What does retirement look like for you?

Yesterday, my French teacher at work asked the members of our class to describe their mental image of retirement. Answers ranged from the funny (bathing daily in a pool of cash) to the traditional (traveling the world while stopping long enough to visit with grown kids) to the brutally honest (worrying what they'll do with their spouse every day). Luckily, before it was my time to answer, my teacher flashed an image of a couple walking along a tropical beach. With the visual clue in mind, I told Pierre that I pictured myself and my wife holding hands while lounging on a beach. It drew 'awwwws' from the female students in my class, but it was simply the only answer I could come up with at the time.

Reality is that I have very little of an idea of what my retirement will be like. There are so many factors that are yet to be determined (when I'll retire, where we'll retire to, how many kids we'll have, advances in technology, etc.) that it's an extremely blurry picture right now. Since I'm 35, retirement seems like a long way off. That said, most of the investment and career decisions I've made center on how they'll impact my retirement. The fact I've chosen to invest in companies that regularly increase their dividends gives me peace of mind knowing that I won't have to rely on a work pension plan or the Canada Pension Plan, both of which could prove unsustainable given current demographic and investment return trends.

There are certain aspects that I can picture as part of my retirement. I love travelling, especially doing house exchanges with other couples, as I feel this gives me a chance to truly experience the culture of another country. Additionally, I find being close to water relaxing, and can picture myself on a lounge chair, reading a good novel. Staying physically active is something I've focused on, and plan to continue in the future, be it through running, swimming, or a yet to be discovered activity. Of course I'll continue investing, as it's something I enjoy, and benefit from in multiple ways. Spending time with my wife and children, is perhaps the activity I look forward to the most of all.

The main thought I associate with retirement is freedom. Imagine waking up in the morning and having the freedom to do whatever it is that you want to do that makes you happy. It's that thought of having the ability to determine the direction of each day that drives me to work hard now and invest successfully.

I'm curious, what does retirement look like for you?

Bought & Sold Alaris Royalty Corp in 48 hours

Back in January, I mentioned that I planned to set aside some money in my TFSA in order to take advantage of market over-reactions. The vast majority of my investment portfolio is invested in companies that regularly grow their dividends/distributions. These are companies I'm comfortable owning for the long-term, that have proven histories of sales/earnings/profit growth to back up their dividend/distribution increases.

When Alaris Royalty Corp (TSX: AD) announced their 2013 results on Monday morning, I couldn't believe the market reaction to the company's fantastic results - the stock fell over 5% on record earnings! Granted, Alaris is currently in the midst of sorting out a non-material (in my estimation) tax issue with the Canada Revenue Agency ("CRA"), but I knew that Mr. Market was over-reacting by beating down the stock. 

With the stock down 5%, the dividend yield (which has a history of growing strongly) at around 5%, and with my stash of 'hedge fund' cash in my TFSA ready, I bought 200 shares at the end of the day at $29.50. Then it was just a matter of waiting for investors to come to their senses and realize Alaris's stock had been unfairly beat down due to a minor dispute with CRA. 

In less than 48 hours, I decided the stock had bounced back enough, and sold my 200 shares at $30.40. After subtracting the $20 in transaction fees, I netted a $160 profit (2.7% of my investment) in less than two days. 

Not all trades with my 'hedge fund' money will be this easy, but I'm extremely happy to get off to a positive start with my side project for 2014. 

Sold Western Union; Bought Coca-Cola

Yesterday, I received an email from my discount brokerage offering me a commission-free trade, as I had yet to make any trades in 2014. Being a buy-and-hold investor, I'm quite comfortable sitting on the sidelines for long periods of time and collecting my ever growing dividends. However, after reading about Coca-Cola's Q413 earnings miss, and given how long I've wanted to add this company to my investments, I decided to take a look to see if any of my holdings were ripe for selling.

As stated in my "goals for 2014" post, one of my focuses is to get rid of companies who have stopped increasing their dividends. For me, when management breaches investors' trust by failing to raise dividends in a regular manner, they no longer deserve my funds invested in their company. For this reason, when looking at holdings to sell that would create some liquidity in my RRSP (where I hold all US dividend growers - for tax reasons), I focused on Western Union (WU) and Intel (INTC) who had not grown dividends in the past year. I was sitting on a 40% gain in Western Union, and realized that they had failed to raise their dividends in 5-quarters (thus breaking the trend they previously set raising dividends every 3 quarters). Although I can respect the fact that they had been investing in anti money-laundering technology, and that a lot of their cash is held offshore, I simply could not forgive them for failing to raise their dividends in a regular manner.

