The Canadian Investor - US Approves Spot Bitcoin ETFs and a Surprise Dividend Cut

Episode Date: January 11, 2024

Dan Kent is back for his first recording of 2024! Simon and Dan talk about the U.S. Spot Bitcoin ETF, Walgreens cutting its dividend, Brookfield’s cell tower acquisitions in India, Lululemon increasing its guidance and more! Ticker of Stocks discussed: LULU, BN.TO, WBA, AMT, AP-UN.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  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.

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Dan, happy new year. Are you excited to get started? What did you, any crazy plans or anything crazy happened during the holidays for you? No, not really. I went to Mexico for Christmas for a bit, got back. Most of my family goes away for Christmas, so it's pretty slow. We don't do much, not much going on in the market, like you said, but there is a lot of interesting news, a big dividend cut from a big US company, almost a dividend king, I think, and they didn't quite make it there. But yeah, it's been pretty interesting over the holidays.

I'm just kind of getting back into the market because we had a pretty busy New Year with kind of family coming back from vacation and hanging out with them. And so, yeah, I hope everybody listening had a good new year good holiday getting back into it yeah exactly and actually did you get any investing ideas or any like epiphanies that happened in mexico like any crazy ideas like for investing that you weren't uh weren't aware of or thought of like i find when i'm on vacation sometimes i get some of my best ideas i don't know about you. Well, no, not really.

I mean, the one thing I will say is it got cold there, like abnormally cold. Sometimes when we would wake up, it would only be like seven or eight degrees, which I mean, in Mexico, you don't have heat in your house. It's like 100% humidity there all the time with no heat. Like it was freezing. So yeah. it's like 100 humidity there all the time with no heat like it was freezing so yeah no you better hope you're as long as you're not sleeping alone in your bed i think you'll be okay right okay now we'll get started the first piece of news and this one we hadn't done too much notes about it but we're both fairly aware of it so the boeing what's going on with boeing and obviously i think a few days ago there was a door that just opened and they like mid-flight so they had to come back down thankfully

there were no like injuries or at least major injuries or deaths related to that but i think now carriers have grounded all those kind of planes which is the 737 max but i think it's a specific model of the 737 max variance the max nine i think it is the max nine okay and then i know there's been carrier who have noticed like bolts that are now doing inspections bolts that are loose and it's just not a good look for boeing and i was reading that their ceo the turnaround year for Boeing, which completely went out the door, no pun intended here,, since the 737 MAX, the issues that I think there were two planes that crashed, I think just before the pandemic. And I'm kind of from an investing perspective, and I don't know what you think here. I mean, the plus is that it's essentially a duopoly with Airbus out in France. There's also Embraer, but typically they'll do a bit smaller planes.

But it's a good thing that there's a duopoly in place, but at the same time, they seem like they cannot get things right. I mean, you think they would have learned their lesson and do some extensive inspections of all their models with the different problems, but that doesn't seem to be the case. their uh their stock price like their stock chart over the last five years is absolutely bonkers like it it dropped massively because of the pandemic and then it started coming back up and then they had the max the max eight issues which was i think it had something to do with like a wing stabilizer something that ended up malfunctioning and the pilots weren't

trained so it ended up causing the planes to go down so it plummeted again there and then it finally started to see a resurgence and then this goes on like this wasn't even apparently like an actual uh emergency door it was like a dummy section of the plane where they could have put an emergency door and it just blew out of the side and luckily nobody was sitting there what a crazy situation they found the they found the iphone that got sucked out though okay that was a knife yeah they found it intact like it's still apparently they turned it on and the boarding pass was the first thing that popped up it just landed in a bush after it got sucked out of the plane.

It's pretty crazy. Yeah, that's something else. I think it just, the MAX, I think it happened just before the pandemic. I think that's when the original issue, I think it would have been like early 2020, like right before the pandemic. The MAX 8 was? Yeah, the MAX 8. Oh, yeah, I think that might have have been i'd have to look that up yeah i think if i remember correctly anyways it's around there i'm pretty

sure it was pre-pandemic and then they got hit even harder with obviously i think there's some carriers that canceled orders because of the pandemic and so on but yeah i mean for me it's something i'll keep an eye on. I would say six, seven years ago, I was definitely interested in a company like Boeing, mostly because of the duopoly they had with Airbus. But now, I mean, I'm going to have to see management turn this around for a good period of time because at some point you just lose confidence.

Yeah. And it's a kind of product that you have really no margin for error. No. And like a Dualopoly as a consumer right now looks pretty sketchy because of all the problems that are happening with these new planes. It's pretty crazy. Crazy situation. Yeah, no, definitely. And now we'll move on to another piece of news.

