The Canadian Investor - Two Canadian Stocks That Are Printing Money

Episode Date: August 7, 2025

In this episode, we kick things off with a quick look at the newly imposed 35% tariffs by the U.S. on Canadian goods.We then break down earnings from some key Canadian names, starting with TMX Group, which continues to benefit from strong options trading volumes and solid growth from its energy and ETF data platforms.Tourmaline posts strong results despite weak natural gas prices, and signs a lucrative long-term export deal linked to European gas benchmarks.We also dig into Celestica, arguably Canada’s best-performing AI-related stock, and explain why its explosive growth may have more to run—even if customer concentration adds some risk.In the gold space, Agnico Eagle delivers another standout quarter as higher gold prices widen margins and drive profitability to record levels.Lastly, we revisit Allied Properties REIT, where payout ratios are getting dangerously close to unsustainable levels, and where asset sales and debt refinancing will be key to keeping the distribution intact. Tickers of stocks discussed: CLS.TO, X.TO, TOU.TO, AEM.TO, AP-UN.TO  Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! 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 Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai 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.

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ETF. Investing is simple, but don't confuse that with thinking it's easy. A stock is not just a ticker. At the end of the day, you have to remember that it's a business. Just my reminder to people who own cyclicals, don't be surprised. when there's a cycle. If there's uncertainty in the markets, there's going to be some great opportunities for investors. This has to be one of the biggest quarters I've seen from this company in quite some time. Welcome to the Canadian investor podcast. I'm back with Dan Kent. We are

here for our news and earnings episode. A lot on this slate. It's fun when it's in a middle of earnings season. There's lots of talk about. We're definitely focusing a bit more on Canadian companies because there is more than enough to talk about and obviously you can listen or see what they're saying or what happened with all the big U.S. companies and the news. You can do your own digging. If we do have time in the coming weeks to touch on them a little bit, I'm sure we will, but we'll focus a bit more on the Canadian companies here. So pretty excited.

Dan, you get excited to get going. There's a good mix of companies here. Yeah, there was almost too many to talk about right now. I mean, I'm sure we'll have a ton next week because, yeah, there was a lot that reported earnings this morning. It's a pretty interesting time right now, a lot of interesting companies, especially, you know, some AI-related, precious metals, energy. Lots to talk about in this episode. It should be a pretty good one. Yeah, and we'll start by the big macro, obviously.

There is not a week that goes by without Trump or the White House in the U.S. making some news, especially on the trade front. and we had some impacting Canada so the U.S. increase its tariffs on Canada to 35%. We won't spend too much time on it, of course, but I think it's important to mention. The White House said it was because Canada had not done enough on the flow of illicit drugs to the U.S. Obviously, a lot of people have been debating that, whether it's valid or not. Regardless, they have imposed higher tariffs. Obviously, not great for Canada, but also needs to be put into context because you see a lot of headlines. that say, oh, the U.S. increased tariffs on Canada to 35%, which is not wrong in itself,

but it's also just for goods that are non-USMCA compliant. So U.S.MCA is the new free trade agreement that was signed under Trump after NAFTA. Last year, data found, and that was U.S. data, that about 40% of goods heading from Canada to U.S. were U.S.MCA compliant. not that there could not be more is just a lot of the companies that were exporting to the U.S. had just not filled the paperwork and obviously there has been a rush of these companies to fill that paperwork and now the figures I've seen thrown around although it's not it kind of others around 90 to 95 percent of goods that are now USMCA compliant which means that they won't be affected by these terrorists Having said that, it's still not a nothing burger.

There are still some instances where goods will be tariff. They just cannot be USMCA compliant. For example, and these are just examples here, it's not a full extensive list, but just so people are aware. So aluminum and stills does not fall within this. So there are 50% tariffs on those, so the higher tariffs that were announced by the US were actually higher than the 35%. supply managed good like dairy, poultry, and egg products would also not be USMCA compliant and oil and gas still has a 10% tariff. But it's funny that the oil and gas has a 10% tariffs and that hasn't moved.

It's pretty obvious that the U.S. is realizing that it maybe was just a token 10% tariff just to show that they were doing something. But I would look, who knows what Trump will do, but I'd be very very. surprised if they would increase the 10% tariff on oil and gas mainly because if you increase the price of energy for Americans, it will put some upwards pressure on inflation, which clearly is not good for the administration. And you have the midterms that are about a year away now, not even, like a year and a half away, roughly. So you have a lot of Trump supporters in Congress that are probably looking to get reelected. And that would not be a great look. So the 10%

10% tariff, I think it's palable for them, especially because you get the Western Canadian crude, I think. Is that what it's called? Western Canadian Select? WCS, yeah. Yeah, yeah. Western Canadian Select. I was looking for the right term.

That was already training at a premium. So even with that 10%, it's probably around a similar price to what they could get domestically in the U.S. So all in all, I mean, not great, obviously, for Canada, but given the U.S.MCA compliance, that's good. However, a little footnote here is the U.S. administration has said that they will look to renegotiate U.S.MCA. I believe it's next year. I don't remember exactly the timing, but there is a window for renegotiating that. So we're probably still not out of the woods just yet, barring, of course, a bigger trade deal that would be negotiated. We'll have to

see. Obviously, the Canadian government has been saying that there's been progress on that, but still nothing concrete yet. Yeah, and they had, what was it, yesterday, I believe it was. Carney made a bunch of deals for kind of the lumber industry, wasn't it? Like, a lot of loans. Yeah, some financing loans. Yeah, stuff like that, yeah. Yeah, I mean, we're in a pretty difficult situation being so reliant on the United States.

