Thursday, December 31, 2009

climbing the ladder

Canada's, The Globe and Mail published an article recently called Financial Tips As You Climb The Financial Ladder. It was written by Larry MacDonald and it offers some financial advice for those in their 30's and 40's.

Many of my favourite financial blogs are actually mentioned in the article including Triaging My Way To Financial Success, The Dividend Guy, Michael James on Money, and Thicken My Wallet.

the moneygardener was also called out in #7 for the dividend hound that I am...

You are in your thirties or forties, moving up to higher levels of income in your career. Your children are growing up and you are making good progress paying down liabilities such as the mortgage. Overall, it's becoming easier to put money aside and invest for future needs, particularly retirement. Here are 10 financial tips to consider for this stage of life.

Wednesday, December 30, 2009

top 6 consumer goods stocks for 2010

I don't normally do this but I can't help linking to this article by The Street is touting 6 names as the Top 6 Consumer Goods Stocks for 2010, and by George I own 4 of them.

Scotts Miracle Gro (SMG)
Clorox (CLX)
Procter & Gamble (PG)
Phillip Morris (PM)
Johnson & Johnson (JNJ)
Pepsico (PEP)

The article does provide some good insight into the expected fortunes of these six firms as they move into 2010. With the exception of SMG they are all great dividend raisers as well. I agree that these are 6 very good companies to own shares in for the long term, especially if they can be acquired at reasonable value.

Saturday, December 26, 2009

got Husky-er

No, I didn't eat too much fruitcake and apple pie this holiday season, I just bought myself a gift on Christmas Eve in the form of 52 more shares of Canadian oil and gas firm Husky Energy (HSE) at $29.63/share. I've been looking to boost my portfolio exposure to oil and gas and after looking at a few option,s I came back to Husky for reasons not limited to the following:
  • After Husky shares had fallen from a high of around $52 in 2008 and the company's cut their dividend, they haven't bounced back as much as I expected given the rebound in oil prices. I now don't see a lot of downside for the shares as they price of oil feels firm now that the economy is out of the hole it was in.
  • The stock has also underperformed many other oil and gas stocks and the valuation seems reasonable at just $4 above it's multi-year low
  • I think Husky will be quick to raise their dividend back up once their earnings catch up to the price of oil. Husky is now paying $1.20/share in dividends, while their EPS in strong-oil years past has been in the $4-$5.50 range. I think we have some high-oil price years ahead of us...
  • The current yield of 4% offers some in pocket return with little risk of downside to the share price as the great recession moves further into history

Husky now makes up 7.4% of our non-registered portfolio.

Wednesday, December 23, 2009

Happy Holidays!

Wishing you the best of the season from the moneygardener, and a successful 2010!

2009 Was A Great Year to Be A Stock Market Investor!
  • While cowards fell by the wayside, the S&P 500 index has risen 24% for the year and has nearly doubled since the March low
  • Some of the equities that we own are trading at or near their all time highs
  • Leveraged investments into the heart of the late 2008 / early 2009 plunges have been paying mostly stable dividends and interest rates have remained low
  • All signs are pointing to an improvement in dividend growth in line with general economic activity
  • Our net worth has exploded over 30% while we've been doing a poor job of saving money
  • All financial media outlets are preaching caution with your money, your mortgage, and your life.......the most bullish sign yet!

Australian Red Wine Roundup (moneygardener recommends)

  • Wolfblass Red Label Cabernet Merlot 2008
  • Rosemount Shiraz Cabernet 2008

Friday, November 20, 2009

Leon's purchase

Today I purchased a chunk of Canadian furniture chain Leon's (LNF). The stock is so illiquid that I could see my 170 share purchase add to the running total for the day and I saw a chart blip with my name on it on Google Finance. I bought the shares at $9.88 and I will get the $0.20 per share special dividend that Leon's is paying out in December. I have to admit that I have been looking at the stock for a few years and I was surprised to see the valuation it has changed hands at in the last few months. The special dividend did catch my attention but I do think the shares are good value at 12.5x depressed earnings. Several retail stocks with inferior balance sheets to Leon's have much higher multiples in hopes of recovery. I think Leon's stock has room to run and management has navigated through tough times before.

I will be holding for the long term, with these as my primary reasons for purchase:
  • 'Go to' name in Canadian furniture & appliances with large, well located, and well laid out new stores
  • Always generate return on equity north of 15% and very low debt level
  • Yielding 2.8% and have a solid history of dividend growth
  • Conservative, family run, shareholder friendly business with room to grow with potential expansion in under-serviced markets in Western Canada

This now makes up 2.2% of my portfolio.

Tuesday, November 17, 2009

Sysco, Intel, Leon's dividend news

Food distribution powerhouse SYSCO (SYY) has raised it's dividend by 4% to $0.25 per share. This marks SYSCO's 160th quarterly dividend. As far as I can see SYSCO has raised their regular dividend every year since I was born in 1979.

I recently bolstered my position in SYSCO on June 15 of this year when the stock traded at $22.82. The stock now trades at $27.35 and yields 3.7%.

Another notable dividend raise came from chip maker Intel (INTC) who raised their dividend by 12.5% on November 16. That stock now yields 3.1%.

Leon's Furniture (LNF) issued a special dividend of $0.20 per share to celebrate their 100th year of business. Congrats to Leon's shareholders. I wish I had purchased Leon's during the downturn when it traded at $8.00, as I believe that it is a great Canadian business. The stock is trading at $10 per share with a yield of 2.80, a P/E of 12.5 and a debt/equity ratio of only 0.36. Sales and earnings have been down pretty significantly lately due to their sensitivity to the downturn.

Saturday, November 14, 2009

net worth update, Nov 09

It's time to report my bimonthly net worth. I report my net worth on the moneygardener or around the 15th of May, July, September, November, January, and March.

Net worth results for the 2 Months Ended November 15, 2009:
  • Debt/Asset ratio dropped to 0.47 from 0.48 (record low)

This is a measure of our financial health. Total debts divided by total assets. So currently for every $1 of assets that we have, we have $0.47 of debt. Back in May of 2006 our debt/asset ratio was a whopping 0.77. What is your debt/asset ratio?

  • Net Worth gained 3.3% (record high)

Net worth is probably the best barometer of one's financial health. The recent financial crisis caused our net worth to drop by about 14% at one point. Since then our net worth has rebounded 37%. How has your net worth fared in 2009?

  • Total Assets rose 1.3% (record high)
  • Total Liabilities shrunk by 0.9%
  • House Value/Total Assets fell to 62.8% (record low)

I like tracking this because it shows us how diversified we are. Our asset base is made up 62.8% by the value of our humble abode.

  • Non-Registered Portfolio grew 3.4% (record high)
  • Net Worth Calendar Year to Date Gain/Loss: +27%

2009 is shaping up to be a great year for our net worth. The year began amid the credit crisis and our net worth has grown leaps and bounds since then as the market has risen.

Thursday, November 12, 2009

ADP dividend up 3%

Automatic Data Processing (ADP) reported better than expected fiscal first quarter earnings and hiked their dividend 3% to $0.34/share per quarter. This is the 35th year in a row that ADP has raised their dividend. Mounting unemployment in the U.S. continues to have an impact on ADP's revenues, as fewer workers for their clients means less fees to ADP.

ADP has forecasted EPS for fiscal 2010 to come in at about $2.37 per share. The stock is currently trading at 18.3x that forward earnings number and yielding 3%. The current dividend pay out indicates a pay out ratio of 57% on estimated 2010 earnings.

The stock is up 8% since I started a position in ADP inside my wife's RRSP. An interesting thing to note is that this stock seems to have really taken off despite the fact that US unemployment is at best flattening out. Could this be an indicator of the next 6 months to one year? Time will tell. If the job market turns up slower than expected, or stays at depressed levels, ADP could suffer.

* My wife owns shares of ADP in her RRSP.

Friday, November 6, 2009

Telus fails to raise dividend

Canadian telecommunications firm Telus (T.A) has failed to raise it's dividend for the first time in several years. Telus left it's quarterly dividend at $0.475/share for payment on January 4, 2010, the fifth straight quarter of this payment amount.

Some analysts believe that Telus is viewing 2009 as a year of investment in their business and they will resume dividend growth in 2010. Telus is striving to get ahead of the competition as they compete with Bell (BCE) and Rogers (RCI.B) among others including new potential entrants in Canada.

Telus announced earnings today that beat analysts estimates but were still virtually flat from last year at $0.88/share. They also lowered their full year sales and earnings outlook. The best analysts can say is that things don't seem to be getting any worse in the wireless area.

Tuesday, October 27, 2009

Rogers results look good

Given the slow advertising market lately the results reported today from Canadian telecommunications company Rogers Communications (RCI.B) (RCI (NYSE)) looked pretty good.
  • Earnings per share were up 12%
  • Wireless revenue up 7%
  • Overall revenue up 2%

Roger's Canadian exclusivity on the Apple iPhone helped these results. This tailwind will be taken away now as competitors get the phone as well. Once advertising picks up again Rogers earnings should continue to grow. They are well positioned in the Canadian market and have gobbled up a lot of Bell Canada's customers over the last few years. I think this is a good company to hold for the long term as they have pretty consistent cash flow coming from a stable product. They have also been friendly to shareholders in the past with stock buybacks and dividend increases.

My wife owns Rogers shares in her RRSP.

