Vacation Motivation

Returning to work this past Monday after two weeks of vacation was extremely difficult. I woke up an hour earlier than I had for the previous two weeks, was 20 minutes late dropping my son off at daycare, almost fell asleep on the bus to work, missed my floor on the elevator, and then quickly ingested a huge amount of coffee to get me through a morning of second language training. Things did not improve after a late lunch, as I spent the better part of the afternoon sorting through and replying to the hundreds of messages I missed while away. After arriving home, holding up my head through supper, taking a quick walk outside with my son, and then putting him down, all I could manage that night was laying on the couch while watching episodes of Trailer Park Boys. Simply put, two weeks of vacation completely destroyed my weekday routine.

Despite that horrible first day back, I would not change a thing regarding my two week vacation. Every vacation I take motivates me to work harder in order to achieve financial independence at an earlier age. Here are the four reasons why vacations motivate me.

1. Preview of Financial Independence

Although I have no idea what I will do in terms of work, hobbies, or or other pursuits after I reach financial independence, I love experimenting how I will spend my time while on vacations. For the first time ever, my wife and I decided to try a "staycation" during our first week off. Even though we kept very busy doing projects around the house, visiting a couple museums with our son, playing some extra ultimate frisbee, and throwing my son a birthday party with my family, neither one of us particularly enjoyed our first staycation. Yes, we definitely saved a lot of money by not travelling, but we both felt overwhelmed completing numerous projects around the house.

However, with just a slight change of location, to my brother in-law's cottage in St. Alphonse Quebec, our second week of vacation was heavenly. The country air and spending time with my wife's family was very enjoyable and even led to my son sleeping in until 9am one morning (vs his usual 6:30am wake-ups during week days)! The most stressful decisions revolved around what to eat for meals (pro-tip: you can never go wrong with barbecue) and how to stop the bugs from biting us around the campfire. We took great pleasure in swimming, kayaking, going for walks, and reading books, all very low cost, but high enjoyment activities. Although my wife mentioned feeling a bit isolated in the countryside, we both agreed that spending time at a cottage was much more enjoyable than our staycation.

2. Time for Reflection 

While listening to a Tim Ferriss's podcast while painting during the staycation portion of my vacation, and noting that he starts his day with meditation, I was quickly sold on setting aside some time for reflection. Ever since the birth of my son, I feel in a constant state of movement, rarely able to stop and recharge. My focus tends to be on the moment, which impairs my ability to reflect on accomplishments. With an increased amount of free time during the two weeks away from work, I set aside sometime to reflect.

The result of taking some time to reflect on my accomplishments was realizing how lucky I have been over the past couple years. Having a healthy son, beautiful wife, job I enjoy, and leading a very comfortable life is no small feat. Realizing how many blessings I have in my life made me feel grateful, and has prompted me to think of more ways to help others. In that spirit, I wanted to share one of my "financial experiments" I have been most proud of this year with you, in the hopes that some of you might try it yourselves: trying to make someone's day better by spending a nominal amount of money.  So far in 2016, every time that I feel particularly down, I make a conscious effort to think of someone who is having a worse day than me, and brainstorm a way to improve it. Although far from scientific, I have been able to lift my spirits each time I conduct this experiment, along with the mood of the individual I choose to focus on. Given most of the recipients have been chosen for pretty personal reasons, I am not comfortable sharing the specifics of this experiment, but will say that for the cost of a cup of coffee, a gift card, flowers, or a meal, I have brightened some days in 2016, including my own.

3. Determining The Cost of Independence

Since one of my main goals this year is to get a better idea of how I spend my money, keeping track of my vacation expenses served the dual purpose of contributing to my total accounting of expenses, while also allowing me to see how much it costs to enjoy myself away from work for a couple of weeks. As mentioned in my first point above, our staycation week was pretty inexpensive, as we mainly focused on doing things around the house, and taking in a couple of museums. Both of the museums were free (except for parking costs) as we simply borrowed passes from our local library. The only expense that rose significantly during our staycation was ice cream...as we tried a place near where we lived, and made a couple of extra trips to Chocolat Favoris (the best dipped cones I have ever tasted). 

Although the second week of vacation was slightly more expensive, it was still very much affordable. We were lucky to borrow my brother-in-law's cottage for the week, and we left him a cash gift to thank him for his generosity. I took advantage of an offer of free-babysitting by my wife's parents to take her our for dinner and a movie, which was easily the most expensive day of our vacation. That said, I found the quality time alone with my wife to be well worth the cost. In fact, spending time together was priceless from my perspective. To summarize, the two weeks of vacation were very low cost, and I am looking forward to comparing them to how much we spend on vacation for another two weeks in September.

