Friday, November 30, 2007

focusing my strategy

I believe successful investing involves developing a sound strategy and sticking with that strategy through thick and thin. After the strategy is solidified one must apply the parts of the strategy in practice over and over again. For me, the long- term strategy that I have decided to carry out is Dividend Growth Investing. The supporting key features of a holding that I always remain conscious of are demographics, and brands. Most of my holdings contain one or two of these key features. I mostly do not care what the markets quote me on my stocks day to day or week to week. My only actionable concern with the market comes when it is offering me a sale I can't resist. It's fun to follow the daily soap opera that is the financial markets but this has little to do with my long-term strategy.

The 'bible' of my stock selection process is my watchlist. I've explained in a previous post, how I develop my watchlist. I've also explained in a previous post how I go about selecting stocks for this watchlist. If developing a concrete, bulletproof strategy is considered a '10' on a scale of 1-10, then I would say I am at around an 9 right now. I've probably moved to this 9 slot from around 7-8 over the past few months, and after reading 'The Single Best Investment'. The book rung true for me, and opened up my eyes a little wider to the dividend growth strategy which I have embarked on.

As a result of my recent realization, I have decided to add some more focus to my dividend growth strategy which was already in place. Eventually I will get to a place with my holdings and watchlist where the point of clarity has been reached; then I can move on to the job at hand which is the practice of implementing the strategy over and over. This will free up more time to change diapers and mow the lawn....

The focus that I have added involves narrowing the universe of stocks in which I will invest. In the book, Miller talks about 'Creating Your Own Private Compounding Machine'. The formula for success is High Quality + High Current Dividend + High Growth of Dividend = High Total Returns. In a round about way I had been already using this strategy to select stocks, but I am now going to focus my strategy based on this idea and toss out some of the bad apples...

The Bad Apples
- not that these are not fine companies, but they just don't fit with my strategy and thus I am wasting my time keeping tabs on them.

Thomson Corporation (TOC)
Thomson Corp. is actually a pretty good, consistent company with decent earnings and dividend growth and amount, however I have decided to remove TOC from my watchlist for the following reasons:
  • I don't understand enough about how the company makes money.
  • Their Price / Earnings ratio is too high, for no good reason, and I can not rationalize it so I know I could never buy the stock

FedEx Corporation (FDX)

  • The dividend yield is 0.4%
  • UPS is a public company.

Starbucks Corporation (SBUX)

  • The dividend yield is 0%
I am actively researching new companies to add to my watchlist, and I have actually selected about 3 that are in the process of being added. I will discuss these new stocks at a later date.

Thursday, November 29, 2007

and the winner is....

The winner of the moneygardener book giveaway is...

TKO from Ontario!

TKO, email me and let me know where I can send the book.

Thanks to everyone for entering and for the nice comments.

Check out these interesting posts from some of the blogs that I frequent:

Dividend Money explains why you need to start buying dividend stocks now!

Mr.Cheap is looking for a good sugar momma over at Quest For Four Pillars

The Globe & Mail's Market Blog suggests taking advantage of the recent weakness in shares of telecom players Rogers (RCI.B) and Telus (T.A).

Wednesday, November 28, 2007

my $ mistake & how to avoid it

For those of you who have yet to put your name in over at Canadian Capitalist you should; Ram is giving away some great prizes on marking the third anniversary of his great blog. Congratulations to him, as Canadian Capitalist is probably the gold standard personal finance blog in Canada, and he should be commended on his dedication.

In order for me to garner an extra entry into his draw, I want to write about My Money Mistake & How to Avoid It.

I'm fortunate that I actually don't have much to report in the way of money mistakes as I've always been a pretty conservative person when it comes to spending. One mistake that I would like to report though is a habit that I had in my teenage years as well as through University and a little beyond. The mistake is with respect to not minding the little things, when it comes to money. Once I learned what I do now about investing and how to compound money the little things started clearly becoming more important in financial life.

For example, I've gone through periods where I have:
  • played lotteries like Pro-Line excessively ($20 / week or more)

  • habitually spent money on small items, when I didn't need to (ie CDs, coffee)

  • ignored other small, repetitive expenditures

The little, repeating things matter!

While it is no iPOD, I am giving away a great investing book in the moneygardener's book giveaway. Enter here if you have not yet done so.

