The Canadian Investor - Will Splitting BlackBerry in Two Companies Work?

Episode Date: October 12, 2023

In this episode, we talk about Blackberry announcing that it would split itself into two publicly listed companies. We then talk about Laurentian Bank getting a new CEO and have a look at the most recent Canadian employment numbers. Symbols of stocks & ETF discussed: BB.TO, LB.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 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 to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Welcome to the show. My name is Brayden Dennis. As always, joined by the innovative Simon Belanger. Happy Thanksgiving. We're recording this, as I said, Tuesday, October 10th. So yesterday was Thanksgiving. Did you have some turkey?

Yeah, yeah, I did have some turkey, but unfortunately I was also sick, which I think we got from our daughter, but it was still fun. Yeah, my voice. Daycare, just ground zero for every sickness, daycare there. How about you? Well, yes, well, yes. To all the Canadians, the Thanksgiving. I was talking to my team and they're like, because some of them are overseas. And I'm like, by the way, we have Monday off. And they're like, what? I was like, oh, it's

Canadian Thanksgiving. They're like, what do you mean? Thanksgiving's in like a month. And I'm like, no, no, no, not in canada you know what canadian thanksgiving is at the perfect time because it's still like fall golf it's still like i mean it wasn't particularly nice but it's still you can still get like a glimpse of like a summer day every every once in a while uh every few years and in november that's just not possible so uh yeah it's true i like the way it is and I like it because I end up usually going to to uh see some family in the U.S. uh for U.S. Thanksgiving that lives not far from the Canadian border so I kind of get uh you know both the experience from

both sides although I'm sure you experience it uh football style right yeah? Yeah, exactly. Yeah. That is one nice thing. I get the Thursday night football. Before we begin today's show, I have a question for you. I mean, to ask you this, if you are on an escalator, okay, do you walk up the escalator or do you stand? Assume no luggage. If you're at the airport, yeah, you're standing with your bags and all that crap. If you're at the airport, yeah, you're standing with your bags and all that crap. It's just you. Are you a stander or are you a walker up the escalator? I'm a walker.

And after going to Taipei about 15 years ago, where people like literally will get pushed if you don't stand on the right side. On the right side? Yeah, people are very like they will walk and they will let you know or basically push you. Since then, I mean, I always stand on the right side if I'm standing, but for the most part, I'm always walking up. Yeah. You are a smart man. Hey, hey, people out there, if you want to stand on the escalator, I get it. You know, having a nice casual Sunday at the mall, get your ass over to the right side. Unbelievable stuff. People standing there on the left side. I'm like that guy who like, I like, like kind of like, Hey, Hey, a little jab to the back. Hey, get over. What are you doing? Standing there?

Okay. Well, I'm glad we're on the same page. See, we got news and earnings today on the show. Lots of stuff coming out. Lots of global news we'll touch on very briefly in a bit here. But big Canadian news here. BlackBerry is set to split into two different public companies in an effort to revive shareholder interest. I'm going to get into the nuances of it, what their plan is, what their plan or lack of plan is. What is your initial kind of thought?

I don't know if you saw this news piece or is this... I mean, I heard about it. I haven't like really read what it was about, what they're looking to split. Are they kind of splitting their IoT with like like something that's right yeah okay um yeah i mean i don't know from a bird's eye view just because we talked about blackberry before i do wonder how john chen still has a job there right yeah i like i really it's baffling. Like, I understand, like, he had a tough turnaround to do. And he did like, you know, like props to him. He did shift the business away from smartphones.

But at the same time, I mean, the business is just a shell of itself. And I think I honestly think they should look for someone to try to either you sell the business altogether or you find someone to bring the business in a new direction and actually get some growth and that's been my biggest issue with blackberry is they have not been growing it's like every time we look at it there's like another excuse there's always an excuse as to why or they tried to highlight what was kind of positive but they're still not growing and they sold off so patents, I don't even know how many they have left at this point. Remember, you and I were discussing the business maybe two years ago. And a lot of listeners were writing into the show saying, can you review BlackBerry?

It's so undervalued. It's trading at a single-digit PE or this and that. Whatever multiple or whatever you want to spin it, the business is so cheap. And you and I were saying, no, this business is expensive. It's actually overvalued. And since then, since that episode, I looked at it, the stock's down 68% since then. So check, please. You can't just put one valuation multiple backward looking and say it's cheap. If the business is structurally in decline, it's not only not growing, in aggregate, it's been in decline on the top line. And so

this is what they're trying to do. Over the years, what was the smartphone darling? The business has had to reinvent itself. Now, I've always thought this transition has been a bit of a dumpster fire. I'm not exactly sure why John Chen has such a long leash here, as you just hinted to. To use like a baseball reference, when a pitcher is on a short leash, you get a pitcher who's on a long leash because Cy Young winner, you know? Are you referencing recent Toronto Blue Jays managerial decisions? I am.