This one, I know a lot of people own Brookfield. move on to another piece of news this one i know a lot of people own brookfield so there were news that news came out last week that brookfield was buying atc india for 2.5 billion from american tower reit this apparently will make brookfield asset management the largest operator of telecom towers in india which has seen growing demand for telecom services obviously India is a growing economic not power just yet but definitely you know it's starting to get there slowly but surely a lot of potential because of the population the total amount of towers is around 77,000 that Brookfield will be getting in that deal from American Tower REIT. The addition of these will bring the total numbers of Tower for Brookfield to more than $230,000, which will surpass the current market leader in Dust Towers, which has around $190,000. The operations were apparently a money loser for

American Tower REIT, and they are exiting the market after 17 years. I believe they'll be using some of that money to pay off debt. And American Tower REIT had written off $322 million recently from their Indian business. And it was apparently because of the struggles of their top client Vodafone. Now, from my perspective, it's kind of interesting that Brookfield is doing this because, you know, American Tower RE Reed, that's essentially their business model. So, I mean, they bought CoreSight Realty not too long ago for data center, but still the core of their business is these, you know, cell phone towers. So I just found it a bit strange that they're not able to make it work in India and Brookfield buying that. But then again, Brookfield

seems to have a lot more experience in India with these kind of telecom towers. So it'll be interesting. I mean, I kind of was mixed feelings because on the one hand, I'm like, OK, if American Tower Reef can't make this work, what you know, I know Brookfield is really good at these kind of things. But, you know, I do have a few questions there. I'll give them the benefit of the doubt. But that's the first sense I got from reading this story. That was pretty much my thought on it as well, is if a company that specializes so much in this has been losing money on it, so much so that they, you know, whether they sold it because they

had to pay down debt or if they just wanted to exit it outright like it'll be interesting to see if brookfield can turn it around into a profitable endeavor at least i mean there's not much more you can do than just wait and see on this yeah exactly and for a company as large as brookfield is definitely a drop in the bucket so obviously if it goes sideways it's not the end of the world but it'll be really obviously, I guess, just finding deals and we'll see whether they're able to kind of turn this around and make that profitable. Clearly, they're betting big on India. But having said that, you know, we'll look at the wonderful world of dividend and why, you know, having a strong history of paying a dividend does not guarantee that it will continue into the future. So you want to tell us what happened with Walgreens? Yeah, so it would have been in

early January, they reported earnings. The earnings actually weren't that bad. They came relatively in line with what was expected. But the thing that came kind of out of, I wouldn't say left field because there were some warning signs, but they slashed their dividend nearly in half and that's Walgreens. They reported a 43.7% decline in constant currency earnings, despite sales increasing by 10% year over year. And the company maintained its fiscal 24 guidance in terms of adjusted earnings. So it expects to earn $3.20 to $3.50 per share. So if you were looking at this dividend prior to the cut, they paid $1.92. So if you were just looking at this in relation to earnings, this dividend cut might've come as a pretty big surprise. But as I mentioned, there were some pretty big warning signs for a long time for Walgreens over the past while. So I mean, it's kind of been a mess

over the last five, six years. So it had free cash flow peak in 2018. And then it was just on a constant spiral downward since late 2022. The company actually hasn't generated enough free cash flow to cover the dividend, despite earnings saying that it was pretty well covered. And when we look to Walgreens on a gross margin basis, it's pretty bad. So 10 years ago, this was a 30% plus gross margin retailer, and they've shrunk to just 18% in the last quarter. And just overall, they expect a lot of struggles over the next few years, which kind of leads me to believe that this might have been like a preemptive cut. Walgreens doesn't really think things are going to get any better over the next while here either. They're expected to grow earnings at a pretty low pace,

while revenue is expected to only grow by about 8% cumulatively over the next three years. I think it's a pretty important lesson for many investors on a few levels. One would be obviously don't chase yield. So overall, there's only two real ways that yield can rise. So a company can either grow its dividend faster than its share price is appreciating, or it can undergo a correction in price. The first situation is definitely the more rare as dividends often grow in line or just under earnings growth, unless a company has a ton of room to grow it. One of the prime examples would be Equitable Bank. So you often see they grow their earnings by 10 to 15% a year, but their dividend is growing

at a 25% clip, but it's just such a small portion of their overall earnings. It's maybe like 20% payout ratio right now, so they can do this. But the second situation and the one that's more likely is just that the share price is falling. And then from that standpoint, we can kind of see how important free cash flows are in relation to how the market values a company. So I mean, you could look at Walgreens free cash flow per share, and it essentially tracks its share price over the last five years. We can see when free cash flow peaks, share price is high. And when it starts to decline, it's just a constant decline. And then I guess, as you mentioned at the start, the second lesson would just be that past history has absolutely no bearing on future payments. It doesn't matter if they've paid

dividends for 10 years, 100 years, they're never guaranteed. Walgreens had raised a dividend for 48 straight years. So there's only two companies to do this in the entire country, and that would be Fortis and Canadian Utilities. So you're talking about a company that in Canada would have the third longest dividend growth streak cutting the dividend. So yeah, I don't know if you paid too much attention to this, but it was pretty big news. Yeah, I saw it. And I think anyone who was looking at Walgreens at the actual financials would have noticed that this was a possibility because I brought it up like we've I've been showing for joint TCI listeners here and subscribers that essentially free cash flow peaked around like 2018 and they were paying a dividend back then the dividend was well covered by free cash flow i mean just like ballparking was probably around like 25 30 percent of free cash flow and then that free cash flow started coming down in 2019 pretty stable from for the next three

