August Dividend Raises & Updated Investment Holdings

I will remember August 2015 as a very volatile month in the markets, with some big swings in stock index values due to the slowdown in China, interest rate speculation in the United States, and the ever changing price of oil. August is traditionally a slow month in my portfolio in terms of dividend raises, and I only have two to report this month:

-          On Tuesday, the Royal Bank of Canada increased their payout two cents a share to 79 cents quarterly. The increased payout reflects net income growth of 4% over the same quarter last year and is well supported by adjusted earnings per share of $1.68.

-          Today, the Bank of Nova Scotia boosted their dividend from $0.68 to $0.70 quarterly. Excluding a special gain recorded in the comparable quarter last year, earnings per share were up from $1.40 to $1.45. This is the fourth consecutive year in which this bank has twice increased their dividend.

September should be a busier month for payout increases with Microsoft, McDonald’s and Enbridge Income Fund all likely to boost their dividends next month. Of course the most exciting news for me is always unexpected dividend increases. 

In order to continue to make this blog more user friendly, I updated my ‘Investment Holdings’ page. Maintaining HTML coded tables was simply too much of a headache for me, so I embedded Google spreadsheets instead. This will allow me to easily update my stock holdings in the future.

Next week the plan is to provide an update on my non-financial goals on Tuesday and post my first ever September stock watchlist on Friday. I’m a big fan of the watchlist concept, as I often find interesting companies via other bloggers’ watchlists. Plus, posting a watchlist should help me focus my research efforts in September.

Which companies are you looking to add to your investment portfolio next month?

Recent Sale – PHX Energy Services Corp

As outlined in my recent entry ‘My Three Most Costly Stock Picking Losses’, the price of my shares of PHX Energy Services Corp plummeted over the last year along with the price of oil.  As their revenue from drilling wells declined, the company decreased its dividend twice in 2015. After reviewing their Q2 results, which saw revenue down 42% year-over-year, and a growing net loss, I was surprised management didn’t eliminate the dividend entirely. Instead of potentially watching this company file for creditor protection, I decided to sell my shares and exit my small position in the company last Friday.

As much as selling shares at a low point in the market bruises my ego, I felt relieved after exiting the position.  PHX was the one company in my portfolio in which I had zero confidence in their long-term sustainability.  I spent an inordinate amount of time scanning news items in order to monitor their financial health. Although I don’t have any concrete plans to redeploy the capital from the sale of my position, I can assure you that it will be invested in a much less risky company.

I’ve mentioned in previous entries that I don’t mind making investment mistakes, so long as I learn from them. My two main lessons learned from holding PHX are that:

-          When entering a speculative position, have an exit plan in place, and follow that plan.

-          Avoid entering into speculative positions in the first place. As I narrow my portfolio holdings, I have to get better at waiting for opportunities to buy great companies at fair prices.

Here’s hoping you are able to learn from my mistakes and avoid including speculative companies in your portfolio. 

Five Essential Twitter Users for Income Investors

As my family, friends and work colleagues would tell you, I'm not much of a social networker. My Linkedin gets updated about once a year, my main use of Facebook is to see pictures of where friends went on vacation, and I beg you not to add my to Google+, as I have no idea how it works. With those embarrassing admissions out of the way, I'll readily admit that I enjoy Twitter. Being a bit of a news junkie, my personal Twitter account feeds show me roughly equal amounts of friends' updates, ultimate frisbee stories, and business/investment news. When I set up my Twitter account for this blog, my plan was to follow Twitter users relevant to the investment and personal finance communities. Since I've been slower to discover personal finance Twitter users (although I'm a big fan of J. Money @budgetsaresexy and Kate @cashvillesky), I decided to share with you my Five Essential Twitter Users for Income Investors. The Twitter users below are in alphabetical order with a brief explanation of why I find them essential reading

Brad Thomas @swan_investor

After discovering Brad Thomas's writing on US Real Estate Investment Trusts ("REITs") on Seeking Alpha, I quickly added him to my Twitter feeds in order to get updates when he posts on Seeking Alpha or Forbes. Brad's articles on REITs are insightful, well researched, and informative. I urge you to check out Brad's site and consider subscribing to his newsletter if you're interested in US REITs.