I mean, obviously we're in the midst of, you know, trying to discuss deals and they're already kind of, you know, providing loans. I think even things like income support and stuff for the lumber industry. So obviously they think that's going to be hit pretty hard. And obviously the lumber industry is a huge portion of the Canadian economy as well. So hopefully we can just get some deals done. But I mean, we've been saying this for months and months. And it just seems to be changing on a consistent basis.

Yeah, yeah, exactly. And I mean, I think the most common theme we've been seeing over the last six months, regardless of what country you're looking at is governments will spend and spend and spend. So that is the one thing and I feel more and more validated with my portfolio allocation but that's beside

the point. We'll just stick to the tariffs here. Now we'll move on to some earnings, TMX group which by the way, a big thank you to the Toronto Stock Exchange for the event we had. It was fantastic. I know we talked about it but they're part of the TMX group.

So I think it's fitting just to give them a thank you here for the closing belt. It was a great experience. Yeah, and I think investors are probably saying thank you to TMX as well because they have done outstanding over the last few years here. I think they're like a double off 2023 levels, I would say, pretty close to it. They reported another great quarter, 15% increase in revenue. which reached record levels, net income grew 21% year over year. And the one interesting thing here, and you're going to show the chart of the derivatives

and clearing revenue, that actually increased by 33% year over year. I mean, we're in, you know, a pretty big speculative market. I would say it's probably, I wouldn't say it's as crazy as 2021, but I mean, you can tell kind of by the options activity here and like what's going on that, you know, speculation is increasing i mean a 33% year-over-year increases definitely a sign that you know you know something is changing um you know this type of growth probably isn't sustainable over the long term i mean even if you look from 2021 on the chart here to 2022 i mean look at this large uptick and you can see that it begins you know september 2024 up until now um so that area of the market or sorry that

area the company is definitely showing some pretty strong growth and another another area that's growing well is the insight segment so that revenue was up 16% driven by trayport which actually grew 26% and now contributes 273 million dollars in annual recurring revenue so this was a company I believe that they acquired it might have been just before the pandemic pre-pandemic but effectively it's it's an energy trading platform so it gives access to brokers, traders, exchanges, things like that, you know, for data and insights. And the interesting thing here is the energy sector is not doing particularly well, but this, you know, this segment of the business is doing very well. So that's another thing that's kind of fueling growth. And then we have VETify, which is it's U.S.-based ETF platform. So they grew revenue 17% and it now has $65 billion in assets under management. So strong ETF related growth, I think, is fueling. this from things like indexing creation, licensing, things like that. If we look to overall trading volumes,

so they increased 17% year over year on the TSX and 15% on the TSX venture. And if we look at the market share for TMX group, they now, well, this was in their most recent quarter, like this quarter, they controlled 62% of Canadian equity trading volume. So the rest of the activity would have come from exchanges like the Neo, something like that. So it just kind of shows you how large this company's mode is.

I mean, if you think about it, the TSX and the TSX venture are going to be the bulk of trading here in Canada overall. In terms of ETFs, so this is another trend that's just going crazy right now is new ETF issuances. I mean, they've seen 71 ETFs listed in this quarter alone. They're up to a hundred and twenty three year to date. and the 123 year to date nearly matches 2024's full year total in terms of new I in terms of new ETF issuances IPO IPO activity remains relatively weak but is recovering slowly so they had around 35 IPOs this year but the only thing is it's it's still fairly weak because 24 of them are mining related which would be I mean obviously the mining sector a lot of precious metals

prices are up quite a bit, so a lot of these companies are probably trying to take advantage of the environment right now. I mean, a heavy reliance on the mining sector is probably not ideal for, you know, long-term sustainability when it comes to their public offerings. So I would say, you know, in terms of overall numbers, like just, you know, raw numbers of IPOs, 35 is not that bad, but, you know, the bulk of them are those miners that are trying to come to market. The one interesting thing here is the company did, it chose not to renew its, it's, NCIB. So it's, it's share buybacks in 2025. They didn't really state why, but, you know, I would argue it's possibly due to valuation or, you know, potentially a caution from market

conditions. And, you know, I wouldn't say that the decision to not repurchase shares should be interpreted as a bearer signal from management, more maybe of a prudent one. It says it will revisit its NCIB in 2026, but it doesn't really know if it's going to start buying back shares next year either. I mean, in my opinion, I would say the company is probably fully valued here. But, you know, if you're an owner, I wouldn't really be all that concerned. It was probably trading around the same valuations a couple of years ago. And again, as I had mentioned, it's doubled since then. And, you know, I think the one thing that this quarter highlights and TMX is a very good company to kind of get a barometer on the activity and the equity market

is just the activity in the markets overall. You know, IPO listings kind of still in the tank. It's not really a good listing environment for a lot of companies that aren't mining base because of the momentum. But, I mean, near 20% growth in equity trading, 33% growth in options trading, you know, a ton of new ETFs coming to market. It's been a pretty crazy year for this company, just overall, and it just continues to execute.