Monday, November 26, 2007

the moneygardener book giveaway!

As a token of my appreciation for all those that follow the moneygardener, as well a gesture in the spirit of knowledge and information sharing here; I'd like to give away a quality investing book to a lucky moneygardener reader...

The Single Best Investment, by Lowell Miller is not just any investing book. This book's core message is probably the most in line with my long term dividend growth strategy as any other investing book that I have read. Miller eloquently describes what it takes to be a successful dividend growth investor, while maintaining a simple and down to earth style that is easy to understand. This book is a quality read for any novice to advanced do- it- yourself investor. The book reinforced many of the ideas and principles I hold about dividend growth investing. Thanks again to The Dividend Guy for providing me with this great book.

How do you win the book? Well it's simple, leave a comment on this post to enter your name in the draw. I will then post the name of the winner after the draw is held. Then all you have to do is email me your mailing address and I will send the book to you.

Good luck to all who enter the moneygardener book giveaway...and thanks for visiting!

Sunday, November 25, 2007

house value / total assets

Diversification is important for so many reasons. Diversification shields you from the risks of over concentration by spreading your risk out among investments. The success of one or more investments will hopefully outweigh the mediocrity of others. Some periods might see certain investments in favour while others stagnate.

The diversification balance works within a portfolio of stocks or mutual funds the same way it works for the sum of the assets that an individual owns. At this stage in our life, our home is the largest investment we have ever made. Our house is only one asset and only exists on a single plot of land in a single city, and belongs to a single class of assets: real estate. More specifically Canadian residential real estate.

Due to the fact that we needed a place to live when we bought our house about two years ago, we become grossly overweight in this single asset when compared to the rest of our assets. The rest of our assets include mainly investments in corporations, whether through mutual funds or through individual stocks. As we go along I would like to bring this over concentration of investment in our home down quite a bit.

In May of 2006 our house made up 83% of our total assets. As of the present time (November, 2007) our house now makes up 73.5% of our total assets. So we've been able to bring our weighting in our home down about 10% over the past 1 1/2 years. See the bar graph below.

Do you keep tabs on your house value / total assets? Why or why not?

Saturday, November 24, 2007

MG's 4 goals - (goal # 2)

About one year 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 thought I would share these 4 goals for our non-registered portfolio in a series of posts. Goal # 1 was shared on my November 4th post.

Goal # 2
Keep our 'Buy Fee' under 2.0%*

*What is meant by the term 'Buy Fee' is the percentage derived from the following formula:
(Commissions + other fees) / ((Total Purchase Cost - (Commissions + other fees))

Basically this is a measure of the fees we pay to invest divided by our total investment net of fees.

Currently our Buy Fee = 2.2%. We are not meeting this goal due to the fact that we paid some big fees for stock certificates in order to set up DRIPs during the first few months of this portfolio's existence. I expect this buy fee to continue to drop until I get it under 2.0%. I imagine I will maintain the fee at around 1.9% - 2.0% for the next five years or so.

Friday, November 23, 2007

top 5 stock picks - 6 month update

About 6 months ago I picked 5 stocks that I thought were undervalued. I also liked the 5 company's prospects at that time as long term investments, which I still do. Here is a 6 month check up on their performance vs. the appropriate index.

Manulife Financial + 0% vs. / XFN Canadian Financials ETF - 9.4%
Walgreens -11.1% / S&P Consumer Staple Index - 1.5%
FedEx -11.8% / Dow Jones US Transport Index - 29.3%
Lowes - 30.0% / S&P Consumer Discretionary Index - 1.9%
Johnson & Johnson +4.8% / IYH U.S. Healthcare ETF -3.1%*

Overall my 5 stocks had an average return of -9.6%, while their benchmarks had an average return of -9.0%.

6 months is a very short time horizon, but so far I seem to be just behind the index which is surprising given the extremely poor performance of Walgreens as well as Lowes. Goes to show how poor the markets have been that 8 of the 10 issues are down in a 6 month period. The next update will be at the one year mark, which will be around May 24, 2008.

*changed this benchmark going forward due to availability of quote.