Chuck Carnevale @MarketsUpChuck

After stumbling across Chuck on Seeking Alpha, I was impressed by his eloquent articles promoting sound valuation and long-term investing. Chuck’s twitter feed informs me when he posts on Seeking Alpha or his website.  Chuck’s focus on dividend growers that have sound valuations based on earnings has helped me improve my investment process.

DH @dividendhawk

DividendHawk follows over 700 Twitter users, filters their feeds, and provides a steady stream of interesting posts on topics related to dividend investing. This is an extremely valuable service for those of us in the dividend investing community as it saves us time, provides relevant articles, and allows us to discover interesting blogs. When I'm really pressed for time, I can count on DH to publish his daily paper on his website summarizing the top couple of blog posts. 

Jason Fieber @jasonfieber

The great majority of dividend investors are familiar with Jason's excellent dividendmantra website. By sharing his inspirational journey from $0 of net worth to a portfolio over $200K by investing in dividend growth stocks, Jason has gained international recognition. He continues to personally connect with his fans through Twitter, providing links to new posts and interesting personal finance articles.

Roadmap2Retire @Roadmap2Retire

At the risk of playing favorites to a local man, I enjoy reading about R2R's journey to financial freedom on his Twitter feed and website. The fact we have similar holdings in our respective portfolios means a lot of the company related news articles he posts are pertinent to me as well. He also plays a connector role and Twitter, and has an informative weekend summary of interesting reads called "Chatter Around the World".

Who are you top five twitter users to follow? Who have I missed? 

Recent Buy: Bank of Nova Scotia

With the Bank of Nova Scotia (“BNS”) hitting a 52-week low today, I took the opportunity to buy more shares and establish a full position in the company.  Beyond the yearly low price, here are some of the other reasons that I felt comfortable adding to my BNS position:

-          A dividend yield of 4.5% on a bank that has grown its dividend at a compound average rate of 7.7% over the last 3-years is attractive.

-          Dividend growth has been supported by revenue and net income growth of over 5% in the same 3-year period.

-          Scotia maintains a strong balance sheet and conservative capital allocation policies that lead to A+/Negative and Aa2/Negative ratings from S&P and Moody’s.

-          The regulatory environment in Canada favors the incumbent big five banks and protects them domestically from foreign competition.

-          Although some would argue otherwise, I feel BNS’s South American exposure could be a growth catalyst in coming years, and will reduce reliance on the stagnant Canadian market.

Lastly, I read an article in the Globe and Mail last June indicating that picking the big five bank whose stock performed the poorest over the last 12-month period often led to the biggest gain over the following year.  Given BNS is the worst big five bank performer over the last year, I thought it’d be an interesting contrarian’s experiment to add to my position.

Are there other contrarians who like picking up stocks at their 52-week lows???

Recent Buy: Corus Entertainment Inc.

When I sold my shares in H&R REIT earlier this year in my unregistered account, I realized that I didn’t have enough capital losses to completely avoid capital gains on the sale. Since tax avoidance is a major pre-occupation of mine living in the province with the highest personal tax rate in Canada (vive le Quebec!), I’m currently in the process of tax loss harvesting using my holdings of Corus Entertainment. Earlier this week, I established a position in Corus in my TFSA. Now, I will wait at least a month before selling the same sized position in Corus that I currently hold in my unregistered account. This will allow me to lock in a capital loss that I can use to offset capital gains in my unregistered account.

Corus operates 39 radio stations and numerous specialty television channels in Canada. Since being spun-off of Shaw Communications in 1999, the company grew its revenues from $160M to $830M organically and through acquisitions. Along the way, Corus has become a Canadian Dividend All-Star by raising its dividend yearly over the past 12 years. The last increase was 4.6% in January 2015. Corus pays its dividend on a monthly basis.

Sounds like smooth sailing right? Last March, the regulatory body for radio and television in Canada, the CRTC decided that Canadians would be given more selection, and less bundled services as part of the basic cable package. This likely means a couple of Corus’s channels that are subsidized as part of the basic cable package in Canada will no longer be included. The CRTC decision, along with ongoing week revenues in the television and radio advertising segments have pushed Corus’s shares down almost 50% from their 52-week high of $25.45 to about $13 currently.

