Investment Q&A

Q: Hi 5i Team - I have shares of ECN in both my non-registered and TFSA accounts. Could you tell me if the special dividend of $7.50 will be treated by Revenue Canada as a regular dividend by a Canadian corporation. If so then there will be a percentage added to the amount of dividend for total income purposes which could affect my marginal tax rate. Is it better then to move the non-registered shares into my TFSA (in spite of the dividend tax credit) which will trigger a capital gains of 50% of the profit. Thanks as always for the great service!

Q: Hi,
In respect to the question from Brad in regards to small caps, you responded as:

"We have seen some studies showing the group is cheap (relatively) than it has been in 10 years. The 4Q is often good for the sector.

Could you name 3 to 5 small cap stocks that you would recommend?
Thanks,

Q: Thank for the answer yesterday and appreciated Garth’s Q&A.
Just to make sure I am not entirely mistaken, but at $3.00 ps there would (after sale) $2.00 ps in cash?
Of course the caveat on the transaction, but do you know how long Truist Bank has had a friendly relationship with ECN?

TIA

Q: In Dan's comment on Aug.13/21 he quotes some earnings and growth numbers that show the remaining part of ECN have both value and some pretty good growth numbers { Triad 72.5% and KG 30.6% }.... First could you confirm Dan's numbers ? And then take a stab at an estimated share price based on the remaining company and what you think of management, valuation, future growth, and whatever else you deem prudent in making such an evaluation ?

And second I realize 5I doesn't like giving weighting advice so I'll explain my philosophy on it. With a company like ECN a mid cap about to become a small cap I would normally be around 1.5% .... However with the downside limited to $2.50 a share and a belief that the remaining company doesn't face that much of a downside I am willing to go 2.5% to 3% ..... So that is what I did .... But after purchase I thought " Wait a minute. After my return in cash I took less than a 1% position . " How does 5I recommend I approach the situation with my goals in mind ?

Q: Yet another Q on ECN. Sorry. Was listening again to Hudson's interview on BNN on Aug. 11. In it Steve mentioned that he expects cash flow to grow to 120mil. a year in (relatively) short order. I was just wondering how that would look on a company that will trade (let us say) for $3.00 a share? I am imagining that there are few PF managers who could own ECN as it grew but soon won't be able to because of size and when I can hope for them to return?

TIA

Q: ECN at under $10.00 baffles me. I am tempted to buy more, but I wonder what am I missing?

Q: I hold ECN in my TSFA will there be a tax with held on the special dividend from the U.S.

Q: I seem to be confused by the announcement of the ECN sale and expected dividend. If I buy ECN now, will I qualify for the dividend of $7.50? Or is that dividend only for those who held on Aug 10.

John

Q: Lots of questions about this one.

One argument I've heard for why the stock isn't up on the dividend news is that the dividend isn't tax efficient for US holders, who evidently own about 40% of ECN float. That coupled with the embedded gains and worry about taxes increasing has them selling now, and the CDN demand for those shares being sold isn't enough to push the stock price higher.

If this is true, it may limit the near term opportunities even after the dividend if Americans feel burned that they didn't get a good deal out of a great deal made by ECN.

That all said, I've added to my already large position due largely to management and they're proven abilities.

My 2 cents, curious what you think.

Cam

Q: Hi 5i,

Would you sell DND for ECN today for a 1 - 2 year hold?

Q: Good Afternoon:
Further to Allen's question on the company's valuation post $7.50 dividend, does the market's then valuation of $2.60 per share accurately or fairly value the remaining divisions of the company considering their recent performance and that some debt may be repaid?
In that context, what factors in your mind exist or what positioning or news releases can the company make to mitigate the share price dropping by the amount of the dividend.
Lastly, aside from the direction of the general market in the last week or so, do you see the recent drop in share price as over reaction?
Thank you!
Ian

Q: Since the special dividend announcement of $7.50,ECN has dropped to $10.10.Does this mean the market only values the stock at $2.60, post dividend?

Q: Is buying ECN shares considered “dividend shopping” in light of the $7.50 special dividend announced recently.If I remember from the answers to the questions on ECN, 5i mentioned that the stock may drop by $7.50 ex-dividend. If that is the case, although not guaranteed, why would anymore consider buying ECN shares other than for the special dividend and unloading the shares a few days after unless 5i believes that the stock has some growth potential groins forward. Thank you for shedding light on this matter.

Q: I would like to add a few (2-4) financial companies to my non-registered investment portfolio. Would appreciate 5i's help in ranking the above names based on total return potential for a 3-5 year hold. Please add any names you feel belong to the lineup, ranked appropriately, Thank you.

Q: I have a hypothetical question regarding the $7,50 distribution that will take place later this year. Assume that I bought the shares at $10 and that the distribution was a return of capital. The ROC would reduce my cost base by $7,50 to $2.50. So if the market price of the shares dropped by $7.50 to $2.50 and I sold the shares at that price I would not have any gain or loss on the sale. Apparently, if my logic is correct, I would be pocketing the $7.50 with no tax consequences. Am I missing something? Or is this the logic that would preclude this distribution from being considered a return of capital?

Q: Hi 5i team,

Between BNS and ECN, which one would you prefer to own for better chance of share price appreciation for the next 3 years? I already have TD, SLF and GSY. Thanks.

Q: Hi there, I’ve held ECN ever since it was spun off from EFN and added to it along the way. I’ve read your comments that the stock could fall by 7.50 when the special dividend goes ex-div. So if it’s trading at 10.50 approx now and assuming it’s around same level at ex-div it’d fall to 3.00 which is close to my cost. How should proceed ie should I sell it now or buy more? Thanks
I just asked a question on ECN and whether I should buy more or sell due to probability stock may drop at the 7.50 ex-div date. So if I don’t sell and receive the 7.50/share and since I am DRIP’ing would I receive the DRIP shares based on 2.50 per share?

Q: I hold ECN and ECN.PR.A in a registered account. After reading recent comments I am considering selling the preferred shares to buy more of the common. Would you endorse this move? I also have a small preferred position in a taxable account with a 55% gain. I expect you would advise holding in this case. Is that correct? Thanks as always for your exceptional service.

Q: In your answer to Colin's questions about ECN on Aug 12th, your answer included this statement - "The sold division was the fastest growing, by far".

I had a look at the quarterly financials just released on Sedar, and in the notes to the financials there is the segmented information, and in there it shows the current Q2 and last year's Q2. The revenue for the sold division was up by 42.9% year over year, and for the 2 remaining divisions, Triad had revenue growth of 72.5% and KG had 30.6% growth. It looks to me like there is excellent growth in the 2 remaining divisions. Am I missing something?

It seems to me there is a very substantial, rapidly growing business remaining after the sale of the Home Improvement Loans division, and in the BNN interview with Steve Hudson he was very optimistic about the future growth of the 2 remaining divisions.

Q: I wanted to ask about one more point on the ECN division sale. Assuming the deal close they are getting 2B US$. Only 1.5B of that is being used to pay out 7.50 CAD per share. This means there is 500M US (about $2.50 CAD per share) being added to the company. So at current price of 10.65 the other half of the company is being valued at 65 cents. Is this correct?