February Summary - 1 Buy (TD), 1 Sell (SU), 6 Dividend Raises

Even with the extra day this year, February seems to have flown by in a blur. It was a pretty quiet month for my portfolio of investment holdings, which is great as it means my transaction costs were low.  Below is a summary of my portfolio activity for the month.

After indicating in my February watch list post that I would like to complete my position in TD Bank inside my TFSA at a strike price of $50, I was fortunate to pick up enough shares to complete my position on February 9th at a price of *drum roll*....$50! I was happy to complete my position in early February as TD Bank increased their dividend by 7.8% on February 25th.

Although I stated in my February watch list post that I was looking to add to my small position in Suncor, when they announced their Q4 2015 results on February 3rd, I took some time to go through their financial results, and then sold my position on February 12th. Looking at their operating results and cash flows scared me given those less than impressive results represented a higher average price of oil than what the company has been dealing with thus far in 2016. Additionally, the recent rash of dividend cuts from other integrated oil companies along with Suncor's pending acquisition of Canadian Oil Sands has led me to question if Suncor can maintain their dividend at its current level, yet alone grow it. I remain open to revisiting Suncor in the future, but see too many near-term concerns to feel comfortable investing in the company at this time. 

After achieving an all-time high SEVEN dividend raises in December 2015, I was pleasantly surprised to receive SIX in February 2016. Upon further reflection, it makes sense that companies with fiscal years ending in December would be in a position to announce dividend increases reflecting their 2016 forecasts when they reported their 2015 results. My holdings that raised their payouts included:

- TD Bank grew their dividend by 7.8% ($0.51 to $0.55 per quarter)

- BCE Inc increased their dividend by 5% ($0.65 to $0.6825 per quarter)

- Royal Bank raised their dividend by 2.5% ($0.79 to $0.81 per quarter)

- TransCanada Corp grew their dividend by 8.7% ($0.52 to $565 per quarter)

- Cisco Systems blew my mind with a 24% dividend increase ($0.21 to $0.26 per quarter)

- Coca-Cola delivered a solid 6% dividend boost ($0.33 to $0.35 per quarter)

With my cash balance accounting for about 3% of my portfolio value heading into March, which is quite high for me, I expect to be more active adding to positions and possibly starting a new on next month. My March watch list post should be out on Tuesday, so stay tuned!

Which companies are on your watch list for March? 

US Dividend Payers vs Non-Dividend Payers

Ever wonder what the difference is between companies that pay dividends and those that do not? I ran two screens with the same six criteria and a variable seventh criteria (dividend yield > 0 vs dividend yield = 0). There were 24 companies that had a dividend yield greater than 0%, while only 14 companies who did not pay a dividend. Below are the common criteria to both screens along with the results of the queries.

- Listed on a major US stock exchange

- Market capitalization in excess of $1B

- Net Income 5-year CAGR > 10%

- Revenue 5-year CAGR > 10%

- P/E (trailing LTM) < 15X

- FCF LTM > 0

US Dividend Payers

US Non-Dividend Payers




Within the dividend blogging community, most of the names on the dividend payer list are pretty common. It is rare day that I do not see a tweet about Apple or T.Rowe Price on my Twitter feed. In contrast, outside of a couple of airlines (Ryanair and JetBlue) and American Axle who I used to analyze in a past job, the names on the second list are mysteries to me. Clearly, the non payers have been able to grow their businesses at impressive rates over the past five years, which makes me wonder why they have not rewarded their shareholders with a dividend. As as a dividend investor, the only justification I would find reasonable for not paying a dividend given such impressive business results is that a company that operates in a cyclical industry in which management must save during boom years to cover expenses/investments during down years.

My question to all the dividend investors out there is if there are any metrics that would convince you to invest in a company that does not pay a dividend? I look forward to reading your answers!

Rogers Communications' Dividend Freeze - Sell, Buy, or Hold?

