October Dividend Increases, Money Experiment and Goals

As October draws to a close, and I hope to break my record of two trick-or-treaters visiting our house tomorrow, here’s an update on the dividend increases in my portfolio, the results of my money experiment, and my progress on non-financial goals.

There were two companies in my investment holdings that announced dividend increases in October.

-   Kinder Morgan boosted their payout by 4%, raising the quarterly dividend from $0.49 to $0.51 per share. However, Kinder’s quarterly earnings release contained more tricks than treats for its shareholders, as management revised their forward dividend growth guidance down from 10% to between 6% and 10% for 2016. Additionally, management mentioned some “alternative funding sources” to finance growth initiatives at a lower cost than equity financing. It’s worth noting that distributable cash flow per share was only $0.51 during Q3, barely enough to cover the dividend.

-   In a much more boring and straight forward press release, Omega Healthcare Investors announced their 13 consecutive quarterly dividend increase, boosting their quarterly payout from $0.55 to $0.56. I’m interested to hear Omega’s Q3 results on November 2^nd.

After buying a poppy from a veteran this morning, and with only a tip to grocery store baggers planned tomorrow, I’m officially calling my October money experiment a success.  As per the picture below, today I have $7.25 left of my initial $100. My largest expenditures in the second half of the month were treating my wife and son to chocolate dipped ice cream cones ($8.05) and a work team breakfast ($8.00 including tip). Not only did I get to test my frugality muscle, I also have a better idea of where my cash goes to over the course of an average month. I’m planning on starting another money experiment in November, so stay tuned to hear more about it.

Each month, I track three non-financial goals. I’m happy to report that I remain under my maximum weight of 160 pounds, weighing in a shade over 154 this morning. With a bronchial infection and cold knocking me out for a few weeks in October, I was happy to meet this goal. Going to the gym at work has really helped me in weight maintenance. As this is my ninth post this month, I’m well ahead of my goal of averaging a blog post each week. That said, the quality of my posts has not been high lately, and I promise to put more effort into improving this next month. Lastly, I made a donation to the Canadian Mental Health Association, so I’m tracking well against my giving back goal as well. Mental health is an important issue for me, and I hope my gift helps others connect to resources when they are in need.

All in all, October was a hectic, but great month. Bring on November!

What was your high-light of October?

Recent Buy - Canadian Utilities

Sometimes things work out beautifully. After posting last week about selling my position in Canadian Utilities, and indicating that I’d be interested in re-establishing the position inside my RRSP at a lower price, the company announced their Q3 results on October 23rd. Although I didn’t find the Q3 results disappointing, they were below analyst expectations causing the stock to promptly drop almost 10%. Since I’m a big fan of this business, I took the opportunity to re-establish my position. I was able to buy shares at $33.92, making my dividend yield on cost 3.48%. Given Canadian Utilities enviable 43-year record of increasing their dividend annually (the longest of ANY Canadian company), I’m thrilled to be a shareholder again. I bought the shares in enough time to qualify for the November 5^th holder of record date for the dividend, thus ensuring I didn’t miss a payment. My Investment Holdings page has been updated to reflect this recent acquisition. 

Given a very hectic month at work, little else has happened with my portfolio. I was close to buying shares in Kinder Morgan and Enbridge Income Fund earlier this week, but my limit orders weren’t met (literally pennies away from my limit price in each case). With one business day left in October, it’s safe to say it was a quiet month for me on the financial front. I’ll post the results of my October money experiment, and a non-financial goals update tomorrow.

When buying stock, do you use market or limit orders?

Thoughts on the MoneySense Retirement All-Star Stocks for 2015

The only magazine I subscribe to is MoneySense. Each year, my favorite issue lists the 100 Retirement All-Star Stocks. The focus is on dividend stocks that have delivered a steady stream of income year after year. The best stocks are given an 'A' while the second best group are given a 'B'.  From 2007 (when the first list of was published) to 2015, 'A' stocks have generated a 117.5% return (included re-invested dividends), while 'A' and 'B' stocks increased 67.2%. In comparison, the S&P/TSX Composite Index ETF (XIC) increased 25.1% while dividend-oriented iShares Canada Select Dividend ETF (XDV) rose 35%.