years there but now the dividend had jumped to probably around 40, 45% of free cash flow. And then since 2022 and last year, there's been a significant dip in free cash flow. So 2022, it dropped by another half. And then last year, there was barely anything. So clearly did not cover the dividend with free cash flow. So just looking at that, there would have been warning signs for investors to, you know, if you're relying on that dividend, definitely, you know, you may have been good to at least start looking somewhere else or at least know that a dividend cut could have been coming. Yeah. And it's another important thing to, you know, if you're focusing too much on payout ratios

in relations to earnings per share, which could have a ton of non-cash items on it, things like that. It can impact earnings per share different than cash flow. I always tend to look at the free cash flow generation in relation to the dividend paid more so than earnings per share. Yeah, same for me. So no, that's great. Anything to add here for Walgreens? By the way, what a weird name. Walgreens Boots Alliance. That's the official name. I had to Google it twice.

I think it has something to do with a UK joint venture, maybe. I'm not sure. I haven't paid too much attention to Walgreens overall until they kind of cut the dividend. It's not hard to... Yeah, go ahead i think it was i think it was brought private and then it got and then ipo'd again is that possible yeah i can't even remember yeah okay it wouldn't have been a hard company to skip over over the last while just because like the underlying numbers just looked kind of really poor. But I mean, it's pretty crazy that they're negative cash flow.

Yeah. Like it has really gone downhill. And if you've never seen a Walgreens, like the best way to say it, to me, at least the ones I've been to, it's like shoppers with like booze. Yeah, pretty much. Yeah, that's the ones I've been to like in Las Vegas. So clearly, you know, you go there, you get some, you can get decent amount of food too. But yeah, no. I think that might be the only Walgreens I've ever been into is the one on the strip in Vegas. Yeah. Oh, there you go. Yeah, I've been to a few, but that's the one I remember the most.

a few, but that's the one I remember the most. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com.

Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights,

track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the App Store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the App Store and I'll see you there. So I guess we'll move on here to the next segment that we have. So obviously, if people have been paying attention, at least I don't know if I'm in an echo chamber or whatnot, but it seems like everyone is talking about the Bitcoin spot, Bitcoin ETF approval in the US. So it sounds like there's a high, high probability that it will be happening this week. And the SEC will the Securities and Exchange Commission SEC will be approving it.

What I've been reading is approving it late Tuesday night or Wednesday. So you'll probably know by the time this episode is released whether it was approved or not and then to commence trading essentially Thursday so when this episode is released or Friday now to be clear nothing is confirmed yet but you'll know when you listen to it like I just mentioned and it seems likely that the ESCC will approve it on the 10th and would start trading later in the week but again it is possible that it won't happen the reason why it's likely to be approved and why the January 10th date, so Wednesday is so important. Is because it's a deadline for the SEC to either approve the ARK and ARK21 shares Bitcoin ETF application or reject it. And that's important because of a court loss in 2023 against grayscale the company

behind the close-ended gbtc fund the scc does not appear to have a choice but to approve the spot bitcoin application and if they're going to deny it they will have to deny it on something else so they had originally denied it because there's a price. They're saying there's price manipulation, but it was very hard to stand on that because they had to prove a futures Bitcoin ETF, which, you know, logically you can make a pretty good taste that, you know, the spot price will still have an impact on the future price. So it was kind of hard for them to stand on that. And most experts say that they will do this in a batch all at once. By doing this, they won't favor any specific Bitcoin ETFs. That's because typically when there's a new type of ETF launch, the first to market will take most of the market share. So to even things out, they would just essentially approve a basket of them. I think

there's about 10, if I remember correctly. And there's also a lot of reports of asset managers like BlackRock, which is one of the companies that has an ETF application that could be approved this week, that BlackRock is working behind the scenes on finalizing their ETF application to ensure that is compliant with the SEC requirements. Anything you wanted to add there before I go on to what potential impacts it could have on the price of Bitcoin? No, I mean, all released at once is pretty interesting because I remember it didn't go that way in Canada. I can't remember what the first one was. Was it QTBC? There was one. Well, that wasn't an ETF.

So that was a close. That was essentially the GBTC equivalent in Canada. Yeah. Yeah, there was a fund with way higher fees, but it came to market first. So it had way higher AUM. Yeah, I think it's the same similar for gbtc right now it's only the only kind of option the u.s although american investors could buy there are bitcoin etfs in canada like you mentioned and some are traded in usd so that could be an option but the

reality is a lot of american investors like to invest in U.S. listed products. Yeah, so that's going to be interesting. But yeah, I think the point is to not favor any of them. And I've seen a couple of reports from multiple sources, obviously not my sources, but reports I read on that. Apparently, BlackRock has like $2 billion ready on the sidelines to invest in their Bitcoin ETF when it does get approved. So it'll be interesting, really the number of inflows that there is on the first few days and the first quarter and first year, just to see if there is actually that much demand for spot Bitcoin ETF. I mean, you would imagine there would be pretty big demand, especially with the run-up in price. That's going to be the most interesting thing is with Bitcoin,

