Wednesday, December 31, 2008

took a helping of Sysco

On December 30th I initiated a stock position within my non-registered portfolio in Sysco Corp. (SYY) at $22.51.

Who's Sysco?
Sysco Corporation is a North American distributor of food and related products primarily to the food service or food-prepared-away-from-home industry. It provides products and related services to over 400,000 customers, including restaurants, health care and educational facilities, lodging establishments and other food service customers. Sysco is the far and away global leader in this area with sales of $38 Billion. If you live on this continent you've likely seen Sysco's trucks driving around as they have the largest private truck fleet in North America (9,000 trucks).

Why Invest In Sysco?

Industry Factors

Sysco is the 800 lb gorilla of the food distribution industry. Due to their long successful operating and relationship history, extensive infrastructure networks, and broad reach, Sysco possesses barriers to entry and an economic moat that is similar to that of Canadian Pacific Railway (CP) or UPS (UPS). As North Americans age and enter retirement, dining out at a nice restaurant with their families is a habit that is unlikely to be sacrificed for any meaningful period of time. Although the restaurant sector is being hurt by these tough economic times, people will again visit restaurants in droves going forward where Sysco derives about 60% of their revenues. Owning Sysco, the supplier, there is no need to speculate on which restaurant chain will succeed.

Consistency - Earnings & Dividend Growth

As reader's know, I am a sucker for a really consistent (boring) company, and Sysco certainly fits the bill. Sysco has posted extremely consistent sales and earnings growth since 1970. For example over the past 10 years Sysco has had their earnings per share decline year over year one time. They've also increased their dividend for 38 consecutive years including a very recent 9% raise in November, 2008. The company also generates very strong return on equity well over 25% most years. Sysco's financial position is solid sporting a debt/equity ratio of about 0.5.

Why Now?

Similar to many other stocks in today's market Sysco is currently trading in uncharted territory valuation-wise. It is dirt cheap compared with where it has traded in the past relative to it's current earnings, sales, and dividend rate. Sysco currently changes hands at a P/E of about 12x. That multiple is nothing short of unprecedented when you consider Sysco's history of trading at an average P/E between 17 and 28x earnings. Same story when you consider their low price to sales and price to book ratio. Sysco yields about 4.3% as of writing this which is also very high and even unheard of relative to its history. They just raised the dividend 9% (after Lehman Brothers failed), and their pay out ratio of earnings is only 45%.

..The next few years could be painful for Sysco if people choose to eat at home in a big way. In some cases though eating away from home is unavoidable, and if one lives in a retirement home, is in hospital or visiting countless other establishments they'll have no choice but to use Sysco's services despite the economy. Regardless people will be back at their favourite restaurants in the future celebrating a graduation, retirement, or simply too lazy to cook.

Dividend Growth Investor profiles Sysco here.

Dividends4Life's take here

Tuesday, December 30, 2008

investing carnival new years edition

As we get ready to welcome in 2009. Snuggle up with a laptop by the fire and browse some of these investing articles:

Investing

Dorian Wales presents The Madoff scheme – 4 Valuable Lessons posted at The Personal Financier.

Ray presents Review Of E*Trade Bank High Interest Savings and Checking Accounts posted at Money Blue Book Finance.

FMF presents Employee Stock Purchase Plans: Great Investments posted at Free Money Finance.

Don presents Stock Trading On Margin posted at Beginners Investing Guide.

FIRE Finance presents Investing - The Mistake Of Timing The Market posted at FIRE Finance.

JCL presents How To Succeed In The Face Of Failure And Discouragement posted at The Real Estate Investing Journey.

The Shark Investor presents You Have The Potential To Raise 100 Times More Money Than You Do Now posted at The Shark Investor.

Joanne presents Beginner Investing: Diversify Your Portfolio posted at Beginner Investing.

Don presents Beginners Day Trading Questions And Answers posted at Beginners Investing Guide.

Declan Fallon presents New Lows reach extremes, but this is not necessarily bullish posted at Zignals blog.

Investing School presents 52 Must Read Quotes from Legendary Investor - Warren Buffett posted at Investing School.

Michael Cintolo presents It’s How You Think That Counts posted at The Iconoclast Investor.

Monevator presents How you can enjoy the profits of 2,267 companies around the world for free posted at Monevator.

Intelligent Speculator presents Legislating the CDS market? posted at Intelligent Speculator.

Michael Cohen presents I'm Betting On Oil posted at Stock Investing.

Robert Brus presents Blog posted at The Site Rush Preview.

srini Saripalli presents Information Marketing Business in A Distressed Economy: 5 Predictions posted at Internet Marketing Information Marketing Blog Marketing Business Success.

Dave presents Treasury Bill Pays Investors Nothing posted at Cheapo Groovo.

Sandy Naidu presents Bernard Madoff's Ponzi Scheme posted at FutureNestEgg.

Robert presents A Potential 100% Investment Return In Weeks posted at Ways to Survive Life.
Investing School presents 9 Terrific Investing Websites That is Sure to Suck Up Your Time posted at Investing School.

Intelligent Speculator presents Nov09: Hedge Funds report posted at Intelligent Speculator.

Deposit Accounts presents Investing in a Rocky Economy posted at Deposit Accounts.

Thursday presents Municipal Bonds: Investments With Tax Benefits posted at Wealth Junkies.

Ryan Suenaga presents It’s Cold in November: My Model Portfolio Performance in November, 2008 posted at Uncommon Cents.

Joy presents The Weirdest Story Ever about Trading and Finance posted at Fulfilled Dreams.

Paul Goodwin presents The Year in Verse posted at The Iconoclast Investor.

Declan Fallon presents Stocks for 2009 posted at Zignals blog.


Stock Analysis

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Surfer Sam presents NEW !! Best Stock Picks of the Decade !! posted at Surfer Sam and Friends.
Ajay presents How to perform stock research using fundamental analysis posted at Finance-Information.

D4L presents Stock Analysis: SUPERVALU INC (SVU) posted at Dividends4Life.

Jae Jun presents Puget Energy Merger Delayed posted at Old School Value.

Steve Alexander presents Quick Take: Manpower (MAN) posted at MagicDiligence - The Best Magic Formula Stocks.

Ripe Trade presents Breakout trade posted at Ripe Trade.

Mr. ToughMoneyLove presents Tools to Analyze Our Retirement Portfolio posted at Go To Retirement.

Ben presents Stock Trading Trends - Follow Stock Trends to Maximize Profits & Limit Losses posted at Stock Trading Success.


Alternative Investments

Helen Trump presents Replace Yourself in 2009 posted at Social Marketing by Michelle MacPhearson.

Helen Trump presents Where to Focus in Your Business posted at Social Marketing by Michelle MacPhearson.


Wealth Accumulation

Investing School presents Adding an Online Savings Account as Part of Your Investment Strategy posted at Investing School.

Ben presents Best Online Savings Accounts posted at Money Smart Life.

Deposit Accounts presents How to Choose a Money Market Account posted at Deposit Accounts.

Shaun Connell presents Financial Happiness: The Real Goal of Financial Planning posted at Free Financial Planning.

Relax presents Let’s talk about money posted at The Wise Curve.

Tushar Mathur presents Staying Afloat during a recession posted at Everything Finance.

One Family's Blog presents Frugal Living – Ten Great Gift Ideas for Frugal Families (Christmas Holiday Shopping Tips) posted at One Family's Blog.

Deposit Accounts presents Will Opening a Deposit Account Affect My Credit Score posted at Money Blog.

Robert Sanders presents Wall Street professionals may need major re-calibration in their lifestyle The Bailout Economy posted at The Bailout Economy.

Michael Haltman presents Bernie Madoff: Who Could (Should) Have Known? posted at The Political and Financial Markets Commentator.

KCLau presents Christmas On A Budget posted at KCLau's Money Tips.