Although the weighting of their ranking method is not released, only quantitative criteria are used in their calculations. Quantitative factors include dividend yield, dividend growth, P/E, dividends/earnings, debt/equity, price / cash flow, price to book, one-year return, and five-year return.

Seven companies were given an 'A' grade this year:
Bank of Montreal
Bank of Nova Scotia
Genworth MI Canada
Great-West Lifeco
Power Corp of Canada
Sun Life Financial
Toronto-Dominion Bank

HOLY FINANCIALS BATMAN! Three out of the seven companies are banks, two are general insurance companies (GWL and Sun Life), Genworth is a mortgage insurer, and Power Corp of Canada is a financial conglomerate (which I tend to think of as an asset manager). Although any one of the seven would make a good addition to a portfolio, you'd definitely want to make an effort to further diversify outside of the financial sector.

Fourteen companies were given a 'B' grade in 2015:
ATCO
Brookfield Asset Management
CIBC
Finning International
First Capital Realty
IGM Financial
Industrial Alliance Insurance
Manulife Financial
National Bank of Canada
Potash Corp of Saskatewan
Power Financial
SNC-Lavalin Group
TMX Group
Whitecap Resources

Again, financials play a huge role in the 'B' list accounting for nine of the fourteen companies. The non-financials contain some interesting names like ATCO (watch list company), Finning (showing up on many of my Canadian dividend screens), and SNC (I've owned in the past).

It's odd that the only Canadian major bank not represented on either list is Royal Bank, the largest bank in Canada. Another oddity about the list is that it contains ATCO, yet not its subsidiary Canadian Utilities with a higher dividend yield and better 5-year performance which was given a 'D'.  The last observation is that MoneySense once again gave Rogers Communications, their owner, a 'D'. Obviously, there's something to be said for demonstrating editorial independence!

Do you own any of the retirement all-star stocks for 2015? If you had to buy just one of them, what would it be?

Two Recent Sells: BCE Inc and Canadian Utilities

With the TSX up over 4% in October, I took advantage of the market upswing with two recent stock sales. Although my sale of BCE Inc (“BCE”) in my RRSP was something I previously planned and explained, my sale of my position in Canadian Utilities is undoubtedly more of a surprise.

After completing a full position of BCE in July in my non-registered account, I bided my time before selling the equivalent full position in my RRSP. Although I was fine being overweight this telecommunication heavyweight, I felt the time had come to part ways with my RRSP position as BCE’s share price climbed steadily over the last few months to the point where it has a P/E of almost 20X. The share price appreciation has drove the dividend yield down to about 4.5%, compared to the 4.9% yield on cost on my July purchase.

How could I sell my Canadian Utilities position while simultaneously having it on my watch list the last two months? As Canadian Utilities moved further above my target price over the last two months, I realized that although I think it’s an excellent company, due to its slow growth nature, I would be more comfortable re-initiating my position at a lower entry point. Since my previous Canadian Utilities position was inside my RRSP, I knew there would be no tax penalties if I re-bought the position at a lower price within a month. Like BCE, as Canadian Utilities’ P/E grew closer to 20X, and their dividend yield decreased to slightly over 3%, my perception of value declined accordingly.

With plenty of cash now sitting idle in my RRSP, I’ve been close to increasing my position on Alaris Royalty, as I continue to feel strongly that they represent an exceptional value at their current price. Nothing else on my watch list jumps at me at the moment, so I’ll do my best to remain patient until a juicy pitch comes along. My investment holdings page has been updated to reflect the two sales outlined above. 

Have you ever sold a stock with the hopes of re-initiating a position at a lower entry point? If so, were you successful?

