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TSX breakouts: Sensational rally in dividend-paying tech stock due for a pause

While the S&P/TSX composite index climbs higher, up 4.7 per cent year-to-date, the list of positive breakouts (securities with positive price momentum) is growing and now stands at 90 names, with just two stocks on the negative breakouts list (stocks with negative price momentum).

Discussed below is a top performing technology stock that has appreciated 45 per cent year-to-date, and it pays investors a dividend – Wi-Lan Inc. (WIN-T;WILN-Q). However, this stock's sensational rally may be due for a pause.

A brief outline is provided that may serve as a springboard for further fundamental research.

The Company

Wi-Lan is a patent licensing company. It manages and licenses intellectual property of companies from a variety of industries such as the automotive, television, Internet, medical and technology market segments. Wi-Lan will arrange with patent owners to protect and enforce their patents in exchange for a share of any potential monetary award.

On Feb. 4, the company announced fourth-quarter results that were ahead of expectations. Revenue was $26-million (U.S.), up 18 per cent year-over-year, exceeding the Street's expectations of $20.8-million. Earnings per share came in at 13 cents, above the consensus estimate of 9 cents. The company's balance sheet had cash and cash equivalents of $94.6-million as at Dec. 31, 2015. Management estimates the company's revenue backlog, representing forecast future revenue from signed patent license agreements, at year-end was between $175-million to $205-million.

Dividend Policy

In November, the company announced plans to cut its dividend stating, "The board believes this is a prudent step to support the company's efforts to adapt to an evolving and challenging patent licensing business environment and to position the company for long-term growth opportunities. Wi-Lan will focus its cash resources on monetizing its existing patent portfolio and acquiring other high quality patents, which in the view of management and the board, present the best use of capital to create value for shareholders." The stock price plunged on this news, but has since recovered all of these losses and is trading back to where it was prior to this announcement.

The quarterly dividend was reduced to 0.0125 cents per share from 0.0525 cents. This equates to a yearly rate of 5 cents per share, or an annualized yield of 1.9 per cent.

Analysts' Recommendations

According to Bloomberg, there are three buy recommendations with the average one-year price target of $3.42 (Canadian), implying the shares may appreciate 28 per cent. However, this strong return is skewed by one target price. Individual target prices in Canadian dollars are as follows: $2.50, $2.75 and $5. There are no hold recommendations, nor sell recommendations.

Earnings are forecast to decline in 2016, not a positive characteristic. The consensus earnings per share forecast is 44 cents (U.S.) in 2016, and 43 cents in 2017.

Chart Watch

On a long-term basis, the stock has been in a general downtrend since mid-2011. While the stock has rebounded 44 per cent so far this year, it is still too premature to call this stock a technical "buy."

There is overhead resistance around $3 (Canadian), and downside support around $2.50, then at $2.25, where its 200-day moving average lies. Failing that, there is support around $2, close to the stock's 50-day moving average (at $1.93).

The relative strength index is at 78, suggesting the shares are in overbought territory. Generally, a reading of 70 or higher indicates an overbought condition. That being said, a security can remain overbought for some time.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Below is a list of securities in the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Securities on the positive breakouts list have displayed positive price momentum during this period. Securities on negative breakouts list have experienced negative price momentum.

Positive Breakouts
TickerCompany
ARE-TAecon Group Inc
AFN-TAg Growth International Inc
AP-U-TAllied Properties REIT
ALS-TAltius Minerals Corp
ARX-TARC Resources Ltd
AR-TArgonaut Gold Inc
AX-U-TArtis Real Estate Investment Trust
BMO-TBank of Montreal
BNS-TBank of Nova Scotia
BAM/A-TBrookfield Asset Management Inc
CCO-TCameco Corp
CNR-TCanadian National Railway
CNQ-TCanadian Natural Resources Ltd
REF-U-TCanadian Real Estate Investment Trust
CWB-TCanadian Western Bank
CJ-TCardinal Energy Ltd
CM-TCIBC
CCA-TCogeco Communications Inc
CGO-TCogeco Inc
CUF-U-TCominar Real Estate Investment Trust
CMG-TComputer Modelling Group Ltd
CPG-TCrescent Point Energy Corp
CRR-U-TCrombie Real Estate Investment Trust
DRG-U-TDream Global REIT
DIR-U-TDream Industrial REIT
D-U-TDream Office REIT
FSZ-TFiera Capital Corp
FCR-TFirst Capital Realty Inc
FR-TFirst Majestic Silver Corp
FN-TFirst National Financial Corp
MIC-TGenworth MI Canada Inc
WN-TGeorge Weston Ltd
GEI-TGibson Energy Inc
GWO-TGreat-West Lifeco Inc
GUY-TGuyana Goldfields Inc
HR-U-TH&R Real Estate Investment Trust
HCG-THome Capital Group Inc
IGM-TIGM Financial Inc
INN-U-TInnVest Real Estate Investment Trust
IFC-TIntact Financial Corp
IPL-TInter Pipeline Ltd
PJC/A-TJean Coutu Group PJC Inc
KEL-TKelt Exploration Ltd
KGI-TKirkland Lake Gold Inc
LSG-TLake Shore Gold Corp
L-TLoblaw Cos Ltd
LUN-TLundin Mining Corp
MAG-TMAG Silver Corp
DR-TMedical Facilities Corp
MRU-TMetro Inc
NA-TNational Bank of Canada
NFI-TNew Flyer Industries Inc
NPI-TNorthland Power Inc
NVU-U-TNorthview Apartment REIT
NWH-U-TNorthWest Healthcare Properties REIT
ONR-U-TOneREIT
PPY-TPainted Pony Petroleum Ltd
POU-TParamount Resources Ltd
PXT-TParex Resources Inc
PPL-TPembina Pipeline Corp
POW-TPower Corp of Canada
PWF-TPower Financial Corp
REI-U-TRioCan Real Estate Investment Trust
RCI/B-TRogers Communications Inc
RY-TRoyal Bank of Canada
SAP-TSaputo Inc
SES-TSecure Energy Services Inc
VII-TSeven Generations Energy Ltd
SJR/B-TShaw Communications Inc
SIA-TSienna Senior Living Inc
SOT-U-TSlate Office REIT
SRU-U-TSmart Real Estate Investment Trust
SPE-TSpartan Energy Corp
SOX-TStuart Olson Inc
STB-TStudent Transportation Inc
SU-TSuncor Energy Inc
THO-TTahoe Resources Inc
TCK/B-TTeck Resources Ltd
T-TTELUS Corp
X-TTMX Group Ltd
TOG-TTORC Oil & Gas Ltd
TD-TToronto-Dominion Bank
TCL/A-TTranscontinental Inc
TRQ-TTurquoise Hill Resources Ltd
VSN-TVeresen Inc
VET-TVermilion Energy Inc
WPT-TWestport Innovations Inc
WB-TWhistler Blackcomb Holdings Inc
WIN-TWi-LAN Inc
Y-TYellow Pages Ltd
Negative Breakouts
TS/B-TTorstar Corp
VRX-TValeant Pharmaceuticals International In

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