I’m a sucker for dividend growers trading near 52-week lows, and the added advantage of allowing me to lock in a capital loss was simply too much to pass up. Before buying a position in my TFSA, I took a look over the recent financials to see if Corus’s dividend level (current yield is in excess of 8%), was sustainable.  Here are some reasons why I felt comfortable buying Corus near its 52-week low.

-          Corus has a number of very strong television channels that I feel most Canadians who purchase a cable package will still be interested in. Notably, YTV, Teletoon and the Disney Channel Canada are popular with kids.  The W Channel and the Oprah Winfrey Network Canada are well known and contain interesting programming.

-          Over the past twelve-months, during which time advertising revenues were stagnant in Corus’s two main segments (television and radio), the company still generated free cash flow of about $140M, while paying out only $73M in dividends.

-          S&P continues to rate the company’s debt as BB+/Stable (one notch below investment grade) and indicates the Corus’s liquidity is “adequate”. Interestingly, S&P expects the company to raise dividends in the 2-3% yearly range going forward.

-          While reading the transcript from the latest quarter’s results call, I noticed how upbeat management is about Corus’s prospects, indicating they feel the stock market has misinterpreted the CRTC’s decision potential impact on the company. Additionally, management was very excited about launching the Disney Network Canada this fall.

When I sell my shares of Corus in my unregistered account in September, I’ll likely sell a small number of shares I also hold in my RRSP, effectively cutting my position in Corus from overweight to a half position. This will allow me to watch from the sidelines to see how the CRTC’s decision is implemented, and its impact on the company.  I’m cautiously optimistic that management’s interpretation of the CRTC decision will be more accurate than the market’s negative over-reaction.

Would you invest Corus currently given the uncertainty regarding the company?  

The Best Free Online Resources for Canadian Dividend Growth Investors

Recently, someone asked me where they could identify potential Canadian dividend growth stocks to invest in.  Before answering, I qualified my response that I wasn’t the best person to ask since I rarely add new positions to my portfolio.  Upon reflection, I realized that most of my new positions were the results of screens from a software tool I use at work, articles from the Globe and Mail, and posts from like-minded bloggers.  Since none of the above information was helpful to the individual asking the question, I decided to compile a list of the best online resources for Canadian Dividend Growth Investors. In order to ensure the list would be helpful to everyone, the resources listed below are all FREE!

1.      The Canadian Dividend All-Star List

In terms of a starting point, checking out the Canadian Dividend All-Star List, updated monthly here, is an excellent first step. The spreadsheet contains all Canadian-listed companies that have increased their dividends for at least five consecutive years. In addition to the number of consecutive years that dividends have been increased, the list has dividend growth, payout, earnings, stock price, and other company information. By filtering the spreadsheet based on variables and ratios important to the individual investor, you can develop a list of companies that warrant further investigation.

2.      Google Finance Canada

With a list of interesting companies to research further, heading over to www.google.ca/finance is the logical next step. My favorite functionality of Google Finance Canada (“GFC”) is setting up“Portfolios” which I use as Watch Lists.  After adding a stock symbol to your portfolio, you can access quotes, graphs, abbreviated financial statements, see the company’s competitors, and examine recent company news. By subscribing to a company’s news feed, Google will inform you of new articles on the company. The news subscription service is an excellent way to monitor your portfolio. GFC also provides a link to the company’s website, where you can find out more about them and access their Investor Relations section.

While researching this post, I also noticed that GFC now has “Stock Screener” functionality. Although stocks can only be screened based on certain well-known metrics, this is still a great tool for novice investors.

3.      Sedar

As per their website, Sedar provides “access to most public securities documents and information filed by public companies and investment funds with the thirteen provincial and territorial securities regulatory authorities”. Although not as easy to navigate through as its counterpart, the SEC website for US companies, Sedar’s site contains many of the same filings. Most important among these filings for investors are quarterly financial statements. Note that in Canada, depending on the location of the head office of the company, such documents might be in English or French. Before buying shares in a company, I’d recommend reading through their recent financial filings, or at least looking through their latest annual report.