Thursday, November 22, 2007

the meatball sub

"If you watch your pennies, the nickels and dimes will take care of themselves"

We've all heard this expression on the merits of being frugal by watching the small, repeating expenses. I'd like to illustrate an example from everyday life that really brings this point home. It involves the common practice of people purchasing a lunch on a work day, instead of preparing one. We all know those people who readily purchase their lunch every work day; maybe you are one of these people. Perhaps it is a choice that you feel comfortable with because you want to enjoy your lunch more, or perhaps you work in an environment where there is little choice but to buy a lunch. Nevertheless there are some people who do buy their lunch at work everyday.

Let's assume a typical lunch sets you back $8, and you buy your lunch every work day of the year. Also let's pretend that you don't get any holidays or days off whatsoever (sounds like a great job!). At age 22 you begin your career...

By the time you are 50 years old you would have spent $77,074, adjusted for inflation, on lunches. That is a hefty sum for a footlong meatball sub and a coke every day, but it keeps you happy and productive at work.

But let's consider for a moment that you chose to make and bring your lunch to work, and instead invest your $8 every day and you obtained an average annual rate of return of 8%. At age 50 you would wind up with an inflation adjusted sum of money of $261,424, before tax in a registered account.

So basically you are paying the equivalent price for your lunch every week day that you would pay for a nice home (at age 50) in many parts of Canada.

Wednesday, November 21, 2007

be an owner

I've often heard so called financial gurus, stock traders, and alike talk about the way in which one should think about the shares they own in a company. They say one should think of these shares as simple pieces of paper, that can be bought and sold on a whim. I believe they feel this way because they believe that one should not fall in love with his/her stocks, and one should have the courage to sell and the conviction to trade when times get tough. While I believe this is a good message on the whole, I disagree with the mentality that stocks are just 'paper'.

I believe that when you own shares of a company you are an anonymous partner in that business. Your goals should be aligned with the goals of the management of that company. If management's goals differ from yours, you should turn and run in the opposite direction. Management's primary job is to grow the value of the business, and to provide the fruit of that growth with shareholders for the long term. Technically every person working for that company is working for you. When you buy shares in a company, you are literally buying a chunk of the business, no matter how small.

For example I might own:
5,000 tubes of Crest Whitening toothpaste sitting on a pallet inside a 40 foot shipping container aboard a ship in the Pacific...

A piece of a small charitable donation made to Sick Kids Hospital in Toronto, Ontario by Johnson & Johnson..

A couple red neon signs at a Walgreens on the corner of a busy intersection in Orlando, Florida...

A 1 foot length of a pipeline owned by Inter carrying some petro chemical running through a cold field in rural Alberta...

A weeks salary for some high paid executive at Royal Bank of Canada or Bank of Nova Scotia in Toronto, Ontario....

A portion of a GE manufactured ultrasound machine being used inside a Lisbon, Portugal hospital...

I believe it is important to have an ownership mindset when making a long term investment in a company. Why else would I want to buy shares in a company unless I wanted to participate in the future success of that company, and reap the benefits? I'm using that company as a vehicle to grow my hard-earned capital, and at the same time I'm trusting them with it.

Tuesday, November 20, 2007

playing defense has paid off lately

One trend that is really becoming apparent in the market lately is the out performance of companies in defensive industries with global sales reach. The reason for this is probably a combination of the weak U.S. dollar ending up on the bottom line as well as a general investor rotation into defensive names when the fear of weaker economic growth, or recession in the U.S. rears it's ugly head. International firms that manufacture or retail consumables have really been beneficiaries of this trend over the past year. As examples, take a look at these 1 year returns compared with the general markets:

Global Defensive Companies:
Coke (KO) = +32%
Colgate-Palmolive (CL) = +17%
Procter & Gamble (PG) = +14%
Pepsico (PEP) = +21%
Unilever (UL) = +37%
McDonalds (MCD) = +40%
Yum! Brands (YUM) = +22%
Diageo (DEO) = +16%

Indices For Reference:
S&P 500 = +3%
DJIA = +6%

I did cherry pick these companies, however they are some of the most liquid, well known international defensive stocks. Their performance has been exceptional over the past year. It is often said that the market thinks about 6 - 9 months ahead. If this is truly that case it seems as though the market is anticipating a recession in the U.S. or globally, if not at least a slowdown in the U.S. These stocks will probably not perform as well in 2008 and 2009 if U.S. economic growth actually surprises on the upside in the short to mid term. For anyone holding these names over the last year, your returns have been muted by the fact that the Canadian Dollar has appreciated 17.5% against the greenback since the start of 2007.