With the proceeds of the sale of Western Union, I bought into Coca-Cola, a company I've been wanting to add to my portfolio for the past 5-years. With their 50+ year record of raising dividends, talk of another increase later this week, a dividend yield of 3% (finally!), and a P/E of 19.5X, I was happy to add this excellent company to my portfolio. The fact that Coca-Cola is a global company also makes it very attractive to me, as I see it as a play on emerging markets that will add further geographic diversification to my holdings.

They say good things come to those who wait. Today, at least for me, I feel finally adding Coca-Cola to my portfolio was well worth the wait.

Plan for 2014 TFSA Contribution

Ever since the start of the year, I've been trying to figure out what companies' stock to invest in with my 2014 Tax-Free Savings Account ("TFSA") contribution. Initially, my plan was just to top up my investments in TD Bank, Inter Pipeline Ltd, and Canadian Apartment Properties REIT...all of which I currently hold in my TFSA, along with Rogers Communications and National Bank of Canada. Over the past couple weeks, any stock that I've thought of adding to my TFSA has risen to the points where I think it's fairly or over valued.

Thus my new plan - use this year's $5.5K contribution and cash proceeds of dividends/distributions to create a small hedge fund to take advantage of what I perceive to be over-reactions in the market. I used a similar strategy during 2012/early 2013 to buy beat-down dividend growth companies like Western Union, Microsoft, Cisco Systems and Telus...but never sold them. Quite frankly, I already pay enough taxes, so taking advantage of market over-reactions in my TFSA is an appealing prospect. Plus, I can even look at over-reactions in US and other foreign markets, as capital gains won't be taxed. The goal will be to sell the investments made with these funds within a month, so I can avoid with-holding taxes on any dividends.

This style of investment is very different from my normal buy-and-hold solid dividend growth companies, but I'm really looking forward to seeing the results in 2014.

Financial Goals for 2014

Although I’m not much for resolutions, I enjoy setting goals for myself each year. Putting objectives on paper, or “on the cloud” helps me focus.  Since I spend a fair amount of my free time researching companies and investments, I decided to share what I’m looking to do with my investment holdings in 2014.

Increase my portfolio value by 17% :

Since I’m not comfortable disclosing how much my investment portfolio is worth, I have to state the first two goals in percentages. The 17% increase in value corresponds to a number I’d like to hit by year end. Although I had very strong returns in 2013, I don’t expect the same this year. However, I do expect my portfolio to appreciate, I’ll reinvest the dividends I receive in 2014, and I should be able to deploy some new capital, all of which should help me meet this goal.

Total Dividends Received Up 18%:

As indicated above, the 18% also corresponds to the amount of dividends I expect to receive in 2014. None of the companies in which I'm currently invested should cut their dividends in 2014. Alternatively, I expect most, if not all of the company’s I own will increase their payouts during 2014. Add to this some new capital I plan to inject in my portfolio, and this is a realistic goal.

Maintain US Holdings at About 30%:

I ended 2013 with holdings of US stocks accounting for 28% of my investment portfolio. With the USD appreciating against the CAD, this number is now closer to 30%. I feel that by investing in large multinational companies with sales across the world, my portfolio gains geographic diversification. Even though the US market was hot in 2013, I’m comfortable with all my US holdings.

Doubling Down on Comfortable Holdings:

As my investment portfolio grows, I’ve learned that in order for a strong performer to make a difference to my portfolio return, there has to be a material investment in the company. A good example is Microsoft, a great dividend grower, who was up about 40% in 2013. However, since I only bought 100 shares, the impact on my portfolio was minimal. My plan is to invest in fewer companies, but increase the amount of money I invest in my core holdings.

Get rid of all companies who haven’t raised their dividend in the past 18 months:

During 2013, I was very happy to get rid of all the laggards in my portfolio, who hadn’t recently raised their dividends. I think it shows good financial management on the part of companies who are able to increase their payouts without raising their payouts ratio to unsustainable levels. I plan to get rid of any companies that haven’t raised their payouts in the last 18 months. So far, I think only Intel and Western Union are on my watch list in this area.

Figure out what to do with cash in excess of $500 (especially in TFSA and RRSP):

Given the amount of distributions I receive each month, I find myself with excess cash in my various investment accounts that isn’t doing anything. Since iTrade allows me to buy and sell a number of ETF without commissions, I plan to pick one or two high yielding ETFs to deploy my excess cash in when I don’t have any investment ideas I’m looking to test. I’ll pay particular attention to my TFSA and RRSP since I can buy and sell ETFs without worrying about tax implications.