One Family presents Employee Stock Purchase Plan (ESPP) and 401K Retirement Plan Annual Enrollment and Contribution Review posted at One Family's Blog.

Savings Toolbox presents Set Your Children Up With Savings Accounts posted at Savings Toolbox.

DebbieDragon presents Finding Your Growth Engine posted at 7 Millionaires... in Training!.

Bill Spohnholtz presents Best Tax Savings Tip For A Down Market posted at Learn The Stock Market And How to Trade.

kathryn presents Dealing with Financial Disaster posted at Out of Debt Christian.

Pinyo presents CD Ladder Explained posted at Moolanomy.

Real Estate

Joe Manausa presents REAL ESTATE TRENDS WORTH WATCHING Tallahassee Real Estate Blog posted at Tallahassee Real Estate Blog.

Joe Manausa presents What Is A RSS Subscription Tallahassee Real Estate Blog posted at Tallahassee Real Estate Blog.

FIRE Finance presents Renting Versus Owning Costs posted at FIRE Finance.

JCL presents Househunting For Investment Properties posted at The Real Estate Investing Journey.

Value Investing

Stock Pursuit presents Cheap Stocks Selling For Below Net Cash and Net Tangible Book posted at Stock Pursuit.

Dividend Investing

Mike C. presents Are TheStreet.com Ratings Great Contrarian Indicators? posted at Stock Investing Tips.


Enjoy!

Monday, December 29, 2008

2009, a new financial year

I've always thought that this is a great time period during the year to really have a sharp look at our personal finances and tweak, refresh, and look ahead for the new year. If you have been thinking about getting your financial house in order for some time now, I believe you should act right now. This short time period between Christmas and the new working year is a great time to:
  • Start a budget, review your budget, or alter your budget to fit your goals and needs

We don't strictly follow a budget in the truest sense of the word. For example we are not careful to only spend $120 on groceries every week. What I like budgets for is that I have Excel spit out a number (income minus expected expenses) ($B). This number is the main reason why I run a budget. I then have this number in mind as a measuring stick to determine if we had a good month or not for savings. If we are not coming close to saving $B, then there better be a good reason, or something is wrong with the budget. If we saved $B for the month, then we are on track and are doing well. I also know my budget is accurate when we can save $B without anything unexpected occurring during the month.

Budgets drafted in Excel like this are also handy for:

  • seeing what percentage of your spending is going where
  • determining what percentage of your income you are saving
  • determining what percentage of your income goes toward your mortgage etc.
  • showing the affect going down to one vehicle would have on our savings level

  • Create some sort of financial vision for 2009 and write it down

You should have some rough idea of what you would like to accomplish financially in 2009. Whether you want to use your excess funds to replace your home's windows and also put a new roof on, or you want to significantly bolster your child's education plan throughout the year, you should paint a picture in your mind and on paper. I have not formally written anything down yet, but I know roughly what 2009 will look like for us financially before the year has begun.

Perhaps you could assign a value to what you want to accomplish, "I will save $10,000 cash in 2009" or "I will pay of 20% of my total debt in 2009", whatever it is write it down and it will drive you to work toward achieving your vision. It helps to state your financial vision statements in an affirmative way to solidify your commitment. It is not 'I want to....' it is 'I will.....' or even the stronger 'I have...'. Never base short term visions or goals on a variable that you have no control over like an extra large bonus at work or stock market returns.

If you are unhappy with your financial situation or state of organization, and you have never drafted a budget or set goals or visions for the upcoming year or years, I'd encourage you to do so. You might just gain some confidence in that you at least know where you are headed and you can gauge your progress toward getting there.

Wednesday, December 24, 2008

happy holidays!..and wine too..

I'd like to take this opportunity to thank all of my readers for their tremendous support in 2008, and to wish everyone a Merry Christmas and a Happy New Year. I really hope everyone takes the time to enjoy the holidays with family. the moneygardener will trudge into 2009 with good riddance regards to 2008.

And what better way to enjoy the holidays and forget about your paper losses in the stock market, than with some Australian Red Wines.

Here are some of my favourite Aussie brands under $20 and the pertinent details:

Lindemans - Always reliable for a good bottle of red. Their blends are quite good and their Shiraz is nice as well. The inexpensive companion who never takes a write-down.

JJ. McWilliams - Got introduced to this brand through a bottle of their Cab/Merlot blend. Very fruity, drinkable wine.

WolfBlass - Their Yellow Label Cab. Sauvignon is probably my favourite wine under $20. Anything else they produce always goes down nice with Christmas Dinner. Good celebration wine.

Yellow Tail - I often refer to this as the Coca Cola of wine. Their reds never disappoint but I prefer their Shiraz and Merlot to their Cab. Sauv.

Hardy's - Another reliable and very affordable brand. Stamp Series; Start your Australian Red journey here. The money you save can go into dividend paying stocks.

Black Opal - I'm new to this brand but I've decided that it is worth some further investigation after I tried their Cab./Merlot blend.

Honourable mentions to LongFlat and Jacob's Creek.

The Aussies sure know how to make wine. Any further suggestions?

Tuesday, December 23, 2008

how did I save so much money?

I received an email from a reader recently in response to the post directly below this one, where I described that in 2008 we saved an average of $1,395 per month for our non-registered portfolio while my wife was on maternity leave. The gist of the reader's question was:

How on earth are you able to save so much money?

Well, simply put this blog's advertising revenue is approximately $1,395 per month.... :)

I wish the above were true. In reality my wife and I both pull in modest salaries. The best answer to how we are able to save so much money each month is a detailed description of several of our characteristics and habits which I feel allow us to do so. A simpler, more refined answer is we know how to get rich. It is really as simple as that. Read my "how to get rich, explained" post and that is basically the reason why we are able to save a significant portion of our income. Specifically:
  • The conventional wisdom says that your mortgage and property tax should account for no more than 28% of your gross income. Ours accounts for 14%.
  • The conventional wisdom says that as we age and earn more money we should buy larger houses and new cars. We don't subscribe to these theories whatsoever.
  • The conventional wisdom and human nature tells us to spend money on what we need and what we want before considering what is left as savings. We turn this idea around and make saving the first action.
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Saturday, December 20, 2008

4 goals update - end of 2008

About two years ago my wife and I set 4 long-term goals for our non-registered portfolio. I have these goals indicated on one of my Excel spreadsheets that I use to track my non-registered portfolio. The reason I have them there is so that I can see the 4 goals as a reminder, as well as to check up on my progress regularly. When creating these goals I tried to make them simply stated, specific, challenging, and of course realistic. I last updated my progress on these goals on June 1, 2008 here. Since 2009 is coming fast and my wife is now back at work, I thought a year end update is due to report our progress on these goals.

Goal #1 - Save an average of $1,000 per month to be added to this portfolio
Progress - For 2008 we've saved an average of $1,395 per month for this portfolio (not including these last 10 days or so). This is a tremendous result especially considering my wife has been on maternity leave for the year. I really would have never expected to accomplish this for 2008. It just shows what you can do if you put your mind and commitment to something. I may have to consider revising this $1,000 figure upwards!

Goal #2 - Keep our 'Buy Fee' under 2.0%
Progress - Currently our Buy Fee sits at 1.9%. This is something that is important to me, as I know the impact fees can have in investing. This fee should creep down as the years go by. I would expect the fee to get under 1.0% someday.

Goal #3 - Keep our portfolio dividend yield between 2.0% and 4.0%.
Progress - Currently our portfolio yield is 6.5%. This means that we are being paid 6.5% of the money we have invested annually. We are not meeting our goal in this area. The reasons for this are that a part of our portfolio was purchased to provide some additional income for my wife's maternity leave, and this section is made up of high yielding income trusts. The other reason for this is the extremely poor performance of the stock market. The original intention of this goal was to ensure that I was striking a good balance between growth and income, but I am starting to question the usefulness of this goal as this is really hard to quantify and put a range to.