Friday, November 16, 2007

retailer earnings highlights

Here is a round up of this week in retail earnings around the stock market:

Wal-Mart (WMT)
  • Higher than expected profit (up 11%)
  • Gives a bright full year earnings outlook and is optimistic about Holidays

Home Depot (HD)

  • 27% drop in quarterly profit
  • Forecasts a steeper fall in full year earnings
  • May scale back share buyback plans

"I think Home Depot has learned from Lowe's that they need to focus on their stores," Cherukuri said. "That's what's going to get the stock up."

The average purchase fell 1.5 percent to $57.48 in the third quarter as the number of customer transactions eased 1.8 percent. Home Depot said it gained market share in paint, power tools and appliances but lost it in lighting.

Loblaw (L)

  • 42% drop in quarterly net earnings
  • Revenue up 1.4%
  • Cites 3-5 year turn around period to 'return to solid ground'
  • Operating margins dropped to 2.7% from 4.4%

"Loblaw's disappointing outlook and third-quarter results underline the dwindling value of the retailer's core retailing operations, which are worth less than one-third of its real estate holdings, Brian Yarbrough, an analyst at Edward Jones & Co., estimated. "

Starbucks (SBUX)

  • Quarterly earnings up 40%, met expectations
  • Reduced outlook going forward
  • Strong international sales offset weak U.S. sales
  • To start running TV ads

Leon's Furniture (LNF)

  • Net income up 9.5%
  • Sales up 6%

Thursday, November 15, 2007

net worth update november, 2007

Results for the 60 days ended November 15, 2007.
  • Debt/Asset ratio moved down from 0.57 to 0.55
  • Net worth moved up 4.9% to
  • Total Assets increased 0.7%
  • Total Liabilities decreased 2.4%
  • House Value / Total Assets moved down from 74% in September to 73.5%
  • Non-registered portfolio grew 5.6%

Good progress over the past 2 months, especially on the debt reduction side (a 2.4% decrease). This was because we employed some line of credit funds in August and September. Net worth moved up by the lowest percentage since I began tracking it in May of 2006. Our net worth growth will slow considerably over the next year as my wife takes a year long maternity leave. It will be interesting to track fluctuations that are more dependant on the market's influence on our assets, rather than on savings in 2008.

Year over Year Results (compared with November, 2006)

  • Net Worth moved up 78.6%
  • Assets were up about 20%
  • Liabilities were down about 5%
  • Debt/Asset moved down from 0.70 to 0.55

This large net worth increase is a symptom of starting from a low base. The asset growth of 20% is encouraging, but will be very hard to maintain. In one year we've come pretty far on the debt/asset side, from being 70% leveraged to 55% leveraged.

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Wednesday, November 14, 2007

you can build it, but can they help?

The current mess that is going on in the U.S. real estate/credit market is scary indeed. Like any other asset class, it is clear that housing markets can become overheated, bursting bubbles, just like stocks. All that excitement led financial institutions get pretty loose with their lending qualifications as well. It makes one glad to have their net worth diversified into shares of large, boring companies as well as boring Canadian real estate.

One company that really capitalized on the housing boom in the U.S. was Home Depot (HD). Whether you were flipping a bungalow in Sacramento, California, or building a ranch in Charlotte, North Carolina, Home Depot was probably close by to offer their wide array of home hardware. Their customer service leaves much to be desired, but they are located everywhere, the price is usually right, and they know how to keep the shelves stocked.

The company was able to grow earnings by over 20% per year in 2003, 2004, 2005, and 2006. That is a pretty good clip for any retailer. The stock actually doubled from $21 in January of 2003 to a peak of around $44 in 2005. But then something happened, perhaps the market saw what was coming ahead as the stock didn't do much of anything after early 2005. We all know what happened next as the housing bubble burst. Housing prices are in decline in many market in the U.S. and less homes are being built. Home Depot's stock has subsequently tanked down to $29. Their earnings and revenues are now in decline, as you might expect. I've watched this all play out intently, with my hesitant eye on Home Depot every since I peered at the company's financials.