Okay. I am. You bet I am. You know, some guys get a long leash, some guys get a short leash. Why does John Chen have a five-time Cy Young Hall of Fame leash here? It has not been a good tenure. And to be fair, he was given the keys to a kind of hodgepodge of businesses they acquired when they actually had a lot of cash coming in the door. That cash stopped coming in the door from the smartphone business. And it's like, okay, take these assets and you figure it out. Driven

by what looks mostly like active investor pressure, BlackBerry is set to split it into two separate businesses. Today, the business operates as three segments, one cyber security, two internet of things or IOT, which is really just a automotive software play for the most part, connected vehicle software. So cybersecurity and IoT. And the third, which is licensing of patents, which they've mostly just sold off recently to an Irish company. So that leaves us now forward looking into cybersecurity and IoT. The cybersecurity business is in fact not growing and shrinking and has had, it's the largest part of the business by about two times the IoT segment. And it's been the most disappointing of the turnaround because

it hasn't played out the way they wanted it to. Their niche of device management is very like 10 years ago in terms of being very hot. And companies are just buying their employees iPhones now. And Microsoft really kind of owns this space in terms of ecosystem of device management between laptops and work phones and the suite of tools that they can use for these large companies. That segmented 418 million revenue last year, but it's declining. The IoT business that they want to spin off and say, hey, look at this really great asset, investors. It did 206 million in revenue last year. And so it's half the size, but it's actually growing and showing promise. They say that they expect it to grow 20% year over year for the next few years to come. So they want to split it

out and have the market really see the appeal of this business on its own. The game, the business is in the game of connected cars. And although I don't really understand this tech all that well, it's probably an important technology for autonomous vehicles and operating systems car, which operating the system of a car, which has really just become a giant computer on wheels over the past 15 years. It's a fascinating story because it was actually acquired by Ottawa-based company QNX. That's a good, great Scrabble company. Yeah, they're QNX. Yeah, I've heard about that. You've heard of them being in Ottawa? The founder's like, I have to pick three letters.

Let's pick the highest combination of Scrabble ever. They acquired this business actually for the intentions of their smartphone business. It turns out this works really well for the automotive industry. The issue here is that I actually still don't see this very compelling of a growth story. Q1 and Q2 of this year showed no growth year over year, actually a little bit slightly, a few percentage points negative. And if you look up to now six, seven quarters, they've shown no sequential growth in their top line. So it's not like investors have to go out of their way to get a look through of this business. It's not like these large tech

mega tech companies who are like, let's split out AWS or let's split out YouTube and Google Cloud and the ads business. It's not like there's some huge value unlock. People can have complete look through into IoT and it's really not that compelling. This to me is BlackBerry looking for some bright spot of financial engineering in what is a struggling once darling of a tech company trying to find themselves. The problem is they've been trying to find themselves for a long time now. So yeah, this is what's happening with BlackBerry? Yeah, you do wonder I'm like, obviously, I'm sure there's some smart people on the board there. I do wonder if they haven't looked at just selling off the business and potential parts as well.

Maybe they have and there's just no not much demand. And they just see this as splitting into two publicly listed companies as the best outcome for shareholders. I certainly hope so for shareholders because it's not been easy, especially, you know, Fairfax Financial bet pretty big on them. I think they own about a bit less than 20% last time I checked with all the debentures that can be converted into stock um so i think they're fully diluted uh share ownership i think it's between 50 and 20 percent so i'm assuming prem watsa has definitely had some say in this uh maybe it's a way for them to try and get some value on their investment because obviously it's probably not been a great investment for them and that that's been a while since i think he was a big backer of john shen too i mean he must have been you'd have someone is someone is

a big fan of john chad yeah i don't know who but someone no yeah i mean there's not much it's really too bad because it was you know it was really darling of canadian tech um and for younger listeners like blackberries are what came before the iphone that's pretty much it's the it's the old g smartphone pretty much yeah yeah for for those who are unfamiliar can i make a bold prediction go for it it's a bit early but you know just a couple months away from the year end yeah waterloo based open text buys carves out some of these assets in the next three years they have many assets that are very similar to these kinds of niche cyber security kind of slow growth um yeah they're kind of value investors in buying a lot of this like legacy tech. And they usually do deals

between 500 mil and 2 billion range. So this is kind of right in the sweet spot. I think BlackBerry is here 2 billion CAD and market cap. Yeah, yeah. And so it could be some nice carve out maybe of the cybersecurity business. So that's my bold prediction right here. So they're both Waterloo based.

