One Hundred Entries; Looking Back and Forward

     While logging on Wednesday to draft my Good Value vs Bad Value post, I was somewhat shocked to see it would be my 99^th entry.  So much has changed since December 9, 2012 when I sat down one night to write about my Investor Profile and Philosophy.  Moving to a different province, getting married, having a child, and changing roles at work have altered me on a personal level. Although my investing philosophy has remained pretty steady, this blog has evolved from a trade journal to an actual investment blog.

     Instead of droning on about change being inevitable, I thought I’d provide two fun stats instead. Afterall, as an accountant, finance professional, and investor…I love numbers. Without further ado, here are two numbers of which I’m extremely proud:

-          In the 2.5 years I’ve been blogging, I’ve managed to increase my expected forward dividend income by 103% (insanity!)

-          During that same blogging period, my total portfolio value rose by 98%

     Although I’ve learned a lot through blogging and made some incredible contacts, there are certain aspects of the process that still puzzle me. For instance, the most popular entry I’ve ever written judged by page views was a now dated, and somewhat bland comparative analysis I did when considering whether to buy Emera Inc or H&R REIT. I have no idea why this entry garnered so much attention, whereas some entries I put a lot of time into, and that still remain quite relevant, never garner many specific views. That said, I still find the main value of having this blog is to be able to monitor my trading decisions, in order to improve my investing process over time. Driving page views has never, and will never will be the goal of my writing.

     The obvious question is what’s next for this blog? After beautifying it earlier this spring, and even creating a Twitter account under the Dividends in Hand handle, I don’t have any huge plans.  My hope is that my blog continues to be a fun outlet to write about my own personal journey to financial independence through dividend growth investing.  

Good Value vs Bad Value

     Today at work, I found myself in a fascinating discussion with colleagues from across the organization debating what uses of money were good value compared to bad value. The discussion was prompted by a presenter who gave the example that for her, spending money on multiple pairs of shoes represented good value due to the high utility she derived from each purchase and subsequent wearing. She contrasted this with the bad value she felt applied to dinners out where she felt depressed when seeing the bill, equating the price of the meal to how many pairs of shoes she could have bought.  We were asked to discuss some examples of good value vs bad value at our tables, before reporting back our findings to the broader group.

     What interested me so much about the table discussion was how different individuals’ perceptions on value were. Yes, there were clear examples of good value (i.e. family trips, memorable experiences) and bad value (bank charges and cable/phone fees), but many of the examples provided were thought of differently depending on perspectives. For instance, I gave the example of my buying my 2003 Civic and the associated expenses with that car as a bad value. Cars are depreciating assets that turn into liabilities in terms of upkeep. Furthermore, not being a “car guy”, I derive no pleasure from driving a certain make or model of car. In contrast, a colleague indicated that he loved his motorcycle and derived high marginal utility from taking it out for a spin.

      During the broader group discussion, and after looking at numerous flip charts during lunch, I noted how many things could be thought of as both good and bad value. For instance, dinners out, quality clothes, handbags, jewelry, paying for skilled labor, cottages, and electronics appeared on both sides of flip charts. Even something as obvious to me as a trip with your spouse was debated by the group. Yes, the trip would create lasting memories, but what was the opportunity cost of taking the trip compared to savings? Part of the reason I found the discussion so engaging was that the people in the session all were generally from the same socio-economic level, yet opinions differed considerably.

     I’d be remiss not to mention that one soft spoken individual volunteered that the only example of good value was an income producing asset. Although I congratulated them in my head, I was reluctant to do so publicly given I keep my goals of financial independence far from the work space.