Did I mention that fundamentally this company is extremely strong, and has a squeaky clean balance sheet? Home Depot has also been an amazing dividend grower since 1987. So is it time to buy this value play? Or is this a value trap? If you have a long term time horizon then you may want to give this company a second look.

  • Earnings growth has been exceptional for a long time.
  • Dividend growth has followed suit for a long time.
  • This company has a proven history of success in retailing.
  • Lowes is a strong competitor, that can't be discounted.
  • The stock yields 3.1% with a low pay out ratio.
  • The company has very little debt.
  • They are buying back shares, like they want to go private.
  • The P/E is under 12x.
  • Return on Equity and Assets are both over 20%
  • The pay out ratio of dividends is only 24%
  • HD has a small play on China
  • They have great real estate, and a decent brand.
  • Americans, some day will start building, rennovating, and loving their houses again...

It is hard to find much fault with the company fundamentally. However, there is one lingering risk; they are involved in this industry that built up so much overcapacity that it collapsed upon itself. How long does it take for this growth to get humming again. Home Depot will eventually have some pretty easy prior-year comparables to go up against for earnings and revenue growth. What is the immanent catalyst short-term though? That is the clincher, as noted by S&P in their latest research report.

This stock could languish for years, how long could you stand holding a flat or declining stock.......? They are currently willing to pay you 3.1% to wait, that is more than their closest competitor...

If you are a long term investor though, I'll bet that when the U.S. housing debacle becomes a distant memory, you'll be glad you picked up a few shares of this company.

Saturday, November 10, 2007

are we rich yet?

In the November issue of Money Sense Magazine there is an interesting article called "The All-Canadian Wealth Test". Basically MoneySense, with the help of Statistics Canada have dug down into the nitty gritty of Canadian's personal finances in order to let us know where we all stand compared with our neighbours. The results were very interesting and eye opening.

The section that I found most interesting was the section on Net Worth, because I consider this to be the goal of much of personal finance, distilled down to one number. I've noticed from the poll that I ran that many of my readers of this blog are under the age of 35.

Here is the 'Under 35' category of the net worth section:
Poorest 20% = Below $1,300
Next 20% = Below $9,400
Middle 20% = Below $34,400
Next 20% = Below $89,700
Wealthiest 20% = More than $89,700

Surprisingly we actually fall into the 'Wealthiest 20%' category by quite a margin.

And here is the 'age 35-44' section:
Poorest 20% = Below $18,300
Next 20% = Below $79,100
Middle 20% = Below $163,800
Next 20% = Below $309,200
Wealthiest 20% = More than $309,200

Increasing net worth is simple. You can increase your net worth on a monthly basis by simply:
  • Saving some portion of your income.
  • Using that savings to either pay off debt, or buy assets, or both.

As your net worth grows, it becomes harder and harder to move the needle of growth month to month and year to year. As of last check up in September we were moving our net worth up at a rate of 5.5% (per 2 month period). This was the slowest rate that I have recorded since I started measuring net worth.

Friday, November 9, 2007

x border shopping

The Canadian dollar recently appreciated up to above $1.10 vs. the greenback, and then quickly moved back down to around $1.06 U.S.. Most analysts within Canada and the U.S. are predicting that the loonie will cool off to average levels anywhere in between $0.95 and $1.07 over the next year. I don't pretend to be an economist or a currency guru, however I am of the same mind as most of these analysts. I'm not sure where the loonie will land over the next year or two, but I am fairly certain that it can not maintain levels above $1.05 U.S. for very long.

Factors that are pushing the Canadian dollar higher include: very high oil prices of above $90/barrel, high commodity prices because of strong global growth, a solid Canadian economy, a weaker U.S. economy, a U.S. credit crises, recent U.S. interest rate cuts, and good Canadian employment growth. I count 7 key factors here that are keeping the loonie buoyant against the greenback. It is my belief that these 7 factors will not all stay in place for the duration over the next few months, and years. This is why I believe the loonie will eventually cool off to levels well below $1.00 US as we move into 2008 and 2009.

