Having cash in any of my trading accounts used to be a rare occurrence. Being aware that no one is able to consistently time the markets, I'd find cash burning a whole in my pocket, and my desire to add to my forward projected 12-month dividend income would compel me to buy the best opportunity available. However, since embarking on my portfolio transformation mid 2014, I've developed more discipline with holding cash, as I see the value in being able to take advantage of opportunities as they arise. Given one of my main goals for 2015 is to complete my portfolio transformation, and there's only four stocks I was looking to buy in order to complete this process, I built up a considerable cash position waiting for a dip in the price of one of those four companies. Today, I made my first long-term buy in 2014, and bought enough shares of Telus so that I'll be able to hold all my shares in my taxable account, and sell off my partial holding inside my RRSP (in at least one month and one day in order to avoid creating a taxable event).
If you know me, or have read my blog for any length of time, you'll know that not only is Telus my top holding (about 7% of my total portfolio weight), it's also my favourite Canadian dividend growth stock. There are many reasons why I've built a large position in Telus in my portfolio, but I think the strongest argument I can make on behalf of the company is its predictability. Management provides guidance on when they expect to raise their dividend and by how much, and then they follow-through. Don't get me wrong, the stock isn't cheap (P/E ~ 18X), and the yield isn't as compelling as it has been in the past (current dividend yield ~ 3.8%), but I'm willing to pay a bit extra for management that knows how important a dividend is to their shareholders, and follows through on their commitment.
Remaining on my watch list are Rogers Communications, Bell Canada, and the Royal Bank. All of these companies are pretty close to achieving my strike prices, but I'm in no rush to buy.
Wednesday, March 25, 2015
Wednesday, March 18, 2015
Suncor Energy - Do I stay or do I go?
Over the last four months, I've owned shares of Suncor Energy Inc. ("Suncor") three times. In each instance, I used my over-reaction/speculation/hunch money to purchase shares. My position in the company has never represented a significant portion of my portfolio; possibly 4% at it's highest point, and about 3% now. The first two times I owned Suncor, I made small profits holding the position for a month or two, collecting a dividend, and getting rid of it when the price of oil recovered slightly. After buying into the company again early this month in my Tax Free Savings Account ("TFSA") at $37.60 (CAD) in order to collect the latest dividend, I'm slightly in the red at this point. The fact I'm a little underwater on the position doesn't bother me at all. In fact, I've been thinking about holding onto Suncor. In order to help myself make the decision whether to stick with Suncor for the long-term, or sell it if/when the price of oil recovers some, I decided to go through the main pros/cons below.
Selling Suncor:
- I'm trying to organize my various stock holdings in the most tax efficient way. Suncor would be much better held for the long-term in my taxable account (relatively low dividend yield compared to my other investments) as opposed to my TFSA where I aim to hold higher yield stocks and REITs.
- Selling Suncor would help fund my portfolio transformation as I had plans to buy shares of Rogers Communications in my TFSA (higher yield and where I already hold most of my Rogers shares).
- Suncor barely meets my dividend yield screening requirement of 3%. This makes me question if the company's management considers the dividend important, or if they would consider cutting it if the price of oil continues to be depressed.
- I question the sustainability of Suncor's dividend given its Q4 EPS of $0.06 and $0.28 dividend. In 2014 (when the price of oil was higher), the company looks to be slightly cash flow negative when CAPEX, dividends, and share buybacks are taken into account.
- I try to avoid investing in commodity based businesses. Commodity based businesses tend to be price takers and have to react to consumer demand. There's little ability to differentiate or charge premium pricing.
Holding Suncor:
- In terms of dividend growth, averaging 36% per year over the last 5 years is beyond many of the companies in which I hold shares. Suncor boosted it's dividend by 40% in 2014 alone.
- Suncor is an excellent life hedge for me. Even though we don't drive very frequently, my wife and I both buy gas a couple times a month, and knowing I'll be getting some of those dollars back via dividends will make me feel better about the fuel expense.
- I bought a full position (by my definition) in the company in my TFSA, and I'll still have enough cash to fund my purchase of Rogers when I make my 2015 TFSA contribution.
- Suncor gives me some exposure to the exploration/extraction/distribution/retail of oil products, an area where my portfolio is currently lacking.
- Holding Suncor in my TFSA, where any capital gains down the road are not taxed, might prove to be tax efficient in the long-term if I'm buying into the company at a low point in the industry cycle.
There are two other factors that are playing into my hold or sell decision:
- I'm not sure if I want to continue dedicating a portion of my portfolio (about 5%) to over-reaction/speculation/hunches. This is definitely the money I think and worry the most about. There's something to be said for boosting my portfolio return by a couple percentage points (as I did last year with this money), but I'm also all for sleeping better at night.
- I'm not 100% happy with the price at which I bought my latest shares. I bought into Suncor at a P/E around 20X, which seems a bit high given the difficulties in the oil market. When Suncor goes below $35 (as it did earlier today), I think that would have been a much safer entry point. That said, I know it's impossible to pick bottoms in a stock or the market.