October Money Experiment

Being a huge fan of J. Money and his budgetsaresexy site, as homage to one of my favorite bloggers, I decided it was time to conduct my own money experiment. Although I’ve tried money experiments in the past, by documenting my trial here, my accountability to see it through will increase. My October money experiment is incredibly simple: Can I limit my out of pocket expenses to $100?

 (Photo By DiH)

Since my wife started back to work in September, I noticed that I’ve been spending much less cash. One of the main reasons for my decrease in cash expenses is that I’m bringing a lunch to work more frequently than when my wife was on maternity leave. Since my wife is as smart as she is beautiful, she generally prepares bigger dinners when she works, in order to create some leftovers for lunches. Since she returned to work in September, I’ve bought exactly three lunches.

With October half over, here’s what my cash situation looks like today after buying my first lunch of the month.

 (Photo By DiH)

Although I’ve never been much for budgeting or tracking expenses, I can provide an overview of what I’ve spent my cash on so far in October:

-          $20         Race entry for a 5-km run

-          $20         Hair cut (including tip)

-          $10         Book of stamps

-          $4           Hot dogs for my two nephews

-          $4           Lunch today

-          $3           Miscellaneous (mainly tipping baggers at grocery store)

Although $39 might not seem like a lot for 15 more days in the month, I feel like it’s plenty. With no need to pay for a haircut until next month, a low chance of entering another  road race, and a near 0% chance I’ll need more stamps (I use about one a month), I should be fine. I might bring my nephews out for milkshakes this weekend, but at most, that’s only an extra $20 out of my pocket.

I’m optimistic that I can make my remaining cash last until November 1^st. If my money happens to run out, I still consider this experiment a big success, as it’s made me more aware of what I spend on regular monthly expenses.

Have you ever conducted a money experiment? Do you think I can make the $39 last until the end of the month?

My Retirement Vision…A Work in Progress

Last year, my French teacher, who was nearing retirement, asked our class what mental image popped into our heads when we thought of retirement. He volunteered that his retirement vision was spending time at his cottage while immersing himself in nature. He went onto explain that he had even starting to convince his wife of the merits of selling their house in the city. Although I immediately thought of my wife and I holding hands while lounging on a white sand beach, I don’t think that mental image represents an accurate retirement vision.

The easy answer when someone asks what you plan to do when you retire is to tell them you’ll do more of the things you enjoy doing, while eliminating the tasks you dislike. Using that logic, I’d like to travel, read, write, analyze investments, and work out more, while eliminating commuting, meetings without purpose, stressful work, and conducting difficult home maintenance/renovation activities. Although very factual, that list is hardly motivational and could apply to almost anybody.

Sadly, I lack a compelling retirement vision. As interesting as I find other people’s plans for travelling the world, living in a recreational vehicle, designing and building their dream house, or running a marathon in every state, none of their retirement visions speak to me. Don’t get me wrong, I respect and support other people’s dreams, I just can’t be passionate about them.

As an introspective introvert, my inability to create a compelling retirement vision bothers me. The things I feel most passionate about, such as my love for my wife and son, and my desire to make their lives as comfortable and fulfilling as I possibly can, don’t necessarily translate into a compelling retirement vision that would justify the amount of time, energy, and money I put towards realizing financial independence. Luckily, not having a compelling retirement vision hasn’t stopped me from aggressively pursuing the nebulous destination of retirement.

As mentioned various times here, and most recently in my Thanksgiving post, I find the stories, journeys, and goals of fellow dividend and personal finance bloggers very inspiring.  If you’re brave enough to share what your vision of retirement is, and why that’s your dream, I’d love to hear your thoughts. 

The Top 10 Things I'm Thankful For As a Dividend Investor

As I prepare to celebrate Thanksgiving this weekend, I wanted to share the top 10 things I’m thankful for as a dividend investor.

10. David Fish for creating the US Dividend Champions list and the owner of http://www.dividendgrowthinvestingandretirement.com who maintains the Canadian Dividend All-Star list.