Wednesday, October 21, 2009

Inter Pipeline raises distributions

Inter Pipeline Fund (IPL.UN) has announced a 7.1% increase to their distribution level. They are raising their pay out from $0.07 per unit per month to $0.075. They have a confident outlook for their business.

This bodes very well for shareholders, me included, especially as their forced conversion to a tax paying corporation looms in 2011. They previously stated that they would keep the distribution level constant going into this conversion. I guess they have one upped that today.

Friday, October 9, 2009

bought ADP

This week I started a position in Automatic Data Processing (ADP) within my wife's RRSP. I've had my eye on ADP shares for a few years and I decided to take the plunge now, even though the shares are not at bargain basement levels.

I wrote about ADP last year here.

My reasoning for buying into this company for the long term:
  • ADP is the dominant industry player and the class of their field
  • They have a great earnings and dividend growth history
  • They earn a high ROE and have low debt
  • The company is experiencing a flat earnings period due to a sharp drop off in jobs and economic activity, but I believe they will accelerate out of this well
  • I like their potential to grow outside of the US, Canada, and Europe in the coming years
  • Feels like a good time to buy this company when unemployment is high, even though the stock has had a bit of a run from it's March lows

ADP is due to to raise their dividend, however their current pay out ratio sits at 50% of earnings.

Tuesday, October 6, 2009

why McDonalds is a good investment

Grab some shares of McDonalds (MCD) now and you might not have to work there in retirement.

You can say what you want about how morbidly unhealthy the food is, or how they market to kids, but they do know how to grow the value of your investment. The fast food icon, which is actually the world's sixth most valuable brand, and the second most valuable food related brand, second only to Coca-Cola, has been around forever and is showing no signs of going away. What makes McDonalds shares such a good place to have your money invested? Let me count the ways...

1. The Food Tastes Good
Ok, I happen to believe that Brussels sprouts taste good as well but you can't pull up to a shiny window and order a 6 pack of sprouts with dipping sauce. The taste of McDonalds food appeals to many convenience seeking people, and they adapt their menu well to cultural tastes in any country they operate. It's quick, it's predictable, it's convenient, and it satisfies.

2. They Market To Kids & Adults Don't Really Mind
Oh, what a bonus for a two year old to get a free toy out of a drive through trip to the golden arches. Perhaps Mom & Dad will feel better getting the optional apple slices instead of fries with their happy meal. They have play gyms inside their stores, they sponsor kids sports, they give loads to charity, they are armed with a team of on-staff cartoon characters including Ronald and whatever movie Disney is pumping this month. McDonalds is basically a well-honed marketing machine that neither 'Super Size Me' nor 'The Subway Diet' can stop.

3. The Fundamentals
Mmmm, the dividend growth, just makes my mouth water. They've raised their dividend each and every year since 1976. They just recently raised it by 10%, at a time when other company's CEO's are eating Quarter Pounders and liking it, to cut costs wherever they can. McDonalds annual sales growth has been very consistent, their EPS growth over the long term has been great, and they generate returns on equity in excess of 15% most years. All this while maintaining a moderate debt level of $0.76 per $1.00 of equity.

4. The FutureBold
The key to this companies future lies in management and adaptation. They've proven in the past that they are able to adapt to changing tastes and customer preferences. As they move through the developing world I am confident that quality of life improvements will go hand in hand with the need for convenient food that the kids like too.

Buy McDonalds in any economy. This is not a recession stock. Don't let that analyst with Big Mac sauce on his tie fool you.

Monday, October 5, 2009

Walgreen recovering from the flu

From the moment that I saw Dr.Oz receiving a flu shot from a Walgreens representative on his new daytime show, I knew that only good could come of it.

A combination of cost cutting, the H1N1 flu, and the recession coming to an end in the US seems to have Walgreen (WAG) up and at 'em again. The US drugstore chain beat expectations handily in their fiscal fourth quarter thanks in part to $0.07/share in savings from their Rewiring For Growth initiative.

Their September sales report also looked very strong as sales came in over 10% higher and sames store sales clocked in at an increase of 5.3%. Those are very strong numbers and probably reflect the extra emphasis on flu season this year in addition to the cost initiatives.

2009 turned out to be an extremely rare year for Walgreen, as they failed to grow their earnings per share. Walgreen has grown their EPS each year smartly from $0.76/share in 2000 to $2.17 in 2008 and it fell to $2.02 in 2009. Analysts are expecting great things from this stock in 2010 as the average estimate is for $2.32, which is a 15% rise. Applying a P/E of 16x, which is more than warranted due to Walgreen's stellar history and current market presence, you get a share price of around $37, which is about one dollar below where the shares trade today.

The street has made an about face on Walgreen stock as the shares change hands for almost twice what they went for back March. Ah.....opportunity missed.....

Thursday, October 1, 2009

portfolio update Q4 2009

It has been quite a while since I updated my progress with my non-registered stock portfolio. the moneygardener blog was really born as a journal for this portfolio, so I like to summarize every now and again. Here are some of the key metrics that I track:

*All results to October 1, 2009
Return, (including dividends) Year To Date = +16.9%
S&P 500 Return To Date (no dividends) = +14.0%
XDV (Canadian Dividend ETF) (no dividends) = +26.5%

Current Yield = 4.4% ($8.75 per day)
Yield On Cost = 3.9%
One Year Dividend Growth Rate = 24.7% (includes purchases)

My one year dividend growth rate is in serious risk of going negative on November 1 as I am now starting to have tough comparables. Husky Energy (HSE), Yellow Pages Income Fund (YLO.UN), Manulife Financial (MFC), and General Electric (GE) have all cut their dividends over the past year. This will put pressure on my one year dividend growth rate from November 1 to at least May 1, assuming no more cuts come.

Average Portfolio Savings Per Month Last 12 Months = $893
Portfolio Value = $73,264
Leverage Ratio = 24.5% (percentage funded by HELOC)

My goal is to grow this portfolio to $175,000 with a leverage ratio of 0% by February, 2014. This will be very difficult, but not impossible, given the credit crisis' impact as well as another upcoming maternity leave. We are currently not meeting our goal of saving $1,000 per month but we are coming close.

Top Performing Stock Versus Cost = Royal Bank of Canada (RY) +28%
Worst Performing Stock Versus Cost = Bank of America (BAC) -53%

Overall this portfolio is still underwater including dividends, although there is a good chance that I could poke my head above water sometime in late 2009 or early 2010.

Monday, September 28, 2009

dividends, a love story

They're a bird in the hand, and they're worth fussing over. Although they don't require getting your hands dirty.

They're a friend when you're in trouble, and they'll give you a raise.

Why not get paid while you're sleeping?

Wednesday, September 23, 2009

are you overweight real estate?

Thicken My Wallet posted an interesting piece today on asset allocation. I contributed to his article and he used my concept of tracking the ratio house value / total assets.

You can find the article here.

Thursday, September 17, 2009

the herd is never right

Why is it that the contrarian point of view seems to always be the correct one when it comes to the stock market?

For almost a solid 6 months everyone and his dog has expected the stock market rally to falter, and falter hard. Supposed pundits from every echelon of the financial system, including analysts, money managers, reporters, bloggers, and individual investors have all sung the same tune for the better part of 2009. The conventional wisdom was that the rally was weakly based and we should all get ready for another dip. I don't know if it was because people had just seen one of the largest collapses in confidence and the markets ever, and people tend to get cautious after an event like this, or just downright pessimism. We all should have known that whenever this many people agree that they can foresee a drop in the markets, the indices are headed higher.

The rally party pooper who sold in April of 2006 after the rally accelerated has missed a nice 26% charge in the S&P 500 since then.

Saturday, September 12, 2009

net worth update, Sept 09

It's time to report my bimonthly net worth. I report my net worth on the moneygardener or around the 15th of May, July, September, November, January, and March.

Net worth results for the 2 Months Ended September 13, 2009:
  • Debt/Asset ratio dropped to 0.48 from 0.50 (record low)
  • Net Worth gained a huge 9.3% (record high)
  • Total Assets rose 4.2% (record high)
  • Total Liabilities shrunk by 1.0%
  • House Value/Total Assets fell to 63.4% (record low)
  • Non-Registered Portfolio grew 11.4% (record high)
  • Net Worth Calendar Year to Date Gain/Loss: +23%

As I type this update I am extremely pleased with our financial progress, as we look forward to March when our second child arrives. Everything is moving in the right direction and the moves are substantial. Our non-registered portfolio grew by a very strong 11.4% over two months and our net worth is up a staggering 23% since January 15. Our house value is now making up only 63% of our total assets, meaning that we are riding the roller coaster of the equity markets to a greater degree. Running against the wind was difficult over the past year, however the wind has been at our back lately. Home improvements are on the horizon and will eat into our potential savings as we move toward another maternity leave period.

Tuesday, September 8, 2009

lowered my cost of borrowing

As I've previously mentioned, last year I began borrowing money inside a line of credit and investing the funds in dividend paying stocks as the market took a nosedive. I deployed the majority of the money between October 6, 2008 and February 26, 2009. I should have instead invested all of the money in early March, 2009, but I'm just not that good...

The only piece of this strategy that continued to bother me was the fact that I was paying an interest rate of prime + 3% on an unsecured line of credit from a major bank. Even though I am able to claim this interest on my taxes, I was still unhappy with this rate. After attempting to negotiate a lower rate with a few banks on an unsecured line of credit, I decided to go instead with a home equity line of credit secured against our home.