Clearly, I'm continuing to struggle with what to do with my Suncor holding. As long as the current price stays below my latest entry point, I'm happy to hold my position and not have to make a decision. I wonder if I'm the only one who agonizes over when/if to sell stock?
Selling Suncor:
- I'm trying to organize my various stock holdings in the most tax efficient way. Suncor would be much better held for the long-term in my taxable account (relatively low dividend yield compared to my other investments) as opposed to my TFSA where I aim to hold higher yield stocks and REITs.
- Selling Suncor would help fund my portfolio transformation as I had plans to buy shares of Rogers Communications in my TFSA (higher yield and where I already hold most of my Rogers shares).
- Suncor barely meets my dividend yield screening requirement of 3%. This makes me question if the company's management considers the dividend important, or if they would consider cutting it if the price of oil continues to be depressed.
- I question the sustainability of Suncor's dividend given its Q4 EPS of $0.06 and $0.28 dividend. In 2014 (when the price of oil was higher), the company looks to be slightly cash flow negative when CAPEX, dividends, and share buybacks are taken into account.
- I try to avoid investing in commodity based businesses. Commodity based businesses tend to be price takers and have to react to consumer demand. There's little ability to differentiate or charge premium pricing.
Holding Suncor:
- In terms of dividend growth, averaging 36% per year over the last 5 years is beyond many of the companies in which I hold shares. Suncor boosted it's dividend by 40% in 2014 alone.
- Suncor is an excellent life hedge for me. Even though we don't drive very frequently, my wife and I both buy gas a couple times a month, and knowing I'll be getting some of those dollars back via dividends will make me feel better about the fuel expense.
- I bought a full position (by my definition) in the company in my TFSA, and I'll still have enough cash to fund my purchase of Rogers when I make my 2015 TFSA contribution.
- Suncor gives me some exposure to the exploration/extraction/distribution/retail of oil products, an area where my portfolio is currently lacking.
- Holding Suncor in my TFSA, where any capital gains down the road are not taxed, might prove to be tax efficient in the long-term if I'm buying into the company at a low point in the industry cycle.
There are two other factors that are playing into my hold or sell decision:
- I'm not sure if I want to continue dedicating a portion of my portfolio (about 5%) to over-reaction/speculation/hunches. This is definitely the money I think and worry the most about. There's something to be said for boosting my portfolio return by a couple percentage points (as I did last year with this money), but I'm also all for sleeping better at night.
- I'm not 100% happy with the price at which I bought my latest shares. I bought into Suncor at a P/E around 20X, which seems a bit high given the difficulties in the oil market. When Suncor goes below $35 (as it did earlier today), I think that would have been a much safer entry point. That said, I know it's impossible to pick bottoms in a stock or the market.
Clearly, I'm continuing to struggle with what to do with my Suncor holding. As long as the current price stays below my latest entry point, I'm happy to hold my position and not have to make a decision. I wonder if I'm the only one who agonizes over when/if to sell stock?
Friday, March 13, 2015
The Value of Taking a Break
For once, I have an excellent excuse for a lack of recent updates - my wife, son and I just got back from a week away at the all-inclusive Riu Merengue hotel in Puerto Plata. I hesitate to call the week away a vacation, since travelling with an eight-month-old is still somewhat stressful, but we all thoroughly enjoyed the hot temperatures, beautiful beach, and ocean-view room. This is my third time doing an "all-inclusive" south trip, and as much as I liked the two previous journeys to Cuba, the Dominican Republic jaunt was my favorite destination.
When we arrived at the lobby of the Riu Merengue, I couldn't help but notice all the tourists using their 90 minutes of free WIFI per day to check their phones/tablets/laptops. The next morning, as we walked through the lobby to our information session, my wife and I again noted a large group of tourists with their heads firmly planted in their personal devices. During the information session, the facilitator encouraged all the guests to take advantage of the beaches and tropical setting, instead of worrying about the WIFI. One of the nice things about travelling to Cuba, is that Internet was incredibly slow (so I was told) and expensive. Therefore, there was no temptation at all for me to log-on and check my stock portfolio. Sadly, I didn't quite make it through the entire week this time without checking into my investment portfolio, as I was on for about 5 minutes on our second last day at the resort, after I checked our flight information for the next day, and wrote my mother a quick email.
Logging onto my investment account, I noticed the value of my holdings had fallen about 3%. That made me excited, as I thought there'd be some great buying opportunities for me when I arrived back home. After looking at the markets today, it seems Canadian banks, telecommunication companies, and energy companies are down a bit, but not enough to tempt me to part with my cash.
There was some further good news alerts about the last week, with Realty Income increasing their dividend again (albeit a very small increase), Omega Healthcare pre-announcing a dividend increase for next quarter (another penny a share is fine by me!), and Telus announcing more share buybacks.
In summary, I don't feel I missed anything terribly important during my week in the south, but I benefited greatly by relaxing for a week. It's hard to tear yourself away from the 24/7 nature of the markets, with information constantly at your finger tips, but making the most of my time in the south re-energized me and made me focus on the big picture. Some years down the road, I'll hopefully be in a position where I can enjoy my free time, without having to worry about the ups and downs of the market. It was good to take a break from my busy lifestyle to re-connect with nature, my family, and my true values.
