Over the past several weeks, Canadian investors who are holding equities either outside Canada (or Canadian equities with substantial investments outside the country) have seen the Canadian dollar rise in value, which has acted as a headwind for their investments. In spite of this, the returns for many of these companies has done very well, as the U.S. economy has acted as a tailwind for many who are long the stock market.
The first name that investors can consider is none other than Canadian behemoth Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), which has a large presence in South America and has been steadily growing. For shareholders seeking long-term value, this name may just top the list, as the dividend has steadily increased at a compounded annual growth rate of 6.28% from fiscal 2013 to fiscal 2017. Halfway through the current fiscal year, investors have already seen an increase of more than 5%.
The best opportunity for investors taking a position at this time may not come from the dividend. With the Canadian dollar already having increased in value (and the price of oil near US$62 per barrel), the unfavourable movement may already be behind us. Should the Canadian dollar move downwards, it will benefit investors who are long a security that holds a substantial amount of assets in foreign countries. As Bank of Nova Scotia has been almost flat for the current 12-month period, investors buying today need to have high expectations!
The next name on the list is Dream Global REIT (TSX:DRG.UN). At a price of $13.67 per share, Dream Global trades at a premium to tangible book value by 13%, which signals that investors believe in the cash flows of this company. As a reminder, there have been two separate acquisitions in the REIT space over the past few months: one involving industrial real estate, while the other involved residential real estate in the United States. Both companies were Canadian based and Canadian listed.
Investors should not be holding their breath for a buyout offer on a name that is already trading at a premium. Instead, the cash flows and dividend yield of 5.8% will have to be enough for investors who take this leap.
The good news for those that do is that the appreciation in the share price does not have to come from increases in the value of the real estate alone. With properties in Germany and Austria, either an increase in the euro or a decrease in the Canadian dollar will make these assets worth a lot more money. From a business perspective, increasing the rents will do the same thing.
With multiple levers available to management, investors need not be concerned about receiving value for their money over the long term. The only question is, how much value will they receive in 2018?