I've just completed the process of opening a home equity line of credit with President's Choice Financial (CIBC Bank). The process was fairly easy and I was quite pleased with PC's price of $150 to open this loan. This option compared very favourably to the fees asked for by two other banks. On the eventual occasion that I close out this loan with PC I will be required to pay a $225 closing fee. The rate on this loan is prime + 1%, currently 3.25%.

Overall this dramatically decreases my cost of borrowing and I will make up the total fees of $375 in mere months. Writing off this interest at 3.25% makes this pretty close to free money.

Friday, August 21, 2009

doubled Husky holding

Today I doubled my position in Canadian oil firm, Husky Energy (HSE), just in time for the hurricane season.

The reasons I added to Husky here are many:
  • The dividend was recently cut, sitting now at a conservative $1.20 per share on 2009 estimated trough earnings per share of $1.80
  • Given the growth in China and emerging economies, I like the outlook for oil post banking crisis
  • Husky has very little debt and a great balance sheet
  • Given the company's ties with China, capital position, smaller size, and aggressive management, a takeover may not be out of the question
  • As mentioned previously, if I'm investing in a commodity that fluctuates wildly, I like to get paid regularly, instead of trading in and out; Husky provides this
  • If earnings snap back even close to 2006-2008 levels, Husky should be quick to prop the dividend back up
  • I also considered an investment in Crescent Point Energy (CPG), however I think Husky offers a better valuation at these levels

Tuesday, August 18, 2009

SYSCO & P&G still look good

With the run up the market has had since the March lows, it has become difficult to find stocks with attractive valuations. Many of the more cyclical stocks, as well as financials have really run up and I'm not sure that future earnings will justify the current prices in some cases.

Luckily there are still a few good buys out there. For dividend growth investors, it's a nice bonus when a company is still raising it's dividend through thick and thin. These two firms have solid balance sheets and fit that bill. They have stable product offerings and they've navigated through tough times before. Their dividends are growing and very secure. I've added to my positions in both companies over the past 6 months, and I am considering doing so again at these valuations.

Food distributor SYSCO (SYY) is yielding 4%, and trading at a P/E of 13.6x.

Consumer products giant, Procter & Gamble (PG) is yielding 3.4%, and trading at a P/E of 14.7x.

There are headwinds afoot for both of these firms, but I believe that as long term investments they may be ripe for the picking right now. I may put my money where my mouth is in the near future. For my further thoughts see the posts below.

Added More P&G

Took a Helping of Sysco

Thursday, August 6, 2009

crisis takes it's toll on Manulife's dividend

The credit crisis has taken it's toll on the dividend of Canadian-based insurance giant Manulife Financial (MFC). Manulife's decision to cut its dividend by 50% to $0.13/share is part of an effort to build a strong capital position for what is sounds like are future acquisitions.

The CEO made the following statement today:
While we recognize the importance of the cash dividend to many of our common shareholders, we believe that retaining more of our earnings is the most effective means of building capital, while still providing an attractive yield for our shareholders who will benefit as we deploy our capital for growth. We believe that companies that build fortress levels of capital will benefit their policyholders and shareholders and be recognized favourably by regulators and ratings agencies."

This move was mildly expected, however I believe it will still come as a shock to many dividend investors, as Manulife has long been viewed as a stalwart on the Canadian and global financial scene.

Tuesday, August 4, 2009

Saputo pushes dividend up

Dairy producer Saputo (SAP) has increased it's quarterly dividend by a meagre 3.6% to 14.5 cents per share after reporting a flattish quarter on the earnings front.

Saputo shares are up 5% today and the stock now yields 2.3%. The pay out ratio on the actual quarter's EPS was 35%.

The company was hit by lower cheese prices in the US placing downward pressure on earnings and revenues, which were still up by 6.2%. This was the first quarter for inclusion of the acquired Neilson Dairy business which was the reason for the revenue increase.

This company is always strongly affected by cheese prices as well as US/CAD exchange. They seem to be focused on growth and I think the investment provides a nice mix between growth and stability; having a staple-type product.

Thursday, July 30, 2009

a new use for dividends

Wow, the markets have been flying lately. The S&P 500 index is up 13% over the past 3 months. XDV (and ETF that tracks Canadian dividend paying stocks) is up 21% over the same period.

All this jubilation has caused me to begin to perform a behaviour that is out of character for me. It feels different from my normal long term, more savings = more investment = more dividends = more investment strategy but lately I've been letting the dividend tap run into my line of credit. That's right, I've been taking the money from dividends and interest that builds up in our investment account and using it to chip away at our investment line of credit.

Maybe it is the fact that stocks seem to go up everyday and therefore they get less attractive to me, or maybe it is because I like what it does to our net worth statement, but I'm going with my gut on this one for the time being. It's boring, it's conservative, but it feels good to reduce debt a little bit at a time.

Wednesday, July 22, 2009

fixing the moneygardener tech. problems

I've lost 125 subscribers and your old blogspot bookmarks won't work!

I'm not really sure what happened but the old themoneygardener.blogspot address is no longer redirecting to the new site. Also as of July 9 or so our feed was not updating regularly.

Please update your bookmarks to the new domain name and re-subscribe to the feed. The feed seems to be updating now. Hopefully this will resolve the problem.

Also bloggers and other linksters.....I would appreciate it if you would update your link to the moneygardener to the new .com address at

Thank you for reading the moneygardener.

Shoppers Drug Mart should increase their dividend

Hey Shoppers Drug Mart (SC)!

You just reported an earnings increase of 7.5% amid one of most difficult Canadian retail operating environments in a long time. How about throwing shareholders a bone and giving them a little boost to the dividend?

The quickly growing Canadian drugstore chain's dividend has been the same 21.5 cents per share since the first quarter of 2008. The company is paying out a modest 33% of earnings and the stock yields 1.8%. Could Shoppers being hoarding cash for a take over of some kind? Either way, I would urge them to continue to raise the dividend on a regular basis, to not only reward current shareholders, but to build themselves a history of strength through dividend growth. A lot of investors, whether looking into the past or the future, like to see regular dividend increases and view the incremental hikes as a sign of stability.

Shoppers has raised their dividend regularly since 2005 and is now at risk of paying out an equivalent amount in 8 straight quarters. This would mean that if they don't raise in November despite recent growth in earnings, Shoppers would essentially pay out the same dividend in 2008 and 2009. What a shame, especially for a firm that I included as part of my future of Canadian dividend growth along with Rogers Communications (RCI.B) and Tim Hortons (THI).

Tuesday, July 21, 2009

market barometer

What an interesting time to be following the stock market, economic and business news, as well as corporate earnings this earnings season. This is my take on what is occurring broken down into smiles and frowns.

  • Recent results from companies like Caterpillar (CAT), CN Rail (CNI/CNR), and others showed positive signals of stabilization of the economy as well as a pick up in emerging economies.
  • Many companies are really blowing away analyst earnings estimates including industrials and technology firms. Forward earnings guidance is also being raised.
  • The S&P 500 index is up 42% from its March lows
  • New economic estimates are indicating growth is right around the corner and the recession has ended.


  • Funny thing is that earnings coming in 'not as bad' is almost always attributed to cost cutting, which can't go on forever.
  • Earnings are beating estimates, but have you noticed how low estimates are? For example Caterpillar's second quarter profit was down a whopping 66% from last year.
  • Unemployment continues to ramp up in the US and Canada and some estimates are indicating that jobless rate could top 10% soon.
  • The market is getting sick of 'not as bad' and 'stabilization' and is now searching for more in the form of growth, which may or may not come as quickly as Mr.Market wants.

Interesting stock moves lately:

  • Caterpillar (CAT) up 24% in the last five days
  • IBM (IBM) up 12% in the last five days
  • CSX Corporation (CSX) up 11% in the last five days

Monday, July 20, 2009

vancouverites are richest canadians

An interesting article appeared on today's Vancouver Ousts Calgary as Canada's Highest Net Worth City

For Canadians as whole household net worth dropped 6.2% in 2008. Our net worth dropped by pretty much that exact percentage during calendar 2008; I guess that makes us average. We live in Brantford, Ontario. In Calgary, Alberta net worths actually dropped on average by 12.3% and in Vancouver wealth dropped by only 3.1%.

Vancouver real estate prices are holding up pretty well making them the richest Canadians with an average net worth of $575,826 per household versus Calgary's $569,926 and Ontario's $354,968. British Columbians are also piling back into the stock market faster than elsewhere while Quebecers and Ontarians are socking money away in safe places.

Wednesday, July 15, 2009

the pricing of stocks

It is time for another question from the Personal Finance Clinic mailbag. By the way, thank you to all who submitted questions for The Personal Finance Clinic. Please visit Canadian Capitalist and Triaging My Way to Financial Success to view the balance of the Q&A.

Ellen asked;
Does it matter whether the value of my stock investments increases because of earnings or increase in value? If so, is there a rough and ready way for me to tell how much of the increase is due to earnings and how much due to price increase?

The simple answers to these two questions are 'No' and 'No'. Let me explain...