So where does that leave investors who share my thoughts and would like to put these inferences to action? Well, if you are a stock investor and are looking for places to stash your currently strong Canadian dollars that might earn you some dividends and buy you some time while you wait for the loonie to weaken, here are a few options:

The key things you want to look for in a U.S. denominated stock to hold for this purpose are these:
  • large stable companies in stable industries, that have histories of dividend growth
  • modest earnings growth expectations, and fairly valued stocks (you don't want a company to miss high earnings expectations and suffer a major share price hit).
  • a decent sized dividend to pay you quarterly while you hold
  • go after some exposure that you might not be able to get in Canada
  • even if you are wrong about the currency, you're still holding quality blue-chip U.S. stocks


  • Johnson & Johnson (JNJ) - Health care & Consumer Products, consistency, safety, global, low debt, dividend growth, low earnings expectations, 2.5% yield.
  • UPS (UPS) - Transportation of goods and supply chain mgmt., consistency, global, low debt, barriers to entry, dividend growth, low earnings expectations, 2.3% yield.
  • Altria (MO) - Tobacco products, consistency, not economically sensitive, global, low debt, dividend growth, low earnings growth expectations, 4.1% yield

Of course any one of these three companies could suffer share price depreciation due to some unforeseen event or economic turmoil, however I believe these three are as good a place as any to hide while the U.S. dollar strengthens over time against the loonie. Obviously I would recommend holding these investments for at least a few years.

Alternatively you could look into several other investment vehicles in the U.S. which are not limited to bonds, exchange traded funds (ETFs), money market funds, and simple U.S. cash.

Thursday, November 8, 2007

to DRIP or not to DRIP

A Dividend Reinvestment Plan or (DRIP) is a service that you can set up with a company, with which you own stock, where the dividends paid by the company are automatically used to purchase additional shares of the company's stock. Therefore, you will never actually receive the dividends in cash; instead they will be used to buy more of the company's stock. Among the several stock investors that I know, there seems to be a dichotomy of opinion on whether or not a DRIP is a useful tool for a long term investor. It is important to note the DRIPs vary by company as to how their plan works, and not all DRIPs are free of fees. Not all DRIPs are created equal! In Canada there are two main companies that administer DRIPs for Canadian corporations. These companies, which are called transfer agents are Computershare and CIBC Mellon

I currently have 4 of the 15 stocks that I own enrolled in a DRIP plan. These 4 DRIP'd stocks are:

Johnson & Johnson (JNJ) - Computershare
Royal Bank of Canada (RY) - Computershare
Telus (T.A) - Computershare - Share Purch. (SPP) as well. - Best DRIP
Manulife (MFC) - CIBC Mellon - small fee ass. with DRIP - Worst DRIP

These are all companies that I plan to hold for the long term (ie at least 15 - 20 years).

Reasons I like, & ADVANTAGES of using a DRIP:
- Usually FREE of charge - this eliminates the trading fees that you would normally encounter when adding to current stock positions

- Great tool to employ the magic of COMPOUNDING. Dividends buy more shares which in turn produce more dividends. Fractional shares (ie 1/10) of a share, still produces a dividend.

- NO HASSLE. DRIPs will continue to operate without you lifting a finger. Your stocks will still reproduce while you sipping a Pino Colada on a 4 week all inclusive vacation in the Mayan Riviera.

Reasons I don't like, & DISADVANTAGES of using a DRIP:
- Once a DRIP has been set up, your capacity to buy stocks when they are cheap is diminished. You do LOSE the ability to add to a position on a down day, or buy on a dip.

- Some DRIPs do not include a Share Purchase Plan (SPP). In these cases this means once you are locked into a DRIP you CAN NOT ADD to this position.

- A limitation of a DRIP for a smart investor is that you must be completely sure of your long term confidence in the company. If you select a company to DRIP, this is a COMMITMENT to this company for the long term as your investment is more difficult to access quickly, and the whole point of a DRIP is to let it ride long term.

Overall I am on the fence with respect to DRIPs. There are certainly advantages and disadvantages as I've indicated above, and much of the decision of whether or not to DRIP is up to one's individual investment style and goals.

It is important to note that there is another form of a DRIP available which is called a 'SYNTHETIC DRIP'. A synthetic drip can be set up directly with some discount brokers. This type of DRIP works the same way as a conventional DRIP except for the fact that a synthetic DRIP will not purchase fractional shares. For example if a stock is trading at $20 and your quarterly dividend amounts to $19, the DRIP will not buy anything. If your quarterly dividend amounts to $39, the DRIP will only buy 1 share, and will leave $19 cash in your account. This is a disadvantage, as you do not get your entire dividend amount re-invested, however an advantage of a synthetic drip is that the company shares are still with your broker so you can add to them anytime (on dips etc.). I have not yet set up any synthetic drips, however I do think these are attractive and I may set them up in the future for some holdings.