On January 27, 2016 while reporting their Q4 2015 results, Rogers Communications stunned investors and analysts by freezing their dividend. After annually raising their dividend for 11 years, Rogers' CEO, Guy Laurence indicated that the company was holding the dividend steady while they worked on lowering their leverage ratio (Total Debt / Equity = 3.1X at YE15).  Rogers' share price fell by approximately 8% from January 26th (pre-dividend freeze announcement) to January 28th as investors digested the dividend freeze. It is also note worthy that 3 of the first 5 questions management faced on their Q4 conference call related to the dividend freeze. Clearly, investors and analysts were caught off guard by Rogers' management decision to freeze their dividend. Given my own 'overweight' position in Rogers within my TFSA, I was among the stunned investors that had to quickly analyze my options. My thought process for evaluating my three options is outlined below.

Option 1 - Sell My Position

My knee-jerk reaction when Rogers announced their dividend freeze was to sell my position. While reading through Rogers' CFO answer to one analyst's question, I found myself particularly pissed off. The CFO indicated "Our value really comes from building a solid growing business rather than just a dividend play."  I took offense to the CFO implying that a "dividend play" was something negative, and refusing to acknowledge that many shareholders rely on Rogers to supplement their income. For the record, the value that I see in Rogers is creating a solid growing business in order to fund growing distributions to their owners. Every time the company steers away from their core business (telecommunications) in order to pursue management's media empire building fantasies (i.e. purchasing sports teams, overpaying for NHL broadcasting rights, etc.), I find myself looking to Rogers' competitors (BCE and Telus) as I fear my dividends from Rogers are being put in jeopardy.

Realizing that selling my position in Rogers would be based more on emotions than on fundamental analysis and facts, I held steady while contemplating my two other options.

Option 2 - Add To My Position

At its current price of ~$47.50, Rogers has a trailing P/E ratio of approximately 18X. For comparison purposes, Rogers' average trailing P/E ratio for 2013, 2014, and 2015 were 13.6X, 14.7X, and 18.1X respectively. Despite the pullback after announcing its dividend freeze, Rogers remains expensive based on their historic trailing P/E. Furthermore, as a dividend growth investor, I indicated in my 2016 goals that I only planned to add to my positions in companies who had increased their distributions in the past year. Since Rogers no longer meets that criterion, I decided that buying more Rogers was not an option for me to pursue.

Option 3 - Hold

After not letting my emotions get the best of me (selling), and quickly realizing that adding to my position was not in line with my investment objectives, I decided to hold onto my position in Rogers while management pursues de-leveraging. Using the S&P CapitalIQ estimates for Rogers' debt at YE16 (~$15B), free cash flow FY16 ($1.7B), and dividends for FY16 ($1B), my calculations have Rogers ending 2016 very close to their desired leverage ratio of 2.5X that they are looking to achieve before resuming increasing their dividend. If during the process of de-leveraging or after reaching the 2.5X leverage ratio management decides to do something out-of-line with their core business, I will look to sell my shares at that time.

In summary, I am in a "show me" mode with Rogers over the next year, as management has temporarily lost my trust. Considering a 5% dividend raise would have cost the company a relatively paltry $50M (compared to the cash flow numbers above), and management had numerous other options at their disposal to fund a dividend raise (i.e. selling non-core assets which have been rapidly accumulating over the last few years), I am hoping Mr. Laurence and his management team remember to serve their owners' best interests and not pursue their own media empire building dreams.

Dividend Growth Stock Considerations for February 2016

After volatile market conditions in January 2016 that prompted me to make three quick buys before I could get around to posting a watch list, I wanted to be proactive in case February presents me with fantastic opportunities. The stock considerations below help me focus my research and monitoring efforts on a handful of companies. Included is a target price that would act as a buying trigger for me if it was met.

Toronto-Dominion Bank (TSE = TD); Target Price = $50

Five years after initiating my 'almost full position' in TD Bank, I am ready to complete my position with part of my 2016 TFSA contribution. I expect the bank's management to announce a dividend increase in February when they present their Q1 2016 results. Last year, the bank raised their dividend by 8.5%. The current dividend yield is just shy of 4%, and I am hoping for an earnings miss in February so that I can complete my position in TD at a dividend yield closer to 4.5%.