9. Stock exchange regulators who do their best to ensure equal and timely access to all relevant information for investment decision making.

8. All the dividend and personal finance bloggers who provide informative, engaging, and timely content

7. Google for providing stock screening, watch list, and news alerts for free

6. Twitter for allowing me to create a personalized news feed that is more relevant than any electronic or print media

5. Every company that has a ‘Dividend’ section on their Investor Relations website and management that provides forward looking information on their dividend policies (i.e. Telus, Kinder Morgan, Enbridge, etc.)

4. The 24-hour news cycle that creates volatility in stock markets

3. Emotional investors, fund managers, and day traders who routinely sell me shares in great companies for less than I perceive them to be worth

2. My long-term time horizon that allows me to ride out any market downturns without losing sleep

1. The increasing flow of dividends into my investment accounts each month

Here’s wishing all my Canadian readers a relaxing and enjoyable Thanksgiving weekend!  To all those readers outside of Canada, I’ll eat a little extra turkey and pie just for you ;-)

What are you thankful for as an investor?

Stock Watch List for October 2015

After publicly posting my stock watch list for the first time ever last month, I’ve been anxious to draft the October edition. Not only did September’s list help focus my research and tracking efforts on four companies, it increased my accountability to readers. I even felt guilty in September after purchasing shares of Enbridge Income Fund Holdings which was not on my watch list for the month (Full disclosure: I recently sold those shares of this wonderful company for a gain). Although I’ll again make an effort to only buy companies listed below, I keep some cash aside in my RRSP in order to take advantage of great opportunities as they emerge.

Two of the four companies listed on my September list (Alaris and Canadian Utilities Limited) remain on my October list. TransCanada Corporation and Omega Healthcare Investors Inc both have seen their stock prices rise to the point where I no longer think they represent excellent value. As I did in September, I'm including a target price at which I’d likely buy the below mentioned securities (assuming adequate cash resources when the price was reached).  Here are the stocks I will consider purchasing in October 2015.

Alaris Royalty Corp. (TSX = AD); Target Price = $26 (up from $25 last month)

Despite already having a full position in Alaris in my RRSP, I remain open to adding more shares in my RRSP or initiating a position on this high yielding (~6% currently) dividend growth royalty company in my unregistered account. There are so many things to love about this company, but a few of my favorites are their diversified royalty revenue stream, the fact it’s a monthly payer, their very affordable P/E of 15.4X, and the fact they recently started looking at smaller opportunities through a new business development stream. My revised target price represents a yield on cost of 6.2% and is slightly higher than their 52-week low price of $25.50.

Canadian Utilities Limited (TSX = CU); Target Price = $34.50 (up from $34 last month)

This boring utility company remains on my watch list due to its long history of dividend growth (over 10 years), reasonable price with their P/E of 17.5X, stability of their revenue stream, and strong financial position reflected in their A/Negative issuer rating.  The recently announced Trans-Pacific Partnership could prove to be a catalyst for the company as it should open up further opportunities in the United States.  The company is set to report their latest quarterly results late in the month, and I expect some volatility in share price around that time. My target price equates to a 3.4% yield on cost and is higher than their recent $31.00 52-week low that occurred on black Monday.

Royal Bank (TSX = RY); Target Price = $70

The main reason I’m looking to add to my position of Royal Bank in my unregistered account is so that I can subsequently sell the same position in my RRSP in order to complete my portfolio transformation. After initiating the position in RY in my unregistered account in June 2015, I’ve been overweight Royal Bank, making it my largest Canadian bank holding. I haven’t lost any sleep over being overweight this wonderful company since it’s fairly priced (P/E of 11X), has a healthy 4.3% dividend yield, and has very shareholder friendly policies. My target price represents a small premium over the $68 52-week low and was almost reached last week when Canadian bank stocks were getting sold off after reaching their ex-dividend dates.