So it'd be easy transition for the employees. That is my bold prediction that OpenText carves this cybersecurity business out or even the IoT business out in the next three-ish years. I like it. Mark it down. Keep it Canadian. Stamp it. Yeah. Stamp it here. October it Canadian. Stamp it. Yeah. Yeah. Stamp it here.

October 10th, calling 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 questtrade.com. So not so long ago, self-directed investors

caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for

Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information. Okay, well, we're going to shift gears here with something completely different. Well, I guess another kind of struggling business, but not in the same sector. So I think we've

talked about Laurentian Bank quite a like a you know a decent amount um unfortunately not for great reasons um couple weeks ago they announced that they would get a new co and chair of the board um they trade under ticker lb.to so on the toronto stock exchange for those not familiar it's a regional bank bank mostly located in Quebec. It said a couple weeks ago it was replacing its CEO on a Monday, Rania Llewellyn. I'm hopefully not butchering the name too badly here and that she was leaving the organization immediately. Now she had been CEO at the bank for three years. She has been replaced by Eric Prevost. He will be also a member of the board of director. He's been at the bank for more than 10 years. Laurentian also announced that the chair

of the board of director, Michael Mueller, had also resigned. He would be replaced by Michael Boychuk. And the change comes after Laurentian banged a week before they experienced an online platform outage for five days and it's also a couple weeks after the strategic review that they had initiated a lot of people were saying they were probably looking to get some bids potentially from other canadian banks and really there's not much that came out of the strategic review so essentially the strategic review, the conclusion is that they would not be selling the bank and would accelerate their path to efficiency and simplification going forward. What was interesting is that as part of the strategic review, Eric Prevost, who's now the new CEO,

was given more responsibility. So just a couple weeks before the announcement of the CEO's change. So just a couple weeks before the announcement of the CEO's change. So it's really interesting how that kind of happened. I'm not sure if they were already looking to place him at the helm and just looking maybe for the right time or maybe to groom him. It could have been a situation where he was being groomed to become the CEO, taking on more responsibility. But then the outage happens and a five-day outage for a bank where people rely so much on online banking. It's not a good look. I mean, obviously, that's kind of to be expected that the CEO would leave. Before I continue, any comments here? I find that like, you know, five day outage uh i personally use a few canadian banks between my business and my personal i find that they also have frequent outages and it baffles my mind

oh yeah we've had some heated exchanges well not between us but uh you venting to me about yeah well the two of us have had quite we've had i've had quite the runaround with uh as a customer with banks in canada lately and i literally so i was meeting with the eq bank uh business head division in montreal last week and i was like to them you guys can't get launch this up to scale fast enough like take all my money like you guys are the only ones that actually provide a service i like uh it's it's it's really sad so i want to say i'm surprised by a five-day outage from laurentian but like everything all have their issues well and like kind of enhancing their digital experience was

actually a big part of their five-year turn. I think it was a three or five-year plan. I can't remember, but their big turnaround plan. So having that five-day outage, it's really not good. You're a small regional bank. There's a few in Canada. Another one that I'll compare them to is Canadian Western Bank.

I think they're kind of similar in sizes and the fact that they're quite very regional. But you're already a bit behind being a regional bank with traditional branches because they do have those at Laurentian Bank. And you have something like that. It's really not a good look. You're not like a behemoth and too big to fail like some of the larger banks in Canada. So I think, you know, at the end of the day, I think that was probably her undoing. Unfortunately, it was probably out of her control. But the fact that it happened on her watch and that the head of the board actually resigned as well clearly shows that,

you know, at least I'll give it to them. They took ownership for what happened. Now, I think Laurentian Bank, the downfall, for those not aware, really started back in 2017 when they uncovered that they had underwrote $89 million worth of mortgages that had documentation issues and misrepresentations. And since then, since the beginning of 2017, Laurentian Bank has been just a terrible, terrible investment. And I kind of compared it to a few other Canadian banks just to show people a bit how, you know, the differences in returns. And, you know, some banks have performed quite well.