Goal #4 - Grow our portfolio to $175,000 by February, 2014.
Progress - Currently our portfolio is worth $52,097, including some debt. This is the most difficult goal to gauge progress on. Looks like if we are able to save an average of $1,100 per month average (above all debt repayment), and we get an annual investment return of ~10% we'll meet the goal.

Thursday, December 18, 2008

mr.dividend, the third earner

This article originally appeared on The DIV-Net in November of 2008.

It really is a luxury for my wife and I to have a third income earner in our household. This constant cash earner may not bring in a lot of money now but I think he has great potential to grow his earnings going forward.

This third partner in our family income is non other than our non-registered investment portfolio, let's call him "Mr.Dividend". Because Canadian dividends are tax advantaged, and regular employment income comes with a lot of baggage like taxes, pension fund contributions, and employment insurance deductions, Mr.Dividend's income is purer than mine or my wife's income. Mr.Dividend's take home pay currently is probably about $2,500 on gross earnings of around $3,000. In order for my wife or I to make an equivalent net amount we would have to pull in about $4,000 gross.

Here are some of the other characteristics of Mr.Dividend's income that I like:
  • Likely to grow at a much faster rate than our employment income
  • Mr.Dividend is lazy, and he really doesn't do anything
  • His income is very secure; impossible for Mr.Dividend to lose his job
  • I could potentially grow Mr.Dividend's income automatically every time he gets paid by setting up Dividend Re-investment Plans
  • Mr.Dividend earns money while he consumes none of our household resources, and he never complains.
A triple income family is always better than a dual income family. Why not make Mr.Dividend part of your financial future.


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technical difficulties resolved

My apologies if you have experienced further technical difficulties with the moneygardener.

The blogspot address has now been restored and everything should be back to normal. I attempted to switch to a dot com domain when it appeared that Google had the issue resolved but they failed to redirect blogspot links. Due to this I have decided to revert back to blogspot until Google resolves the problem. Once, again I apologize for any inconvenience this may have caused and I thank you for your support of the moneygardener.

Tuesday, December 16, 2008

dividend re-investment plan (DRIP) example

Getting a DRIP Started

In May of 2006 I bought 40 shares of Royal Bank of Canada (RY) and registered the shares inside a dividend re-investment plan with their transfer agent, Computershare by contacting my broker and having them send the shares there. Computershare sent me the actual share certificate (below) because the moment I registered for the dividend re-investment plan the shares were actually held with Royal Bank as opposed to held with my broker as my representative. Royal Bank uses Computershare to coordinate these services, but technically my 40 shares are now held directly with the company.



How It Works
Each quarter when Royal Bank pays a dividend to their common shareholders, like me, Computershare automatically reinvests that dividend into more common shares at the current trading price. They will even purchase fractional shares as opposed to shares purchased within a synthetic DRIP (with broker), which means that Computershare doesn't need my dividend amount to be sufficient to buy one whole share. Here is what my actual dividend payments have looked like:

Aug. 24, 2006 $14.40 reinvested bought 0.29 shares
Nov. 24, 2006 $16.12 reinvested bought 0.30 shares
Feb. 23, 2006 $16.24 reinvested bought 0.29 shares
May 24, 2007 $18.81 reinvested bought 0.31 shares
Aug 24, 2007 $18.95 reinvested bought 0.35 shares
Nov. 23, 2007 $20.77 reinvested bought 0.41 shares
Feb. 22, 2008 $20.98 reinvested bought 0.42 shares
May 23, 2008 $21.19 reinvested bought 0.42 shares
Aug 22, 2008 $21.40 reinvested bought 0.47 shares
Nov 24, 2008 $21.63 reinvested bought 0.52 shares

As you can see, each quarter the dividend that Royal Bank has paid me has been higher than the previous quarter. The reasons for this are as follows:

  • Royal Bank has increased their dividend during this time frame (parents have more babies)
  • Shares that were purchased with the previous dividend payment generate dividends for the current dividend payment (babies have babies)


Also the amount of shares purchased with each dividend payment is trending up. The reasons for this are as follows:

  • Royal Bank has increased their dividend during this time frame
  • Royal Bank's share price has fluctuated, and has trended down over this period, enabling more shares to be bought with the same $1 of dividend, especially lately

In summary, a weak share price and a rising dividend are the best conditions for the value of your holdings within a DRIP to grow. Even if the dividend rate is constant, a low current share price is beneficial to DRIP investors, as long as the share price is expected to be higher at some point in the future. In my case I plan to hold these Royal Bank of Canada shares for at least 15 years so currently a weak share price is welcome.

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Monday, December 15, 2008

potato wedges - joint finances

After enjoying and featuring "..Kraft Dinner.." by the colourful blogger, Potato, over at Blessed By The Potato, we thought we'd sign him to a temporary guest column series contract with the moneygardener for an undisclosed sum... This post series promises to be unlike any other consumer reporting/ offbeat commentary you've ever read. John Stossel eat your heart out.... This series will be a change of pace, and we're calling it potato wedges. Enjoy...

Well, I'm married now.

We talked early on about money. We agree on a surprising amount: we both are fairly frugal, and are comfortable with equity investing, we're both responsible and pay bills on time, and can keep (roughly) to a budget.

The one thing I was not expecting after the marriage was that we couldn't figure out the nuts and bolts of actually managing joint accounts. Before, we had recorded all our spending during a month, who paid for what, then would transfer money between us so that we both paid roughly half the household expenses, maintaining always our own individual accounts. I figured that there were a number of approaches to take once we were married: we could continue to split things equally; we could just simply pay for things and not worry about whether it was equal or not, perhaps transferring between our individual accounts if the balances got out of...balance; we could split the monthly costs instead according to who made what, so that our savings/investment accounts went up at about the same rate; or, we could have the higher-income person pay for everything, so that investments are made in the hands of the graduate student lower-tax bracket person. In all of my scenarios, there wasn't an explicit need for a joint account of any sort, and I hadn't really planned on making an extensive use of one.

Wayfare, being a more sentimental person (i.e.: female), was appalled at my down-to-earth practicality, and insisted that a joint account was a must, because we're married, damnit! So any wedding gifts that came in the form of cash or cheques went into the newly-minted joint account (and I wish I could describe with words the look on her face when I suggested we just split the wedding gifts and put them in our existing accounts and just record the wedding-gift-house-downpayment fund balance in a spreadsheet). This was just the beginning though, because that's our joint house savings account is for that purpose only now. It's sentimental and carries with it a certain lingering magic from the wedding (I wonder if PC financial offers bonus interest for magic?). In the face of a looming liquidity crisis, I suggested she just use the money in the joint account to pay her tax installment to the CRA, and re-deposit it when her paycheque arrived.

Whoa. It was a good thing there was halloween chocolate nearby, or I might not be here to blog about the experience.

So as you can plainly see, money is just money to me. But to Wayfare, things can be a bit different.

We still haven't fully figured out exactly how we're going to do this. Right now we're working off the "doesn't matter who pays for what, just let it ride" method, largely because it involves the least amount of work. We know that we don't really want to get a Joint Account for everything -- we don't really want all our paycheques going into some common pool and merging our credit cards and just working from there: we both like our autonomy, and don't want the other person to know what we spend on gifts, etc. Besides, it's all "our money" in the end. We don't really have a model to work from: talking about money is not a big topic for most people, especially the nitty-gritty of how they combine their individual accounts after marriage. We know that both our sets of parents have Joint Accounts (capitalized for emphasis that this is not merely a shared account) and one spouse takes care of all the finances. Since we're both financially savvy though, we both want to keep some measure of control, to keep our fingers in the pie as it were.

Michael James beat me to it this morning with a great quote: "Sharing a bank account feels sort of like sharing a toothbrush to me. It can be done, but you'd have to be in quite a romantic mood to think that sharing a toothbrush is a good idea."