like what, tripling almost from the end of 2022? Yeah, I think it nearly tripled. The low was around 15,000, 16,000 USD. So yeah, pretty much triple. Yeah, so I think a lot of US investors will be kind of itching to get in here. So I'm but I'm interested if this is kind of like a, you know, buy the rumor, sell the news type thing where after they come out what the price is going to do. Yeah, no. And that's a great point. So I think a lot of people are looking at that. And I think there's two camps. It's either

like you just said, you know, sell the news and then, you know, it's going to go down as it launches. Or a lot of people think it's just going to be a catapult from there and the price will just increase because there's going to be tons of demand for the ETFs and which will require them to actually buy Bitcoin. So I think there's a case to say yes and no, at least in the very short term. Long term, I think personally that the ETF will increase demand for Bitcoin and Bitcoin adoption just by making it easy, more available to Americans that may want exposure by it. But, you know, they are reluctant to buy actual Bitcoin. There could be various reasons for that. You know, personally, I think it's always better to buy the actual Bitcoin. But some people may be afraid or they may have heard horror stories of people losing, you know, multiple Bitcoins because they lost their seed phrase for their self-custody, for example.

But in the I think, you know, there may be also like it might already be priced in, like you just said, at 3x since the bottom. So I wouldn't be surprised whether there is a significant decrease or a pretty significant increase, you know, shorter term. I think it could go both ways. So just be aware of that. And personally, if you're looking to get exposure to Bitcoin, see it more as a longer term investment, not as like something to trade because you can get you can get wrecked trading Bitcoin. It's very there's a lot of leverage and it could go big swings from one way to another. There was an interesting survey from Bitwise on a potential Bitcoin ETF. And I'll finish with this. They surveyed 437 financial advisors in the US to gauge their views on crypto assets.

A lot of it revolved around Bitcoin, obviously. So only 38% of advisors surveyed actually expect a spot Bitcoin ETF in 2024. But by contrast, Bloomberg ETF analysts put a 90% chance that it will be approved in 2024. So that is something that I think and as I go over the survey here you'll see that there's definitely a case that it may be bullish a bit more longer term. 88% of advisors are interested in purchasing Bitcoin but are waiting until after the ETF is approved. Only 19% of advisors said they are currently able to buy crypto in their client's account. 98% of advisors who have clients with crypto plan to maintain or increase the allocation in 2024. 88% of advisors received questions about crypto from their clients last year.

64% said the regulatory uncertainty was the top barrier for greater crypto adoption amongst their clients while the volatility was the second reason at 47 and 71 of advisors prefer bitcoin over the second largest cryptocurrency ethereum and that compares to only 53 a year before so there's increased i think openness for bitcoin And what that tells me is that more medium to longer term, there could be some big tailwinds here. Just because people aren't familiar with financial advisors, they don't necessarily talk to their clients all the time either, right? Some may have quarterly meetings, monthly meetings, yearly meetings. So a lot of clients that may, you know, have heard about Bitcoin,

don't necessarily know it. They may not, you know, look at that ETF option until six months from now when their next meeting with their financial advisor is. So it'll be really interesting how it goes. And then there's also the Bitcoin halving that will be happening in a few months along with that. So there's a lot of stuff happening in 2024. Again, invest in Bitcoin. If you are okay with the volatility, learn about the asset, learn about the network, learn about how it works and just put an amount. And I have always said that put an amount that you're comfortable with it going to zero. I don't think it will go to zero, but that way, if it drops 50, 60, 70%, you know, if you just put a couple percentage point of your portfolio, it's not the end of the world. It probably won't make or break your investments.

Yeah, that's pretty much what I did. I had it. I mean, it's grown now to, it's my largest position by quite a bit now, just because you're doing pretty well. Yeah. Just cause it's tripled off the lows. I mean, I don't know very much about Bitcoin crypto in general at all, but I do own it. I, I took a core position in it. What I would, what I would say like four or 5% of the portfolio. And now it's gone up quite a bit, but, um, the one of the most interesting thing from this would be the only 19 of advisors said they're currently able to buy crypto in their client's account like would this just be like right now they're buying crypto in a wallet or on like something like bitbuyer is this like 19 of clients had said when this comes out they'll be able to buy bitcoin for their client no just

currently so you know, they meet with their client and they, my understanding of it, they meet with clients, they help them select investment or select them for them. So I'm assuming they're doing it probably via either multi-sig. So where there's a kind of a third party custodian, you have your keys, but in case you lose them, or the other option canada is not the only country that has bitcoin etfs so they may be going to foreign countries that have bitcoin etfs listed in usd and buying them that way or buying something like gbtc for their clients so there are definitely some options there but they're not as easy as a u.s bitcoin etf and also you know apparently all the asset

