My Three Smallest Stock Holdings

After my last entry explored my three largest holdings, I thought it would be fun to write about my three smallest positions. Do these companies represent my lowest convictions? Am I uncomfortable with holding these companies? Why do I keep these positions in my portfolio? These are questions I think the below descriptions will help answer.

Smallest position: Orion Office REIT Inc. (using USD / CAD exchange rate of 1.28)

A couple days after Realty Income completed their acquisition of VEREIT earlier this month, Orion Office REIT was spun-out and the shares appeared in my account in a ratio of one for every 10 Realty Income shares I own. Based on the preliminary financials, this looks like a stable office REIT.  Since I received the shares, they’re down about 20% as other Realty Income holders see a small number of shares in this pure-play office REIT appear in their accounts and subsequently get rid of them. My instinct was to sell them as soon as I received them, but I held back thinking I’d wait to see where the shares settle price-wise. That was probably a poor decision, but without any big plans to invest in US stocks at the moment, I can afford to take some time to see how Orion does in the short-term.

 

Second smallest position: Omega Healthcare Investors, Inc.

Omega has a couple factors contributing to being my second smallest position. The fact the share price is down over 30% since reaching it’s 52-week high earlier this year is a material contributor. Omega has at least one operator of their assisted living and nursing facilities in bankruptcy proceedings at the moment. I haven’t added to my position since 2015, given my lack of conviction that the company can return to the type of distribution growth they did in their best days, boosting distributions by a penny each quarter. Instead, distributions have been flat for over two years now, despite the company still bragging about their streak of distribution growth. I’ll admit that I have considered selling this REIT multiple times, but it is hard to replace their current 9% yield, that is covered by FFO even during difficult times due to covid-19 and rent collection challenges from operators. I could still see myself getting rid of this in the next couple months, if an opportunity to reinvest the capital with better growth prospects presented itself.

 

Third smallest position: The Coca-Cola Company

For context, my level of comfort holding onto my shares in Coca-Cola is much, much greater than Omega. Their sales have bounced back nicely from coronavirus linked lows, to around the level they were back in 2019. That said, their elevated EPS payout ratio is a bit scary (102% currently), as is the fact that shares are selling for 26X earnings. Although I haven’t added to my position since initiating it in 2014, I have thought about adding lately. Yes, their dividend growth is barely tracking inflation, but the performance of their shares over the last two years has been resilient. Given this might be a nice play on finally getting over the covid-19 pandemic throughout the world, I could imagine adding a small amount to this position in the short-term so that it would be approximately equal to my next smallest position, the Canadian Imperial Bank of Commerce.

 

In summary, it wouldn’t shock me to sell either Orion or Omega before year end, as opposed to Coca-Cola where I’d consider adding. It was interesting for me that all my smallest positions are US companies, but maybe shouldn’t have been given limited funds each year to invest in my RRSP.

My Three Largest Stock Holdings

 When looking at the position sizes of your portfolio holdings, do your largest positions represent your highest convictions? Philosophically, at least for me, I think this should be the case. At the very least, my largest holdings should be companies I’m very comfortable holding through good times and bad. In that spirit, I thought I’d take a peek at my three largest positions, to ensure my capital was well allocated.

Largest position: Microsoft (using USD / CAD exchange rate of 1.25)

Despite initiating a position in Microsoft in October of 2013, and not adding to it since, it has grown to be my largest holding. Considering the company’s top and bottom line growth, perfect ‘AAA’ credit rating, and the fact they currently have the largest market capitalization of any North American company, I feel secure holding onto my shares. The explosive stock price gain in recent years means dividend yield is currently a paltry 0.7%, but on the flip side, the company continues to boost dividend payouts annually at a rate far greater than inflation. Lately, I’ve even considered adding a small number of shares to this flower that seems poised to continue to grow to the sun.

 

Second largest position: A&W Revenue Royalties Income Fund

As easy as it has been to hold Microsoft over the past couple years as the company’s share price kept rising, A&W experienced a rockier road. When the pandemic started in March 2020, A&W’s share price plunged to under $18, down from about $39. When public health measures entailed shutting down restaurants and cutting indoor dining, the company was forced to cut their monthly distribution from 15.9 cents, to 10 cents. However, due to the return to in person dining at many restaurants, more locations being added to the royalty pool, and higher same store sales, the company has steadily increased their distribution back to an impressive 15.5 cents per month. The company’s share price has also rebounded from the ~$18 lows to over $41 today. After not only holding my shares during the difficult period for A&W, but adding to them, I might look to expand my holdings in this company if pandemic restrictions continue to loosen in Canada.

 

Third largest Holding: Telus Corporation

My comfort at holding Telus is probably best demonstrated by my buying shares in the company in 2013 (twice), 2014 (twice), 2015 (twice), 2020 and 2021. Simply, Telus’s management team has been clear and consistent about their intentions to reward shareholders with semi-annual dividend raises in the 7% -10% range. These increases in payouts are supported by generating growing revenue and free cash flows. Although some might argue Bell or Rogers would be better situated for future growth given Telus’ focus on western Canada, I think the fact that Telus has the best rated customer service of the big three Canadian telecommunications companies bodes well for their growth prospects over the long-term. Although I’m not planning to add to my position anytime soon, and would likely add to my relatively smaller position in Bell instead, I’m perfectly comfortable with Telus being my third largest holding.

 

My next largest positions in my portfolio are Granite REIT and Brookfield Infrastructure Partners, both of which I’m considering adding to before year end. In summary, I’m comfortable with my largest three holdings, and hope all my readers feel the same way about their most valuable positions.