First off, you must understand that there is no value without earnings. Any increase in stock value that one might think is unrelated to earnings is a misnomer because it always comes back to earnings and earnings growth. Stock prices will always reflect investor sentiment about the future over the short term. Over the long term a stock's value should come back to reflect the true measure of a company's success, which is earnings per share (EPS). Broken down to it's bare bones, the only thing that really matters to a stock's value is earnings per share, however obviously several other factors will dramatically influence the price. If a food manufacturer just earned a great EPS number for the year but lost two major contracts due to a deadly contaminant in their product, the high EPS will matter very little as the stock is sold off hard.

For example, let's say Gusher Oil & Gas earned $4.00 per share in 2009. You might think the stock should trade for at least $32 per share or so (8x earnings), if the firm was in decent shape and was expected to grow earnings at a moderate pace. In reality Gusher could trade at $16 per share if oil prices are expected to plummet and Gusher had taken on too much high interest debt. On the flip side, Gusher could trade at $80 per share if they just discovered a new oil deposit and oil was expected to rise dramatically in the short term.

A good way to understand why stocks are priced the way they are, and why they move the way they do is to understand the sum of investor's thoughts about the company's future earnings growth potential. This is a complicated mish mash of predictions, anticipated industry trends, past performance, and expectations. At the end of the day every stock price is a guess at future earnings growth.

Tuesday, July 14, 2009

net worth update, july 2009

It's time to report my bimonthly net worth. I report my net worth on the moneygardener or around the 15th of May, July, September, November, January, and March.

Net worth results for the 2 Months Ended July 14, 2009:
  • Debt/Asset ratio dropped to 0.50 from 0.51 (back to $1.00 for every $0.50 of debt - a record low)
  • Net Worth gained 1.7% (to a record high)
  • Total Assets rose 0.6% (to a record high)
  • Total Liabilities shrunk by 0.4%
  • House Value/Total Assets fell to 66.0% (a record low)
  • Non-Registered Portfolio grew 7.4%
  • Net Worth Calendar Year to Date Gain/Loss: +12.5%

Steady as she goes, as our net worth continues to grow to record highs. The S&P 500 index was up about 2.5% during the period and our net worth grew by 1.7%. Our savings rate has slowed lately as we had some lingering planned household expenses. I expect our savings rate to pick up over the next few months and the money will go toward debt reduction unless I see an irresistibly priced stock to add to. It is very encouraging to see our debt/asset ratio back down to meet the record low we achieved back in September of 2008.

Wednesday, July 8, 2009

Walgreen nearly doubles dividend since 2006

the moneygardener darling, US drugstore chain Walgreen Co. (WAG) has increased it's quarterly dividend by 22%. This is the 35th consecutive year that Walgreen has raised it's dividend. Walgreen has been growing it's dividend at a torrid pace over the past few years. In fact, since 2006 WAG has roughly doubled it's dividend.

The stock is now yielding only 1.8%, however a purchase during the depths of March, 2009 would have yielded 2.6% on cost. It is interesting that the company is choosing to increase the dividend at such a high rate given the current slowdown in earnings growth. Walgreen's last quarterly earning report was actually down 9% from 2008. The pay out ratio is rising and the company's traditional objective of rewarding shareholders with growth, may be shifting to include paying out cash in the form of dividends.

The company is currently largely focusing on cutting costs and driving productivity. 2009 earnings look like they will come in lower than 2008 after much expense due to cost-cutting restructuring. I remain very bullish on the company long term due to their strong brand, their market position, and US demographic trends. WAG currently makes up about 6% of my portfolio.

Last year in July, Walgreen increased their dividend by about 18%.

added caterpillar

I bought some shares of Caterpillar (CAT) today for my wife's RRSP. The basic thesis for this purchase is that for a long term hold, Caterpillar offers exposure to a leader in building out the infrastructure of the world. The short term may look very gloomy for this company, which presents a buying opportunity as the shares are down 65% from their all time high.

Caterpillar's CEO is actually predicting a return to 2008 sales levels within five years. This may or may not occur, but it is interesting to note that CAT was trading at $63-$85 during 2008 before the crisis hit.

Incidentally the stock actually yields a surprising 5.5% and is maintaining the dividend for now in the face of the downturn.

Tuesday, July 7, 2009

market update

So how have the markets been?

Well, they were rising steadily for a few months, but since June 12 sentiment has shifted and stocks have been falling. Could this be the start of a long series of tests of previous levels? Maybe. Could this be the start of a test of the March 9 lows as some pundits are predicting? I seriously doubt it.

We will not be revisiting the levels we saw in early March. If we do, I will be buying.

Stocks I am currently watching include Caterpillar (CAT) for my wife's RRSP and Canadian Pacific Railway (CP) for our non-registered portfolio.

Tuesday, June 30, 2009

happy Canada day!

July 1 is dedicated to celebrate Canada!

...reporting live from the greatest country on earth.

Monday, June 22, 2009

guest post - Best Buy's been a 'best buy'

The following post was written by Saj Karsan. Saj regularly writes for Barel Karsan, a site dedicated to finding and discussing value investments, and applying logic to investment decisions (as opposed to falling prey to psychological biases).

In an "efficient market", all stocks are fairly priced by the market. If the US stock markets are efficient, and many finance industry professionals believe this to be the case, one cannot generate index-beating returns except through luck. However, if we were in an efficient market, it seems hard to believe that stock prices for even the most stable of companies should fluctuate so drastically from year to year and even from week to week. Yet that is exactly what happens.

Consider Best Buy (BBY), a US-based multi-national electronics retailer. It has generated consistent returns year after year, and has a low debt to equity ratio resulting in minimal financial risk. Yet its stock price has fluctuated dramatically, offering astute investors the opportunity to achieve enormous returns.

Below is a chart depicting Best Buy's annual return on invested capital (ROIC) contrasted with its stock price:

While ROIC has been predictable and consistently range bound for the last several years, the stock price has been anything but. It seems hard to believe that the market is efficiently pricing this security when its price can fluctuate wildly in relatively short periods of time while the company itself generates predictable earnings on capital. For example, if the company is worth X amount in early 2000, how does it become worth just one quarter of this amount 3 months later, and then three times this amount six months after that?

More recently, three months ago the market valued Best Buy at $7 billion, but now values it at $16 billion! Investors who recognized the mispricing have seen returns of over 100% in a 3 month period!

We've also seen other examples of this phenomenon: we've looked at graphs illustrating wild fluctuations in the historical P/E ratios of Coke (KO) and Walgreens (WAG) (a moneygardener favourite), for example, which have allowed value investors to buy in at tremendous discounts.

Value investors willing to put psychological bias aside and instead invest at the height of the market's fear can indeed achieve above average returns. If this topic interests you, consider subscribing to the Barel Karsan feed.

Disclosure: Author owns a long position in BBY

Thursday, June 18, 2009

72 dividend hikes...

Dividend hikes can sometimes be signals of good financial health; a vote of confidence in the future by a company's management. Yes, amid the credit crisis, recession, and general 'sky is falling' theme, some firms are raising the amount of money they are paying to shareholders on a regular basis. Here is some of the action that has transpired since Lehman Brothers failed in September of 2008.

Shaw Comm. (SJR.B) + 5% raise, pay out ratio = 45%, yield=4.5% telecom
Canadian Utilities (CU) +6% raise, pay out ratio = 40%, yield=4.0% utility
ATCO (ACO.X) +6% raise, pay out ratio = 20%, yield=2.7% utility
CN Rail (CNR) +10% raise, pay out ratio = 23%, yield=2.1% transport
TransAlta (TA) +7% raise, pay out ratio = 91%, yield=5.6% utility

BP (BP) +6% raise, pay out ratio = 53%, yield=6.9% energy
TransCanada (TRP) +6% raise, pay out ratio = 58%, yield=4.9% utility
Fortis (FTS) +4% raise, pay out ratio = 63%, yield=4.3% utility
ADM (ADM) +8% raise, pay out ratio = 18%, yield=2.1% ag./commodity
Toromont (TIH) +7% raise, pay out ratio = 26%, yield=2.6% industrial

BCE (BCE) +5% raise, pay out ratio = 62%, yield=6.5% telecom
Rogers (RCI.B) +16% raise, pay out ratio = 64%, yield=3.8% telecom
3M (MMM) +2% raise, pay out ratio = 40%, yield=3.5% industrial
Coca Cola (KO) +8% raise, pay out ratio = 61%, yield=3.4% cons. staple
Abbott Labs (ABT) +11% raise, pay out ratio = 45%, yield=3.5% healthcare
Wal-Mart (WMT) +15% raise, pay out ratio = 28%, yield=2.2% retailer

P&G (PG) +10% raise, pay out ratio = 37%, yield=3.5% consumer staple
J&J (JNJ) +7% raise, pay out ratio = 38%, yield=3.6% healthcare
IBM (IBM) +10% raise, pay out ratio = 22%, yield=2.1% technology
Exxon (XOM) +5% raise, pay out ratio = 21% , yield=2.3% energy
Clorox (CLX) +9% raise, pay out ratio = 48%, yield=3.6% consumer staple

Other dividend hikes came from companies such as:
Diageo, Thomson Reuters, Costco Wholesale, Target, SYSCO, ING Canada, Molson Coors, Tim Hortons, Monsanto, Genuine Parts, Metro, Progress Energy, CCL, WPP PLC, SNC Lavalin, Uni-Select, General Dynamics, Jean Coutu, McGraw Hill Ryerson, Home Capital Group, National Grid, Vodafone, Cardinal Health, Marsulex, Telus, Florida Public Utilities, National Fuel Gas, Oil Dri Corp., Flowers Foods, Lowes, PPD, Supervalue, Pepsico, McDonalds, Assurant, Excel Energy, Ace, Airgas, AmerisourceBergen, AAON, Raven Industries, Bunge, Communications Systems, Portland General Electric, Amtrust Financial, FactSet Research, Talisman Energy, Safeway, Occidental, Southern Company, JM Smucker, Hudson City Bancorp.........the list is endless if you read Dividends4Life.