Yeah, and I was looking, as you were talking, I was just searching and obviously I use Chad GPT just to get an idea of how many of those ETFs are levered ETS. It's 7.9. So I'm not sure if that's 100% accurate because, of course, and I'll be doing a segment on AI in the weeks to come, just pre-recording some stuff. But you always have to make sure you validate the information it provides you. It's a very good tool, but always check with the sources.

And I didn't have time here. So just take this with a grain of salt. but nine levered ETFs out of 71, I think, that we're launching in Q1 and Q2. Or, yeah, 71. In the first half of this year, according to that, it's a pretty big chunk of levered ETF. And I just wanted to point that out because I think that's another sign that we're getting into a lot of euphoria in the markets right now. We did that episode, signs that the market may be peaking. And that could be, that's definitely one to keep.

an eye on when people are like getting more and more levered or there's more interest for those products because you don't get ETF providers launching these products if there's not interest in them. Yeah, and I'd be curious to know how many of them are income-based ETFs because I know that's still a huge trend like single stock ETFs, even levered single stock ETFs, covered call ETFs, things like that. But I mean, yeah, these the fund providers are going to go, you know, where the money is. They're going to issue. funds that retail investors are interested in, and I would imagine right now leverage is probably well, I mean, we've seen it at the market top. I mean, margin debt is at all-time highs.

So, yeah, leverage is obviously going to be appealing for a lot of people when the markets are doing what they're doing. Yeah, and you're right. It was 71 launch in Q2, said I even though I prompted it for Q1 and Q2. So that's just an example. It doesn't always listen to you when you ask questions but it'll be interesting if the trend continues definitely leverage is something that i don't use when investing people can use it if they want to but it cuts both ways so when things are going well you're turbocharging your gains when things are not going well you're turbocharging your losses so keep that in mind yeah in this kind of market i like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale.

But just because the cash is waiting, it doesn't mean it shouldn't be working for me. That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQBanks notice savings accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBank.ca to learn more and keep your money earning even while you wait.

Want to buy a stock but don't want to shell out hundreds or even thousands for a single share? With Questrade's new fractional shares, you can invest any dollar amount in built a diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at $100? No problem. Questrade has you covered. They're the first broker in Canada to offer real-time commission-free trading for US fractional shares in ETFs. It's simple, powerful, and finally available in Canada. Head to questrade.com to open and fund an account, use code TCI, and you get $50 to get you started. In today's volatile markets, making smart investing decisions matters more than ever.

That's where the Globe and Mail comes in. From stock analysis and earnings report to tariffs and interest rates, the globe's business and investing news help you take action. With tools like CPP, RSP, TFSA, and mortgage calculators, the Globe offers a full suite of resources to help you plan, invest, and stay on track no matter where you are on your financial journey. Ready to invest in you, visit globe and mail.com slash subscribe for unrestricted access at a special introductory rate. Okay, so now next on type of company that's pretty common on the TSX, so Termaline, ticker at TOU on listed on the TSX. Really, like I would say pretty good

quarter given overall. Turmaline is, for those not familiar with them, is a natural gas producer predominantly. Revenues were up 7% despite natural gas prices that remain extremely low on a historical basis. That's low. Regardless if you're looking at it in just nominal terms, meaning they're not inflation adjusted. And it's even lower when you're looking at it from an inflation adjusted perspective. So something to keep in mind. Barrels of oil equivalent per day are B-O-E-P-D, which is a common metric used for a company like Termaline, was up 10% year over year and at the midpoint of their guidance. Net income more than doubled for the quarter compared to last year. Free cash flow for the first six months was up 16% compared to the same

period last year. I've said it time and time again, I try to use a bit longer periods for free cashful. Ideally, you want to use a year or six months is also can be a decent indicator because it's a bit more than that a quarterly thing. If you look at it just on a quarter basis, it can fluctuate quite a bit. They entered into a eight-year long-term agreement beginning in November of 2028 with Uniper. This is a volume agreement of 18,000 MMBTU, which is just a measurement unit for natural gas, will be priced on Europe. pricing of natural gas and that's pretty no authority because if you're not familiar with it natural gas in Europe sells at a much higher price than it does in North America. There's many reasons for this

but the main ones are that there is much more supply in North America and Canada and the US and the infrastructure for exporting overseas is limited as it requires natural gas to be liquefied and that's also a more expensive process. So over the next decade they're projected that there be OEPD will increase between 650,000 and 850,000. So that growth will be part and funded by essentially free cashels, so they don't anticipate needing any death to be able to fund that. I know it's a relatively wide range, but they have some current projects that will provide some growth into the next decade.

And for dividend lovers here, termaline, truth itself, as a quarterly dividend that is quite stable and you'll see I'm sharing my screen here and they also announce a special dividend in August I believe the date of record if I remember correctly yeah I would be August 8th so as long as you own the shares for August 8th you'll get a 35 cents per share and that's on top of the quarterly dividend of 50 cents a share that day issue and that's pretty common for Termaline you'll see if you look at the pass whenever the price of natural gas goes way up and they just start printing money what they'll end up doing is they'll end up doing a special dividend they don't necessarily increase the quarterly one they just

provide these special dividends which is actually one of the reasons that i really like termaline because they only pay that special dividend when they're able to afford it and they'll vary the amount whether they're producing more cash flow than other years and vice versa so they don't commit themselves or really tie themselves down with a high dividend that may not be sustainable. And I think that's great, especially for a company that's commodity-based like they are. Yeah, I think they usually raise the base dividend by, you know, a little bit every single year. And then they just pay out special dividends. I mean, if you look back to when natural gas went like through the roof in 2022,

