Sold: Canadian Western Bank ("CWB")

No, I didn't take the job that required me to get rid of all my shares in Canadian banks. Instead, despite an impressive record of profitability and dividend growth, I decided to sell my holding (100 shares) in Canadian Western Bank ("CWB"). There were two main reasons I decided to sell my shares in CWB:

- The paltry 2.4% dividend yield. This yield is much lower than its Canadian banking peers average dividend yield (~4.3%). Management had lots of room to increase the yield (dividend payout ratio ~ 35%), but has instead re-invested back into the bank. To me, this speaks to management not placing sufficient importance of paying a dividend sizable enough to attract investors to hold shares for the long-term.

- As mentioned, I only held 100 shares of CWB, making it one of the smaller holdings in my portfolio. Furthermore, the investment was made in my non-registered account, and I had accumulated a sizable capital gain on the holding. It came down to a decision if I wanted to increase my holding (which I didn't given the low yield), or sell and take the taxable capital gain now, when I have enough losses to offset it.

Selling CWB allows me to create some liquidity that can be used to increase my holdings in another company I'm more comfortable with, that offers a better yield. This was one of my harder sell decisions in recent years, but I think I made the right choice.

What would you do with $10,000?

I'm currently reading the book "All The Money In The World" by Laura Vanderkam in which she asks some interesting questions about money and time. One of the questions she raised that got me thinking was 'What would you do with $10,000?'

Since $10K was about the amount of cash I held in my portfolio until near the end of last month, I guess my answer was buy 100 shares of Potash, 100 shares of Telus (at near its 52-week low), and add 30 shares of National Bank. Assuming no dividend cuts/growth, my answer should add about $380 to my investment portfolio over the next year.  Given I have no interest in selling any of the shares in the great companies I bought, the amount of principal at the end of the next year won't matter to me.

One of my positions I'm currently thinking of selling (Walgreens), will yield approximately another $10K. I'd like to re-invest this in another US stock (my two likely candidates are McDonalds and Johnsons and Johnson), but given the crummy CAD/USD exchange rate, and that both of my two likely picks are trading near 52-week highs, I'd have to hold the money again until the Canadian dollar appreciated, or a more interesting US company went on sale.

Although Ms. Vanderkam's hypothetical question is enticing, in reality, for dividend growth investors focused on buying high-quality companies at attractive prices, it's more complex than what meets the eye. Ah well, given I have no problem being patient with the market, time is on my side.

Bye Bye Bank Stocks?

It’s rare that my professional and investing lives meet. Some might find this odd since I work in the financial industry, and analyze many public companies and banks as part of the daily duties. In order to avoid any conflicts of interest, I’ve never bought shares in a company I looked at for work. Given my work specialties have been in the forestry, automotive parts, and automotive manufacturing sectors, industries not exactly known for their steady dividend growth rates, it further explains why I wouldn’t be pulled toward the companies in these industries.

I’m very happy at my job, and the company I work for has treated me well. That said, I try to keep my eyes open for opportunities to expand my breadth and depth of knowledge of the financial industry in Canada. Recently, while interviewing for a job with another organization, one of the interviewers confirmed my hypothesis, that if I was the successful candidate, I would have to sell my shares in Canadian banks in order to avoid any actual and/or perceived conflicts of interest.

If you have followed this blog for long, or know my investing tendencies, you might guess that selling my holdings in Canadian banks wouldn’t be particularly easy for me. Quite simply, I think Canadian banks are profit machines that have a proven tendency to kick back a nice percentage of those profits to investors as dividends that grow over time. After opening my trading account in 2000, I bought 100 shares of Bank of Montreal as one of my first investments. My investing love-affair with Canadian banks has only grown over the years, with shares in these institutions accounting for approximately 25% of my current holdings.

Although the challenge of replacing such a large percentage of my portfolio with shares in other companies would be difficult, it’s something I think I could do if required. However, I’d also have to take a tax hit by selling bank shares in my unregistered trading account…and that’s something I’m much less inclined to do.