Friday, December 12, 2008

married household finances

The next potato wedges column will deal with Potato's take on managing joint household finances. He was recently married so this topic has been on his mind lately. I thought I'd preamble potato wedges with my view on married household finances....

My wife and I met during university in 1999. Since then our finances have just kind of slowly melded together and formed solid like a good jello. It is actually difficult to pinpoint exactly how all of this evolved, but a turning point must have been before we were married when my wife (girlfriend) at the time loaned me $4,600. When I completed university I decided that I wanted to do away with my $4,600 student loan, pronto. The only problem was I didn't have $4,600. However I knew someone that did, and she happened to live in the same one bedroom apartment with me. I drafted up a win/win proposal where she would lend me the money right away in full, I would pay off the loan and then proceed to pay her half of the monthly rent until the loan was paid back with 5% interest. It saved me from paying the Ontario Scholarship Assistance Plan any interest, and instead she made an easy $230. I'd much rather give the interest to her. This showed her trust in me and began to foster the trust that exists now in our relationship around money. I really think most of managing money in married life comes down to trust.

Fast forward to 2008 where we run our financial household like this:
  • One joint bank account, 100% managed by me
  • Pay for everything possible on credit cards and always pay balances in full
  • We're both pretty frugal, and have very similar money habits and attitudes toward money

This has to be one of the simplest ways to manage your joint-finances. I basically manage the works and my wife likes it that way. I enjoy it as you can probably tell, and it's one less thing for her to worry about. She trusts that I'll do a good job. I have the best interest of our family and our future as my driver in managing our family finances. I am really happy to say that I can not recall a money-related argument ever cropping up. The key to the whole thing is likely the last bullet point above, and we are lucky that this happens to be the case.

How do you handle joint-finances?

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Wednesday, December 10, 2008

Fortis charges up dividend

Canadian utility form Fortis Inc. (FTS) has increased it's dividend by 4%, from $0.25 to $0.26 per share. Fortis has increased it's dividend for 36 straight years.

Shares of Fortis, which I own as part of my non-registered portfolio, are only down 13% year to date, and are currently yielding 4.1%. Utilities in general have really outperformed the market this year as investors have flocked to their relatively safe earnings streams in the midst of the credit crisis and recessionary fears. Here is a glance at Fortis' recent dividend activity:

2004 - $0.540
2005 - $0.588
2006 - $0.670
2007 - $0.820
2008 - $1.000
2009 - $1.040 (estimated)

This represents a compounded annual growth rate of the dividend of 14%.

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Tuesday, December 9, 2008

added to TD Bank

Last week I added to my large position in TD Bank (TD) at $41 per share. Even though TD made up a large proportion of my portfolio (about 8%), I thought the valuation level was too hard to resist. TD is the best retail Canadian bank and they derive a large portion of their earnings from Canadian retail banking. I also believe that TD's dividend is not at risk of being cut. The bank is currently yielding about 6% as of writing this.

An investment in TD or Royal Bank (RY) is similar to an investment in the Canadian economy, since these banks have a large, stable market share and derive a large proportion of their earnings from economic activity in Canada. I feel confident making this long term investment while we are visiting very low valuations due to the current credit crunch and recessionary outlook.

My three investments in TD Bank over the last year were made at $65, $55, and this recent tranche at $41 per share putting my average cost base (ACB) at about $56/share.

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Monday, December 8, 2008

the loonie, a petro-currency

If you ever doubted the fact that the Canadian Dollar is a petro-currency; that is it's value is highly correlated to the value of petroleum, have a look at these two charts.

The chart on top is value of the Canadian Dollar versus the US Dollar. Note how the value stayed in the $0.96 USD to $1.02 USD range until August. Then in September the Loonie fell off a cliff as it plunged from $0.96 to a $0.77-$0.80 range. No more cross boarder shopping, and my US stock holdings essentially all increased their dividends and didn't fall as much as they truly did in the market.



Now look at the chart on the bottom showing the value of oil through the US Oil Fund ETF which tracks the price of the black stuff. The exact same pattern is evident, a July/August drop preceded a September plunge. One of my vehicles now costs $20 to fill up and the other costs $30.


Saturday, December 6, 2008

dividends, a bird in the hand

The saying 'A Bird in the Hand is Better Than Two in the Bush', really can be used to describe several life choices, as well as financial decisions. For example you might apply this credo to the following decisions:
  • Should I take part in a lottery pool with my co-workers?
  • Should I accept a lower amount for a prepayment for my goods or services than I would for a 'net 30 days' or more type of credit arrangement with an unknown credit risk?
  • Should I accept a position with company X now, even though company Y might hire me for more pay and benefits at a later date?

Dividends, the Ultimate Bird in the Hand

I've explained in the past some of the reasons why I am so focused on dividends as part of my investing strategy. Dividends have a human side and they're something to fuss over. Another reason I like dividends comes back to the 'Bird in the Hand' concept:

Companies like TD Bank (TD) and IGM Financial (IGM) constantly garner fee revenue each day without having to really employ many intensive resources. Inter Pipeline (IPL.UN), Fortis (FTS), and CP Rail (CP) generate consistent revenue as well by various means including the distribution of electricity, energy liquids, and goods. These functions are part of every day life for these companies and if they can keep their costs down the result is pure, consistent profit. The challenge for these company's is growth. The easy part is their consistent, stable, fee-type revenue.

When I make an investment in a company I am looking out several years so that someday I will receive 'two in the bush' in the form of a tidy capital gain. In the meantime though, why can't the company pay me for my trouble? They can pay me out of their stable fee-type revenue in, ideally ever increasing amounts, called 'Dividends'. These dividends will be some fraction of the actual capital that the company requires for it's future growth. I rely on the company to grow and provide my two in the bush someday, but for now I'll take my bird in the hand now as payment for the capital that I am providing the firm.


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Friday, December 5, 2008

friday reading

The Wealthy Boomer suggests, Leverage Now or Never? I've chosen to leverage now as I've currently borrowed about 12% of my net worth and deposited it into dividend paying stocks at these levels.

UBS says, Stocks to Rise 53% in 2009, saying the S&P 500 is currently valued at 11.3x earnings.

Dividend Money says, Invest Now When The Odds Are In Your Favour

Frog of Finance announces Canadian energy distribution firm, Enbridge's latest dividend increase.

Wednesday, December 3, 2008

retail musings

I don't particularly like shopping anywhere (except of course Costco). What I do like doing is observing how retail stores and other businesses try to make money, and thinking about ways they could make more of it. I wondered why they don't sell batteries at a local used children's clothes, toys, and accessories store. Seems like an easy high margin impulse purchase to go along with your battery operated toy.

I wondered why my gym let an extremely annoying issue with their electronic gate entry linger for months before fixing it. Do they know the staff are on Facebook while the paper towel dispensers are crying for new rolls? What is the threshold number of members that a gym wants anyway? There must be a target members:equipment ratio. Too high causes problems with overcrowding and disappointed members waiting for free equipment. What percentage of members never work out? I'm sure those couch potatos are their favourites, no wear and tear on the equipment or bodies in the hot showers while their membership fees keep rolling in through direct withdrawal. I'm sure there are stats on all of this. Would it be possible for the energy expended on the cardio equipment to power the gym?

Some Previous Retail Ranting I've Done On the moneygardener:
I don't like shopping at Canadian Tire. I even bought my washer fluid at Costco this year!
I really like shopping at Costco, maybe too much.

Tuesday, December 2, 2008

portfolio weighting breakdown

For those of you who don't know, I keep a regularly updated section down the right side panel which outlines my current stock holdings within my non-registered portfolio. The company name, ticker symbol, and my percentage allocation are represented there. Currently my largest holding is conglomerate, General Electric followed by Toronto Dominion Bank. Among other holdings I am invested in vodka, milk, and soil...