managers that are launching or preparing to launch one apparently in the u.s there's like a marketing campaign war and i was listening to another podcast on it where they're basically going like hard at the fees i think blackrock will be like 30 basis points. So 0.3%, which is quite good compared to the Canadian ones. Yeah. So to the point that I may actually have a little bit of Bitcoin ETFs in Canada, if the fees are that low for the US ones, I will switch and buy the US ones. Because in the Canadian ones, I think the lowest fee is 0.75. Yeah. I think there's one, it qbtc that's like two percent yeah yeah qbtc i think that would be uh one of the higher ones but the actual etfs um i

think they're around 0.75 and one percent so if you're looking at like 50 basis point lower that's worth my wild to uh go in and out if it was like five basis 10 basis points whatever but uh 50 basis point could be a big difference and obviously they black rocked with their army of advisors i mean i'm sure they'll be uh you know selling that and larry fink has been he was doing the rounds this summer and i think he's slowed down has only talked about it as crypto because they have to be careful of what they say when they have an application an etf application so they can't really talk too much about it but i expect him to uh come back out and be uh you know the number one fanboy for bitcoin once it's approved if it is approved obviously yeah i mean

it adds so much flexibility as well. Because for me, I have it in a tax-sheltered account, which for a lot of these ETFs, when they come out, the US, they're going to be able to add them to a tax-sheltered account, unless there's rules against it, which I can't imagine there would be. No, that's what I've read. They'll be able to buy them in their IRAs, their 401ks. Yeah. Yeah. Pretty much any tax sheltered account. Yeah. And then even from the perspective of like with us, you know, buying a US domicile fund, it increases your foreign property ownership. I'm pretty sure. So I don't exactly know what the rules are down there, but it's probably a disadvantage for them

to be buying Canadian funds. So yeah, I think this is going to be pretty pretty big and i mean it's about time really you would think i mean they've been out elsewhere for quite a while yeah apparently gp morgan will be acting as a market maker for uh some of those yeah they will be as a market maker for some of these uh bitcoin etfs yeah so it'll be damn along i think jane street will be another one but yeah so don't uh don't listen to what jamie diamonds says just uh just look at what his actual firm does because uh you know he may not like bitcoin but i think he likes making money and if they can make money off of it they they'll do it. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years

now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Calling all DIY do-it-yourself investors, Blossom is an essential app for you.

It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app. Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons

that are completely free. You can search up Blossom Social in the App Store and join the community today. I'm on there. I encourage you go on there and follow me, search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom Social in the app store and I'll see you there. I think we've talked enough about Bitcoin. You want to move on to a company that I love, both as an owner and the clothes I'm wearing right now. I think I'm actually wearing Lululemon from head to toe. I've got like their jogger pants, the underwear, the shirt, I think just the socks are not Lulu. Yeah. i don't own any lulu lemon my wife does but i don't own any but yeah this is it's a pretty short segment like the the one main reason i

brought it up is because well by the time this goes live aritzia will have reported but aritzia hasn't reported just yet but you know these two stocks kind of get compared with each other a lot lulu lemon came out and announced a bump in guidance. It's actually a really small bump, but it's still pretty impressive considering how much pressure retailers are under as consumers just continue to pinch pennies. So pretty much what it did was it took the top end

of its previous guidance and made it the new low end, maybe bumped it up a bit farther but for the most part like both increases were maybe only one to two percent and it bumped its gross margin expectations by about 20 basis points but i find it pretty interesting unless like you own lululemon so you probably follow it a bit like is it out of the ordinary for them to like come outside of earnings and bump guidance or i don't know it was yeah it's not the most common i mean i think they may have done it in the past but it's not usually they'll kind of just do it with the earnings yeah i'm not sure whether there was a reason why they did it

this year but clearly i mean if you look at almost all their fashion competitors if we kind of stay in fashion retail they're bucking the trend. I think that's the simplest way to do it. It's not like, you know, it's not like a Nike is necessarily like, you know, going bankrupt or anything like that, but they're not like, Nike's not doing all that well. I mean, Aritzia will have to see what their earnings is, but yeah, I mean, they're definitely look like they're bucking the trend. I think they're in that sweet spot. And I know I'm speaking for myself here, but I like their clothes because first they're extremely comfortable. Now they have a wide range. So you can get like essentially like dress clothes for men, which I like as I, you know, have back issues.

So their, their pants are actually quite comfortable and I can, you know, I'm quite mobile in them, which is really good when you have like a back problem. So and their price, I mean, they're not the cheapest, but the quality is so good that I don't mind paying a bit more because I know it'll last a long time. I mean, most of my Lulu stuff lasts at least four or five years without any issues. So, yeah, I think it's just a testament of how good of a product and business they have and they're still growing quickly. Yeah, it kind of shows you the strength of a brand and how people are willing to pay more for what they would perceive and actually how high quality the product is. I mean, something similar would be Starbucks. I mean, their coffee costs a fortune, but the drive-thrus are lined up with

20 vehicles at any point in the day for people willing to pay six, $7 for a latte. But yeah, I mean, it would, like I said, it was a relatively small piece of news. I just found it like I couldn't find any other situation where they bumped guidance just outside of earnings and especially by this tiny of an amount. So, I mean, I would imagine they're expecting a pretty strong quarter. So it'll be really interesting to see, because I imagine Aritzia is pretty popular on this podcast. So, yeah.