Tuesday, June 16, 2009

buying 'made in China', and other links

When you refuse to buy products that are made in China, and instead seek 'Made In Canada' or 'Made In USA' labels are you perpetuating lavish lifestyles of excess.? Frugal Bachelor thinks so.

Thicken My Wallet wrote about 5 questions you need to answer when starting a business

Investing website, The Motley Fool calls SYSCO (SYY), McDonalds (MCD), and Wal-Mart WMT) 3 ridiculously cheap, high quality companies. All 3 generate return on equity above 20% and have solid histories of dividend growth. I recently doubled my SYSCO position.

Monday, June 15, 2009

doubled my SYSCO holding

Today I made my first equity purchase in my non-registered portfolio since February. I doubled my position in food service firm SYSCO (SYY) at $22.95/share.

For my thoughts on SYSCO click here.

About half of this purchase was made with dividends and distributions which I've received over the past few months.

Like all of my other holdings, SYSCO will be a long term piece of my portfolio. The stock currently yields more than 4%, and trades at a P/E ratio that is well below it's historical average. The company is having a flat 2009 due to the recession, however I expect the company to come out of this downturn with more market share, and to return to earnings growth that will warrant a P/E north of where it is today. The restaurant industry is under a dark cloud right now due to the downturn in consumer discretionary purchases. I believe in due time this area will pick up and SYSCO will benefit.

Thursday, June 11, 2009

Clorox hikes dividend 9%

The maker of Brita® filters and Liquid Plumr® has raised it's dividend by 9%. Consumer products firm Clorox (CLX) announced a dividend raise today from $0.46 to $0.50 per share. I own shares of Clorox and it certainly feels like it has been a while since my last dividend raise within my portfolio. It is welcome news indeed.

Here is a glance at Clorox's recent dividend history:

Fiscal 2005 = $1.10
Fiscal 2006 = $1.14
Fiscal 2007 = $1.20
Fiscal 2008 = $1.60
Fiscal 2009 = $1.84
Fiscal 2010 = $2.00 (EST)

This represents a compound growth rate of the dividend of 12.7%.

Monday, June 8, 2009

creative wealth growth

Thank you to all who submitted questions for The Personal Finance Clinic. We received several questions and we hope to answer most of them over the next few months. Please visit Canadian Capitalist and Triaging My Way to Financial Success to view the balance of the Q&A.

Jessica asked,
I'm a regular reader of themoneygardener and since graduating from university debt-free, I've been trying to find resources for people like me who are not dealing with debt, but just a lack of education in what else to do with the rest of my paycheques. I already know about different investment vehicles and have money invested in a mix of GICs, mutual funds and stocks, but it would be good to get more opinions on what other wealth-building strategies are available to someone who is in their late 20s and has time and money on their side.

Like Frugal Bachelor has already written in one of his recent posts, most personal finance blogs aren't challenging enough for their readers. Think about it: if you're using your free time to enhance your personal wealth, you probably have a handle on your finances already. So maybe it's time to get creative and see what else is available to the budget-and-personal-finance conscious crowd.

Thanks for the interesting question Jessica. It is a great thing to have time and money on your side. Personally I would add debt as a tool for your toolbelt as well, and I wouldn't shy away from using other people's money as leverage.

Even though I do not have a direct answer to your question, I thought I'd publish it anyway just because I found it thought provoking. It also did not hurt that you mentioned your 'regular reader' status. The reason why you'll find that most personal finance blogs discuss the same strategies, is that they are indeed personal finance blogs. The bloggers tend to write about what they know, and in most cases that happens to be investing, saving, and other personal finance topics.

Getting Creative
I am of the opinion that the greatest way for an individual to grow wealth quickly is by starting a business. I'm fairly certain that there are a plethora of blogs that would discuss this area. In the personal finance blog space, I know that Thicken My Wallet as well as Four Pillars have discussed entrepreneurship at length.

The 80 hour work week just isn't all it is cracked up to be. Most wealth building strategies really would centre around investing. Try starting your own business, earning rental income, or building wealth in any other way without at some point making an investment. You can serve other people to earn a living, but true wealth can usually only be built by putting your hard earned capital at risk. Good luck!

Thursday, June 4, 2009

net worth history

I believe that net worth is a very important measure of one's financial health. Keeping your net worth statement in mind when making financial decisions will usually lead you to make the correct choice. Most of successful personal finance comes down to trying to grow your net worth. With that being said, I wanted to look at my net worth progression over the past few years.

YEAR ONE May, 2006 to May, 2007
  • Net worth grew 108%
  • Started the year with $0.77 of debt for every dollar of assets and ended the year with $0.60 of debt
  • Started the year with a house value that made up 83% of our total assets and ended the year at 77%
  • S&P 500 index was up roughly 18% over the year

YEAR TWO May, 2007 to May, 2008

  • Net worth grew 40%
  • Started the year with $0.60 of debt for every dollar of assets and ended the year with $0.51 of debt
  • Started the year with a house value that made up 77% of our total assets and ended the year at 70%
  • S&P 500 index was down roughly 6% over the year

YEAR THREE May, 2008 to May, 2009

  • Net worth grew 5%
  • Started the year with $0.51 of debt for every dollar of assets and ended the year with $0.51 of debt
  • Started the year with a house value making up 70% of our total assets and ended the year at 66%
  • S&P 500 index was down roughly 38% over the year

YEAR FOUR PREVIEW The markets are due for a good year, and we are due for a large net worth increase as we fuelled the fire with extra funds during YEAR THREE. After all it can't get much worse than YEAR THREE.

What do you think a strong percentage long term annual compounded net worth growth rate would be?

Consider that a good investment rate of return is considered to be 10%+, but with net worth, debt is being paid off at the same time, and one's home makes up a good percentage of assets in most cases.

Monday, June 1, 2009

fixing things in dark times

Thank you to all who submitted questions for The Personal Finance Clinic. We received several questions and we hope to answer most of them over the next few months. Please visit Canadian Capitalist and Triaging My Way to Financial Success to view the balance of the Q&A.

Kris asked...
"Like many people, I have lost a lot of money (at least on paper) in my RSP account.
I don’t have a particularly good mix of mutual funds (took poor advice from a poor advisor), and I had started the process of re balancing into an ETF-based “couch potato” mix (by started, I mean I had thought it through, read up, and picked an asset mix but didn’t actually sell and buy) when the market tanked.

What should I do now? I am still saving but currently holding my savings in an ING savings account (some are for retirement and some are in a general account as I'm hoping to buy a home now that Vancouver's real estate market is somewhat cooled down).

What should I do with my RSP portfolio? Should I just accept my paper losses, sell my mutual funds and execute my plan (I hate to lock in the money I’ve lost but….)
Or, should I just wait it out with my current portfolio, and use any new retirement savings to operationalize my couch potato portfolio? If I wait for my current portfolio to bounce back (at least partway) , how long is reasonable? 1 year? 5 years?

No doubt that many are in your shoes Kris. We have all seen the value of our registered investments drop substantially over the past two years. If you have truly seen the flaws in your current asset mix as well as investment vehicles, I am going to assume that you are paying high management fees (MERs), and/or you are diversified poorly by having too much risk, too little risk, or your sector allocation is out of whack for your time horizon and investor profile. The good news is that it sounds as if you have done some research and you have a plan that will lower your fees and diversify you more appropriately.

Regarding your specific question, I would recommend that you implement your strategy as soon as possible. The way to think about this is that it really does not matter when you sell your mutual funds and buy the new ETFs because you will either be selling low and buying low or selling high and buying high. Theoretically it makes no difference if you are selling and buying like items. For example if you sell a managed Canadian Equity mutual fund and buy a Canadian Equity ETF right now you are selling at point X in the markets and buying at point X in the market. You are no further behind or ahead except for the fact that you believe you are getting into a more appropriate investment vehicle. This is a positive, proactive action.

Things to watch out for:
  • Trading fees (you will likely incur some but minimize them wherever possible)
  • If your main intention is too sell a lot of equity investments and with these funds buy a lot of safer (bonds, gics, money market) investments, now may not be the best time to execute this specific trade, as the market has recently crashed, and you may want to put this off for a year or two. These are not like items with like values. That being said nobody knows where the market is going, this is just my opinion.
  • Don't lose sight of your investment time horizon and let this be your guide to asset allocation.

If you execute your plan now. You can be confident knowing that your money is now working for you the way you want it to. You have empowered yourself by educating yourself and taking the proper steps to rectify your portfolio. Nobody wants to own investments that are poor if they know better. Good luck with your portfolio and your home purchase.

Friday, May 29, 2009

canadian bank Q2 earnings summary

The big five Canadian Banks have now all reported their second quarter earnings. Many times within these releases the numbers will always focus on the banks results versus analysts' expectations. The majority of these banks beat expectations.