When we arrived at the lobby of the Riu Merengue, I couldn't help but notice all the tourists using their 90 minutes of free WIFI per day to check their phones/tablets/laptops. The next morning, as we walked through the lobby to our information session, my wife and I again noted a large group of tourists with their heads firmly planted in their personal devices. During the information session, the facilitator encouraged all the guests to take advantage of the beaches and tropical setting, instead of worrying about the WIFI. One of the nice things about travelling to Cuba, is that Internet was incredibly slow (so I was told) and expensive. Therefore, there was no temptation at all for me to log-on and check my stock portfolio. Sadly, I didn't quite make it through the entire week this time without checking into my investment portfolio, as I was on for about 5 minutes on our second last day at the resort, after I checked our flight information for the next day, and wrote my mother a quick email.
Logging onto my investment account, I noticed the value of my holdings had fallen about 3%. That made me excited, as I thought there'd be some great buying opportunities for me when I arrived back home. After looking at the markets today, it seems Canadian banks, telecommunication companies, and energy companies are down a bit, but not enough to tempt me to part with my cash.
There was some further good news alerts about the last week, with Realty Income increasing their dividend again (albeit a very small increase), Omega Healthcare pre-announcing a dividend increase for next quarter (another penny a share is fine by me!), and Telus announcing more share buybacks.
In summary, I don't feel I missed anything terribly important during my week in the south, but I benefited greatly by relaxing for a week. It's hard to tear yourself away from the 24/7 nature of the markets, with information constantly at your finger tips, but making the most of my time in the south re-energized me and made me focus on the big picture. Some years down the road, I'll hopefully be in a position where I can enjoy my free time, without having to worry about the ups and downs of the market. It was good to take a break from my busy lifestyle to re-connect with nature, my family, and my true values.
Wednesday, March 4, 2015
February Donation
February rushed by in a blur and I only got around to making my donation today. That said, I picked the Aylmer Food Centre (la Centre Alimentaire Aylmer) as a recipient for my February donation. The food bank is only a couple streets away from me, and they've had challenges keeping up with demand in past years. We have a very diverse population in Aylmer, which makes it a fantastic place to live. Knowing the food bank runs some great programs, and that they can buy a large multiple of food for the amount I donated, gives me a great feeling about donating to this worthy cause.
Beside making another donation, I also achieved my two other non-financial goals for February. I had more blog entries (five) than weeks in the month, and weighed in around 158 pounds at month end, well below my self-imposed 165 pound maximum. I'm in the last week of Custom Strength's free eight weeks to wellness program, and am very happy with the results. It's amazing what changing a few habits can mean to your lifestyle.
Here's hoping all my readers had successful Februaries as well!
Beside making another donation, I also achieved my two other non-financial goals for February. I had more blog entries (five) than weeks in the month, and weighed in around 158 pounds at month end, well below my self-imposed 165 pound maximum. I'm in the last week of Custom Strength's free eight weeks to wellness program, and am very happy with the results. It's amazing what changing a few habits can mean to your lifestyle.
Here's hoping all my readers had successful Februaries as well!
Three Dividend Increases and One Cut
If you're just starting a Canadian dividend portfolio, and you want to focus on one sector for the long-term, I'd recommend our financial industry. In particular, our big five chartered banks have been solid, if not spectacular performers over the past fifteen-plus years I've been investing in them. Their strong lobby group (the Canadian Bankers Association), a favorable regulatory environment that limits foreign competition, and the banks' own conservative risk management policies have led to consistently growing profits and dividends. Over the last week, three banks I own announced dividend increases:
- Toronto-Dominion Bank (8.5% increase)
- Royal Bank of Canada (2.7% increase)
- Bank of Nova Scotia (3% increase)
Sadly, it's not all sunshine, roses, and dividend increases in my portfolio. Despite posting record results for 2014, PHX Energy Services ("PHX"), cut their dividend in half in order to respond to falling oil prices. I chased yield in purchasing a half position in PHX last fall. I knew that the falling price of oil would impact the driller focused in Alberta, but thought the lower oil prices were only temporary. I've held onto my shares, as I'm underexposed to the oil sector, and even with a 50% lower dividend, the shares still yield around 6%. PHX's management has undertaken a number of measures to maintain their financial and operating flexibility such as increasing their bank revolver, cutting their dividend (even if it hurts investors like me, paying out more than 100% of profits is unsustainable), and reducing their CAPEX budget for 2015. I'm not sure what I'll end up doing with my shares, probably look to dispose of them over the next couple months if there's a more interesting opportunity that arises.
The dividend cut by PHX was my first dividend cut since Capstone Infrastructure cut their dividend in June 2012. There's many lessons to be learned, and I need to take some time to reflect and learn how to improve my investment process going forward. As sweet as the twelve dividend raises I've received this quarter feel, the one cut will continue to haunt me.
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