Merry Christmas to all -- especially those of you who own income trusts and dividend-paying stocks. And don't forget to show your appreciation by voting Liberal in the next federal election.
In a transparent vote-buying exercise that investors across Canada are sure to welcome with open arms, Ottawa signalled yesterday that it will keep its hands off income trusts after all. Instead, it plans to level the playing field by proposing further tax cuts on corporate dividends.
Apparently, word travels fast, because before Finance Minister Ralph Goodale could spread the good cheer, shares of income trusts and high-yielding dividend stocks were on fire yesterday on the Toronto Stock Exchange.
"It's great for equities, period," said Ian Nakamoto, director of research at MacDougall MacDougall & MacTier.
"We're already in rally mode in the stock market. It will be adding fuel to the flame."
Shares of Rothmans Inc. soared 5.1 per cent, BCE Inc. 4.9 per cent, CI Fund Management Inc. 4.1 per cent, AGF Management Ltd. 3.9 per cent. All the banks also rose. Ditto most pipelines and utilities. The S&P/TSX capped income trust index gained 1.5 per cent.
Barring a natural disaster of some sort, we expect the party to resume today.
No holiday at Hormel
Someone at Hormel Foods Corp., the maker of Spam, apparently has a sense of humour. How else to explain the company's choice of stock symbol: HRL.
Say it out loud.
But if investors were clutching their stomachs yesterday, it would be unfair to blame Spam.
Their queasiness had everything to do with the fact that shares of Hormel -- the biggest U.S. processor of turkeys -- got the stuffing knocked out of them. On the day before U.S. Thanksgiving, no less.
In a session that saw U.S. indexes head into the holiday on an upbeat note, shares of Hormel plunged 6.5 per cent.
Not that the company's fourth-quarter results were all that bad. The Austin, Minn., company -- whose brands include Dinty Moore stew, Stagg chili and Jennie-O Turkey Store products -- said profit rose to $81.7-million (U.S.) or 59 cents a share for the quarter ended Oct. 30, up from $69.8-million or 50 cents a year earlier, beating the average analyst estimate of 57 cents.
But Hormel's 2006 forecast went over with investors like day-old gravy.
The company said it expects share profit to be in the range of $1.86 to $1.96 in the current year, up only marginally from $1.82 a share in fiscal 2005.
Some analysts were expecting more. Merrill Lynch's Leonard Teitelbaum cut Hormel to "neutral" from "buy," saying the stock -- which trades at about 17 times projected 2006 earnings -- is fully valued. He said a rebound in the shares is possible, but "given the expectations about [earnings per share] growth next year, we view this as unlikely."
The shares fell $2.28 to $32.74 on the New York Stock Exchange.
So is the sky about to fall on Hormel? Not likely.
The stock had soared about 13 per cent in the past month, so it was ripe for a bout of profit-taking. The results were actually quite strong.
While sales in the Jennie-O Turkey Store division rose just 3 per cent in the fiscal year just ended, operating profit was up a whopping 74 per cent to $136.3-million, reflecting higher turkey prices, more efficient production methods and lower feed costs. Prices for soybeans and corn -- the principal ingredients in a turkey's diet -- have plunged amid bumper harvests in the past couple of years.
The grocery products division saw operating profit rise a more modest 2.5 per cent, helped by growth in sales of microwaveable products and lower pork costs. The latter has helped fatten profit margins for the Spam line, which now includes such mouth-watering varieties as Spam Hickory Smoked Flavor, Spam Hot & Spicy and Spam Lite. There's even a Spam Oven Roasted Turkey.
Spam jokes aside, Hormel is a company that has earned respect from investors. Earlier this week, it announced its 39th consecutive annual dividend increase, raising its payout to 56 cents a share from 52 cents. Even after yesterday's pre-Thanksgiving Day massacre, the shares are still up more than 4 per cent on the year.
© The Globe and Mail
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