Channel Your Inner Oracle With These 3 Buffett-Inspired Dividend Payers

AutoCanada Inc. (TSX:ACQ), Cineplex Inc. (TSX:CGX), and Aimia Inc. (TSX:AIM) are the kinds of stocks that attract Warren Buffett. Perhaps enterprising Canadian investors should take a closer look.

| More on:
The Motley Fool

It’s obvious why many investors are so quick to copy Warren Buffett. It’s hard to argue with success.

Many investors, however, choose to take a slightly different path. Rather than copy Buffett’s picks directly, they copy his style. They go looking for the kinds of stocks the man likes. Buffett has been generous sharing the kinds of traits he looks for in stocks over the years.

So instead of investors rushing into stocks like Restaurant Brands International, Suncor Energy, or the U.S. stocks owned by Berkshire Hathaway, these folks look for stocks that exhibit some of the same characteristics, including a reasonable valuation, a clear and obvious competitive advantage, and competent management.

Here are three such stocks in Canada, companies that could potentially be attractive to the Oracle of Omaha himself.

AutoCanada

AutoCanada Inc. (TSX:ACQ) is Canada’s only publicly traded chain of car dealerships with more than 50 different locations stretched across the country. Approximately 50% of revenue comes from Alberta–one of the reasons why shares have fallen so much from highs set in 2014.

Growth potential in the industry is great. There are thousands of dealerships across Canada owned by private owners, often with just a dealership or two to their names. These owners are nearing retirement age, and many don’t have family interested in taking over the business.

AutoCanada recently cut its dividend to free up cash to put towards debt repayment and a share-buyback program. Shares are attractively valued on a forward earnings basis, trading at just 12.9 times projected 2016 earnings and 11.6 times analyst expectations for 2017.

And remember, Buffett has invested in the sector before. Berkshire Hathaway paid billions for privately held Van Tuyl Group in a deal that officially closed in 2015.

Cineplex

One way Warren Buffett has consistently made money over the years is investing in consumer-discretionary stocks that own a dominant market share. Cineplex Inc. (TSX:CGX) is one such company.

Not only does Cineplex practically own the theatre business in Canada–boasting a market share of approximately 80%–but it has used that platform to successfully expand into a number of different businesses.

Take the Scene Card as an example. This partnership with the company and Bank of Nova Scotia now has more than six million members, making it one of the most successful credit cards in Canada. This arrangement alone puts a lot of butts in seats.

One growth area I think shareholders should be excited about is digital signage. Cineplex makes sharp displays for fast-food restaurants, banks, retailers, and other customer-focused businesses.

Cineplex pays investors a monthly dividend of $0.135, good enough for a 3.1% yield. That’s a nice prize for holding such a high-quality stock.

Aimia

Although shares of Aimia Inc. (TSX:AIM) are down approximately 40% over the last year, I still think the owner of Aeroplan is still a company Warren Buffett would be interested in.

One reason is because it has a lot of similarities to the insurance business. Retailers buy miles to give to customers. Aimia can then invest this money for a period of time before the customer redeems them–assuming they get redeemed at all. Insurance premiums work in much the same way.

Aimia doesn’t look like a very profitable company from an income-statement perspective, but it generates plenty of cash flow. The company predicts 2016 will see it generate between $1.25 and $1.44 per share in free cash flow–a significant amount of profit for a company only trading at $8.48 per share.

Additionally, Aimia pays a sweet dividend of $0.20 per share each quarter, which is good enough for a yield of 9.4%. Warren Buffett likes dividends because they enable him to move capital into other opportunities. I think that’s a good attitude to have.

Aimia, Cineplex, and AutoCanada aren’t the kinds of stocks Buffett can invest in today. Unless he takes over the whole company, he just can’t get a position big enough to make a difference. But regular investors can, which is what makes these stocks attractive.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith owns Aimia Inc. and Berkshire Hathaway (B shares). The Motley Fool owns shares of Berkshire Hathaway (B shares).

More on Dividend Stocks

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »

sale discount best price
Dividend Stocks

1 Dividend Stock Down 11 Percent to Buy Right Now

Do you want a great dividend stock down 11% that can provide years of growth potential? Here's one heavily discounted…

Read more »

Growth from coins
Dividend Stocks

1 Grade A Dividend Stock Down 11% to Buy and Hold Forever 

If you're looking for the right dividend stock at the right price, you're going to want to consider this insurance…

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Are you looking for dividend stocks to buy right now? Here are two top picks!

Read more »

edit Taxes CRA
Dividend Stocks

Tax Time: How to Keep More of Your Money

Nearly everyone hates paying taxes, although Canadians can lessen the financial pain with the right tax strategies.

Read more »