like if you look at their dividend chart, it's just like it spikes way up because they were issuing like huge dividends. I think this company does. Yeah, they had like a couple of like $2.2.25, a dollar $1.25 or $1.50 in that range in 22 and $223. And now, of course, the special dividend is much lower. They have increased. I think it was last year. They did increase the regular dividend a little bit, but they definitely give themselves some

flexibility with that special dividend. Yeah, and I think they do 100% free cash flow return policy. So I'm pretty sure they return most of all the free cash flow back to obviously like not including any acquisitions they make or anything. But I'm pretty sure they follow it's kind of like Canadian natural, although they now that they bought those assets from Chevron, I think they reduced it down to 60%. But a lot of these major oil producers pretty much aim to return the vast majority of free cash flow back to shareholders, which is why you're typically always going to see this type of dividend. And I think Tourmaline was mentioning that I believe their base dividend was safe, like covered, even if natural gas would go down like almost nearly 50% from today's prices. So that it's a really good play in that regard.

It returns a ton of value back to shareholders. Yeah, although the stock price is trended sideways for a little bit. But I actually added a few days ago because the markets may be very expensive. right now as a whole, but oil and gas is definitely one areas where prices are a bit more depressed. And I've said it time and time again, I don't think short term, it could still fluctuate quite a bit, even go downwards. But I think more medium to long term, there's just been underinvestment in that space. And I think a lot of the quality plays will end up benefiting. And in the meantime, I mean, you're getting paid a pretty decent amount for just waiting.

for most of these names. Yeah, for the amount of money they generate, they're always just absurdly cheap. I mean, Tourmaline trades at 14x earnings. I mean, it's very cheap company. I mean, they've always been that kind of cheap. I mean, over the last 10 years, it's typically traded in that 14x range.

So, I mean, if you assume the market's not going to pay any extra than it normally has, I mean, you would argue that it's fairly valued. But yeah, there's been significant underinvestment in this sector for a very long time now outside of that, you know, short stint, uh, coming out of the pandemic. But yeah, I mean, this is, it's, it's a high quality company. No doubt. Lots of free cash flow. And it, you know, I guess you would say responsibly returns most of it back to shareholders. And, and then they can kind of choose what they want to do with it themselves. Yeah, exactly. So now we'll move on, uh, to a company. I've not heard much about,

I know, but I guess, uh, it's one of these, uh, speculative plays for the lack of better words, right? Well, I think, I mean, it's, what's the size of it? It's a fairly big company. They, I would argue that it was probably one that was very poorly managed for a very long time up until they, they kind of hit the jackpot in terms of AI buildout. I mean, it's $31 billion market cap. Most of that is coming. Okay. Never mind then. Yeah, I guess I wasn't very familiar with it. So I guess that shows my knowledge on the company. So I mean, a lot of that is coming. Please educate me. Yeah. Yeah. So a lot of that has come in the last two years. Obviously, we're looking at $270 a share.

Two years ago, it was $15 a share. So the company, Celestica. And I think, like, I don't think we've never talked about it on the channel for sure. So I thought it would be a good one to cover because of the earnings. Because I think this has been probably the best large cap AI play in Canada over the last few years that a lot of people have no idea about. Yeah. Yeah. It's included. Yeah. Yeah. But the thing is, I mean, it would have been one that is relatively hard to identify that this would have happened prior because, I mean, it was, I don't want to say poorly managed because I didn't really follow the company all that well. But I mean, from 2010 to 2023, it earned 3.2% annually. So, I mean, there was obviously something going on here, you know, probably very little growth. But if you own the company from, 2023 to now, you've earned 1,700 percent or around 273 percent annually.

Well, the last five years total returns is 2,300 percent. Yeah, which is wow. And congratulations, by the way, for anyone who has owned that company for the last five years, you've done that. And, I mean, it's all data center. I mean, that would have been the main fuel and growth here. So the company generates a bulk of its revenue through network. working hardware storage systems.

So you can think like GPU racks, switches, routers, I mean, pretty much anything you can think of in terms of the overall expansion of data centers, Celestica provides it. And the only other interesting thing here is it not only provides them, but it designs and manufactures them. So, you know, these huge hyperscalor companies like Google, Amazon, Microsoft, they'll get custom designs and services by Celestica, which kind of ultimately ends up in repeat. revenue because the system is custom. Celestica is a manufacturer. So it kind of creates, you know, stickier revenue on that side of things. But in terms of the earnings, revenue came in 21% higher,

which is above the company's high end of their guidance. earnings per share grew 54% again above overall guidance. And the company's operating margins are 7.4%. So just to give you an idea on how solid this is for a company like Celestica, they posted operating margins in the two to three percent range for the better part of 15 years. So you're talking about financial crisis up until that would have been that 2023 point. And the company's communications revenue increased by 75% year over year. And this was primarily due to a pretty crazy surge in demand for networking switches. And the company mentioned it's continuing to win new contracts again with, you know, innovative rack designs.