And I included in there not just the big six, but also like I referenced to Canadian Western Bank because it is a regional bank. And I think it'd be a bit unfair to compare laurentian to like royal bank for example so out of the big six and i added um canadian western bank just to compare here laurentian bank first is down 30 percent in uh since the beginning of 2017 and that's total return so it does include dividends national bank is up 109 royal bank up up 60%, TD 56%, BMO 49%, CIBC 29%, Canadian Western Bank 28%, and Bank of Nova Scotia 9%. And I'll actually highlight CIBC and Bank of Nova Scotia here because they've had issues of their own, you know, for kind of obvious reason. CIBC, the mortgage side, Bank of Nova Scotia there has been some mortgage issues but also their expansion into Latin America I think is causing them some

problems as well and they still outperform Laurentian Bank massively so I think here it's just a good reminder for people in terms of investing just because there's a high dividend or potential value play, because clearly Laurentian Bank could have seen it been seen as that back in 2017 when they had those issues with the mortgages. But I think, you know, it's a really good exhibit for people. And just to remind themselves that, OK, it's fine to invest in a company that's a value play, but make sure you do your due diligence and really understand what you're investing in because you can really get burned if you don't have the right

call here i will also add eqb during that time 150 total return yeah i kind of looked at more traditional banks just to be fair because they all have branches but i thought about adding eq bank yeah i love how you can do total return on stratosphere with the price chart because with these dividend players like you don't get a complete picture like say you get something yielding six percent you don't include that like uh it doesn't really make sense the reason that i am i would say more bearish on canadian banks than than most. And not because I think that they're domed or whatever, you know, headline that, that people are throwing around these days.

It's just, I legitimately don't think that they offer good products to their customers anymore with more and more FinTechs emerging that are like, I'm in, I'm in the weeds on this stuff because I'm trying to save money for my business and using the most products and have to do a lot of international business and move money to many different countries. They literally just offer terrible products. And I've tried a bunch of them for people like me. And that's why if you turn into, this is coming out Thursday, if you tune into next Monday's release, we're doing stocks on our watch list. And I have two international payments companies and FinTechs that I'm using. And I think that it's going to be tougher for these Canadian banks in the future

to win people like me when I can use these international fintechs that are domiciled outside of canada that have entire canadian divisions that are going like eating up a lot of volume and and deposits and business for for canadians so i i i'm bearish on it for more reasons than just the macro picture yeah yeah and it's also even from a crypto standpoint, right? That's why a lot of businesses do like to use stable coins and US dollars or even sometimes using Bitcoin for those international payments, because it's so painful with the traditional financial institution. But I'm looking forward at hearing the ones you're going to talk about in terms of FinTech, but it does show there's a lot of friction, a lot of pain points, and it's not speedy. And I mean, even for the podcast,

we have a bank account with one of the big banks and I don't want to throw them under the bus, although I kind of want to at the same time. But it's I mean, it should be simple. And sometimes it's my God, like literally you need like half a day to go in person to do something that you should be able to do online and you know we're busy guys or wait on the phone for yeah for two hours and um there's all there's obviously a higher than normal call volume yeah always no matter when yeah it's 3 a.m there's a higher than normal call volume. But yeah, that's it on Laurentian Bank. And now, so there were some employment numbers that came out for Canada and the U.S. Not something we go over that frequently, but it is a bit slow in terms of earnings.

And that came out. So I figured it'd be a good thing to talk about it because it does have an impact on essentially where the economy could be going. Interest rates as well these are key numbers that the bank of canada but also the fed will look at so u.s and canada job job reports in the u.s expectations were 170 000 came in at 336 000 so i think you know we can call it pretty much a clean double there. So surpass expectations. But I will mention this, and I know you know this, but I think it's important for people to know not to get too caught up with the headlines. Because especially right now, and I'll point out some things here where the headlines almost is useless. That's to the point of what it is i liked your tweet on this

yeah so and i mean if people want to follow me uh they'll see that sometimes i'll kind of tweet on this stuff that i'm working on for the podcast it's kind of a little preview of what i'll be talking about but at fiat underscore iceberg yeah never miss a good handoff yes exactly yeah my bad but um the first thing i'll just touch quickly on the u.s numbers because obviously that affects um that probably has a larger impact because that's well a big thing that the fed will look at and there are a few things that caught my attention beyond the headline numbers um they do some extensive reports i think it's a brew of labor statistics in the u.s much more extensive than

