Weekend Reading – How to create shareholder value edition

Weekend Reading – How to create shareholder value edition

Hey Folks!

Welcome to another and new Weekend Reading post: how to create shareholder value edition.

Once again, before some takes on this Weekend Reading theme, some reminders about my recent content:

I provided some data and insights into how long stock market corrections might last.

Last week, I mentioned that there is an upside to higher interest rates….finally going up.

On Cashflows & Portfolios we wrote about the best GIC rates in Canada, why GICs remain relevant and why you might consider them (or not) for your short-term savings needs.

How to create shareholder value edition

Ah yes, the stock market. A wild place at times. 

I’ve suggested a few times on this site there are ways to get through any stock market crash or correction and benefit from it. One way for me to survive is counting my dividends!

In fact, over the last week, I’ve been fortunate to receive a few income raises:

• Suncor = 12% raise
• Telus = 7% raise
• Sun Life = 4.5% raise, and
• Algonquin Power = 6% raise.

These raises are above and beyond the following raises received or recently announced for my portfolio in 2022:

• BCE
• BEPC
• BIPC
• BLK
• CNQ
• CNR
• EQB
• JNJ
• NTR
• PG
• TRP

And likely more to come.

Of course, they are many ways shareholder value is created. Dividends are just one important part of total return. Shareholder value can be gained from many sources. Shareholder value is the value delivered to owners – based on management’s ability to increase sales, earnings, and free cash flow, which leads to an increase in dividends and capital gains for the shareholders. We all want that – value for our investment – right??

In my mind, here are some things that can increase shareholder value in no particular order:

1. Make profits! Many growing companies are not yet profitable or at least take some time to generate a profit. Profitable companies trade at higher prices than companies that are still losing money – which makes profitable companies desirable to own!

2. Increase earnings per share. Akin to point #1, profitable companies that increase their earnings per share (EPS) generally increase shareholder value since stock prices can rise when performance shines – so a company that consistently increases its per-share earnings is consistently increasing shareholder value. Watch for that metric when researching any companies to own = rising EPS over time. 

3. Increase free cash flow. Growth-oriented companies often generate negative free cash flows (FCFs) but I like companies that make plenty of cash – so they can pursue new opportunities, make new acquisitions, grow more products, develop new services, backbuy shares. Shareholder value is created with higher FCF. 

4. Pay juicy dividends! A company can also create shareholder value in one of my favourite ways: by paying a growing dividend. Since dividends are typically disbursed in cash, a shareholder like myself can therefore receive the value of a dividend directly or arrange for dividends to be reinvested through a dividend reinvestment plan. I personally believe reinvesting all dividends is one of the best ways to maximize shareholder value – compounding money over time.

5. Companies can also repurchase shares. As mentioned above, beyond paying down debt and increasing the company’s earnings, a company that repurchases its own stock can also increase shareholder value because share buybacks usually have a beneficial effect on the company’s stock price. With less outstanding shares in circulation, that can indirectly boost shareholder value by increasing per-share earnings.

“Dividends matter, because they support my plan, just like capital gains matter, share buybacks matter, paying down significant amounts of debt to increase shareholder value matter, and so on.” – My Own Advisor

At the end of the day, shareholder value is created in many ways. I love my investing combination for dividends (ongoing dividend raises) and share price appreciation. Your investing path may vary!

More Weekend Reading…

A Wealth of Common Sense answered the question: why does the stock market go up?

From the article:

“The stock market goes up over time because businesses get bigger and earn more money over time. If you own stocks, you earn a piece of that growth. The stock market also goes up over the long-term because sometimes it goes down in the short-term.

And if you think about it — the stock market has to go down. It wouldn’t offer such juicy returns if you didn’t get your face ripped off every once and a while.”

GenY Money shared her latest dividend income update.

Interesting take on Dividend Strategy: What’s the point of wealth?

Dividend Growth Investor reminds us about the crossover point for investing.

Of Dollars and Data discussed the flaws behind market timing.

Always entertaining and insightful Sunday Reads at Cut the Crap Investing.

Save, Invest, Prosper!

As always, check out my Deals page.

Have a great weekend!

Mark