I don't really have a target allocation for any of these stocks or sectors yet. I have a rough idea in my head about the type of industry diversification I want to maintain, but I generally buy stocks when I find them attractive no matter how much it sways my allocations. Since I am currently in a major accumulation stage with this portfolio, my industry and stock asset allocation might vary wildly from month to month. I expect to have an opportunity in the future to strategically add to bring up sector or stock weightings if need be. This is what my portfolio looks like currently:

General Electric (GE) 8%
Toronto Dominion Bank (TD) 8%
Yellow Pages Inc. Fund (YLO.UN) 8%
IGM Financial (IGM) 7%
Inter Pipeline Fund (IPL.UN) 7%
Sun Life Financial (SLF) 7%
Bank of Nova Scotia (BNS) 6%
Walgreen Co. (WAG) 6%
Procter & Gamble (PG) 5%
Reitmans (RET.A) 4%
Johnson & Johnson (JNJ) 4% *
Husky Energy (HSE) 4%
Royal Bank of Canada (RY) 4%*
Clorox Company (CLX) 4%
Telus (T.A) 3% *
Fortis Inc. (FTS) 3%
Saputo (SAP) 3%
Canadian Pacific Rail (CP) 3%
Diageo PLC (DEO) 3%
Manulife Financial (MFC) 2%*
Scotts Miracle Gro (SMG) 2%
Bank of America (BAC) 1%
Cash 0%

*holding is in a dividend reinvestment plan where dividends paid automatically get reinvested in shares of the firm.

Monday, December 1, 2008

Saputo purchase

Today I initiated a position in Canada-based dairy operator Saputo Inc. (SAP) at $22.20 per share. Saputo is one of the largest milk processors in the world; you can't get much more defensive than milk and cheese.

Why Saputo?
This company is extremely recession resistant. Even if we we are headed into a deep, deep recession I am betting consumers will not let go of their weekly purchases of cheap unhealthy snacks such as Jos Louis, as well as dairy products such as cheese, yogurt, and milk. Saputo's earnings should hold up better than most other firms against the wrath of a nasty recession. You'll find Saputo products in the coolers of Wal-Mart (WMT) as well as Costco (COST), the two best retailers in the business.

Saputo's fundamentals are excellent. Some highlights:
  • 14.8% compound annual earnings growth rate since 1999
  • Return on Equity has been consistently above 15%
  • Long term debt has come down steadily over the years and the current debt/equity ratio is a very conservative 0.21
  • Pay out ratio under 33%
  • Current yield of 2.4%, with a 3 year dividend growth rate of 15.8%

Why Now?

I must admit Saputo is not a cheap stock. Even at 14.8x earnings and a price to book of 2.7, Saputo still seems a little on the pricey side if you are comparing it to many of the more cyclical firms out there. Historically though these are reasonable levels to get into Saputo as the stock rarely trades below a P/E of about 15x. Here are some comparable P/E ratios for stocks that are in very similar businesses to Saputo:

Pepsico (PEP) = 15.3x, Kraft (KFT) = 16.7x, Campbell Soup (CPB) = 16.9x, Kellogg (K) = 13.8x, General Mills (GIS) = 16.5x.

Saputo is down 25.6% year to date, while the S&P 500 is down over 44%. In this case I feel that the premium I am paying for Saputo is warranted due to their stellar growth, marketing position, and defensive nature.

More blogging on Saputo: Milk Runs In My Veins, & Dividend Analysis, Saputo

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Thursday, November 27, 2008

two sides of the coin

One of the reasons why stocks change hands a million times over everyday is because no matter how great or dire the economic/corporate earnings outlook is, there is always two sides to the story. Optimists and pessimists will always disagree, and each side can usually make a compelling case to either leverage yourself to the hilt and buy stocks with all your resources, or to sell everything stash most of your cash underneath your mattress and use the rest to build a bomb shelter. I think most would agree that it feels like we are on a very bad footing right now economically, but yet stocks are still finding bids, and the sun continues to rise every morning. Here are some reasons to be optimistic or pessimistic about the near-mid term economic/corporate earnings outlook:

Pessimists

  • Consumers and businesses are buckling down for a number of reasons which include economic uncertainty, rising unemployment, recessions, falling home prices, and trouble obtaining credit.
  • The U.S. government is building a massive debt load, and recent actions that they've taken shake the very foundations of capitalism and promise more risk aversion, and government regulation, of industries and markets in the future.
  • The former 'BIG 3' automakers are in trouble, putting millions of more jobs at risk.
  • The growth within emerging markets like China and India is slowing and recent terrorist acts add to the fear and uncertainty in these markets.
  • Deflation is now taking over from inflation as a worry because the price of goods are declining quickly.

Optimists

  • Fuel and other commodities are much more affordable than they were just months ago. This allows consumers and businesses to cut costs and leave room for consumption and investment.
  • The S&P 500 index has fallen over 40% since the start of 2008. Shares of many companies can be bought for significantly less now versus in 2007. Severe declines in forward earnings have been priced into many stocks making them less risky investments.
  • Interest rates around the world are coming down making credit and mortgages cheaper for many.
  • Emerging markets like China and India are still growing at very high rates and demographic, and lifestyle trends indicate that they will require the rest of the world's goods and services in a big way for years to come.
  • In a Darwinian type of way, plenty of the inefficiencies, mismanagement, redundancy, greed, and waste is being washed from the system. Most of the issues which have been dealt with and are being dealt with right now will come out the other side cleaner, leaner, and more stable. (ie Big 3, Financial sector, credit markets, consumer debt)

Feel free to comment on which camp you are in and why.

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Wednesday, November 26, 2008

must-read blog posts

Here are three posts that I really enjoyed over the past little while from three must-read blogs:

Why Don't We Buy Stocks When They're On Sale, by Dividend Money. This is not the first time the U.S. has looked like a very bleak place to be invested in the stock market.

Lotteries Millionaires, and a Sense of Scale About Money, by Michael James on Money. Whenever you are struck by a large sum of money, think about it in daily increments. Whether it is winning the lottery, being paid in dividends, or buying a ball glove for your son, you'll see it differently.

In Leveraged Investing & Prime Interest Rates, Million Dollar Journey provides an interesting chart on the Dividend Yield Required to Break Even with Leveraged Dividend Investing. I would add that this chart indicates the yield required on purchase to break even on returns from dividends alone given no dividend cuts, and a steady or dropping prime rate.

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Tuesday, November 25, 2008

potato wedges - luggage

After enjoying and featuring "..Kraft Dinner.." by the colourful blogger, Potato, over at Blessed By The Potato, we thought we'd sign him to a temporary guest column series contract with the moneygardener for an undisclosed sum... This post series promises to be unlike any other consumer reporting/ offbeat commentary you've ever read. John Stossel eat your heart out.... This series will be a change of pace, and we're calling it potato wedges. Enjoy...

potato wedges
Luggage
It's important to have good luggage if you're going to go travelling for an extended period of time, or so I've heard. For the most part, I've found it important to have a good backpack (which I use daily), and then when I go away I just muddle through with a duffel I got for free. Occasionally I've found the need for a rolling suitcase -- which I found fairly cumbersome, especially on the train -- but couldn't deny the obvious benefit in the airport. It's been rare enough though that I just borrow one from my parents.

So when Wayfare and I got married, we registered for some good wheeled luggage, paying particular attention to it being lightweight (though I don't know why we bothered, since what we fill it with is going to be the main determinant of the final weight) and having good wheels and bearings. I remember having to haul my (borrowed) suitcase down a long gravel walk at one hotel, and having wheels that were a little bit bigger than average really helped there. Some particularly small plastic rollers will lock up on the smallest piece of dirt, turning your wheeled luggage into dragged luggage. Another point we looked for was a handle that would operate smoothly with one hand (retract, extend): Wayfare's old suitcase required holding the suitcase and button with one hand and yanking the handle with the other, trying it one-handed would as likely as not just lift the suitcase entirely, or tilt it over on its side.