stats canada not to say that stats canada is not good i'm just saying they put a lot of data out in the u.s and i didn't go through the whole thing but there's a couple things that caught my attention and i'll go over one quickly here so one of them was the amount of people who had full-time jobs and took on a secondary part-time job. So that figure actually increased 10% when compared to last year, so September of last year, which is pretty significant here. And I think the exact numbers, just going on top of my head, it's like it's closing in on 5 million Americans that are, you know, they have a primary full-time job and a part-time job. So it doesn't take a, you know, a math PhD to figure out that chances are people have that

second job because they needed to make ends meet. And that's something you have to keep an eye on. And it just goes to show that beyond the headline number, that may look good. There are definitely some worrying sign. And there's a couple of other things that I do encourage people to, if they like this kind of stuff, like to dive into the data, look at the latest report and the different areas, and you'll get a much more nuanced picture than the headline number. But if we switch back here to Canada, Canada added 64,000 jobs when the expectations were 25,000. Now, in both countries, the unemployment rate remained unchanged. So I

think that's important, although it's just something to keep an eye on. On the surface, like I said, it looks good. But for Canada, when you start looking at the data, it's really not good. I would even go as far to say it's actually quite bad when you look at the number because the working age population increased by 82,000. So that means there's actually, you know, close to 20,000 jobs that were not created to equal that working age population. And we know that immigration has increased substantially. that working age population. And we know that immigration has increased substantially. Not all immigration is working age population, but that 82,000, it just means that there's, you know, there's a gap there. So the 64 is actually not that great when you compare it to that.

And 48,000 out of the 64,000 jobs or part-time jobs, something, you jobs, something else here. And you have to assume that a lot of these people probably wanted full-time jobs, but had to settle for part-time jobs, or even maybe they had to take on a second job like the data I talked about in the US. And since the beginning of the year, there's been 1.9% growth in part-time work versus 1% in full-time work. So already you're kind of seeing that shift. And the last thing I'll say here is 57% of the job were public sector, so government job. 41% were self-employed and 2% was private sector. So for me, the most worrying here is the private sector at 2%,

which I think we can probably agree, Braden, like that's flat. Let's be honest here. It was literally like a thousand. That's what was created. And that's month over month, right? So I think it's flat and it's clearly showing signs, in my view, that the economy is definitely slowing. I mean, it's not the only point of data. We've been getting more and more data that the economy is slowing. And it's just something to keep in mind because, you know, when you're looking at different kind of businesses, some may be impacted more by a slower economy than others. And I think that's just important to understand. I know every single company puts it in their disclaimer risk and factor.

But the reality is some businesses will be more resilient than others um so just understanding that when there are some potential downturns coming ahead or potentially already happening right now i think it's just good to know i think it's very concerning how much the canadian government is adding public sector jobs to boost the job numbers. This is not creating any real economic growth. It doesn't contribute to our ability to grow as a country and do international business. And it increases the government spend and ultimately the cost of government and taxes implication required from individuals and the private sector. And so be very wary, especially

around this time in the political election cycle when it gets very salesy. You know, it gets very, look how many jobs we added. Well, 57% of them were government jobs you added. And so you got to look onto the surface. This is a great overview, Simone, of why looking at a headline number leads you astray into, oh, oh wow beat expectations okay only two percent of them were public sector that is not a good yeah sorry sorry only two percent of them were private sector my apologies and 41 of them were self-employed which is because they got laid off yeah which

is very nuanced self-employed right because if anyone's i'm sure there's a nuanced, self-employed, right? Because if anyone's, I'm sure there's a lot of self-employed people and, you know, you have your business. We have the podcast as well. And I've known people that are self-employed and, you know, some people do really well self-employed and some people really struggle. So it's, you know, there's both sides of the spectrum. Like you said, it could have been people that don't have any choice and had to start their own business because they got let go. They got laid off. So I think self-employed is can mean a lot of different things. And it's not as guaranteed as full time employment. If you have like a permanent job from a business, for example, or I guess even the government to some extent. But then you can kind of go into the productivity debate. Yeah. You need to grow high quality private sector jobs to maintain or grow a strong middle class. That is my opinion. 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. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example,

the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers

and more information. Well, let's move on to... So I had notes here written for Costco and you mentioned, you're like, oh, by the way, we covered this while you were gone last week. And so you guys touched on the membership hike. The quote from the CFO was matter of when, not if.