Below is how the the banks fared versus last year's Q2, on an earnings per share, excluding extraordinary items basis. This is a measure of how their continuing operations are holding up amid this recession:

Bank of Montreal (BMO) = Down 25% from last year

Canadian Imperial Bank of Commerce (CIBC) = Down 12% from last year

Toronto Dominion Bank (TD) = Down 7% from last year

Bank of Nova Scotia (BNS) = Down 16% from last year

Royal Bank of Canada (RY) = Down 10% from last year

All dividends were maintained, and none were raised.

Wednesday, May 27, 2009

how much can we afford?

When a person embarks on the tumultuous journey of a first time home purchase, or for that matter a second or third time home purchase, one of their top priorities is often 'how much can we afford?'. Better yet, I feel the question should be 'how much of our after tax and utility money should we allocate towards paying off our mortgage'.

If you choose to use online tools in order to give you this information, please avoid using this one: Canadian financial news source The Globe & Mail runs a great website called On this website down the left panel in the 'resources' section you'll find a link called 'Mortgage Snapshot'. This link contains the latest mortgage rates from various lenders as well as a chart titled 'How Much Can You Afford'. The chart indicates that if you earn a gross income is $120,000 you can afford a mortgage of $461,808, which provides a home worth $615,744 using a 25% down payment of $153,936 and a 5.8% interest rate. What!

Let's look at this a little closer. Let's assume this gross income is made up of a dual income couple earning $60,000 each per year. After tax, Employment Insurance Contributions, and Canadian Pension Plan Fees they would bring home about $44,000 each, or $88,000 per year. Let's remove RRSP contributions of a responsible 10% of gross income ($12,000 total). Let's also remove a conservative property tax amount of $2,500 per year, heating of $1,500/year, and electricity/water of $1,500/year.

We now arrive at a value of $70,500 for the money our lovely couple will actually have access to, after the tax man, heat, power, and retirement are all taken care of. This is $2,712 bi-weekly.

Using the 'What Will My Payments Be' calculator on we see that this couple's bi-weekly mortgage payment would be $1,333. Taking their mortgage payment as a percentage of the money they'll actually have access to, we arrive at 49%. If they decided to make accelerated bi-weekly payments instead to reduce their amortization time to under 25 years, the figure becomes $1,450 or 53% of their accessible funds. So more than half of their disposable income would go to mortgage payments, and this is not even accounting for other fixed costs like groceries and insurance. This situation would be far from ideal. In fact, it might not even be possible. Considering vehicles, daycare, clothes, gifts, cable tv, maternity leave, vacations, and a broken furnace, this mortgage does not seem feasible in the least.

The source for this information on the globeinvestor website is not listed. I believe that this chart is very poor resource for home buyers and it is irresponsible of The Globe & Mail to provide this resource to reader.

Monday, May 25, 2009

lil' wayne & buy & hold

"If 'buy & hold' is dead, then I am the embalming fluid"

Once again, I am using the world of rap music to derive my quotations about money and investing. Rapper, Lil' Wayne was talking about hip hop when he uttered this line in his single 'A Milli'. Lil' Wayne may wear his pants below his a$$, but he is a wise poet indeed.

The recent stock market collapse has certainly been an experience in observing perspective shifts from everyone from analysts, advisers, advertisers, to individual investors. Below are some of those new perspectives that have more than likely come from several sources over the last year or so. Whether it was an ING Direct commercial or your local politician you've likely heard some of these views lately:
  • Capitalism is dead, and no longer works as an economic system
  • More regulation, and less leverage is always better.
  • Everyone took on too much debt, and the recent crash will cause everyone to be very debt averse forever; let the de-leveraging begin.
  • The right thing to do with your money all along was to play it safe, and sock it all away in a savings account; assets with risk associated with them should be avoided at all costs.
  • Don't speculate, don't invest in stocks, don't buy real estate, don't take risks in starting a new business venture or making any kind of investment where loss is a possibility

...and my personal favourite:

  • 'Buy & Hold' as an investment strategy is dead.

All of these new postulations are the result of the human instinct to remember the most recent painful experience and alter one's thoughts and habits to correct for this. What has happened is akin to falling of your bicycle and breaking your arm. Perhaps walking is a better idea. Maybe you can't get places faster on your bicycle. The government should ban biking. Better yet, perhaps we should all stay in our houses. Do you want to buy a video game that simulates riding a bicycle? The real thing is far too risky and provides no real benefits to anyone.

Of course people are now saying that 'buy & hold' is dead. It's easy to think that buy & hold is a bad idea when the current 'hold' experience involves watching your investments fall by 40%. That hurts, for some probably more so than falling off of that bike. Does this in itself mean that buy & hold dead? I think not. Equities have been the best asset class to own over the long term, and I don't believe that will change. Try not to do all of your buying at the peaks and all of your selling in the valleys, and buy & hold will probably work out for you the longer you hold shares of quality firms that provide the goods and services that people want.

The best time to draw inferences about what works is probably not during and post a large market crash. Ask yourself, what biases are those making these calls prone to? For the vast majority of us, the market crash will turn out to have been a good thing long term. That is if we avoid buying into the inferences drawn by those with broken arms.

For those interested, my other financial advisor is Kanye West.

Tuesday, May 19, 2009

globalization's reversal

A fascinating article and concept heading the Globe & Mail's GlobeInvestor website today features Jeff Rubin, former CIBC economist, who has written a book about a very interesting theory regarding oil. The basic premise is that skyrocketing oil will reverse globalization causing the current economy to be turned on it's ear. He predicts $200 oil by 2012 or earlier.

Why Your World Is About To Get A Whole Lot Smaller

"I think it will really restructure the economy in ways that people haven't even begun to imagine," he said. "But I think, ironically, it's going to be a return to the past ... in terms of the re-emergence of local economies."

Friday, May 15, 2009

net worth update, may 2009

It's time to report my bimonthly net worth. This particular report (May) is what I call my 'fiscal year', as I began tracking net worth in May of 2006.

Net worth results for the 2 Months Ended May 15, 2009:
  • Debt/Asset ratio dropped to 0.51 from 0.56
  • Net Worth jumped up 18.9% (to a record high)
  • Total Assets rose 5.9% (to a record high)
  • Total Liabilities shrunk by 4.3%
  • House Value/Total Assets fell to 66.4% (a record low)
  • Non-Registered Portfolio grew 20.5%

Calendar Year to Date Gain/Loss: +10.6%

2008 Fiscal Year Gain/Loss: +4.6%

This was by far our largest bi-monthly net worth gain ever. It feels good to be up this much after several months of weak net worth changes. The markets were in a deep hole in mid March and have climbed out of that hole to much higher levels today. We have also paid off about $5,700 of debt over the past 60 days.

Fiscal 2008 was extremely weak, as we grew our net worth by only +4.6%. This is completely attributed to the weakness in the stock market. The markets are down by 38% over the period. So against that headwind, I'll consider that not half bad.

We'll continue to do what we can on the savings front and either invest the money or pay down debt, depending on the level of the stock market. I don't claim to know where the market is going but lately I have felt it appropriate to pay down debt instead of investing at these levels.

Thursday, May 7, 2009

yellow pages cuts distribution

Yellow Pages Income Fund (YLO.UN) has cut their distribution by 31.6% to $0.80/unit annually. This move was based on their expectation for continued difficult market conditions, and their objective of securing additional financial flexibility. The company also announced that their preliminary dividend policy at conversion to a corporation in 2011 will be 60-70% of earnings.

Despite the extremely weak economy Yellow Pages announced results that were virtually flat to slightly up from Q1 2008. Organic online growth was up 30% and directories were essentially flat. YLO's consolidated net earnings actually rose 3.6% in the worst advertising market in years. This company continues to show their resiliency in unprecedented market conditions.

Since this stock was yielding 20%, the market was telling us that they were going to cut this pay out. Some analysts that I have heard believe that each and every income trust will have to cut distributions going into 2011, despite what management says. Count this as one, because YLO's management did claim that they would keep the current distribution through conversion and the financial crisis has proven that forecast to not be met.

Sunday, May 3, 2009

The Personal Finance Clinic

Whether you are in good financial health, directly experiencing the downturn in the economy or concerned about the state of your personal finances the authors of Canadian Capitalist, the moneygardener (that's me), and Triaging My Way To Financial Success are holding a Personal Finance Clinic for our readers.

We recognize that finding the answers to your questions on topics of personal finance can be difficult in the best of times; they should not be hard to find in the worst of times.

With the abundance of material published online and in print media on topics of personal finance we are holding a clinic to tackle your best questions on a variety of financial matters. Best of all no health card or credit card is needed.

Questions can be on topics that include personal savings, net worth, budgeting or investment fundamentals.

Readers simply need to send their question with identifying name to personalfinanceclinic@ before May 31st, 2009.

Canadian Capitalist, the moneygardener and Nurseb911 will each select an equal share of questions from all submissions based upon our readership, personal knowledge and ability to seek research on the topics asked.
Responses to specific questions can not be guaranteed to be 100% accurate.

Canadian Capitalist, the moneygardener and Nurseb911 are not certified investment professionals and are not licensed to provide financial advice. We hold no liability for responses and our answers are intended for educational purposes only.

When possible we will supply references and/or links to articles, content and alternative tools.