Luggage, I've found, is ludicrously expensive. A lot of that must be mark-up, because we've seen some pretty incredible sales come by, including a 65% off sale on some Air Canada brand pieces at the Bay last week (Wayfare went with one of those for our new stuff). As much as I ripped into the Bay for their gift registry, they do offer some benefits after the wedding is over: for the next year, we can use all those gift cards we got (as well as our own cash when those run out) to buy stuff to "complete" our registry. And when we do that, they give us a minimum discount, equivalent to their typical sale (or, a recent sale price if we're lucky). So, we can get ~25% off kitchen stuff on our registry for the next year, ~10% off sheets, and 50% off luggage. So that right there should tell you what kind of discount you should be looking for if you're waiting for a good luggage sale (or if you are looking to negotiate).

For reference, the one really huge piece Wayfare originally registered for was $400 (Swiss army, which my parents can't recommend highly enough for their luggage, but you really, really pay for the name). Thankfully, nobody bought us that (I would have felt bad if they paid full price). The Air Canada piece was roughly equivalent in size, weight, and quality, and was even a little bit more visually attractive, too. It was normally about $250, and we got it for $85.

Sunday, November 23, 2008

7 money tricks rich guys know

I recently picked up a copy of the magazine Men's Health as part of my ongoing effort to lose 50 pounds (240 - 190lbs). I'm 80% of the way to my goal which I started in May, 2008. I haven't looked at a Men's Health in years. Apparently they now run a regular section called 'Men's Wealth' where they deal with all things financial. When I first glanced at the article in this section titled '7 Money Tricks Rich Guys Know', I wasn't expecting much, as I find typically when media resources that don't focus on personal finance try to tackle the subject the advice comes out weak and scripted. I must admit Richard Sine from Men's Health does a nice job on this article thanks to Charles Farrell, a Denver-based investment advisor. Here is a summary of the first 3 tricks:

1. Figuring Out Your Net Worth
Would you start a diet without knowing your weight? I think that's a great point. For all the slings and arrows shot at net worth from the personal finance universe, if you take it as a relative measure to gauge your progress I think measuring your net worth regularly is fundamental to working toward your financial goals. Apparently fewer than half of Americans can even approximate their net worth. It's even a good way to better understand whether you should take on certain debts etc. Men's Health goes on to warn that the equity in one's home is an asset but its value is subjective and it's not as useful in a pinch as cash or non retirement investments (too bad more people hadn't concluded this recently).

2. Running Your Ratios
Men's Health points out checking three key ratios to see if you are on track for a secure retirement.
Savings / Income = Changes through life 0.1 to 12.0
Debt / Income = Changes through life 1.70 to 0.0
Savings Rate / Income = 12%

More good advice. As readers have seen from my net worth updates and savings rate calculations, I really like using ratios like this to gauge my progress. I also use:
House Value / Total Assets = Currently about 70%
Debt / Asset = Currently about 53%

3. Gauging Interest
Men's Health argues that all debt is bad debt if you do not keep debt in proportion to your income by using the Debt / Income ratio above. By the way the 1.70 above is suppose to apply to 30 year olds. My Debt / Income is currently 1.36. Men's Health also notes that it is not always better to pay off 'bad debt' before 'good debt' citing an example that shows that the size of the loan matters more given close interest rates. This is good advice that seems to be lost on many people judging by peoples love for real estate and student debt in recent years.

I'll review the next 4 tricks in a future post.

Friday, November 21, 2008

added to Inter Pipeline

I added to my position in Inter Pipeline Fund (IPL.UN) yesterday at $7.04, where is yielded 11.9%. This is close to Inter's 52 week low of $6.91, where it traded down to on October 10. Sporting a pay out ratio of around 60% of earnings, this is another company that is very economically resistant, has perhaps been unfairly sold off, and shouldn't have a problem withstanding a recession. I expect to hold Inter Pipeline through 2011 when it converts from an income trust structure into a regular dividend paying corporation.

How low can the DOW go?

Thursday, November 20, 2008

added to IGM

I added to my position in Canadian wealth manager IGM Financial (IGM) today at $31.84. This purchase reduces my adjusted cost base on this stock significantly, and boosts my yield on cost significantly.

IGM was yielding 6.4% and trading at a P/E of less than 10x at my time of purchase. I was actually surprised how well IGM's earnings stood up to the market's recent dramatic down turn. Investor confidence is extremely bleak. I believe this is a good time to add to my position in this best of breed Canadian wealth manager. Most of IGM's customers should take the rational action during these volatile times and stand pat or only adjust their portfolios slightly.

Monday, November 17, 2008

new position - CP Rail

Today I initiated a new position within my non-registered portfolio in Canadian Pacific Railway (CP) at $39.94. CP is a transcontinental railway that transports bulk commodities, merchandise freight, and intermodal traffic.

Why A Railway?
One of the most compelling reasons to invest in a railway is the fact that by their nature they possess incredibly high barriers to entry. What is meant by this is that railways and the rail industry have characteristics that act as barriers to other potential competitors entering. How many North American entrepreneurs will have the desire to build a cross country railroad anytime soon?

Other attractive features of investing of railways include their fuel efficiency vs. trucking (1/4 cost advantage), hauling coal over long distances belongs to the rails, increased trade with Asia mean longer distance runs, truck driving hour regulations, innovations like double stacked and computer guided cars are making rail even more competitive with trucking. Thanks to the monopolistic nature of railroads they also have serious pricing power.

Why Canadian Pacific (CP)?
  • Canadian dividend tax credit makes CP more attractive for me than U.S. names
  • Canadian National Railway (CNR) is a much more expensive stock

Why Now?

I've wanted to own a railway for a few years now but I have never been able to justify a purchase based on the richness of the stock valuations. CNR and CP have traded well over 12x earnings for much of the last few years as the economy grew at a reasonable pace. Now that economic activity and commodity prices have really started to sputter, so has CP's share price. Here are the specifics that really got me interested:

  • P/E ratio of 8x earnings
  • Dividend yield of 2.5%
  • Price to Book ratio of 1.1x
  • Dividend Payout ratio is under 15%
  • Return on Equity is 18%
  • Stock last traded at these levels in early 2005

Compare these numbers with CNR, and the two stocks are not even in the same rail yard as far as valuations go.

I really like the idea of owning CP for the long term because this railway is really tied into Western Canadian commodities, including agriculture, while at the same time the company by nature should experience much less volatile earnings than an actual commodity producer would. CP is an extremely boring business that should continue to stay on "track" with growing long term earnings and dividends.

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Friday, November 14, 2008

net worth update november, 2008

Results for the 2 Months Ended November 14, 2008:

  • Debt/Asset ratio rose to 0.53 from 0.50

  • Net Worth moved down 7.9%

  • Total Assets decreased 0.7%

  • Total Liabilities increased 6.5%

  • House Value/Total Assets rose to 70.4% from 69.9%

  • Non-Registered Portfolio rose 8.0%
  • Calendar Year to Date Gain/Loss: +5.1%

I have to admit that I was dreading putting this net worth report/post together. Our net worth has been hammered down almost 8% since the last bi-monthly update in September. The S&P 500 index is down about 28% since the last update, so this comes as little surprise. Basically the last seven months of net worth gains have been wiped out, as we are now back to April, 2008 levels. As readers know I am buying fist fulls of dividend paying stocks down at these levels. Let's just say that I am investing in future net worth reports. I can take the pain now, and it does hurt, with a look to the future.

Leverage - Liabilities are up 6.5% this update due to us utilizing line of credit funds in order to fund our non-registered portfolio at these low stock valuations. Whether these low stock prices continue for the next few months or next few years, or, god forbid, go much lower, I'll still be glad I started investing these funds now because I'll be receiving dividend income from the funds months earlier.

House Value - I have maintained our house value in net worth calculations at the same level since July of 2007. During this time we've made improvements to our home, however I feel that their affect on the value of the house are negligible when you consider the recent weakness in Canadian real estate prices.