     Many may have read the recent article in which economists suggest that we spend money on experiences and not things. Although I’d consider myself non-materialistic, and more ready to shell out for a positive experience, I seemed to be in the quiet minority during today’s discussion. Perhaps the better question for seekers of financial independence would be how much are you able to sacrifice spending now, in order to enjoy a mix of experiences, goods, and freedoms in the future?  Food for thought…

Eating Frugally in the States

     Two weeks ago, I went on my last work trip for a couple of years, travelling from Ottawa to Philadelphia, driving to Pittsburgh, flying to Chicago, and then down to Austin Texas, before returning home to Ottawa. My goal was to spend less than half of the Government of Canada per diem of $92 per day on food. Why did I attempt this frugal goal? I enjoy challenging myself when it comes to money, and have noted that food in the United States is cheaper than in Canada. Here's how I did for the five days while I was travelling.

Sunday:
Had a sandwich and donut at Tim Horton's in the Ottawa airport for lunch ($5), before spending $12 (including a tip) on a salad at Chili's in New Jersey, and buying $12 worth of groceries (almonds, juice and fruit). 

Monday: 
My hotel in New Jersey provided a free breakfast, but I tipped my server $2. I bought a milk and donut ($3) before a meeting near Harrisburg mid-morning, and then paid $33 for my lunch and that of a person I was meeting (biggest single expense all week). I paid $13 (including tip) for my supper at Applebee's and bought some fruit and milk for $4 at a gas station. 

Tuesday:
This was a crazy driving day, going back-and-forth between Harrisburg and Pittsburgh. I kept things very cheap, paying $4 for a breakfast sandwich, $7 for a taco salad at lunch, and $7 for Subway at supper. After about 10 hours of driving, I passed out at 9pm at night.

Wednesday:
I woke up early to drive into Philadelphia and skipped breakfast. I bought a cheese steak at the airport for lunch ($10), spent $18 (including a $5 tip) on the best deep dish pizza of my life in Chicago at supper, and then bought $8 of groceries (including breakfast for the next morning).

Thursday:
My only expense Thursday was an $8 lunch at the Chicago airport before my flight to Austin. The rest of my meals until Saturday were provided via a credit group I attended. 

Saturday:
I bought a delicious $7 breakfast sandwich at the Austin airport, and a less than delicious $10 salad at the Washington airport on my way home. 

     Rather than paying for lunch on Monday for the individual I was meeting, I pretty much kept on the frugal track all week. That said, I'm somewhat ashamed, although not at all surprised to admit to gaining about seven pounds during my week on the road. It's much easier to control your diet at home, than when you're scrambling to eat while travelling from city to city. The good news is that I've already lost four of those seven pounds, simply by falling back into my normal eating and exercise routines.

     No big portfolio news to share relating to the last two weeks. I have yet to make my May contribution transfer into my portfolio, and might hold off til June unless I see something compelling in the interim. That said, I'm a big fan of the "boring is beautiful" philosophy when it comes to my portfolio. Keeping transactions low, and letting dividends continue to roll in, is just fine with me :)

One Buy, Raise, Big Change, and a Challenge

     Last week was a busy one financially, professionally, and personally. On Tuesday, I continued to take steps to make my portfolio more tax efficient by purchasing shares of H&R REIT in my TFSA. The idea being that I'll wait at least a month, and then sell the same amount of shares I currently hold in my non-registered (i.e. fully taxable) account. Although there will be a short-term tax hit due to a capital gain, it's worth not being taxed at my marginal rate on the income the H&R distributes each year (current yield is about 6%). 

     On Thursday, Telus, my largest holding, announced their semi-annual dividend increase. The 5% raise was even more impressive given it represented a 10.5% increase year-over-year. Telus also announced strong subscriber and profit growth in their first quarter. If you're a Canadian dividend growth investor and Telus isn't on your radar screen, I'd highly recommend considering this well managed telecomm which has increased their dividend nine times since announcing their multi-year dividend growth program in May 2011.