It mentions that if it continue to do this, it kind of expands its total addressable market by quite a bit as it doesn't really need to primarily rely on that networking or storage element and they kind of mention they don't think things are going to slow down anytime soon it expects revenue to grow at 20% at the midpoint of guidance in 2025 and earnings by 42% again at the midpoint so this is a double digit upgrade on its previous guidance on both sales and earnings and the company also boosted its free cash flow guidance by double digits i think it expected 300 $150 million in 2025, and now it's up to $400 million. I mean, if this company, you know, it's exceeded guidance on both fronts this quarter.

And I mean, if it exceeds its 2025 guidance, I mean, you could be looking at 30% revenue growth and over 60% earnings growth. It's just been a crazy run for this company over the last while. Customer concentration is definitely an issue, like zero doubt. although it doesn't disclose the actual customers by name, or at least if it does, I couldn't find it. It's top two customers account for half of its revenue. I'm going to guess this is a major tech company in the United States.

I mean, I could be wrong on that again, but I'm going to say that that's probably the situation here. But obviously when you have 50% of your revenue with two companies, there is a bit of a risk there. But again, like I said, they do manufacture and design the systems, which kind of creates, you know, a little less risk in that regard because they're likely to head back because, you know, the system and everything is designed by Celestica. But it's certainly an interesting company. I mean, debt is manageable.

The company's capital expenditures only come in at one to two percent of revenue. So it's very capital-like business. Returns on invested capital have went from 19 percent to over 35 percent. And the thing is that it only trade, despite, you know, going up 2,300 percent, like you said, over the last five years. It's only trading at 28x expected earnings. So, I mean, if you think about it, the 30, 40 percent earnings guidance at the midpoint, I wouldn't necessarily say it's overvalued for a company that can grow at that pace. The price earnings growth is one, basically. Yes. Usually that's, that isn't that Peter Lynch's, uh, preferred metrics to look at company

and how they're growing into their earnings. So I mean, from that perspective, sure, but there's just so much hype around AI right now and I don't know I had something to I wish I would have owned that five years ago but at the same time I'm happy to look on the sidelines I just find that that is one pocket of the market that there's a lot of formal right now happening into yeah oh definitely and I mean if you see a slowdown well I mean are we going to see a slowdown in you know AI related capital expenditures because I mean if we don't ultimately Celestica is going to benefit from it i mean they're clearly benefiting from it right now but obviously i mean you know this is their expected guidance obviously it's nothing set in stone so but i mean you know

it doesn't see you would think that a company like immediately if you say oh this company went up 2300% over the last five years you would immediately think it's overvalued but if it hits that guidance it doesn't even really look that crazy right now despite going on just a massive price and again if you think about it if you own this company

from 2010 to 2023 there's probably at some point you probably got angry and sold it because it effectively did nothing and then it just goes

through the roof over the last two years well for the handful of listeners that have had it for the last five years or so congratulations if there's more than that congratulations as well

you can't that is one thing with investing I've said a few times is you've got to be comfortable and not have like regret. You will not find all the multi-baggers, all the plays. And if you constantly are trying to get all those multi-baggers, you'll probably end up shooting yourself in the foot because there's going to be a bunch of them that go the other way around. Oh yeah, exactly. And like I said, if you were to be like screening for stocks in 2022, you probably wouldn't have found this one because it really it had, you know, low earnings growth, low sales growth.

It really wasn't doing all that well. So if you got it, yeah, exactly. Congratulations. But I would imagine this would be one a lot of people missed. Yeah. In this kind of market, I like having some cash on the sidelines. It gives me the flexibility to jump on opportunities when the right stock goes on sale. But just because the cash is waiting, it doesn't mean it shouldn't be working for me.

That's why I use EQ Bank. They offer some of the best interest rate among Canadian banks, so my money's still earning while I wait. You can even get a boosted rate by setting up direct deposit for your payroll and depositing $2,000 or more per month into your EQ Bank account. Your cash stays liquid and ready to go when it's time to invest. And if you're not in a rush to access your funds, EQ banks notice savings accounts and GICs are great ways to grow your returns even more. It's a smarter way to park your cash. Visit EQBang.ca to learn more and keep your money earning even while you wait. Want to buy a stock, but don't want to shell out hundreds or even thousands for a single share?

With QuestTrade's new fractional shares, you can invest any dollar amount and build a diversified portfolio instantly. No delays, no trade fees, no excuses. Want to put $10 into a stock trading at $100? No problem. Questrade has you covered. They're the first broker in Canada to offer real-time commission-free trading for U.S. fractional shares in ETFs. It's simple, powerful, and finally available in Canada. Head to questrade.com to open and fund an account.

Use code TCI and you get $50 to get you started. In today's volatile markets, making smart investing decisions matters more than ever. That's where the Globe and Mail comes in. From Stock Analysis and Earnings Report to tariffs and interest rates, the globe's business and investing news help you take action. With tools like CPP, RSP, TFSA, and mortgage calculators, the Globe offers a full suite of resources to help you plan, invest, and stay on track, no matter where you are on your financial journey.

Ready to invest in you, visit globeandmail.com slash subscribe for unrestricted access at a special introductory rate. Okay, well, we'll switch back to what makes the TSX so great. Some more mining, well, some more commodity plays. So commodity companies, you might have guessed at a mining company at Nico Eagle. So for those not familiar, this is a very large gold miner. One of the largest in the world, I'm not, yeah, they're not far behind Newmount, I think. Are they bigger than Barrick?