Suncor Energy Inc (TSE = SU); Target Price = $30

It felt great to initialize a position in Suncor last month and now I am ready to add more of the best integrated oil company in Canada. Although I do not think the company will boost its dividend when they release quarterly earnings, I am always open to positive earnings surprises. Even if some see the energy sector as scary, especially with Iran's production ready to be sold to the international market, I will continue to nibble opportunistically. Suncor's dividend is well-covered by their free cash flow, and I am looking to stick with this company for the long-term.

Enbridge Income Fund (TSE = ENF): Target Price = $26

After trading into and out of Enbridge Income Fund three times in November, and keeping my position when the month ended, I am open to add more shares this month.  The company continues to be fairly priced (P/E ~16X), yields over 6%, and hiked their dividend 10% in December. Another reason I would like to add to this position in my RRSP is the fact I pay my monthly gas bill to an Enbridge subsidiary, and the monthly dividends serve as a natural hedge to my gas bill. 

Cisco Systems, Inc (NASDAQ = CSCO); Target Price = $21

Cisco is another of my 'almost full positions' that I would like to complete in 2016. Currency headwinds and analysts' predictions of management providing unfavorable guidance for 2016 have lead to a recent 10%+ depreciation in this technology titan's share price. Currently yielding 3.5%, Cisco's AA-/Stable and A1/Stable bond ratings show their financial strength and reflect their industry leading position. My target price is close to what I paid when establishing this position in 2013.

As with other months, I always keep some cash aside to take advantage of great opportunities that might occur as market sentiment shifts. Here’s wishing all my readers fruitful dividend growth stock pickings this February!

What companies are on your watch list this February? 

Goals for 2016

"A goal without a plan is just a wish"
- Antoine de Saint-Exupery

After achieving all of my goals in 2015, I decided to set some ambitious objectives for 2016. Since I am on a quest to be financially independent and improve the quality of my life, my three categories of goals correspond to my over-riding themes: passive income, expenses and personal improvement. Keeping in mind the above quote, included below each goal are some bullet points forming a plan to achieve the target.

Increase Passive Income by 25%
- Make regular contributions to my investment accounts representing approximately 50% of my take-home pay
- Maximize my investments in tax preferred accounts (i.e. RRSP, TFSA, RESP)
- Achieve a weighted average dividend growth for my total portfolio of 5%
- Avoid dividend cuts
- Do NOT add to any holdings that have not raised their dividend in the past 12-months
- Add an additional source of passive income beyond dividend stocks
- Limit short-term trades to a maximum of one per month

Understand Where My Money is Being Spent
- Track large variable expenses such as costs associated with my car, gifts, work, taxes, sports, cottage, and anything appearing on my personal credit card
- Save at least $1000 this year on variable expenses
- Continue to make investments that decrease expenses over time (i.e. tools for changing the tires of our cars, hair cutting equipment, etc.)
- In-line with the above goal, get the roof of my cottage repaired

Personal Improvement 
- Visit a dentist, optometrist, and doctor this year; although this might seem like a very basic goal, it has been 10+ years, 2 years, and 5+ years respectively since I have visited these professionals
- Write at least 52 blog entries this year while focusing on quality (i.e. no filler entries)
- Complete at least five workouts every week
- Run a 5km, 10km, and half-marathon in 2016
- Take my wife on at least one weekend getaway
- Be mentally present and focused when spending time with my son
- Continue money/personal improvement experiments (i.e. developing a new skill in 20 hours)
- Identify three areas/jobs at my company that interest me and talk to employees in these areas
- Complete at least one personal development course relating to my profession
- Make meaningful donations of time, money, and stock to causes that I feel passionate about

Although it took me almost a month to figure out what I wanted to accomplish in 2016, I am very proud and excited about the above list of goals. In order to avoid short-term fixation, and to write only quality blog entries, my plan is to update this blog with my progress at midyear, and then again at the end of the year.

What are your goals for 2016? How are you tracking against your objectives?