     Professionally and personally, I made a decision to change roles at work. This might not sound ground breaking, but after being a Credit Analyst for the past six and a half years, shifting gears to a project team definitely pushes me outside of my comfort zone. The role isn't as well defined, and I don't know exactly what to expect when I join the team on May 18th, but that's part of the fun! My new role will mean basically no travel for the next couple of years, which contrasts the several weeks of travel in my current role. My last week in my role as a Credit Analyst is being spent travelling in Philadelphia, Pittsburgh, Chicago, and finally to Austin Texas. 

     Since I'm on the road this week, I decided to challenge myself to live frugally. The Government of Canada (GoC) provides per diem rates for employees travelling in the US of about $92 per day. Although my employer provides slightly lower rates, I decided I'd attempt to spend less than half of the GoC per diem amount each day I was on the road. I'll report on how I did next week.

    

April Donation

     Nepal was hit by a devastating 7.8 magnitude earthquake last month, killing thousands of people. Subsequently, the government of Canada announced that they'd match contributions to registered charities that supported relief efforts in Nepal. Since I donated to the Red Cross last month, this month, I thought I'd support Oxfam Canada's efforts in Nepal. Oxfam's team is already on the ground with supplies providing clean water, sanitation, and emergency food supplies. My heart goes out to the people of Nepal and other individuals impacted by the tragedy.

     Beside making another donation, I also achieved my two other non-financial goals for April. I had eight blog entries in the month, more than one a week. Additionally, I weighed in at 153 pounds at month end, well below my self-imposed 165 pound maximum. Doing a couple runs outside after the weather turned warmer, and subbing a couple times in 5-on-5 ultimate frisbee helped me achieve my weight maintenance goal. 
   
     Will May be as successful? Only time will tell.

Is Free Cash Flow King?

     I read this excellent article last weekend from Barron's profiling two Chief Investment Officers, Bill Priest and David Pearl, who focus on "shareholder yield" in evaluating potential investment opportunities. Shareholder yield is simply a fancy term to describe how companies allocate their capital. The five uses of capital are reinvesting internally, making acquisitions, buying back stock, paying dividends, and paying down debt. The companies that attract attention from the two CIOs do the best job of balancing the needs of the company (reinvesting internally and making acquisitions) with the needs of shareholders (buying back stock and paying dividends) and debt holders (paying down debt).
 
     Microsoft, a top pick outlined in the article, is an example of a company that meets the competing demands of internal managers, shareholders and debt holders. For the twelve months ending March 31, 2015, by my calculations, Microsoft had free cash flow ("FCF") of around $26B ($32B cash from operations less $6B capital expenditures). The company spent $9B on acquisitions, bought back $11B of shares, and paid $10B in dividends. Given the low interest rates, they financed some of these expenditures by issuing net new debt of around $10B. Looking at their balance sheet on March 31, 2015, Microsoft was in the enviable position of having about $95B in cash and short-term investments, compared to total funded debt of approximately $32B. One of the risks a cash generator like Microsoft faces, not covered in the article, is repatriating cash from overseas into the US. However, with interest rates at their current low levels, it probably makes more sense for Microsoft to keep issuing debt in order to meet any short-term US cash needs (i.e. funding dividends and buybacks).

     The article also makes light of the price to FCF ratio as a way to screen potential investments. For fun, I ran some screens to identify cheap price/FCF companies on the US and Canadian exchanges. In Canada, the cheapest companies based on the price/FCF ratio were Power Corporation (POW), Manulife Financial (MFC), and Power Financial Corporation. Interestingly, their dividend yields are 3.5%, 2.8%, and 4.0% respectively. In the US, the cheapest companies based on FCF were Ares Management (ARES), Annaly Capital Management (NLY) and Prudential Financial (PRU). Their respective dividend yields were 5.3%, 11.9% and 2.8%. Microsoft was the 108^th cheapest company based on FCF, appearing after familiar names such as Ford (#30), Apple (#58), and Cisco Systems (#87).  The lists contain many financial companies, some private equity funds, and a fair amount of technology companies.

     Is there value in identifying cheap price/FCF companies? Based on my initial screens run for North American companies, I think the jury is still out.