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.

2013 Investment Goals Updated at Year End

As 2013 comes to an end, it's time to look back and see how I fared against the goals I set out for my portfolio at the start of the year.

1. Get Rid of Non-Dividend Growers
I'm very happy with the progress I made on this goal. Gone are non-dividend growers such as Power Financial and Transalta. That said, as we start a new year, there's a couple companies I have to keep an eye on (i.e. Western Union and Intel) to ensure they re-start policies to raise dividends. After all, being a dividend growth investor requires companies in my portfolio to actually raise their distributions.

2. Increase my Dividend Income and Total Portfolio Value by 25%
In 2012, I managed to increase dividend income by 45% while increasing my total portfolio value by 34%.  With less proceeds to invest in my portfolio in 2013, I still managed to achieve both goals, increasing dividend income by 37% while increasing my portfolio value by 38%. It helped that the North American markets were up nicely YoY, and the raise in the USD compared to CAD also benefited my portfolio value.

3. Increase my Non-Canadian Investment Holdings from 20% to 25%
In 2013, my non-Canadian (all US stocks at this point) holdings increased from 20% to 28%. I had some very nice gains in US stocks, the rise of the USD vs the CAD helped, and I also sold some Canadian stocks and invested in US companies. With the exception of one USD company I own (Realty Income Corporation), I aim to buy US companies who sell internationally in order to get worldwide diversification in my portfolio.

I had another soft goal of posting once a week in 2013. Sadly, with 44 posts, I didn't meet this goal. Life, work, and relationships got in the way....and I don't regret that at all.

Here's wishing everyone a healthy and prosperous 2014!

Selling Walgreens and Buying Realty Income Corp?

 I held on to half of my investment in Walgreens (“WAG”) after selling shares in the fall. As the share price keeps climbing, and is now near a 52-week high, the dividend yield is only 2.1%. The yield seems ridiculously low, especially given they just boosted their dividend by 15% in August.

On the other hand, Realty Income Corporation (“O”) is trading near its 52-week low, yielding a tantalizing 5.6%. They have grown their dividend at about 5% per year over the past 5 years. I’m impressed with their management, tenant list, and the potential upside of rent increases in the US as the economic recovery continues.

I haven’t decided if I’ll pull the trigger and sell my shares of WAG to up my investment in Realty Income Corp, but it’s very tempting.