4.      More Helpful Information Sources

The three sites outlined above all focus on facts pertaining to public Canadian companies. Given that investing is much an art as a science, considering qualitative factors relating to potential companies to invest in is also worthwhile. My favorite free site that contains both facts and opinions is Seeking Alpha. Although US-based companies receive much more attention than Canadian ones, interesting articles on Canadian companies are still plentiful. Along the same lines of Seeking Alpha, I’d also recommend Motley Fool Canada and Morningstar Canada.  Additionally, there are a number of good Canadian blogs focused on dividend growth and financial independence. Instead of playing favorites, or risk excluding someone, I’d simply advise searching the company you’re interested in along with “blog”.   Lastly, I’d be negligent if I didn’t include the possibility of obtaining Equity Analyst reports as part of your research. I’ve found most analysts who cover companies are more than happy to send you a copy of their latest report if you email them.

Are there other free online resources for Canadian Dividend Growth Investors that you find valuable in your investment process? 

My Three Most Costly Stock Picking Losses

I recently read Jonathan Milligan’s e-book The 15 Success Traits of Pro Bloggers. To be clear, I don’t aspire to be a “pro blogger”. Admittedly, I have been struggling with this blog lately. Although the blog started out as a personal trading journal, recently, I seemed to have attracted a more general readership. I feel that my broader readership could be better served if I adopted a “pro blogger” mentality of looking for ways to add value and serve my audience.

One piece of advice that stood out to be me in Jonathan’s e-book was that readers will find it difficult to relate to you if you make yourself out to be a hero in your blog.  Those of you who know me are fully aware that I’m no hero. I make mistakes constantly. It’s through learning from mistakes that I’ve become a better investor. To that end, I decided to share my three most costly stock picking mistakes with you in hopes that you can learn from my misfortune and avoid losing your money.

Nortel Networks – Low 4-figure loss

When I started buying stocks in the summer of 2001, Nortel was a favorite of Canadian investors. It had been an international success story and at one time, accounted for a third of the valuation of all companies listed on the Toronto Stock Exchange. The company’s share price peaked at $124 in September 2000 before falling to $0.47 in August 2002. Ultimately, Nortel filed for credit protection in January 2009.

Lessons Learned:

-          Unlike my other early purchases (Bank of Montreal, Riocan, and  O&Y REIT), Nortel never paid a dividend, providing no downside protection.

-          I over-estimated the degree of support that the Government of Canada would provide the company. Although the government provided some help, it didn’t bail out the company in its darkest hour.

-          The capital loss I incurred when the share were delisted in 2009 was in my unregistered account and I used it to offset capital gains in later years. Always hold speculative stocks in your unregistered accounts.

-          Not every stock that goes down, will come back up. This might seem simplistic, but shares are often cheap for good reasons.

Yellow Pages Income Fund – Mid 4-figure loss

It’s November 2006, I’ve become interested in the Dogs of the Dow Theory, and buy a small position in the Yellow Pages Income Fund due to its high yield (~ 6%). I feel since I understand the business (selling advertising in their paper directories to offset the cost of printing), and with the monthly dividend, my downside is covered. Ignoring the negative impact of the Internet on the company’s paper directories, as the stock price drops further, I add more to my position in June 2010 to capture an even higher yield. The company finally cuts its dividend in August 2011, and later files for reorganization in the summer of 2012. I end up with a couple shares and a near-worthless warrant when the company emerges from its reorganization in the fall of 2012.

Lessons Learned:

-          Don’t chase high yield. One of my favorite Seeking Alpha authors, Brad Thomas, refers to “Sucker Yield” when distributions are unsustainable.

-          Following a theory, such as Dogs of the Dow, should be undertaken with extreme caution. Furthermore, I selected an element of the theory (buying one high yield stock), as opposed to owning several high yield stocks listed, that would have helped to diversify my investment risk.

-          Averaging down at a much lower price is only intelligent if the investment story hasn’t changed. Ignoring the impact of the Internet on Yellow Pages’ advertising rates and decreasing distribution of paper directories was ignorant.