They probably would be pretty close now. Yeah, they're at $67 billion. You have Barrick here. That would be, yeah, so they're bigger. Canadian. Yeah, they're bigger than Barrick. And then Newmount would be the other one that comes to mind in terms of massive ones. No, and you mount still in front.

So, yeah. So they're way of there. It's one of the larger gold miners, and it has been on a hell of a run. I own this one. Well, I did own it. I own Kirkland Lake and then they merged and I sold it shortly after, just way too early. So Nico Eagle is over the last three years. The last year it's about 80% up in terms of total returns.

The last three years, it's up 226%. Obviously, a lot of gold production here that is powering that through and you have gold prices that are higher. So definitely a big tail win for them. again I'm sure this one is probably owned a bit more widely by some of our listeners it's a pretty large name so anyone that would want a mining play it's a high quality name as well the more I was looking at it the more I'm like yeah very very good quality miner revenues were up 36% for the quarter really not surprising when you think about

how much gold is up this year or last quarter compared to the same period last year so the one question you want to ask about miner is really do they have their cost well managed are the efficient and are the costs maintained and it's a really good question because the price of gold may be high but if your costs are going up as quickly as a price of gold you're not in a better spot right so i one thing that they do add and a lot of gold miners will as well is they're all in sustainable costs. The acronym for that is AISC. I'll mention it a few times here.

So the AISC per ounce produced 10 years ago was $864. And back then, for context, the price of an ounce of gold was around $1,200. Well, in their most recent quarter, that same metric AISC was 1289. So yes, it's like roughly, let's say 40, 45% increase from 10 years ago. But the average price of gold during the quarter was 3288. So price of gold, not quite 3x, but let's say 2.7, 2.8 time the price that was 10 years ago. So what that tells us is the price of gold has risen much, much more than their production costs, which makes this minor Egnico extremely profitable.

And you can see that when you start looking at their operating margins here. It's really, it's something else. So if you go back to 2015, they had operating margins of like 8% or so. And in the most recent quarter, it's actually people watching on joint TCI will see 47. But if you actually look on the quarterly side, it's much higher than that. So the most recent quarter is 58%. So they went from 7% in the span of 10 years to upwards of 50%, which is absolutely mind-blowing. So it tells you how these really well-run gold mining are how well they're doing right now.

Yeah, and I think some of that will probably be due. Well, I mean, I guess that would have been a while ago, the Kirkland Lake, you know, merger. Because Kirkland Lake was a very solid gold company as well. And, I mean, the one thing I like about Agneco is I'm pretty sure all of their mines are in, I think, Canada, the U.S. and Australia. So, I mean, you're talking about, like, areas where mining costs will probably be higher. Like, you could probably find a gold producer with lower all-in sustaining costs, but they might operate in a lot of jurisdictions that are not as heavily regulated and more prone to, you know, a lot of issues, I guess. I mean, we can look at what would it be first quantum.

Yeah, the Cobrae Panama situation, I mean, where the mine just gets shut down just completely. So this, you know, costs are higher with Agneco, but it's also, you know, you're not likely to face that sort of regulatory geopolitical type issues. So, yeah, it's, it's probably, you know, one of the best miners in the country. I mean, 60% operating margins is just nuts. Yeah, exactly. It's pretty crazy. And you're not wrong for gold miners or miners in general. You have to be careful with the country political risk that they may be.

operating in. At the same time, sometimes it can create some upside too, right? Because if there's a decent amount of risk and they have a mine that they know there's a lot of minerals, there's a lot of gold, there's a lot of precious metals, well, if the risk doesn't pan out and the mind just operates, you can really look at some massive gains because a lot of investors were afraid of that risk. So yes, it is a tradeoff. It's something that some people can, look into obviously it's not investment advice so make sure you do your research but where there's more risk oftentimes there can be a bit more upside so keep that in mind during the quarter they returned 300 million to shareholder in the form of dividends and buybacks they kept their production

and cost guidance unchanged for the rest of the year they also said on the call that they had good progress made on several projects in their development pipeline including Canadian malartig Detour Lake, Upper Beaver, and Hope Bate. They have moved into, you probably won't believe that, but they actually moved into a netcast position of about $800 million. And I was listening to another podcast, and it's actually becoming more and more common for a lot of these gold miners that were leveraged 10, 12 years ago,

quite a bit. And over the last 5, 6, 7 years, they've really put an emphasis on paying down that debt. And it's pretty amazing to see that you have these companies now that are sitting on pretty good chunks of cash. So you have to wonder if there's going to be a bit more M&A in this sector as the big players have money to play with and don't necessarily need to use debt to buy some smaller players.

You would have to imagine so. I mean, if you look to their balance sheet, they had $450 million in cash at the end of 2023, and now they're $2.1 billion. So, I mean, they got a ton of cash on the balance sheet, not very much debt. I think a lot of them also, you know, during the last gold bear market, I guess you would say, kind of got into a lot of trouble. They were buying back a lot of shares, raising the dividend a lot in an environment where, you know, if you spread you, the one thing I can think of is back during the pandemic when,

and Suncor was buying back a ton of shares and then oil kind of hit, you know, hit, obviously, you know, probably the biggest collapse in history, but they ended up having to cut the dividend because they really had no flexibility. Yeah. I think these stronger gold companies are now going to be a little bit more conservative on that in in case the price of gold does come down. They don't want to spend all the money now on buybacks, dividend raises acquisitions, things like that.

