It's definitely it's definitely,

it's a tough competitive environment right now. Oh, yeah. Yeah. And I think where Telus is kind of separating itself is just the other avenues it has outside of, you know, the media and the mobile that, you know, BC and Rogers just heavily rely on. And I believe you own the stock just i don't tell us yeah yeah for full disclosure and i've actually been adding pretty heavily as of late just because i feel this it wouldn't necessarily be a long-term hold for me more short to midterm just based off you know valuation expansion pretty much just because of stronger free cash flows obviously i mean i know this has no guarantee of working out, but I have been kind of adding to it as of late,

just based off a short-term hold. And this quarter definitely, it kind of helped out my overall thesis there because it was a relatively strong quarter from Telus. It seems to be kind of night and day versus a company like BCE. In terms of expectations, revenue was in line, but earnings topped estimates by about 20%. So overall revenue is up 1.8% year over year,

net income 11% year over year. And the key difference here between something like BC and TELUS is free cashflow increased by 58% year over year. So TELUS is, I believe they spent $3.3 billion in capital expenditures last year. And I think they're gonna scale that back to 2.5 or 2.6. So, I mean, you're talking close to a billion dollars there just in freed up capital, just from spending less. There's been a lot of criticism in terms of these telecoms, in terms of overall dividend coverage. However, the last two quarters for Telus have kind of shown they

should have not a lot of problems generating enough free cashflow to cover the dividend. Not over in 2024, there's going to be a shortfall in 2024 just because the free cashflow generation wasn't as strong in the first half of the year, but I would be surprised if they didn't, you know, generate enough to cover it next year. Whereas BCE, I mean, they're already, I believe, $800 million short of dividend coverage, and they're expecting yet another, you know, three to 11% decline in free cash flows over the year. So they're at, you know, a little bit of different situations there. So as a result, the company made a 3% increase to the dividend. This is pretty typical for Telus.

It makes semi-annual raises to the dividend and kind of aims to grow it by around 7% a year. But overall, in terms of the business, the company is starting to see a slowdown in terms of customer additions pretty much across every segment. This isn't really unique to TELUS. It's industry-wide. Competition is ramping up. And as you mentioned with Bell, it's the same thing with TELUS. Their ARPU continues to decline.

This, again, it's an industry issue, not a TELUS-specific one. It sits at $58.85. This is down 3% year-over over year and actually sits at 2019 levels so for the last five years they haven't really been able to you know generate more money from their current mobile users so this just kind of gives you a signal that these telecoms have relied almost solely on new canadians you know whether it be immigrants or Canada coming, you know, Canadians coming to the age where they need a cellular device. But the difficulty here is Canadians are not really having as many children anymore due to just how expensive it is to have, you know, children, not only children, but just overall cost of living. and it's also because the governments are starting

to reduce the amount of immigrants as you had mentioned that they take into the country so you have a combination of lower organic population growth and lower immigration into Canada and obviously you kind of cut off these telecoms main avenues for growth which is exactly why my additions to TELUS are not something that I would be willing to hold long-term because I think just regulatory issues and just overall headwinds over the long-term are probably going to cause these companies to have to adapt in a big way, which is again why I think BCE did expand in the United States. I don't really think it's bad timing, but not necessarily a bad idea, but just bad timing.

The mobile segment of the business continues to struggle, but where TELUS kind of sets itself apart is in things like the faster growing verticals. I mean, you're talking TELUS Health, Agricultural Security, TELUS Digital. I mean, over the last five years, I believe TELUS has doubled its security customer base, which is a segment that's still growing relatively fast. And its T-Tech segment, which they kind of lump in these segments along with some mobile and fixed data services is still growing at a reasonable pace. Operating revenues are up 1.9% year over year, adjusted EBITDA by 5.9%. And one segment that is still struggling really badly and is actually making these numbers worse,

like TELUS Digital, which is TELUS International, they're kind of dragging down these numbers. So this was a company that TELUS spun out during the pandemic. It made a lot of sense because at the time, Telus International, which had been around for a very long time, but it was growing at a very strong pace. And I mean, we've kind of seen it with these kind of conglomerate type businesses. Sometimes you can have an underlying company that should be valued higher, but it's kind of being dragged down by just the fact it's tucked in with a telecom. So they spun it out. It actually ended up being the largest tech IPO in Canadian history.