So what do you expect from Aritzia? Let's see if your expectations, your dreams are shattered or, you know, fulfilled by this. That I don't know. I mean, I know I wouldn't expect an outstanding quarter, but I know for the past while they've had kind of inventories normalized. So as long as that continues,

cause I think that was a big part of the sell off is people were freaking out that their inventory number numbers had like just skyrocketed because they, uh, I guess you could say they kind of got a little bit ahead of themselves. They bought a bunch of inventory because of supply chain issues. And then just a combination of that and just demand plummeting because of rising rates, pinching pennies, things like that. But I don't have really any big expectations. I mean, they're supposed to report a significantly better quarter. So last quarter,

they reported earnings of three cents. And this quarter, they're expected to report 41 cents. So it'll be interesting. I would expect some pretty big volatility. It's usually been a guarantee it moves double digits on earnings. But yeah, I'm still a holder. Not a very big position, but I think they're i think they're going to rebound yeah i always have mixed feeling about them because sometimes you know i'll read things and then there's like you know it's easy to make a bull case but then i think about the bear case and i've always been on the verge but not quite there to pull the trigger and it's in it's interesting what you said about the inventory, because there's certain types of business where having too much inventory is very dangerous because fashion goes

out of style very quickly. So if you have too much, you have to discount it, hits your margins. And it's same thing as, you know, a business selling computers, right? Like it's you can't have too much inventory because you'll have to discount it pretty heavily. And for our newer listeners, I think that's something important. If you have a business that is selling goods, you always have to make sure that some business will be more sensitive to higher inventories than others. But if there's things that either go bad quickly or goes out of fashion quickly or things where there's constant technological progress. There's always a sweet spot of inventory. It's not very easy for a lot of business to be in that sweet spot because if you don't have enough, then you can't meet the demand.

And then the other way around, like you explained it. Yeah, and that was kind of the thing. Like during the pandemic, they couldn't keep up. So they ordered a bunch. during the pandemic, they couldn't keep up. So they ordered a bunch. But now, as you mentioned, if you get caught with a bunch of inventory and suddenly the inventory you have is out of style or people don't want it anymore, then you start having to mark it down to the point where you're either selling it marginally above cost or even in some cases, just to get rid of storage costs, you're selling it at cost or below cost but it seems to have normalized now i mean

it went from from uh what would it be q1 2022 to q2 2022 it increased by 50 and then it nearly doubled again to the third quarter but now it's kind of it's kind of back at normal they still do have you know more inventory than they've ever had but uh it's gonna be pretty interesting there's also been a lot of negative press i guess in terms of just working at aritzia and kind of the cultural mentality there but um okay that i haven't really looked into i mean there was there was kind of a lot of talk about people getting treated pretty bad working there and uh and stuff like that but i don't know it's going to be interesting to see if they can rebound and if it truly is just a slow down in pricing because i think aritzia aritzia might be more money than lululemon they're kind

of like a mid-tier price range yeah no it'll be interesting so tune in next next thursday because uh definitely dan will be going over that. The next one on the slate here, so we'll have I think two more because you have a really interesting segment regarding the CBA loan repayment that I think we should get to. The next thing I wanted to talk about is Allied REIT special dividend. Had a lot of questions, had one from Join TCI, and they wanted to make sense of the special dividend. So i'll break it down to the best of my understanding now they are doing this this special dividend because of their sell of their urban data center portfolio that happened earlier in 2023 i think the sell closed in august

if i remember correctly there was a capital gain, which means that they would need to pay corporate incomes taxes on it in order to avoid taxes at the trust level. Ally decided to pay a special dividend. This is because REITs don't have to pay taxes as long as they distribute the profits to shareholder. Do you know what it is for Canadian REITs? I think it's like 100%, is it? I know the US ones, it's 90, right? I thought it was 90, but I might be wrong on that. But yeah, this was essentially to avoid that. They're structured as trusts because they get tax benefits when they distribute their earnings back to shareholders. Yeah, exactly. So this special dividend applied to shareholders of record as of Decembercember 29 2023 now the distribution is

where it gets a little tricky so the distribution or dividend however you want to call it is 548 per unit 48 cents per unit are being given in cash and the remainder five dollars was done by the issuance of units however for the for the $5 issuance, Allied will immediately consolidate the shares so that you will have the same amount of shares. So my understanding is that the reason for doing this is to minimize the tax implication for shareholders. So by doing so, Allied is able to avoid paying corporate taxes, like I said, because it's a REIT. And the issuance then consolidation ends up being a distribution in the form of capital gains for shareholders who hold allied share in taxable

account. So essentially what it will do, it will increase your cost basis. And what means is that when shareholders do end up selling their shares, there will be a smaller capital gain, which will result in less taxes being paid or a greater loss if they sell at a loss. And then you can use it to offset something else in the future. That's my understanding of it. And the 48 cents is essentially a cash distribution, they said, is there to help shareholders pay any resulting taxes from the move now that's my understanding i'm not a tax professional by any stretch of the imagination and i also own my shares in my tfsa so for me there's no tax implication and i'll only be getting the cash distribution uh so it's no big deal for my aunt it's basically you know a nice special