Kinder Morgan (NYSE = KMI); Target Price = $27

With only a limited amount of funds in my RRSP, and given the current USD/CAD exchange rate of ~ $0.76, I’m extremely cautious before buying shares in US companies. I’ve spent a lot of time trying to determine if Kinder Morgan’s current and projected dividends are sustainable. As a result of my research, I’m comfortable enough to intentionally go overweight on this holding as I continue to have faith in Mr. Kinder’s ability to create long-term shareholder value by leveraging the company’s current and future pipelines. My target price is slightly higher than the 52-week low of $25.80 achieved recently.

There you have the list of companies I’ll be playing close attention to in October.  I debated including Proctor and Gamble on the list, as I’ve been tempted by this globally diversified consumer products company as its dividend yield inches closer to 4%. Microsoft also warrants an honorable mention, as I continue to be interested in adding to my position in that company, but at a price closer to $40.

What companies are on your watch list this month? Do you have differing positions on any of the four companies outlined above?

Why a Dividend Guy Would Index His Son’s Education Savings Plan

Unless this is your first time visiting my blog, you probably know I’m a big fan of dividend growth investing. This strategy and its resulting steadily rising passive income stream are an essential element of funding my early retirement plan. Despite being such a passionate proponent of dividend growth investing, I have decided to invest my son’s Registered Education Savings Plan (“RESP”) in index exchange traded funds (“ETFs”).  Below are the four reasons I decided to use index ETFs for my son’s RESP.

Transaction Costs

One of the key benefits offered by my discount brokerage (Scotia iTrade) is that it allows users to buy and sell a list of 50 ETFs without incurring any commissions. Since my wife and I plan to fully fund my son’s account each year ($2,500) in order to qualify for the Government of Canada top-up ($500), minimizing transaction costs while creating a diversified portfolio are key considerations. Trying to create a diversified portfolio of individual stocks while incurring $10 transaction costs for each purchase of individual stocks would be extremely challenging, at least in the first 10 years of the portfolio. By investing in a combination of 3 or 4 index ETFs, our plan is to eliminate transaction costs, while achieving the benefits of diversification. The downside is that management expenses of the ETFs will bite into returns, but should be minimized by the ETF companies through competition (i.e. between Blackrock and Vanguard).

Passive vs Active Management

As my investment portfolio has grown over the years, I spend more time researching companies, keeping abreast of developments of my existing holdings, and searching for opportunities to buy and sell securities. Although I enjoy performing the above activities, I also acknowledge that time spent managing investments could be better spent in other areas of my life. By taking a passive approach to managing the investments in my son’s RESP, and likely only rebalancing once per year, I hope to minimize the amount of time I spend managing the RESP.

Risk Profile

Given my participation in a defined benefit (“DB”) plan at my current employer and two DB plans while with past employers, I can afford to take a fair amount of risk with my own investments. In contrast, my son’s ability to take on investment risk during the first 18 years of his life is limited, as his external sources of income will be constrained (i.e. gifts, allowances, a part time job).  Since my son’s risk profile will be vastly different than mine, it only makes sense that his investment holdings are less risky and reflect the difference.

Investment Objectives

The goal of my son’s RESP is to pay for his post-secondary education. This will require a fixed amount of money over a short period of time.  My portfolio’s objective is to generate sufficient passive and rising income to offset my living expenses in the future. In other words, I need a growing amount of money over a long period of time.  The different securities held in our respective portfolios will reflect the different investment objectives.

Of the four reasons outlined above for different approaches, perhaps the most important is passive vs active management.  As much as I look forward to using the RESP as a way to teach my son about saving, investing, and generating passive income, I’d rather spend more time with him, instead of time spent managing his investment portfolio. The only remaining decision on the RESP is what 3 or 4 funds to select to achieve the greatest diversification, by asset class and geographical area, at the lowest cost in terms of management expense ratios charged by the funds.

How do you invest for your child’s education?