-          Speculative stocks should be held in unregistered accounts, and not RRSPs. Not being able to use my loss on this investment caused me to pay taxes on capital gains in my unregistered account.

PHX Energy Services – Mid 4-figure loss (unrealized at the time of this posting)

Fast forward to last September 2014. Oil is trading at just over $100 per barrel, but is trending downwards. One of my dividend growth screens shows PHX Energy Services, a company that has steadily raised its monthly dividend from $0.04 in 2011 to $0.07 a share in 2014, and has the earnings and cashflow growth to back up these increases. I’ve set aside a small portion of my portfolio to make speculative short-term trades when stocks are down more than 3% in a day for no apparent reason, and decide to buy into this oil driller. As the price of oil declines to about $55 in March 2015, the company cuts its monthly dividend to $0.035, before further halving it to $0.0175 in May 2015.  As the price of oil continues its decline, PHX’s share price falls from $14 in September 2014, to less than $5 in August 2015.

Lessons Learned:

-          Dividend growth based on commodity price is only sustainable so long as the commodity price remains high.

-          Capital preservation is essential when a business starts to struggle.  Cutting a dividend is any easy way for the business to preserve cash.

-          Make sure to know the whole story before investing in a company. PHX has exposure to Russia, which likely would have scared me off had I known that before investing.

-          Develop a plan when to sell for any speculative trades.  I have yet to part ways this company despite two dividend cuts.

I sincerely hope that you can learn from my costly mistakes and avoid losing money by investing in companies on downward spirals.

Do you have any lessons you’ve learned from your negative investing experiences?  Did you make any mistakes similar to mine?

July Portfolio and Goals Update

Before heading off on my three week vacation, I decided to make a couple buys to decrease the amount of idle cash in my portfolio. On Thursday July 9^th, I decided to buy shares of BCE Inc in my unregistered account and Suncor Energy in my TFSA.

The BCE Inc purchase allowed me to establish a full position in my unregistered account. I can now sell my full position of BCE in my RRSP (after waiting at least 31 days to avoid tax implications). I was able to buy my shares of BCE at a time when the dividend yield was 4.95% and the P/E ratio was about 18.7X. Canadian telecommunications companies continue to be more shareholder friendly (i.e. raising their dividends 5-10% a year) than their US counterparts due to an oligopoly between Rogers, Telus, and BCE that has resulted in very little price competition. Additionally, my feeling is that the Conservative government, who have long ranged an ineffective war against Canadian telcomms, might be out of office with the upcoming October 2015 federal election.  I have a hard time imagining another party being more hostile toward the telecommunication industry than the Conservatives have been.

Having bought and subsequently sold Suncor Energy four times in the last twelve months, I was hoping to keep the company in my portfolio for the long-term. Buying a price under $34, with a dividend yield of about 3.3%, and expecting a dividend increase announcement when they announced their Q2 results, I should have seen the factors playing against my will to hold this company for the long-term. Suncor announced very solid Q2 results last week and boosted their dividend. On the day of the announcement, I felt compelled to sell the stock around $37 where it simply doesn’t hold the same appeal to me. Luckily, the shares were held in my TFSA, so I won’ t have to pay taxes on my capital gain.

While on vacation, two of my holdings, Kinder Morgan Inc and Omega Healthcare Investors both announced dividend raises of a penny per share respectively. I continue to enjoy getting a quarterly raise from OHI (a pattern they’ve held for over three years). Due to recent weakness in their shares, I’m looking to add more Kinder Morgan shares in my RRSP, despite the falling value of the Canadian dollar. I’m willing to go overweight on Kinder Morgan as I have confidence that Richard Kinder can deliver the five-year dividend growth plan he presented to investors last year.

As for my monthly non-financial goals, despite my vacation, I still managed to post four entries in July, barely meeting my goal of one entry a week. I also kept my weight below 160 pounds, actually losing weight during my vacation (my wife encourages me to walk while on vacations). Although I didn’t make a contribution to charity in July, I have something planned to cover July through September, I just have to double check how to complete my plan with my brokerage. I’ll be posting an entry on this initiative very soon.

How busy was your portfolio in July? Did I miss any great investment opportunities in Canada or abroad?