I decided to decline the organization’s request for a second interview, as I don’t think the job would be a good fit for me at this time in my career. The fact I’d have to sell my shares in Canadian banks definitely contributed to my decision. 

Updated Investment Goals at Q213

In one of my first posts in January, I outlined my three investment goals for 2013. Since it's officially the end of the second quarter, it's time to provide another update of how I'm progressing toward my goals.

1. Get Rid of Non-Dividend Growers
Since getting rid of Power Financial Corp in Q1, I'm still at 50% of this goal, as I continue to hold on to Transalta.  I briefly considered selling Transalta before their ex-dividend date earlier this month, but held on and watch it drop a bit further. It's still a stock I'm looking to sell, I'm just waiting for a better price to pull the trigger. Despite the 8% dividend yield, Transalta hasn't grown their dividend in years, and likely won't given industry conditions.

2.  Increase my Dividend Income and Total Portfolio Value by 25%
Due to some contributions to my TFSA, RRSP, and my unregistered portfolio, along with some strong returns from my US dividend growers, my portfolio value is up by 20.4% from its value at December 31, 2012. There's also some US dollar currency gains that have inflated my return number. With respect to dividend income, I'm closing in on my goal, with dividend income up 23% from YE12. By shifting some US capital around in H213, and through regular dividend increases, I expect to overshoot this goal by year end.

3. Increase my Non-Canadian Investment Holdings from 20% to 25%
Due to a recent drop in telecomm share prices in Canada, US dollar appreciation compared to the Canadian dollar, and strong performances by a couple of my US holdings (i.e. Western Union and Microsoft),  I've already increased the percentage of my portfolio invested in US stocks from 20% to 26.98%. I'll have to keep an eye on how this turns out at YE13, as the US/CDN exchange rate makes it difficult to predict.

The last goal I set forth in my January post was to blog at least once a week. I've had a difficult time thinking of topics to write about each week. I've missed a couple weeks at this point, but still average a post a week. Although I'm happy to see the great majority of my stocks have gained ground in the first half of 2013, I'm having an increasingly difficult time find good companies to buy at reasonable valuations, particularly US based companies. I'm hoping the Canadian market stays depressed over the summer, so I can add to some holdings I'm particularly excited about.

Bought Potash Corp (TSX: POT) and Telus (TSX: T) for RRSP

Verizon is coming, Verizon is coming! With news that Verizon was looking to enter the Canadian wireless market via acquisition of a couple bit players, the market over-reacted and sent shares of the big three Canadian telecomm players down on Wednesday and Thursday. Don't get me wrong, I think Verizon can make a splash as a carrier in Canada, particularly out west where they could offer subsidized handsets at cheap prices and free US roaming. However, having watched Rogers and Telus shares drop over 10% in two days, I decided to stock up with some more Telus shares that came with a mighty 4.6% dividend yield. Even if they lose some market share to Verizon down the road, Telus will remain a great wireless company. Plus, my bet is that if Verizon ever gets to be too dominant of a threat to the incumbents, the federal government will come riding to the rescue with protectionist measures.

While the Canadian market slumped, I also initiated a position in Potash Corp ("POT") that I'm pretty excited about. I've had Potash on my watch list for six months, during which time they've twice increased their dividends, and reported very solid results. Despite the good results and strong metrics, the market has sent their shares near a 52-week low.  I like this industry leader that provides me with some diversification into a new sector. With a yield of 3.5%, and a reasonable P/E of 15, I'm happy to add this great Saskatchewan company to my RRSP portfolio.

Although I originally had the extra cash in my RRSP pegged to buy some shares in US companies, with the Canadian dollar slumping compared to its US counterpart, I decided to invest in Canadian companies instead. It feels great to buy quality companies at discounted prices...no to wait and watch the dividends roll in :)