4. Testing My S.W.A.N. Portfolio

Last year, as I prepared to go on vacation, I came to realize that my portfolio did not allow me to sleep well at night (S.W.A.N.). Therefore, last year I kept my portfolio notification emails on, I invested some cash before leaving on vacation, and then I even conducted a couple trades while on vacation. A year later, and ever so slightly wiser, I am happy to report that my portfolio is almost ready to be considered a SWAN. As I will write about next week, the only transaction I undertook before going on vacation was selling half of my stake in Corus Entertainment, as its the sole company I own that I do not have total confidence in. That done, I was able to completely disconnect for two weeks, and not worry about which way the market was moving, or what was happening with my holdings. The only changes to my holdings that were notable upon returning was that Omega Heathcare Investors raised their dividend by twice as much as I expected, and Corus reported weaker earnings than anticipated. All in all, my slightly more boring portfolio continues to do well and generate an ever increasing stream of dividends.

In summary, my two weeks of vacation were fantastic as they allowed me to preview how I might spend my time when I am financially independent and how much those activities would cost. Additionally, the vacation allowed me some time to reflect on my progress and test my portfolio to ensure it did not stress me out too much. 

What are your summer vacation plans???

Mid-Year Update on 10 Canadian Dividend All-Stars for 2016

After picking 10 stocks at the start of the year from the Canadian Dividend All-Star list (one from each sector represented on the list), and seeing them return 8.6% through March 31st, it is time to check them again to see how they performed through the first half of the year.  Before presenting the results, my disclaimers from the initial entry remain valid. Certain sectors contained only a small number of potential companies, namely Real Estate (3) and Technology (2). Additionally, my knowledge of the Basic Materials and Technology sectors is extremely limited...and even that might be giving myself too much credit. Therefore, my picks in those two sectors were based mainly on financial ratios and technical information. Lastly, I only own three of the companies I selected (Enbridge, Telus, and Bank of Nova Scotia), and would need to perform more due diligence on the remaining seven companies before committing capital to them.

Without further delay, here are the results of my picks through six months.

Although the 11.9% average total return (assuming an equal weight for each pick) is impressive, some context is needed. The S&P/TSX Composite Index was up 8.1% (excluding dividends) over the same period. Adding 1000 - 1200 basis points to account for dividends results in a comparable gain of 9.1 - 9.3%. A more apt benchmark, the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSE:CDZ) had a total return including dividends of 9.8%.

One observation that makes me quite happy is that the three companies which I own (ENB, T, BNS) all returned over 10% (21.3%, 11.1%, and 15.7% respectively). That said, my best pick SNC-Lavalin, which I have owned in the past and knew would benefit from the Liberal government's plans to invest in infrastructure, did not impress me enough to invest in, probably due to their 1.9% dividend yield. Its also interesting to note that my picks from the sectors where I feel least knowledgeable, Agrium (Basic Materials) and Evertz Technologies (Technology) performed poorly. There is probably something to be said with sticking to companies in sectors you understand. Lastly, being a contrarian, shares of Magna are starting to look interesting to me. Magna is an investment grade, multinational company, that is a leading automobile parts supplier. Beyond their global footprint, Magna pays its fast-growing dividend, that is well covered by their rising profits, in US dollars.

I would be remiss if I did not mention a pick I made when a fellow blogger from my area asked for my top investment pick for 2016 (thanks again for including me R2R!). My pick, TransCanada Corporation, is up 31.9% (including two dividends paid) from the start of the year. Although I thought about increasing my stake in TransCanada when it was on sale in January, I did not have the conviction to pull the trigger. TransCanada's recently completed the acquisition of Columbia Pipeline Group for $13B.  The acquisition seems to be helping management to be more focused in their capital allocation decisions, which should benefit the company going forward. Despite the high return during the first half of 2016, I would be reluctant to invest more in TransCanada at the current share price, as I feel the company is fully valued at the moment.

Although the first half of 2016 was a quite slow with only one new position (Granite REIT) being added to my investment holdings, my "picks" are over achieving my wildest expectations. The plan for next year is to put a nominal amount of money behind my picks to add a little motivation.

How have your stock picks heading into 2016 performed? 

2016 Goals at Mid Year

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

After achieving all of my goals in 2015, I set some very 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 those 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. My progress toward the large goals and plans are covered in italics below.

Increase Passive Income by 25% (up 4.7% at June 30th*)
- Make regular contributions to my investment accounts representing approximately 50% of my take-home pay. On track
- Maximize my investments in tax preferred accounts (i.e. RRSP, TFSA, RESP). Completed!
- Achieve a weighted average dividend growth for my total portfolio of 5%. Dollar weighted average dividend growth rate of 2.7% at mid-year.**
- Avoid dividend cuts. No dividends cut at mid-year!
- Do NOT add to any holdings that have not raised their dividend in the past 12-months. On track
- Add an additional source of passive income beyond dividend stocks. Ignoring this goal due to tax reasons
- Limit short-term trades to a maximum of one per month. Six short-term trades at mid-year -> On track

* The main reason I am not on track for increasing passive income is that I have been very slow to deploy capital. The cash portion of my investment portfolio is currently 210% higher than it was at year end 2015. There are very few stocks that I am interested in at their current prices.
** After some experimenting, I am now able to calculate total return for my portfolio, which was 22.8% in the first half of 2016. I plan on reporting this figure as a key performance metric during future goal updates. 