If anyone has any experience with Synthetic DRIPs, and would like to provide some feedback on how they work with certain brokers please comment.

Wednesday, November 7, 2007

Yellow Pages hikes

Always great to receive yet another raise....

My portfolio income from investments made another leap forward today as Yellow Pages Income Fund (YLO.UN) reported a 3.7% increase in distributions from $1.09 per unit to $1.13 per unit. This is very good news for my portfolio income, considering YLO.UN makes up 16% of the total assets held.

Here are some highlights of their earnings release:

- Adjusted earnings for the company grew by 15%. The company is now earning $180 M annualized from their online activity.

- Distributable cash per unit actually increased by 9.7%, however the company only raised distributions by 3.7%. The reason for this is because Yellow Pages in managing this company for the long term. They are actually building up a buffer, and progressively reducing their pay out ratio, which will enable them to not have to cut distributions after 2011 when the new tax for income trusts sets in. At that time Yellow Pages will transition from an income trust to a regular corporation.

- Organic growth in their directories business remains strong at 6% earnings growth.

One aspect of this company that I really like is their management. One can tell from their earnings releases and conference calls that they are exceptional communicators. They also integrate acquisitions very well.

Their margins are phenomenal at almost 60% for directories. They hinted that 2008 looks very good as they build momentum from their recent acquisitions such as the purchase of Trader Media (Auto Trader etc.). Yellow Pages (YLO.UN) is now yielding about 7.8%, and trading at $14.50 / unit.

Tuesday, November 6, 2007

Manulife's latest raise

Global life insurance and financial service company Manulife Financial (MFC) has increased their dividend from $0.22 / share to $0.24 per share. This represents a 9% increase. Manulife has been increasing the dividend twice per year since 2004.

Here is their dividend history since 2000:
2000 = $0.21
2001 = $0.25
2002 = $0.32
2003 = $0.41
2004 = $0.50
2005 = $0.63
2006 = $0.75
2007 = $0.92 (estimated)

This represents a compound annual growth rate of the dividend of more than 23%. This is a pretty impressive annual raise.

A share of Manulife (MFC) bought in 2001 would now be yielding 4.6% on the original purchase price. As mentioned this stat is neat, but is meaningless for looking at the current company, future prospects and trends. Manulife (MFC) is now yielding around 2.3%.

This change will slightly increase my 'Annual Income from Investments' figure that I maintain on a regular basis. Always the best metric to update because usually the change is more permanent in nature than any other portfolio value tracking.

Sunday, November 4, 2007

MG's 4 goals - (goal # 1)

About one year 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 thought I would share these 4 goals for our non-registered portfolio in a series of posts. I won't necessarily run the ' MG's 4 goals' posts consecutively, but I would like to share them over the next while. OK, let's get on with it...

Goal # 1
Save an average of $1,000 / month, to be added to this portfolio.

This means simply what it says. We want to save an average of $1,000 in cash every month for this portfolio. This $1,000 is over and above any dividends or distributions that the portfolio earns.

So far we are accomplishing this goal. Please see the bar graph below for more details. We have been able to save an average of $1,534.84 / month over the past 19 months. This overshoot will come in handy over the next little while as my wife's maternity leave will present a challenge to continuing to meet this goal.

Saturday, November 3, 2007

Bank of America purchase

I initiated a position at $45.00 yesterday in one of my 'cheap stocks', Bank of America Corporation (BAC). Here is a brief summary on the company:

Bank of America is one of the world's largest financial institutions, serving individual consumers, small and middle market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk-management products and services. The company provides unmatched convenience in the United States, serving more than 55 million consumer and small business relationships with more than 5,700 retail banking offices, nearly 17,000 ATMs and award-winning online banking with more than 20 million active users. Bank of America is the No. 1 overall Small Business Administration (SBA) lender in the United States and the No. 1 SBA lender to minority-owned small businesses. The company serves clients in 175 countries and has relationships with 98 percent of the U.S. Fortune 500 companies and 80 percent of the Global Fortune 500. Bank of America Corporation stock (NYSE: BAC) is listed on the New York Stock Exchange.