We'll just allow them to navigate, you know, possibly a weaker environment better. Yeah, yeah, exactly. And if you go back as recently as 20, 23, so they were looking at about $2 billion in debt and about $340 in cash on the balance sheet. And now they're looking at, yeah, like much, I'm looking at the yearly, so I'm just going to pull the quarterly. I think, okay, it's still that. So they're looking at cash and cash equivalence, yeah, about $1.6 billion with debt being half of that. so you got you saw really a total reversal here over the last few years and obviously i just used as recently as 2023 but you can go back the last 10 years and they've never had a net cash position

this is actually the first time that they've had that so you can see how much of a tail win higher gold prices i've been for these companies who knows if it will continue i think the long-term tail win for gold is extremely strong i've talked about it before maybe i'll do a another episode on it as we pre-record a few episodes before we take a few weeks off at the end of August but I think the tailwinds are very strong medium to long term for gold. Yeah, definitely. And I mean, I guess for those who are confused because I said $2.1 billion, Simone is just looking at the U.S. ticker where I was on the Canadian ticket. Oh, the Canadian. Yeah. Yeah. So it's, yeah, that's right. It's right. It makes more sense. Yeah. Whereas I was looking at the Canadian one. That lines up. Yeah. I remember

you saying two billion but i was like okay but yeah no that makes sense so we'll finish off here i think we'll have time to do this one relatively quickly and go and uh look at allied properties yeah this will be a quick one it was just one that i think we've discussed it like probably two or three straight quarters now because we've been kind of keeping an eye on uh the distribution because it's it's bordering on unaffordable i mean i think everybody knows this it's fairly clear to just kind of look at the ratios and and So, I mean, it doesn't look like it's getting better. In fact, it looks like it's getting worse. The company reported a mid-single-digit decline in both funds from operations and adjusted funds from operations.

And when we look to those relative to the distribution, it's now paying out around 91.2% of funds from operations and 98.8% of adjusted funds from operations. So REITs can typically operate pretty well with payout ratios, you know, north of, 85% or 85% or so like after all the bulk of like they're they're looking to distribute the bulk of earnings back to investors I mean that's kind of what they have to do to in order to be classified as a trust but once we get to 100% I mean you're looking you know you're getting really tight here and operationally unless something kind of drastically improves I mean these coverage ratios will either remain very very tight or start exceeding 100%. Net operating income only increased by 1.1% and the company has only been able

to increase in place rents by 1%. Although these are small increases, their funds from operations actually dropped due to rising interest expenses. The one positive thing the company did mention is that its overall interest rates on some of its debt is expected to decline in the first quarter of 2026. They said it could be upwards of 20%. which should provide some relief, but enough to kind of get this back steady. I'm not exactly sure. Overall occupancy rates now sit at around 85%. And the company issued 2025 guidance, which it largely expects what happened this quarter.

You're looking at low single digit net operating income growth, but 4% declines in funds from operations. It did state that it wants to have an occupancy ratio of 90% by the end of the year. but I would say this is pretty lofty. It's been saying that for the last two, three years, so we'll have to see. Yeah, and the one interesting thing is it did say the tours on its properties are up 21% year to date. But I mean, occupants. They've been saying that for the last two, three years, the same exact thing.

Yeah, it kind of looks like they're dressing it up to say, you know, we could hit 90% because, you know, a lot of people are coming to visit the properties. but the fact is like the occupancy rates are not moving here. I mean, it just looks like a company that is going to be just continuing to scramble here to sell off assets in order to pay down debt. Like they sold those data centers. I can't remember when that was. That was a few years ago.

I think, yeah, I think it may have been 2023, like summer of 2023, if I remember, correct. I could be wrong, but I used to own it as longtime listeners will know. I owned it for a little bit as a turnaround play. I think it was like late 20, 22, and then I sold it. I think it was last year in early 2020, forges because a lot of the things you're saying,

they were saying back then, and they were just not materializing after saying them for like a better part of a year. I just pulled a plug on it. And again, same thing. The tours are looking good. They're increasing, but the tours are not, or no guarantee.

Exactly. And one data point, that does not lie for them is I have it pulled here for the joint TCI subscribers is if you go back to 2022, let's disregard anything before that because that's kind of the pandemic era or pre-pendemic which was very different. You're seeing the payout ratio not trend in the right direction. This is not just a few quarters. Like you were looking at the AFFO payout ratio in the, let's say, low 80s for the most part. And that's been creeping up. and now is in the mid to high 90s,

and the payout ratio for funds from operation was in the low 70s, mid-70s, and now has been just creeping up to the mid-high 80s. So that there does not lie. That is hard data. You know, the hope about the tours and all that fluff and blah, blah, blah, hope is not a strategy.

And there's a reason why I sold and I just kept hearing the same thing and management pushing back things. And that's an example here that I do not like to hear that is just essentially, you know, oh, the tours might end up panning out. It just, yeah, they're just touring. They're not committing to anything. Yeah.

And I mean, even I believe they have like a, their lease rate is in like the high 80s, but their actual occupancy rate is low 80s. So, I mean, some of these buildings are empty anyways. Like, I mean, it looks to me. me, they're going to continue to sell assets. So they sold those data centers off. They paid down a little bit of debt. But I think interest rates increase so much that their coverage ratios in relation to their interest expenses didn't actually improve all that much.