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. Regularly update my spreadsheet -> On track
- Save at least $1000 this year on variable expenses. Saved on bank fees, haircuts, tire changes, and short-term trading costs -> Still a bit behind on $1000 per year target
- Continue to make investments that decrease expenses over time (i.e. tools for changing the tires of our cars, hair cutting equipment, etc.). Hair clipper and belt sander -> On track
- In-line with the above goal, get the roof of my cottage repaired. Behind on this, have to make a call

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.  Zero for three so far :(
- Write at least 52 blog entries this year while focusing on quality (i.e. no filler entries). 28 entries at mid-year -> On track
- Complete at least five workouts every week. Have not done this consistently
- Run a 5km, 10km, and half-marathon in 2016. Zero for three so far
- Take my wife on at least one weekend getaway. Completed!
- Be mentally present and focused when spending time with my son. Doing better at this goal
- Continue money/personal improvement experiments (i.e. developing a new skill in 20 hours). Only two ongoing experiments to date (brighten someone's day for $20 or less and aim for 10,000 steps a day). 
- Identify three areas/jobs at my company that interest me and talk to employees in these areas. Have interviewed in two different areas of my company during the first half of 2016 -> On track
- Complete at least one personal development course relating to my profession. Must look into this soon
- Make meaningful donations of time, money, and stock to causes that I feel passionate about. Have donated money to a couple of my favorite causes, but have to look into donating stock and time. 

* Out of my three major goals, I have made the least progress in this area. I am likely focusing too much on the financial goals, and not enough on improving the quality of my life. I must turn this around in the second half of the year. 

Although I am not doing as well in any of the major areas as I would like, I have made some decent progress on certain initiatives. I was pretty happy when I saw my dollar weighted dividend growth rate of 2.7% today given a couple of my largest holdings have yet to announce any dividend raises in 2016 (i.e. Alaris, Enbridge, Enbridge Income, etc.). Additionally, I feel quite proud of some of my accomplishments such as maximizing contributions to tax preferred accounts, tracking material expenses, and taking my wife on a weekend getaway. My two biggest areas of focuses during the second half of 2016 will be looking for opportunities to deploy capital and focusing on personal improvement.

How are you tracking against your 2016 objectives?

3 Recent Buys - GRT.UN, CSCO and BMO

There has been a lot written about last week's "Brexit" vote, and since I have no idea how the drama will ultimately play out, I decided to take advantage of the market volatility to complete a couple of my positions: Cisco Systems and the Bank of Montreal. Those two recent buys came after I re-initiated a position in Granite Real Estate Investment Trust inside my Tax Free Savings Account ("TFSA") in early June. Since the last month in which I bought shares in three companies was January 2016 due to an all-too-short market correction,  I will share what made me decide to pull the Buy trigger three times in June. In addition to the company specific reasons for buying shares outlined below, the volatility caused by the Brexit vote and the fact my portfolio contained over 10% cash mid-month (currently down to ~7%) both played into my buying decisions.

Granite REIT (TSE= GRT.UN): Bought at $39.10

After identifying Granite REIT as an attractively priced distribution grower in March 2016, initiating a position in my RRSP in early April, then stupidly selling the full position at a profit in late April (common mistake #2 - selling too early), I was happy to re-initiate my position in Granite in early June. One of the reasons why Granite is now in my TFSA is that I am determined to minimize trading in my TFSA so as not to attract the attention of the Canadian Revenue Agency, who have taken an aggressive approach to pursuing investors who use their TFSA for short-term trading. I continue to think that Granite's management team has the best interests of their unit holders in mind as they have reviewed a full range of strategic options in the last year including selling the company, going private, and paying special dividends. Buying Granite at a P/FFO of 11.4X, at a slight discount to their book value, and yielding 6.2%, seems like a no-brainer to me.

Cisco System (NASDAQ = CSCO): Bought at $28.00 (USD)

After first buying shares of Cisco in November 2013, I waited two and half years to complete my position with a small purchase last Friday. Instead of focusing on how I could have bought the shares to complete my position in early 2016 in the $23 range, I took a fresh look at the company and realized that paying the slightly higher price still translated into a fair P/E of 14X and a 3.7% dividend yield. The fact management boosted the company's dividend by 24% earlier this year also played into my decision. As interesting as I find some lower yield, higher dividend growth companies, it's hard to argue against a global industry leader with AA-/Stable and A1/Stable credit ratings who boosted their already significant dividend by almost a quarter. After completing my position, I'm now considering going overweight on Cisco as I feel it offers exception dividend growth at a reasonable valuation.