They focus on digital design, customer service, AI systems. So pretty much when the pandemic subsided, the economy slowed down, tech spending dipped. It got absolutely hammered. I think it's down 90 some percent and TELUS owns a lot of this company still. Revenue for Telus International is down 4% year over year, adjusted EBITDA down 30%. And as I mentioned, Telus is still the majority shareholder and it makes up a double digit

percentage of its EBITDA. So it's safe to say that if we do see a resurgence in this end of the business on falling rates, improved economic activity, I mean, TELUS should benefit there. I mean, it's almost a guarantee if TELUS International picks things up that TELUS will benefit because they're a huge shareholder and they've been buying back a boatload of shares as of late from TELUS International. But on the interest expense, I kind of already mentioned this, but they've kind of flatlined over their three quarters now. So they hover

around the $350 million mark for pretty much the entire year. Again, this is in contrast to BCE, which just continues to increase on a sequential basis due to additional debt issuances and also refinancing. And I mean, overall, it was a pretty strong quarter for Telus. But I mean, sentiment in the telecoms is, I don't know if it can get any worse. I mean, it's bad right now. Primarily fueled just by lack of earnings growth, which is a huge part of that is interest expenses. But I mean, also just due to competition issues regulatory issues things like

that i mean i think the markets i mean from 2022 i can't i don't even know how much the markets are up but telecoms are just they're nowhere even close they're underperforming by a landslide yeah no i think that's a good point it shows that you're uh you know you're into financials a lot because uh organic population girl that would be the birth rates i just laughed when i was i was laughing internally when uh when you said that but yes our birth rate is uh is quite low in canada i was actually researching i think it's 1.3 yeah uh per women which would mean that the replacement rate is 2.1 you have to be above two because obviously you have you know the two parents so you have to be you know most people should have two and then you know once in

a while they have more than two so they're had so 1.3 like yeah i think that's what i read yeah see that's something like that it's quite low yeah yeah not good so without immigration we actually you know what happened to have a population decline. So that's something I wanted to add. And the other thing is I was I forgot to mention and I was reading up on that is telcos could be an area that, you know, the Trump administration targets because we have a lot of regulation. of regulation and keep in mind that yes the CRTC kind of prevents a lot of foreign actors to come in and offer wireless and telecommunication services so that could also be one point where the U.S. may be asking some concessions from Canada I'm not saying it will but I was reading that that has been a point of contention when it comes to both telecoms, but also media, where Canada is extremely protective and protectionist when it comes to that.

Whether people agree or not, that's fine. But the reality is, that's a fact. We are very protectionist with that industry. And I think it goes back, it has a long history, but it's something is to consider as well yeah i think who was it it was verizon that tried to come up here that was probably like 10 years ago now but they they bailed on that idea very quickly but i mean that's definitely i mean if it was opened up to competition externally that would i mean that would be it would be a nightmare yeah yeah i mean for for definitely for telco shareholders yeah for sure i mean it would put a lot of pressure maybe maybe it's not all bad right maybe it would force them to be more competitive like i don't know for

the consumer but it is it would be great yeah well yeah it would be awesome you get some super cheap deals but that's something i was kind of thinking as another sector that could be targeted by the Trump administration to try and get to Canada to loosen up restrictions and allow U.S. companies to come in. So it's, you know, there's all these moving parts. That's why it's so complex. We don't know what they'll be targeting. We won't don't know what they'll be asking for concessions from Canada at the the end of the day, right, countries are, they're very kind of self-motivated, right? They already always look at, you know, what's in their best interest. And it's going to have to be making sure that our government

officials, they try to get the best deal possible for Canadian as a whole, as a country, you know, you're going to have to offer some concessions. Some industries may be impacted more than others, but I don't, you know, you have to just kind of wait and see what happens. Yeah. Well said. I mean, it's, it would definitely be, as I mentioned, good for the consumer in that case, but potentially bad for Canadian companies. I mean, what are the telecoms? I think the big three are like 94% market share. I mean, that would be... Something like that.

That wouldn't be... Yeah, it would. It would be disrupted significantly. And I guess Videotron would be the last 6%, probably. And maybe like... Something like Iandr. Kojiko or whatever. Yeah, it's...

Yeah, they're very concentrated in Quebec too, right? But yeah, I think that'll be it for today. We had also on the slate Canadian Tire and Home Depot, but that's okay. We will talk about them next week, do some catching up. There's other earnings that I wanted to touch about that. And I'm sure you have as well some companies that have reported, but just because of our schedule, we had to record some episodes in advance. We had to do that mailbag episode. So we'll be catching up on those companies next week. Anything else you want to add

before we let people go? No, that's it. Thanks for listening, everybody. Okay. Thanks again, everyone.