The last little bit of my longest-term holding, Rogers Sugar (TSX: RSI) I have unloaded today. The company is very well run, but substantially all of its free cash flow is sent out the window in dividends – at a yield of roughly 6-6.1%, historically this is expensive and by virtue of being in the sugar refining industry, isn’t exactly in a position to dramatically expand revenues and earnings.
Investors are paying bond-like premiums for equity-like returns. At the rate that yield-chasing is going, investors might even bid up the company to 5.5% or even 5%, but I won’t have any part of it. The golden moment was when in early 2009 it was trading at $3/unit and I did load up during this time since the stable 15% pre-tax returns made much more sense in terms of valuation. The only problem was that most other equities at that time were also exhibiting high risk-reward potential!