Bank of Montreal (TSE = BMO): Bought at $79.95

After buying some shares of BMO in my unregistered account in November 2008 (remember the financial crisis?), I waited a mere seven and a half years before completing my position this past Monday. Much like Cisco, I was stuck kicking myself for not buying BMO earlier in 2016 when it traded around $70. Un-anchoring myself from that unrealistic target price allowed me to see that the fourth largest Canadian bank was trading with a P/E less than 12X, yielding north of 4.3%. After waiting seven and a half years, completing my position in my sixth Canadian bank felt fantastic.

My three recent purchases are all reflected in my Investment Holdings page. Here's hoping that the Brexit fallout was beneficial to your portfolio.


Did the Brexit vote cause you to make any changes to your investment plan for 2016?

Five Common Mistakes Dividend Investors Make - My Self Assessment

My favorite newspaper columnist who covers the world of dividend investing is The Globe and Mail’s John Heinzl. Last Wednesday in his ‘Yield Hog’ column, John presented Five Mistakes Dividend Investors Make. Since critically assessing my performance as an investor can only help me improve, I thought reviewing how often I make the five mistakes John pointed out in his recent column would be a beneficial exercise.   

1.       Focusing Solely on Yield

Focusing solely on dividend yield at the expense of dividend sustainability and growth is perhaps my biggest challenge as a dividend investor. Most screens I run to identify potential investments include a minimum dividend yield of 3%, thus limiting potential higher dividend growth companies. Additionally, by only focusing on two metrics of portfolio performance (forward expected dividends and weighted average dividend growth rate), I tend to shun dividend stocks with better growth trajectories in favor of current income. In order to compensate for my preference for a higher initial yield, I make a special effort to analyze the sustainability of a company’s a dividend payment in order to avoid dividend cuts. Despite the above mitigant, until I start assessing my portfolio’s performance by total return, I freely admit to focusing too much on dividend yield at the expense of dividend growth.

Self-Assessed Grade = D

2.       Selling Too Early

Even though I claim to be a long-term investor, my actions sometimes prove otherwise.  Through the first half of this year, I conducted six short term trades earning a profit on each. However, each of the company's shares I bought and sold are now selling at a higher price than when I closed my position. In the past, I sold positions in Walgreens and Home Depot after they had grown to prices that I estimated to be unwarranted given their earnings multiples and growth rates. Although selling too early is a weakness I am well aware of, and I feel that I am improving in this area, it remains tempting to make a quick profit in the hope of buying back into a great company at a later date. 

Self-Assessed Grade = C-

3.       Avoiding Tax-Sheltered Accounts

Despite the many mistakes I make as an investor, I routinely maximize my investments in tax-sheltered accounts. When I report on my progress toward my 2016 goals later this month, my greatest achievement will be contributing the maximum amount to my TFSA and RRSP, and my son's RESP. With the exception of shares of Riocan REIT I hold in my unregistered account, I also manage to be incredibly tax efficient with two Canadian REITs in my TFSA, and all my US stock holdings in my RRSP. The accountant in me shines through in this area in order to avoid and delay paying unnecessary taxes on my investment income.

Self-Assessed Grade = A

4.       Not Diversifying

In John Heinzl's article, he makes the case that many Canadian dividend investors stick to certain sectors that have a history of dividend growth (i.e. utilities, telecommunications and banks). Although I am overweight in both telecommunications and banks, I do not own any utility companies (though I recently considered five). I also feel that my largest position, Alaris Royalty, provides me with decent diversification given their investments in 17 partners. Lastly, I have a growing stable of nine US companies in my RRSP that help give me some geographical diversification. All that said, I continue to look for investments that add diversification to my portfolio, but they must be quality companies with attractive growth prospects.

Self-Assessed Grade = C

5.       Not Reinvesting Dividends

Mr. Heinzl makes the strong case of using dividend reinvestment programs (DRIPs) or at least using dividends to buy new shares of quality companies. Although I have yet to find a DRIP program I feel comfortable enough to enroll in for the long-term, I do use my dividends to invest in quality companies, mostly those currently in my portfolio. However, as recently mentioned in various posts, I am having a hard time pulling the 'Buy' trigger over the last three months. My only new position in 2016 is Granite REIT, but there are a couple of restaurants I hope to initiate positions in shortly. 

Self-Assessed Grade = B-

Looks like my overall average for the five mistakes most common to dividend investors is about 'C', making me average. I will have to maintain course on my plan to add positions to better diversify my portfolio, focus on the long-term to avoid selling too early, and think more in terms of total-return instead of solely dividend yield. 

Of the above five mistakes, which is your greatest challenge?