We cannot guarantee that all questions will be answered in the clinic due to both the number of responses and the limitations of our personal time.

We will not provide recommendations on specific investments or their potential for investment. We will not accept questions on any specific stock, mutual fund, ETF or financial product and their investment potential for a reader.

Saturday, May 2, 2009

net worth coast to coast & my ratios

Canadian Dream; Free at 45's net worth moved up 11% from his last update. The stock market rally, some savings, and a SK real estate revival are the reasons for the uptick.

Frog of Finance's net worth move up moved up 10% bringing him to par with his highest net worth ever. Real estate value increases, stock market gains, and debt repayment had all to do with the nice gain.

Million Dollar Journey's net worth moved up 4% thanks to the market's gains. That is a 6.7% year to date increase for the Maritime Super Blogger.

My Findependance Day saw his net worth jump by 10% as well. The market gains and an increase in his savings drove the healthy gain.

I update my net worth and associated ratios bi-monthly on or around the 15th of the month. My next update is two weeks from now on May 15. Here are the ratios that I like to track in my bi-monthly reports:

Debt/Asset Ratio
This is a ratio that shows me what kind of fundamental financial condition condition we are in. It would be great for one to have a million dollars in assets but if one also had a million dollars in liabilities I would not be as impressed. The aim is to use debt as a tool to grow our assets. For example our recent use of leverage in our non-registered investment portfolio is intended to provide fuel to grow the asset value of the portfolio as the market picks back up. The benefit of receiving dividends earlier is also a perk of this strategy. Our last Debt/Asset ratio was 0.56 (meaning we had $1.00 in assets for every $0.56 in debt)

House Value/Total Assets
I want our net worth to be made up of a diversified set of assets. I find it interesting to see what percentage of our total assets is the value of our primary residence. For now, the lower the better as I am aiming to diversify more into the ownership of dividend paying corporations in various sectors. Currently our House Value/Total Assets is about 70% (meaning that 70% of our total asset value is the value of our humble abode).

Friday, May 1, 2009

psychology & Wells Fargo @ $7.80/share

It’s funny how emotions and psychology influence us all as investors. Depending on one’s personality type, investment time horizon, future outlook, and current general state of mind, one can be desperately bearish or exuberantly bullish in the same stock market environment.

What investor’s have been through over the past 2 years is nothing short of one of the steepest, gut wrenching stock market declines ever. The S&P 500 index plunged from an all time high of around 1,562 in October of 2007 down an astonishing 57% to around 666 in early March of 2009. Most of this precipitous decline came after September 15, 2008 when global financial services firm, Lehman Brothers Holdings Inc., which was founded in 1850, filed for Chapter 11 bankruptcy marking the largest bankruptcy in U.S. history.

Since early March a fairly significant relief rally has been built on the back of optimism for economic stabilization, and mild recovery. The market seems to be telling us that the next great depression and other worst case scenarios have been ruled out. The financial system is not collapsing, and some sparse ‘green shoots’ of recovery are starting to poke through the dirt and dead matter that toxic debt and upside down mortgages have left strewn around the world. The S&P is now up a full 30% from the depths of March. Some financial stocks like Wells Fargo, General Electric, and Manulife Financial are up as much as 156% from their single digit lows. If that wasn’t the bottom, this is a ride that investor’s will probably want to get off of.

For long term investors that were buying stocks as they fell, or maybe well into the market bottom they took heart in the fact they were buying when pessimism was abound and stocks were surely cheaper than they were at any time over the past decade. How those same long term investors are feeling now that stocks are 30% to 156% more expensive in the case of Wells Fargo is how psychology really wrestles with us as investors. I would imagine that many investors are now feeling frozen, and their appetite for buying into this market has waned. It is a little bit like a deer in the headlights, or better yet a deer that just got hit by a semi and survived.

Wednesday, April 29, 2009

what you'll get free from equifax

Following up on my investigating your credit history for free post; I have now received my credit report back from Equifax. This arrived in the mail 4 business days after I phoned their automated request line. Below is a summary of what the report contains:

4 pages front and back were included.
This contains some personal information that they have on file for you including your prior addresses and a brief employment history. Mine seems to be accurate and complete back to 2002. This section also includes the date that Equifax opened a file on me.

This section first lists Equifax members who have received a copy of my credit file for credit granting followed by a list of authorized parties who wanted their records updated regarding my existing account with them. Very little detail and nothing real shocking here.

This is the meat of the report as it goes into detail on your account with each creditor. This includes a rating for each, for example R1 meaning 'paid as agreed and up to date'. Information on what your balance was at the time of last reporting, when the account was opened, your credit limit, and date of last payment made are included. Items listed here might include credit cards, student loans, lines of credit, bank accounts with overdraft, auto loans and leases, and other loans.

This section was interesting to read and I made sure that I went over it in detail to ensure accuracy. Everything was in order and aside from a very old credit card with a $0 balance, there were no surprises.

This section seems to be a place for official filings of secured loans/chattel mortgage, etc.

Section 5 'GLOSSARY'
This section just gives some general information on different credit terms and time frames for when records will be purged. They then go on to give some more general information about credit and Equifax and their services.

The last page is a Consumer Credit Report Update Form to request changes to your file.

Overall obtaining this report was beneficial, and I feel there is enough information here to set my mind at ease regarding my credit. Although I am a little curious, I don't feel the need to obtain my actual score.

One thing that I did not expect was the absence of our mortgage on this report. After some quick searching on the Internet I've learned that this appears to be common practice, as apparently a mortgage does not affect your credit score. This was a surprise to me and I still don't quite understand why this would be the case. Does anyone know anything about why mortgages are not included in Equifax reports?

Monday, April 27, 2009

income from investments at $8.93/day

It has been a while since I updated the status of the income we are receiving from our investments inside our non-registered account. Recently I have suffered three dividend cuts within our portfolio. General Electric (GE), Bank of America (BAC), and Husky Energy (HSE) all cut their dividends significantly, and I continue to hold all three stocks because I still believe these companies will prosper long term.

Procter & Gamble (PG), Johnson & Johnson (JNJ), Fortis (FTS), Diageo (DEO), Sysco (SYY), and Telus (T.A) have all raised their dividends recently. I expect Clorox (CLX), and Walgreen (WAG) to increase their dividend over the next few months.

Since Lehman Brothers failed in September of 2008 and the stock market fell off of a cliff, I have poured a significant amount of capital into our portfolio. In summary our income from investments is now sitting at $3,258 which is roughly 56% higher than we were earning pre-Lehman failure. During the same time frame our portfolio is up about 42%.

Our portfolio is currently yielding 5.5% and has a yield on cost of 4.2%. 9% of our portfolio is tied up in dividend re-investment plans.

J&J raises dividend for '09

In these tight economic times, global healthcare firm Johnson & Johnson (JNJ) has raised their dividend by 6.5% right on schedule. J&J's 2008 raise was by 10.8%.

Below is their recent annual dividend payment history:
2005 - $1.275
2006 - $1.455
2007 - $1.620
2008 - $1.795
2009 - $1.96 (est.)

This represents a compound growth rate of the dividend of 11.3%.

Thursday, April 23, 2009

investigating your credit history for free

If you are Canadian and you've ever wondered what your credit file looks like, there are two reports that you can access for free. It appears that obtaining your actual credit score will cost you some money though. Below is what I have requested free of charge. I'll review this material on the moneygardener after I receive it.

"Consumer Disclosure" from TransUnion, requested by mail with copies of both sides of two pieces of ID and the necessary completed form.
Total time commitment = 20 minutes with access to a computer, photocopier, your wallet, pen, envelope, and stamp.
What is a Consumer Disclosure?
A Consumer Disclosure is a complete account of all the information on your credit report, as mandated by consumer reporting legislation. Unlike the version supplied to a business that purchases TransUnion services, which is referred to as a "Business Version," a Consumer Disclosure lists all inquiries made to your credit information, including account management inquiries, non-credit-related inquiries and your own inquiries. The Business Version is an abbreviated version of the Consumer Disclosure. This is the credit report that creditors do see. The Business Version does not contain account management inquiries, non-credit related inquiries, or your personal inquiries to obtain a copy of your credit information.

"Credit Report" from Equifax requested by phone using automated voice recognition system. This is supposed to be mailed to me within 3-5 days.
Total time commitment = 3 minutes with access to a phone and your wallet.
What is a Credit Report?
Your credit report includes personal information such as your name, address, date of birth and Social Insurance Number. It also includes historical data such as current and previous addresses, current and previous employers, and public records like bankruptcies, liens or judgments. Most importantly, your credit report contains your credit card, mortgage and loan payment information. This information is used by lenders to see if you have missed payments, carry high balances, or are in other ways over extending yourself financially. Payment history is the most important factor in your credit rating — so pay your bills on time — even if it is just the minimum balance due each month. Lenders evaluate your credit risk based on information in your credit report. It is a good idea to review your credit report periodically and check for inaccuracies that may have an impact on your credit standing.

Wednesday, April 22, 2009

outside of the box income

Want to make your neighbour or brother-in-law's head spin?

Right around this time of year is an absolutely perfect time to mention to someone that eligible dividends from Canadian Corporations attract a tax rate of only 6.9% if you live in Ontario. If you happen to live in BC or Alberta that rate gets even better at 4.4%. This is assuming that one earns $55,000 in total taxable income.

