Question:
Four years ago Dr. Gene recommended Royal Bank of Canada (NYSE: RY) and it has done well. At the time he said Canadian banks were more conservative in their lending practices. Right now several Canadian banks are paying greater than 4% in dividends and have dropped from their highs. What is your opinion about their continuing to pay their dividends, and what risks are there in the Canadian economy that might affect their performance in the next several years? At times there have been comments about a Canadian housing bubble and has that effected their current valuations.
Answer:
Looking at Canadian banks, it seems like most can cover their dividend by two times, which we suspect is a result of Canadian banks being regulated in a more conservative manner than U.S. banks. They practice more conservative lending standards thus have a lot less debt and are less leveraged than their American counterparts. With energy prices falling, Canadian banks are not lending as much. However, we feel the banks are solid companies with solid dividends. They may not grow as much as U.S. financials. While some look expensive to buy, we believe Canadian banks are OK to hold. We have owned Royal Bank of Canada (NYSE: RY) and Bank of Nova Scotia (NYSE: BNS).
As far as the Canadian economy, their gross domestic product and exports have struggled lately as much of their economy is based on the energy sector. Canada’s economy is also closely tied to the United States as nearly 73% of Canada’s exports come to the United States and 63% of their imports come from here. Even in their Energy sector, most of what they extract from the ground is sent to the United States for refining.
Question:
I have heard Ted mention Android a few times now, and how the OS is giving Apple some competition. Does this make Google (the owner of Android) or some of the phone makers like Samsung a good stock to look at now?
Answer:
First, you cannot discount the Apple loyalty. Consumers are very loyal to their Apple products. Apple Inc.’s (NASDAQ: AAPL) iPhone continues to gain share over devices running on Google’s Android operating system. Survey results suggest iPhone ownership could exceed Android ownership with the next few years. About 50% of smartphone owners have an Android handset, whereas about 30% use an iPhone. About 40% of individuals planning to buy a new smartphone will go with Android, and the same amount will go with the iPhone, but here’s where it breaks down. iPhone users are much, much more loyal. 91% of iPhone owners plan to buy another iPhone, while only 6% plan to switch to an Android device. While a high number, 76% of Android owners intend to go with Android again, but of the 24% planning to switch, 75% of them intend to buy an iPhone.
There’s no doubt Samsung’s many smartphone offerings has been wildly successful, making it, by far, the leading seller of Android devices. However, it still hasn’t been able to unseat the iPhone as the king of the smartphone. A few reviews are describing Samsung’s latest offering, the Galaxy S4, as evolutionary, not revolutionary. Basically, it isn’t a game changer, just incrementally better. Samsung’s software has been called gimmicky, not exactly a resounding endorsement. The Galaxy S4 does have a huge 5-inch screen and its plastic body is thinner and lighter. With less-than-stellar reviews of Samsung’s new Galaxy 4s, we would worry that Samsung may soon be in the same boat as Apple as far as an innovation rut for its phones.
Rather than own the phone manufacturers, we would prefer to own the maker of the software that powers them. It doesn’t matter it it’s a Samsung phone, Apple phone, Nokia or any other, Google, Inc. (NASDAQ: GOOG) will make money when you buy a phone. Google doesn’t directly generate revenue from selling its Android System as it is an open platform and costs nothing for phone manufacturers to use. Google makes money by directing you to its search engine and Google marketplace. Even Android’s enemy Apple uses Google as its default search engine on iOS.
We also like Qualcomm, Inc. (NASDAQ: QCOM) for a smartphone/tablet play as their technology is used throughout various devices.
At Henssler Financial we believe you should Live Ready. If you have questions regarding your investments, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