And so I'm going to skip all of that because I had in the bottom of my update here, just looking at Costco's dividends per share over time. And if you go on stratosphere.io, this is a free feature. You can look up the 30 years of dividend history by share. And so I was looking at these and well, yes, the growth is wonderful. I mean, it's been a 10X since 2004 on the dividend per share payout. But this is a masterclass in the dividend policy. It is a policy I so love. Why? One, because they grow it, of course, as the business grows. But this is how I don't invest in just dividend players or invest in companies that don't pay dividends. I don't care. I care about great capital allocation. And sometimes a dividend is part of that.

I look at Costco as a masterclass in how to run a dividend policy. One, they maintain that they have enough capital to grow the business, which is a very low payout ratio. So it's very safe and conservative. And then every once in a while, they take a bunch of excess cash on their balance sheet and pay it out as a special dividend. So today they pay a dollar and two cents per share. They paid 50 cents just in 2017. So it's doubled since 2017 on the dividend payout. And along the way in 2017, a $7 per share payout. They had a $10 a share payout in 2020. So every few years they take a look at their balance sheet. They take a look of their CapEx plans for opening new stores.

And they look at if they can move a bunch of cash to shareholders via special dividend. Instead of saying, Simone, we're now going to commit to a $2 a share dividend per share each quarter, we're going to slowly increase it very, very steady. We're going to reward shareholders with dividend growth, but we're also going to, when necessary or when we can issue this nice special dividend to reward shareholders. This is a dividend policy. I think more companies should adopt. This is what I would do if I was a public company CEO that issued a dividend, I think this is great. I want more companies. I want more of my companies to look at Costco as the gold standard of just because we're feeling good and cash rich now.

Yeah, we can raise the dividend 10%. But let's not now commit to this huge dividend payout and, maybe a special dividend every few years to reward shareholders. I love this. And I want I think more companies should do it. Yeah, I think it's a great strategy, because you also like you don't set expectations or anything like that with people thinking that, oh, you know, they're going to increase the dividend, it's going to stay high. That, oh, you know, they're going to increase the dividend. It's going to stay high. And the management kind of gets stuck in this kind of vicious cycle that we've seen.

They're a slave to the dividend, some of these companies. Yeah, exactly. And I was kind of looking and they must have a payout ratio target. I don't know if they actually explicitly do it. I'll look it up. But it definitely, I'll show people here, it's within a range of about 26% to 30%. So, since 2014, it's been pretty much within that range. So, they must have some... When you're sharing your screen there, here's a little stratosphere tip.

Press on the right side, you see that data, that little tag on the right? Yeah. Press show data labels. Okay. And it will show up on there for you. Oh, yeah. Okay. Go down to the bottom right.

Personalized customer service from stratosphere. Oh, that's good. That's perfect. I mean, no, that's why. I mean, my ballparking was pretty good yeah your ballparking was good but now the data labels is great yeah so i mean it essentially that it's like kind of a variance about five percent um so it kind of makes me believe that they have uh kind of a bracket here where you you know, they want to stay within that. And then if they get quite low, they might do a special dividend to kind of get it up a little more. But I mean, to me,

30%, we're looking at earnings here. You know, not going more than that, I think gives them ample flexibility. So I actually, I'm like, yeah, I really like that because I've been pretty critical on certain businesses that should cut the dividend to shore up the business for, you know, some short term pain maybe, but longer term beneficial for the business. And yeah, and Costco is not one of them. Yeah, they maintain that like, yeah, 25-ish percent payout ratio. It gives them so much flexibility. You mentioned the optionality. And then it grows as earnings grow because the payout ratio is dividend per share paid divided by earnings per share. And so if earnings per share keeps growing like it has,

and they maintain the payout ratio, then that means that as a result, that dividend per share continues to rise. This is a masterclass on capital allocation. I think that this is the gold standard. Thank you for listening to the show, folks. We really appreciate you tuning in. We got lots of good content coming down the pipeline. We are here Mondays and Thursdays. If you want to use Stratosphere,

we're showing lots of stuff on the screen here for joint TCI subscribers at joint TCI.com. And those are all screenshots. We're talking about total return. We're talking about the payout ratio. We're visualizing it with these data labels. That is on stratosphere.io. You can get 15% off with code TCI on checkout, 15% off a paid plan. But like I was talking about with that David Dent history, they get 30 years for free. So you can go ahead and check that out, stratosphere.io. It is the best financial data terminal on the internet. I strongly believe that. So go check

that out. Thanks for listening. We'll see you in a few days. Take care. Bye-bye. The Canadian investor podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.