Some Company Highlights

  • Acquired LaSalle Bank Corp. (large Chicago based bank) in 2007
  • Owns a 9% stake in China Construction Bank

  • Owns the MBNA credit card company

  • Serves 76% of the U.S. population

  • Largest U.S. bank

  • Operates all over the world

  • #1 bank in the state of California

  • Bank has a multicultural focus, which are growing demographics

Key Stock Information and Valuation
According to my models the stock is now priced to grow their earnings at a 4-5% clip for the next 10 years

  • Yield = 5.7%, at a historically high level

  • Stock is almost 20% below its 52 week high

  • Price / book value is 1.6, which is lower than anytime except in 2000

  • Return on Equity is always above 15%

  • Dividends have been raised at a very good clip for a very long time.

Rationale for Purchase

The purchase rationale of BAC at these levels is an example of a spot where I think that the risk/reward is tilted far to the reward side. The only real risk with this purchase would be BAC cutting their dividend. Recent analyst remarks regarding Citigroup potentially cutting their dividend have added fuel to fire for the unloading of these banks. There is no greater fear for a dividend growth investor than the potential of a company cutting its dividend. In my opinion this news is partially the reason why BAC is finding new lows. I do not believe BAC will cut their dividend and by making this purchase, I am making a monetary bet on that fact. I really do not much care if more credit writeoffs and further fears cause BAC's shares to fall further, as long as they do not cut the dividend, and continue on their strong history of raises, I may buy more.

Let's use a conservative scenario and assume that BAC's shares are flat after one year and the Canadian dollar remains at these lofty ($1.07) levels; if this occurs my return for the year is about 5.6% (my dividend yield) before tax and I can likely look forward to another dividend increase in August, 2008. Then again if the Canadian dollar should fall, and BAC's shares rise, I would be in a much better situation immediately.

See the charts below for BAC's dividend and share price history.

Dividend History for Bank of America.

Share Price History.

Will there be more pain to come for U.S. banks? How will this affect their shares?

Will Citigroups dividend be cut? Will BAC's dividend be cut?

Will the Canadian dollar remain at $1.07 and above?

All great points for debate. For me the only true question I had to ask to justify this purchase was:

Will Bank of America continue to raise its dividend year after year, and survive this credit crunch just as they have survived every financial crises in the past?

Friday, November 2, 2007

Telus hikes dividend 20%

Telus reported a 28% jump in third quarter earnings today, and raised the quarterly dividend 20% to $0.45 / share. They also boosted their 2007 earnings forecast. One negative on this report was the fact that their average monthy revenue per user or 'ARPU' decreased 1.3% to $64.80. Telus is certainly trailing competitor Rogers Communications in subscriber growth, as Rogers reported strong subscriber gains in the quarter. Telus now has 994,000 high speed internet subscribers, up from 962,700 last quarter. Telus TV was also launched in several Quebec cities during the quarter, joining Vancouver, Calgary, and Edmonton.

Telus shares, which I own, now yield almost 3.4% on today's mid afternoon price of $53.50 / share.

Below is Telus' recent dividend payment history:
2004 = $0.60 / share
2005 = $0.80
2006 = $1.10
2007 = $1.50
2008 = $1.80 (estimated)

This represents a compound annual growth rate of the dividend of over 30%. One share of Telus bought in 2004 for $22.00 would now be yielding almost 8.2% on original investment, which some say is a meaningless statistic, but nevertheless it is an interesting one. Telus though, can not really be called a great long-term dividend growth company as they have only really ratcheted up the payments over the past 4 years, and the actual company (Telus) has a short operating history as it is.

Thursday, November 1, 2007

public declaration

Fellow blogger brip blap has tagged me to perform the following meme:

What one goal have you always had privately that you would be willing to commit to publicly - right now? Post it and give a public commitment to stick to it!

I would like to wake up earlier on weekends. That's right, maybe around 7:30am or so. I've heard this starts to happen naturally when you get older, also when you add a baby to your family. So maybe it won't be much of a challenge after all....

I won't tag anyone on this one since I think it's quite a tough one (unless of course someone wants to be tagged...)