Bought: Pfizer (NYSE: PFE)

Even though the balance of my trading account has been trending down this week, I’m a pretty happy camper given there are some stocks I’ve been watching for months that are finally trading at attractive valuations. In-line with my goals of increasing my holdings I’m comfortable with for the long-term, and adding some US dollar exposure to my portfolio, today I doubled my position in Pfizer.

With a dividend yield of 3.5%, a reasonable 43% payout ratio, a history of dividend growth, and a strong commitment to R&D, I’m pleased to have picked Pfizer up on a dip today.

A couple other companies I’ve been keeping a close on lately: Telus, Coca-Cola, and Enbridge Income Fund Holdings Inc.

Update on Investment Goal - Reaching Desired US Exposure

Back in January, I wrote about my goal to increase my non-Canadian investment holdings from 20% to 25%. With the recent appreciation of the US dollar, purchases of Microsoft and Intel, and the run-up of a few US stocks (JNJ, WU, WAG and MCD)...US stocks now represent 24.8% of my total portfolio! Even better, US holdings account for 48.8% of the value of my RRSP. I hold US dividend payers in my RRSP to avoid paying the 15% with-holding tax on their dividends.

Given I've been thinking of selling Walgreens and Microsoft, I have to keep some US stocks on my watch list to replace them with. I'd really like to initiate a position in Coca-Cola, but given the 2.6% dividend yield, and P/E of 22X, it's too expensive for me at the moment. I've also been waiting for a pullback to add some shares of Pfizer, but it hasn't fallen to a point that it's really attractive for me. Given I have about 4% of my portfolio in cash right now, if either Coke or Pfizer falls, I'll be in a position to take advantage, and add to my US holdings. I'm glad to add to my non-Canadian stock holdings as the Canadian market has been moving sideways for the first five months of 2013.

Screen #1: Get Rich with Canadian Dividend Growers

A couple months ago, I read a book called "Get Rich With Dividends". It wasn't particularly informative, but it gave me the idea to run a screen for Canadian Dividend Growers. The criteria for the screen:
1. Traded on the TSX
2. Dividend yield of at least 4%
3. 3-year cumulative average dividend growth rate of at least 10%
4. Dividend payout ratio less than 75%.

Any guesses how many stocks on the TSX met the above criteria? Before I ran the screen, I was thinking less than ten...but as of May 19th, there are 13 companies. Listed in order of highest yielding to lowest:
- H&R REIT
- Iamgold
- Genworth
- Morguard REIT
- BCE
- Laurentian Bank
- Barrick Gold
- Boliden AB
- Pan America Silver Corp
- Evertz Technologies
- Corus Entertainment
- Brookfield Canada Office Properties
- Allied Properties REIT

If you'd like the specific screen results, let me know and I'll send them to you. Out of the 13, I own shares in three (H&R, BCE, and Laurentian Bank), and have Corus and Brookfield on my watch list. Since I know absolutely nothing about mining companies, I wouldn't touch the gold and silver companies listed above, but might consider the other two REITs and Evertz in the future.

Telus (TSX: T) The Best Canadian Dividend Growth Stock

I’ve written about Telus before, questioning if it is the best Canadian dividend growth stock. On Thursday, the company announced a two cent dividend increase, bringing the dividend growth in the last twelve months to 11.5%. The company also announced to continue to target dividend growth of 10% a year through 2016, and re-upped their share buyback plans ($500M / year) through 2016 as well. The company also confirmed that their dividend growth should keep them in the 65-75% range of their payout ratio. With a 3.6% dividend yield, Telus’s yield is lower than Bell Canada’s (approx 4.9%) and a pinch above Rogers (3.5%).

I continue to look for dips to add to my Telus position. With such great disclosure of future dividend plans, and revenue and EPS growth to back up those plans, Telus is my choice for best Canadian dividend growth stock. 

Considering Selling Microsoft

Back in January, when Microsoft was selling for $26.50, with a dividend yield of 3.5%, I decided to take the plunge and buy 100 shares in my RRSP. I hadn’t bought shares in a company in the technology sector in years, so the 100 shares were to “test the waters”.  I liked that Microsoft had very little debt, a low payout ratio, and generated incredible amounts of cash through its various business segments. There were also rumors of a new Xbox system coming out in 2013, which made the buy even more enticing.

Four months later, with recent news of a private equity firm investing in Microsoft, the price of  shares at a 52-week high, and the dividend yield down to under 2.8%, I’m thinking of selling. My beliefs in Microsoft’s business model and future prospects haven’t actually changed, I just think the stock price is ahead of the company’s fundamentals. Having identified another technology company I’m interested in (Cisco), where I see more upside over the next couple years, and a higher dividend yield (about 3.3%), I’m having a hard time convincing myself not to sell my Microsoft shares.

As much as I like to think of myself as a ‘Buy and Hold Investor’, I definitely wouldn’t buy more shares in Microsoft at its current levels, which makes me ask myself why I’m holding on to it. When Mr. Market drives the price of a company higher than can be reasonably justified, it might be time to take profits.