Wednesday, November 12, 2008

how to get rich, explained

If we could boil achieving financial freedom and independence down to one habit, what would that habit be?

LIVE BELOW YOUR MEANS
Seems simple enough doesn't it? This basically means, ensure that your lifestyle costs much less than your true financial wherewithal. Do this for many years and you'll find yourself in a very good position financially.

We often hear the phrase 'Live Below Your Means' espoused by several personal finance pundits but what does this really mean?

Here are some of the most important specifics that I feel define what it is to LIVE BELOW YOUR MEANS:
  • Do Not Purchase a Home for Nearly the Amount that your Lender Pre-approves You For. Lenders obviously want you to borrow as much money as you can theoretically handle based on your income. This figure is usually ridiculous when you consider the fact that you do need money for other items aside from your mortgage, property tax and other related home expenses. Write up a monthly budget and actually examine where your money will go in reality before purchasing a new home. You'll find that your lender would like you to lead a house-poor lifestyle of stress and worry.
  • Save First, Then Spend. "I would save money but there is nothing left at the end of the month". This is a common excuse. Until you adopt the habit to put money aside as savings before you even think about paying bills or buying things, you'll feel like a hamster on a financial treadmill. Automate this by setting up an automatic money transfer to a separate account and it's fool proof. Save at least 15-20% of your gross income and you'll be well on your way.
  • Forget About The Jones'. You might as well face it, your friends and relatives your age will live above their means and you will look poor when compared to them. Until you resign to this fact, you will be extremely tempted to veer off course, following the herd by making irresponsible financial decisions that lead into debt and stress. Let others become house-poor, live paycheque to paycheque, drive overpriced SUVs they can't afford, and take vacations on credit while you manage your finances responsibly by sticking to your plan. Remember, the Canadian banks own the Jones', while you can own the Canadian banks if you choose.



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Tuesday, November 11, 2008

investing carnival remembrance edition

Welcome to the Investing Carnival brought to you by The DIV-Net. Without the ultimate sacrifice that brave men and women have provided and are providing for citizens of the United States and Canada, the pursuits below would not be possible. Lest We Forget!

Stock Analysis
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Stock Pursuit presents Walmart vs Target posted at Stock Pursuit.

Carlos Sera presents A Trader's Tale; Financial Tales posted at Financial Tales.

Fatty presents Automated Day Trader: Double Moving Average Crossover, Test 1 posted at Fatty Fat Fat.

Nurseb911 presents Taking Stock in MFC: posted at Triaging My Way To Financial Success.

Investing
Surfer Sam presents Stock Investing With Warren Buffett. Investment Advice From a Billionaire. posted at Surfer Sam and Friends.

Ripe Trade presents Trend trading system posted at Ripe Trade.

greg group presents How to Make Money by Laddering Covered Calls - Associated Content posted at Associated Content.

The Financial Blogger presents Obama is the new President, now what? posted at Intelligent Speculator.

Dorian Wales presents Review: The Gone Fishin' Portfolio by Alex Green posted at The Personal Financier.

Shadox presents Late Day Rallies and Crashes: Why Do They Happen? posted at Money and Such.

Investing School presents Try Buying When You Want to Sell and Vice Versa posted at Investing School.

Michael Cohen presents The Hidden Advantage Of Mutual Fund Investing posted at The Fund Investor.

Timothy Lutts presents The Future of America posted at The Iconoclast Investor.

Paul Goodwin presents Market Timing Simplified posted at The Iconoclast Investor.

D4L presents Stock Analysis: Emerson Electric Co (EMR) posted at Dividends4Life.

FMF presents Why I Sold My Mutual Funds posted at Free Money Finance.

Stock Pursuit presents Walmart vs Target posted at Stock Pursuit.

hank presents How Is What We Are Going Through Now Different From The Great Depression in the 1930’s? posted at MiB Smarter Money.


Value Investing
Vlada Kynsky presents Emerging markets fundamental valuation. posted at StockWeb.

Wealth Accumulation
Bill presents Social Security Sense posted at Learn The Stock Market And How to Trade.

MBB presents How To Calculate Your Net Worth posted at Money Blue Book.

Real Estate
Joe Manausa presents How To Stay Calm In The Real Estate Market posted at Tallahassee Real Estate Blog.

Ned Carey presents Lessons from Warren Buffett on Real Estate posted at Baltimore Real Estate Investing Blog.

LAL presents Mortgage Modifications posted at LivingAlmostLarge.

Alternative Investments
Benjamin presents Gold: A Few Points for the Prospective Investor posted at Trees Full of Money.

Thanks to all that submitted content! Please take a moment to browse the moneygardener.

Saturday, November 8, 2008

november limit orders

When I look out a few years many stocks are still looking like very good value at today's recession fear induced levels. As I continue to accumulate stocks for my non-registered portfolio during these dreary times, here are the current limit orders that I have placed with my online broker to expire on at the end of November:

United Parcel Service (UPS) at $45.01
General Electric (GE) at $18.00
Walgreen (WAG) at $21.50
IGM Financial (IGM) at $32.00
Reitman's Canada (RET.A) at $12.01

GE, IGM, and Reitman's are all yielding over 6% at my strike price. They should all report lower near term earnings but a 6%+ yield should limit downside and give me some nice immediate return in lean years. Walgreen is trading under 10x earnings at $21.50, and UPS at $45.01 is under 12x earnings and yielding 4%. Each of these stocks with the exception of Reitman's have touched levels below my strike price during the last month or so. I hope we get another test of the October 10 lows and I can pick up some or all of these great companies at bargain basement prices.

Friday, November 7, 2008

potato wedges - income trust yields & valuations

After enjoying and featuring "..Kraft Dinner.." by the colourful blogger, Potato, over at Blessed By The Potato, we thought we'd sign him to a temporary guest column series contract with the moneygardener for an undisclosed sum... This post series promises to be unlike any other consumer reporting/ offbeat commentary you've ever read. John Stossel eat your heart out.... This series will be a change of pace, and we're calling it potato wedges. Enjoy...

potato wedges
Income Trust Yields & Valuations

The market has been a little insane lately. The market can stay irrational longer than you can stay solvent, as the saying goes, and one is often instructed not to catch a falling knife. Nonetheless, I couldn't help but plow the money I got from Q9 being taken over right back into the market, specifically into some high-quality income trusts that I think are just ridiculously under-valued at the moment. Quarterly results have just been released, and while I recognize that they are lagging reports (for the period ended Sept 30, though the markets and economy didn't really go totally batshit loco until October), they seem to underline just how non-catastrophic some sectors are.

Yellow Pages income fund (YLO.UN) had very strong results: they are well on track to keep up the modest ~4% revenue growth needed to maintain their distributions after a conversion to a corporate structure. They had impressive improvements in their margin, so net income was up even more, 19%, helped also by the growth of their online business. If a temporary bump in the road comes along, the distribution is less than 80% of their cashflow, so there is a safety factor there. I know that the coming recession hasn't really hit them yet, but at the same time, keeping up your ad in the Yellow Pages is pretty much necessity for any small business. Advertising spending may get chopped next year, but the part of it that goes to YLO will surely be the last to go. MG likes and owns them as well, and just had a post on averaging down. Right now YLO is down so much it's yielding about 15%.

H&R Reit (HR.UN) is a real estate investment trust that has commercial real estate (office space, industrial buildings, and retail space) that it leases out. It has a preference for long-term leases with large, stable companies. To go with that, it has long-term fixed mortgages, so the credit crunch shouldn't really affect them much. Nonetheless, it's down to below the value of the real estate it owns (though the balance sheet values of real estate holdings must be discounted in this market) and is also yielding about 15%. They haven't released their quarterly results yet, but I would be incredibly surprised if it was anything other than "steady as she goes". Their payout is a little higher at 90%, but they don't need to build up the tax cushion other trusts do (REITs are, AFAIK, immune to Harper's tax).