This compares with employment income which draws an average tax rate of about 20% in these provinces and a marginal (last dollar) rate of about 30%.

The only problem is that if you would like to earn dividends totalling a net amount of $44,000, as you would in employment income, you would need a portfolio valued at about $945,000. That being said, dividend income can provide a very good supplement to employment income as you go through your career and can be relied on more and more as you grow your portfolio.

Monday, April 20, 2009

google reader links

Well I took some time to blow through my Google Reader again, and this is what I found...

Greg Donaldson from Rising Dividend Investing explains how Procter & Gamble showed that dividends talk when they hiked their dividend by 10% recently.

Market Timers Are Still On The Sidelines, and only time will tell whether they should have hopped the boards earlier, says Michael James On Money.

Rob Carrick from The Globe & Mail shows you how to Prepare Your Portfolio for a Rebound , Rob says buy energy, metals, and banks instead of pipelines and grocery stocks.

Friday, April 17, 2009

canadian banks look frothy

Canada has recently been lavished with praise because of the strength of their financial institutions amid all of the global financial turmoil. Despite this halo effect, these banks have had their challenges. Royal Bank of Canada (RY) just took a large write down on their US assets. That may be a bell weather for other institutions such as Toronto Dominion (TD) and Bank of Montreal BMO), who also have large assets in the US.

I can’t help but thinking that Canadian banks are not looking attractive right now as investments whatsoever. With headwinds of further write-downs, low consumer confidence, increasing unemployment, increasing loan losses, and Canadian real estate value declines, the big 5 Canadian lenders share prices look downright frothy. This is quite a change from a few months ago when you could have bought some of the banks at decade lows and towering yields.

Let’s look at Royal Bank of Canada (RY) as an example for the group:
How quickly things can change. Royal Bank was trading at $26 in late February and is now changing hands at $43. That means that the stock was yielding 7.7% back in February and is now paying out more like 4.7% of their share price in dividends. That is dramatic rise in share price of 65%!

The P/E ratio is now 13.4x for a company that just took a $850M write-down and is facing multitude of pressure brought about by a recession. There is very little probability of any dividend growth in the short term so investors don’t have much to look forward to in the next two years in that arena. When Royal yields north of 7%, I would argue that as long as they don’t cut their dividend, buying might be wise; however 4.7% does not carry the same appeal.

You could look at all five banks and probably see a similar pattern. The rally in these banks recently looks overdone to me and I believe the expectation currently built up in their share prices is not realistic. The risk return on these investments is not attractive at the current level because the potential short to mid term return has probably evaporated and the risk still exists.

Wednesday, April 15, 2009

bullish on canadian pacific

Every once in a while on the moneygardener, I get the urge to explain why I like a certain company as an investment. The reasons why I own the stocks that I own for the long term are not as simple as past dividend growth or current low price to earnings ratios. I have specific qualitative, forward looking reasons for owning each and every stock that I own.

Right now, one stock that I am watching intently because I want to add to my position is Canadian Pacific (CP). I was not as interested in CP when it was trading at $86.00 back in July of 2007, but now that the stock is trading below $40.00 I believe CP is ripe for an attractive long term investment. So other than the reasonable valuation, why am I so bullish on Canadian Pacific?

Well, it is a fairly simple thesis; Asian economic growth should be the story of the next 50 years, Canada is flush with resources, and railroads are a boring monopolistic way to play this growth.

Consider this, CP holds a significant market position in the transportation of bulk commodities, which account for a large portion of the company's revenues. Grain, coal, and fertilizers accounted for about 43% of CP's freight revenue in 2007. As a comparison, automotive related products only accounted for 7% of CP's freight revenue.

Over the next 50 years Asia will require a whole whack of coal for steel production and loads of fertilizer and grain for food production. Canada happens to be a prime source for these materials. I see this trend of growing Canadian exports of these materials to Asia as a given and CP will inevitably be a large beneficiary of this growth as they transport from West to Far East.

I own CP shares and I will be looking to add to my position on any weakness in share price in the upcoming weeks, months, and years.

Tuesday, April 14, 2009

Procter's 2009 raise

Right on schedule, consumer products giant Procter & Gamble (PG) has increased it's dividend by 10% to $0.44/share. I recently bolstered my ownership in Procter back in February, and the company now makes up about 6% of my non-registered portfolio. Always nice to receive a double digit raise in dividend income from a company that is confident about the future.

Here is Procter's recent dividend history;
2004 - $0.98
2005 - $1.09
2006 - $1.21
2007 - $1.36
2008 - $1.55
2009 - $1.72 (estimated)

PG has raised their dividend for 53 straight years. Last year they hiked the pay out by 14%.

Tuesday, April 7, 2009

kanye west, bang on about money

One's relationship with money in life can often be complex, emotional, and multi-faceted. Most of us know that we want more money, however most of us do not want to let money rule us or make decisions as if all we care about is money. Many would agree with the statement 'Money Can't Buy Happiness' or 'Money Can't Buy Love' because most people agree that achieving fulfillment in life is not simply about having wealth.

A lot of people grew up poor or lower middle class which influenced their attitudes toward money and allowed them to become frugal as adults. These people tend to attempt to ensure they'll never be broke, rather than striving to be wealthy to achieve happiness. Sometimes the best quotes come from the most unlikely sources. One of the best quotes that I have ever heard that surrounds the human relationship with money came from rapper, Kanye West in the song 'Good Life'.

"Having money's not everything. Not having it is."

At least this is what I think the correct lyrics are. There are conflicting quotes on popular song lyric websites. I like this line better than the alternatives anyway.

What I like about this quote is that it defines the human relationship with money pretty well in few words. When you have money, are comfortable and wealthy, money is certainly not everything and does not feel like the be all and end all. However, if you get into the situation where money is extremely tight or you literally have very little money to survive on, money can often become your sole focus and seem like it is the root of everything bad in your life.

Saturday, April 4, 2009

saving $ is fun again!

I must admit, I've lost my motivation to save money.

In the process of getting really busy with my day job, my excitable one year old son, and planning and taking a wonderful Vegas vacation, I've lost my saving mojo recently. These factors were not the only detractors from my usual saving prowess, I've been weak lately. My wallet has sprung open too wide and I've been very prone to the 'we deserve it' mentality. While I do believe this type of occasional extravagance keeps one sane, it's time to get back on the horse; and I've never been more ready to saddle up.

Our indulgence has cost us some progress toward Goal #1 which states:
Save an average of at least $1,000 per month to be added to our non-registered portfolio. (These savings are on top of regular RRSP and RESP contributions.)

We've come up empty the last two months:
February, 2009 = $0
March, 2009 = $0

As of right now we are not meeting our goal. Over the last rolling 12 month period we have manged to save an average of only $701.

Even though my wife was on maternity leave for half of the period, I am not happy with that, and we have been motivated to turn it around. Following the surprisingly frugal lead of my wife, I feel like we have a renewed motivation to sock away cash. I don't know if it is Spring breaking or just a natural snap back from overspending but we're definitely acting more frugal lately. Given the ongoing recession, we seem to have a lot of company all of a sudden. Saving money seems to be in vogue now; everyone was at the malls in 2007 when the moneygardener ruled saving money?

April's savings have already been booked at $1,500 and growing. I'm happy to proclaim that after a luxury sabbatical, saving is fun again!

Friday, April 3, 2009

5 market rally drivers

We are in a recession and the economy is looking very bleak. From accelerating job losses in many industries to the potential bankruptcy of GM there is a lot of bad news to digest out there. So this being what it is, why is the stock market rallying like nobodies business? The S&P 500 index is up a whopping 23% since just March 9.

The Wall Street Journal has an interesting article in the 'Smart Money' section of their website titled Dow 8,000 - 5 Reasons Driving The Rally. This article outlines 5 reasons why the market is rallying despite the despair saturating the economy.

1. G-20 Boosts Global Confidence (THUMBS DOWN)
The appearance of a coordinated response to the global financial crisis is apparently buoying markets. I would sell on any market strength that is generated by this fluff. This is all about perception and these meetings tend to not churn out any definitive actions. Global leaders have no choice but to give the impression that they are working together and on the same page.

2. Accounting Change Bolsters Balance Sheets (THUMBS UP)
Although the change to allow financial institutions looser criteria in order to value their hard-to-value assets is kind of like painting grass green, it might be just what these institutions need to finally get out from under themselves and start serving the public. This may signal that the bottom has been seen in stocks like Wells Fargo and Bank of America.

3. Team Obama Gets Act Together (THUMBS DOWN)
TARP, TALF, PPIP Burt & Ernie might have just as much luck throwing these acronyms at the market as Tim and Barack. Could they be stoking future inflation as well?

4. Blue Chips Too Cheap To Resist (THUMBS UP)
It always sounds silly to say that, wait a minute, wait a minute....right now 'blue chips' are too cheap. Many large, stable dividend growing companies have been pretty cheap for months. Stocks with nice dividends that shouldn't be cut should be bought when times are tough not when things look rosy.

5. The Early Bird Gets The Worm (THUMBS UP)
I do believe in the general thought that some great gains in the market can be missed out on by those who sell and attempt to get back in when things turn around. The markets can't go down forever, and nobody wants to miss the parade.

It is my believe that housing stats and the fate of GM will also be huge factors to where we are going in the market in the next six month.