dividend and the cash distribution will be made on january 15 2024 i know you're not a shareholder in allied uh dan so did that make sense to you yeah uh matt matt is a shareholder and we cover allied quite a bit so he went over all of this and it's it's pretty much the same i mean yeah i find for the most part like reits are pretty inefficient tax wise so i mean i think most people tax shelter them unless you got a really big account i guess and you have some in a in a cash or a margin account but um it's confusing very confusing yeah unless you have tmm too much money yeah exactly but yeah it's uh i don't have much to add okay no i'm glad i didn't mess up the explanation too badly so that's good so we'll move on here like i was mentioning um i think you have a really interesting segment to the

seba loan repayment so you want to go over that and i think we'll wrap it up after that. Yeah. So this, it pertains to the restaurant industry, what was released yesterday, but I think there's some pretty deep concerns, just overall, like economically from what could happen if you don't remember what the Siba was. So it was an interest-free loan that they gave during the pandemic. It started out at 40,000, I think. And then if you paid that 40,000 back or sorry, you had to pay back 30,000 and then they relieved you of 10,000. So now they eventually expanded it to 60,000 loan. And if you paid back 40, they relieved the 20,000. So the issue now is we're getting very close to the deadline. I it's january 18th and very

few restaurants now there's a ton of companies that actually got the seba loan but this is restaurants in particular very few restaurants actually have the money to pay back this loan so there's pretty much no doubt that restaurants have been hit the hardest over the entirety of the pandemic so they were hit hard because of lockdowns, but then they also got hit arguably even harder by rapid food inflation. So you have the pandemic, the lockdowns caused issues, rapid food inflation caused issues. Then it's kind of a triple whammy. They had to raise their prices to a company for this high inflation. And at the same time, the Bank of Canada jacked interest rates in an effort to curve spending. So you're taking higher costs to eat out coupled with significantly higher interest rates cause a huge slowdown in the industry. So Restaurant

Canada came out yesterday and said that 53% of food operators are either breakeven or losing money. of food operators are either breakeven or losing money. So this compares to just 12% pre-pandemic. So the food industry employs millions of people. And I just think the overall impact on the economy as a result of many of these restaurants, either having to just shut down or reduce staff levels would be larger than many think. And I mean, I think a lot of people, I'm routinely getting emails from institutions that are pretty much telling me that they'll loan me that $40,000 to cover our CBA loan. We don't have a CBA loan, but I can just imagine that there are so many restaurants struggling right now that the sharks are kind of circling. A lot of businesses are going to be put in a very poor position of having to take out a high interest loan from somebody else to cover

the 40 grand just to get the 20 grand relieved. So it's not that difficult as a business, I guess, from an interest perspective, because if you don't pay back the loan, it goes to a three-year loan at 5% interest. And like I said, it appears to a three-year loan at 5% interest. And like I said, it appears to be a pretty attractive interest rate. But when you have to remember, the balance is 50% higher. So you don't get that $20,000 relief. So you're getting a 5% loan at $60,000 three-year term. So that works out to be around $166 a month plus interest so you're probably around two grand a month just to pay this back and when 53 of restaurants are operating at a loss i mean that's just a recipe for disaster and the government is also in a very weird position i mean putting aside the political element of all of it they've already extended the deadline from december to january and they say if the move that if they say if they move the deadline to the end of 2024

which many are requesting governments are even reaching out provincial governments are even reaching out and requesting it would cost the government over 900 million but if you think of how much it would cost the government they they dished out over 900,000 loans during the pandemic. If they kept this hard deadline and many businesses go bankrupt, it would cost the government more than $900 million pretty quickly. So I mean, it's pretty tough over the next year to see any recovery in the restaurant industry because of ballooning costs, mortgage renewals, all the other expenses. So although you feel really bad for these businesses, it's a terrible position to be in. I think extending the deadline might just kind of be kicking the can down the road to the point where it might cost the government $900 million. They

might get to the end of 2024 and the same amount of restaurants just can't afford to pay this loan back which eventually will just cost them more money it's not it's not pretty no it almost seems and obviously i think that would be too much to ask our government but almost seems that to me a solution could be and obviously it would be extensive but almost do it on a case by case scenario or have like kind of requirements where you can get it extend. So maybe you have to show, you know, projections with and without the loan to show if you can actually continue operating beyond the deadline and have it certified by, you know, a professional accountant, by a CPA, something like that. Because like you said, I mean, what's the point in giving a loan when, you know, the

restaurant is not viable either way? Yeah. And there are, you know, and I went into, you know, the first few years I was in business school and that was always the rule, right? I think like one in five restaurants survives after five years something like that i can't exactly remember the stat and then you have the lower traffic of people we've been hearing that on and on where restaurants have been able to cope to some extent with higher prices but now traffic lower traffic is starting to really eat in into their bottom line and at

some point i mean like i understand some people are hurting, but at some point, you know, some business are just not good businesses. Yeah. If you have a good restaurant, it's a good business by all means. Sure. But, you know, why are you supporting businesses that are on life support either way? And I know it might be a bit harsh, but that's how capitalism works. Like if you don't have a good business, it's money losing.