So, I mean, if they hadn't have done that, I mean, you would probably almost guarantee the distribution would be cut. But they plan to sell off more assets. So they had mentioned they have $850 million in debt maturing at the start of 2020. So what it plans to do is refinance half that debt and then it's going to try to use money from asset dispositions over the next while to pay the remaining half off. It stated it does have $300 million in assets that it plans to sell off this year on low performing properties. So pretty much the impact of less interest on that debt is more beneficial than what these properties are bringing in for them. So they just feel it's easier to sell them off and pay off the debt. But the problem with low-performing properties is they're not going to fetch as much as good

performing properties. And that's a conundrum for a company like allied properties real estate is you're getting that demand is still not picking back up. You said there is a discrepancy and that's been there for a little bit now between the least area and the occupied area. so you can make a case that that discrepancy is for companies that probably started the leases years back thought they would need it and now they're realizing they're not using it so it's not occupied so they'll probably lose some of those companies because they're obviously not going to renew if they're not using the space

and then you have the other elephant in the room that I've not heard all that much and maybe it's because I need to read more on office real estate but there's going to be disruption with AI and a lot of white-collar jobs, for example, like research assistants and stuff like that, I mean, you can do a lot of that stuff now with AI as it is. So you can imagine that if there are some jobs that are lost, it means there's less bodies. It means that, of course, there's going to be less, I mean, logically, there should be a bit less demand for office real estate if you have a smaller number of white-collar employees, which that's what they do, their office real estate investment trust. So that's the other thing that could put a lot more pressure on them is as companies actually become more efficient, remove some jobs that can't be replaced by AI, I could put even more

pressure on that occupancy rate. Yeah. I mean, I think the solution here is probably to just cut the distribution and, you know, and kind of try to put more of that towards debt instead of probably selling off a time. of assets in an environment that you are not going to fetch even close to reasonable value for, I would imagine. But I mean, obviously these REITs, their income plays, they're structured as trust to be income plays. I mean, their job is to pay you income relative to, you know, I think it's 90% of the profits they make has to come back. So, I mean, I can see why it's

difficult. I don't really think this is a situation of like poor management or anything. It's just a terrible environment. The one thing they, did mention again, this is a bit more of the fluff end is they do say they're very confident this is the bottom of the cycle. Yeah. Okay. Yeah, I mean, like any reet that hovers near this 100% payout ratio, I mean, you need a big turnaround in a very short amount of time to be able to save the distribution. And I mean, I can't see anything over the next year or two that's going to fuel office reits or just office properties in general to where this becomes sustainable. So I think it's probably just a Band-Aid situation here.

I mean, you're paying out 99% of your earnings towards a dividend. I mean, and you're guiding to 4% lower this year. So obviously that's going to get over 100. I mean, at what point do you just rip the band-aid off? Yeah, I think you're right. Like, unfortunately, I haven't looked at the more recent call, but it just follows what I've seen with them over the last like two years or so is just there's a lot of hope.

And I think they're not willing to make the tough decisions, for example, cutting that distribution to be able to, one, pay down that debt, but maybe also those buildings that are not performing as well, maybe you start looking at repurposing them into other types of real estate that would perform better. And I don't know which type it would be. I'm not a real estate expert by any means, but maybe that's something to look at is you say, you know what, let's diversify. little bit away from office real estate and just going to this other type of real estate repurpose it short term it will be a bit more painful but long term the company will come back stronger and you see that time and time again obviously the poster child for this is bc that waited way too long to make some tough decisions but i think you're seeing a little bit of that here with allied properties reed as well unfortunately yeah yeah i think they're kind of getting into

residential but it's like this is a the bulk of this is going to be office properties which yeah and even residential is being under pressure right now yeah that's one of the issues right like rents i know enough to know that rents are either flat or falling in a lot of areas in Canada so there is some pressure there too but um all that to say look i know it's attractive for the uh the payout the dividend or the distribution whatever you want to call it but at the end of the day there's a lot of red flags here so for those looking for income just know what you're getting into you know maybe ends up turning things around but um i personally i would not touch it with a 10 foot pole but hey i could be wrong i've been wrong before it needs to turn it around very quickly

and they're guiding this year to not being able to turn it around at least in 2025 so i would expect at the end of the year those payout ratios are going to be north of 100% unless they can sell off some, some assets quickly and get debt down and reduce those interest expenses. But that's a lot of movement for an area that is not exactly the most liquid real estate. Yeah. Yeah. Exactly. It's not, real estate is already not that as that liquid to begin with. And you have these large office buildings. I mean, there's not that many people or entities that, should I say, that are able to buy these large office buildings. So keep that in my mind. but I think that's a good point to cap it off for today.

I think there was a really good episode. For those who would like to see what we're talking about, sharing our screens and showing the data while we're talking, you can head to join tcii.com. Like we mentioned before, we will be increasing the price at the beginning of September. So if you want to lock in the $9 a month price, now is the time to do it.

Aside from that, we appreciate all the support. Again, it was great seeing everyone that showed up for the Calgary and the TSX event. It's always great to meet our listeners. You know, never gets old. I'll just say that. Yeah. So we'll wrap it up here.

Thanks again, everyone for listening. The Canadian Investor Podcast should not be construed as investment or financial advice. The host and guests featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.