Why did I bold the 15% yields? It's because they are, to my senses, screaming for attention. The gains for the market as a whole will likely average about 10% per year over the next decade or two, a prediction by John Bogle that Canadian Capitalist recently commented on. I personally expect equity nominal returns to be somewhere in that range as well, possibly a little lower on a 20-year timeframe (unless inflation is high). So when these stable companies are offering a 5% premium to that (or put another way, a third higher), which can be continued (hopefully) indefinitely, and moreover, predictably -- the payout comes every month, despite what the market may do (and that ~10% prediction is going to feature lots of ups and downs along the way) -- I sit up and take notice. To top it off, once Yellow Pages converts, that regular, lucrative distribution will become a dividend, which will have the added benefit of being favourably taxed.

I think these trust valuations have gotten so low, and the yields so high, that it just can't be ignored any more. There could be more bad news ahead. Given the trends, there probably will be. But I think 10 years from now I am not going to regret buying something that's this stable and yielding 15%.

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Thursday, November 6, 2008

more Yellow Pages

I have added to my position in Yellow Pages Income Fund (YLO.UN) today. Earnings, which came out today were up 20%. Organic online revenues were up 38%. Distributable cash per unit was up 8.8%. Earnings and margin from paper directories were both up.

Their current distribution is solid according to their CEO, Marc Tellier. Stock is currently trading at a P/E of under 8x, and yielding 14.6% in distributions. This purchase lowered my ACB significantly. I am confident in their future ability to continue to pay out a significant yield. I also believe that at their current unit price YLO is priced for a severe recession, while a recession will not hurt their earnings as much as is expected because of the staple-type nature of their advertising offerings.

A very high yield combined with earnings and margins that continue to grow made this purchase hard to resist.

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Wednesday, November 5, 2008

Newalta, new dividend kid on the block

Canada's leading industrial waste management and environmental services company, Newalta currently (NAL.UN) has announced it is converting to a corporation. Newalta plans to eventually pay a quarterly dividend of $0.20/quarter (eligible dividends), this represents a yield of 8.9% on Tuesdays closing price.

Newalta also announced a 5% rise in earnings per share and that they are cutting their cap ex growth budget by 30% for 2009. Half of Newalta's growth as a company to date has been through about 50 successful acquisitions.

Here are some highlights of Newalta's distribution history
March 2003
Monthly distributions initially set at 9.0¢ per unit at conversion
Sept 2003
Distributions were increased to 10.5¢ per unit
March 2004
A further improvement was made to 12.5¢ per unit
March 2005
Distributions reached 15.0¢ per unit
Nov 2005
They were raised to 16.5¢ per unit
May 2006
Most recently, distributions were increased to 18.5¢ per unit

Newalta has shown some pretty impressive growth of the distribution since 2003, which should be noted was boom time for the oil and gas industry which Newalta relies on for a large part of their revenues (47% to be exact).

I like the Newalta story, as I believe this should be a stable and growing business and we move into a future of heightened environmentalism and attention toward the better management of waste and recycling programs. I actually had a close look at Newalta last year when I was selecting income trusts for my portfolio as part of our maternity leave strategy, where I ended up selecting IPL.UN and YLO.UN instead. At that time I ruled out Newalta because of it's heavy reliance on the cyclical oil and gas industry. This is certainly one to keep an eye on as we move into 2009.

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Tuesday, November 4, 2008

J&J, safe, solid, & consistent

This article was originally posted at The DIV-Net on October 15, 2008.

Global health care company and perennial dividend grower, Johnson & Johnson (JNJ) announced yesterday that they grew their third quarter earnings by 10.4% over 2007. Sales were up across the board and were largely driven by international efforts. Generic drugs are having a negative impact on J&J's pharmaceutical business. Johnson managed to grow consumer sales by 13% driven primarily be U.S. allergy sales (Zyrtec) and Chinese moisturizer sales (Dabao).

The company also increased its earnings guidance for full year 2008. Overall, the earnings report looked very solid, a nice reprieve from the dark day to day headlines in the market these days. JNJ is being viewed as a safe harbour from the storm lately and they are certainly living up to that billing as they continue to execute despite current conditions.

Here is a glance at J&J's recent dividend activity:
2006-$1.47
2007-$1.64
2008-$1.80

That is a compound annual growth rate of the dividend of about 11% over the last few years

Monday, November 3, 2008

net worth declines abound

Declining North American home prices coupled with plunging stock markets mean that personal net worths are declining everywhere from Los Angeles to Halifax. This is a phenomenon that is not only occurring in North America, but in most of the world. Personal finance bloggers are no exception.

Here is how some of the usual suspects fared on their November 1 updates:

American, Clint from Accumulating Money saw his net worth decline by 9.9% since October 1.


Eastern Canadian, FT from Million Dollar Journey had his net worth decline by only 0.3% since last month due to some strength in his savings as well as stable real estate values. FT has had a strong performance in 2008, as he is sitting at a net worth increase of 13.3% year to date.


Western Canadian, Tim at Canadian Dream: Free at 45 saw his net worth decline by 3.6% since his last update in late August. He is still hanging on to a 1.9% increase year to date.

How bad will my November net worth damage be? I report my net worth on or around the 15th of the month, every other month. My next report is scheduled for around November 15. See the blog sidebar for all previous net worth updates, like my last one in September here.

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Sunday, November 2, 2008

portfolio update nov. 08

31 months ago we started a non-registered portfolio by transferring $5,000 from a mutual fund account into an online brokerage with the intention to buy stocks. Over the last 2.5 years we've saved new funds and managed the portfolio for the future by purchasing dividend growing stocks at reasonable value and using the following philosophy:

Investing Philosophy
I'm foremost a buyer, seldom a seller, with a long-term view.
I'll only buy stocks that I would average down on.
I will be patient, disciplined, & stick to my system.
I don't worry or panic, & I always remember my reason for the initial purchase.
Dividends are half the journey.
Consistency, quality, brands, & demographics matter.


Asset Allocation
This portfolio is invested for the long term (at least 7 years) and is allocated 100% in equities. Here is the breakdown. (click on the image below for better viewing). See the side panel for specific stock allocations.


2008 Performance
Return including dividends = -18.5% (some benefit from currency fluctuation)
S&P 500 Index return without dividends = -34.0%

Key Metrics
Portfolio Value = $48,649
Total Number of Stocks = 20
Last Year's Return = +0.2%

Portfolio Yield = 5.3%
Portfolio Yield on Cost = 4.3%
One Year Dividend Growth Rate = 88%
Income From Investments Per Day = $7.01

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Saturday, November 1, 2008

td bank & 404 errors

On Thursday of this week I added to my existing Toronto Dominion Bank (TD) position, which I started back in April, at $55.23/share. This brought my average cost on TD Bank down to about $62/share. I continue to pick away at adding to my existing stock holdings when I see value. TD was 26% off of its 52 week high and yielding 4.4% when I made the purchase. This purchase makes TD our largest holding in our non-registered dividend stock portfolio. This portfolio is designed for the long term and will provide years of dividend income. Purchases made today during very bleak times should prove to be smart as time marches on.

I think TD's very strong retail franchise in Canada as well as their avoidance of large scale involvement in toxic instruments and investments should enable them to keep their earnings per share more steady than most of their competitors in Canada and abroad. Much of what is hurting TD's share price is the general negative sentiment against financials and non-hard asset earnings. Economically, there are rocky times ahead but I believe TD is the best positioned Canadian bank to whether the storm and emerge successful on the other side. Canadian bank earnings will be interesting indeed when they come out later this month.

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My apologies for anyone experiencing a 404 error when attempting to access the moneygardener over the past few days. Google is having some difficulty transferring the blog over to a custom domain name (dot com), vs. the current blogspot format.

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