You probably should not continue if you've been doing that for an extended amount of time. Well, I imagine that's the thought process from a lot of restaurants right now. Like if they don't get relief on that loan, are you really going to pay $2,000 a month? Now, I don't know how the loans are structured. Like I know, you know, example, if you were to go bankrupt personally, you still owe the government your income tax. That doesn't get relieved. Now, does this loan get relieved if you go bankrupt? I don't know because it is a government-issued loan. So I don't really know the logistics of that. But if you've got a money-sinking business and then the government hits you with a $2, a month payment like are you really gonna make that payment i don't think you are no i and i mean obviously i know

some people will have different ideas on that and i have different opinions but i think as you know a canadian and i think if there's an ever another emergency like that and there undoubtedly will be whether it's a pandemic or something else i mean the um i was listening to good audiobook i think it's the the second book from morgan house so i can't remember the uh the title but essentially when you add in every kind of possible black swan event in a year the probability for each well it makes the probability for one of them to happen at some point in the year not that high so not that low because you just add them up together and i think it's a good i think it's a conversation we need to have as a society like when you do these programs first of all like they were just giving away money to every single business that was applying for it, whether they needed it or not. And if we weren't incorporated, essentially my understanding, if you, you know, like you said, if you paid it back, you essentially got like 20 grand for free from the government. So you'd be crazy not to do it at that point. Right?

so you'd be crazy not to do it at that point right yeah and a lot of the businesses so i think that's kind of how it goes you know a lot of these businesses probably can are capable of paying it back so again that's why i do agree that you know maybe you know if you're going to give an extension like try to do it on some level where a business would have to show financial hardship to get that exemption and and force the businesses that can pay it back to pay it back because it i think i mean it it makes little sense to pay this loan back early it was interest-free so i bet you a lot of companies got this sixty thousand dollars and they've earned quite a bit of money on it whereas restaurants you know so much cash burn like they took that sixty thousand tried to stay afloat for two years and now the deadline

looms and they have none of that money and it's just yeah it's a disaster no yeah and i know there's a lot like the logistics would not necessarily be easy but maybe that's the best way to do it you say look you have to pay these loans if you're not able to pay it reach out to us and prove to us that if we do extend it a year, you will be able to survive as a business and be able to pay it back. I think that that way the onus is on it instead of just, you know, doing a blanket kind of postponement when some businesses need it, some businesses don't. And I think it will just force the ones that do need the extension to also just look in the mirror and be honest with themselves like is it actually am i just postponing the inevitable

a year or will my business actually be able to survive if i do get that extension and i think that's kind of what the government is looking at either as well. Like you look at how much it's going to cost if they delay it and they kind of have to take into fact like how many of these businesses that can't pay it now are going to be able to pay at the end of the year. Like I don't see the restaurant industry improving over the next year. Like it costs an absolute fortune to eat out now. And like interest rates, if they come down, are not going to come down to the point where there's a ton of financial relief. So I don't know. It's, you know, cutting down and, you know, I'm sorry for those who work in a restaurant or

own a restaurant, but at the end of the day, cutting down on your spend on restaurants or Uber Eats that comes from restaurants, it's one of the easiest ways to save money. It's like the first thing people do, really. Yeah, it's one of the easiest ways. I know it sucks to hear if you're not in business, but I've done it. Definitely in 2023, we've reduced. We used to go to a restaurant or order Uber Eats probably every week, every 10 days, once a week.

Now, if we go once a month that's pretty good yeah that's pretty much where we're at too and i mean you can tell you look 12 like nine out of ten restaurants were profitable pre-pandemic well yeah just under nine out of ten and now it's just over one out of two are losing money which is it's crazy and we're seeing it i don't know about calgary but we see it around here so essentially like the good restaurants that offer you know good food at like reasonable prices but really good food like something kind of different you know it differentiates them a little bit they They are still doing quite well. The ones that either the food wasn't all that great or the prices were too high or a combination of both, I've noticed those are the one that seems to be struggling. Yeah.

Yeah, pretty much. You have to provide a ton of value right now for the cost, considering how high the costs are. No, exactly. So I think we'll wrap it up for the episode. It's been a fun one, different. We didn't have much earnings, but it's fun to have you back, Dan. And for our new listeners, we always get a tick up in listenership at the time of the year. Thank you for listening. If you have some time, if you can give us a review on Apple Podcasts or Five Star on Spotify, it helps more people discover us you can also if you're looking for stock recommendations and ideas you can go to stocktrades.ca which is

dan's website i've been on it before really good content all different kind of thing whether it's stocks etfs or yeah am i missing anything or yeah we've got, yeah, we've kind of been expanding to a lot of different stuff, personal finance stuff, GICs. Like we just put out like 20 pieces on GICs, different types, all that kind of stuff. So yeah, we're, we're putting out a ton of content there, but yeah, thanks. Thanks for listening, everybody. It's, it's good to be back. We'll see you next week.