Saturday, May 31, 2008

weekend links

I recently added more General Electric (GE) to my portfolio, and once again GE's CEO Jeff Immelt was thinking along similar lines. Jeff added 115,000 shares at around $30.59-$30.66, he now owns 1.5 Million shares of GE. Hey, I actually got a better price than the GE CEO! That is before trading commissions of course.

Think twice about having your entire wealth tied up in your home, Larry MacDonald writes. This is a negative aspect of using all of your excess funds to pay down your mortgage. In my last net worth check up I saw our house value drop to make up under 70% of our total assets.

Will Home Depot ever return to its dividend growth past?, Dividends 4 Life is watching intently.

Looks like The Dividend Guy is on track to accomplish his short term goal for his portfolio. Nice bar graph too!

Thursday, May 29, 2008

Costco the enigma

Costco Wholesale (COST) announced their latest quarterly earnings today and the surpassed expectations posting a 32% increase in profit. In my "Costco" post back in October of last year I posted about why I choose Costco over any other retailer for most purchases.

Even in these times of economic hardship in the U.S., Costco just keeps blowing past expectations while retailers like Sears and Target are struggling. Even so, the leading warehouse club operator remains somewhat of an enigma to most. I have heard the business media describe Costco as a higher end retailer, while I've also heard the chain described as a place where people might shop when times are tough and they are 'trading down' to obtain some bargains. So which one is it?

So why is Costco shooting the lights out? They are because they know how to retail, they know what people want out of a shopping destination. Their focus on low pricing has not clouded their view of what is really important. If low prices was the only attribute Costco had going for it, then I'd certainly not visit the store as often as I do. Retailers know that if the story starts and ends with price they become a commodity trader fast. Wal-Mart has realized this as well.

Costco is successful because they've discovered what people want, convincing one customer at a time:
  • Quality - Second to none goods in every category, simply the best brands, and the best private label anywhere (Kirkland Signature)
  • Price - Determined that they are not the lowest price? You simply aren't doing the math. Or you're comparing apples to oranges with respect to product quality.
  • Service - Every employee is pleasant; perhaps they like their jobs. Returning an item is easy, their online store is great to use and delivery is often free.
  • Experience & Surprise - Food samples for all, new and interesting items seem to pop up every week, coupons that actually save people money, photofinishing, optical centre, the list goes on and on.

I believe that Bloomberg, CNBC, and alike have it all wrong on Costco. There is no trading down, or stocking up for the oncoming economic collapse going on. Rice hoarding aside, Costco is taking market share because they are simply BETTER, and they are getting BETTER at being BETTER all the time. Sub-par department and grocery stores are giving Costco market share as each new Costco customer realizes the benefits above of shopping at the warehouses.

Wednesday, May 28, 2008

gas prices knocking on the door of change...?

Are higher gasoline prices starting to mean something more than filler for the 11 o'clock news?

Maybe so...
"Consumers have been shifting to smaller, more fuel-efficient cars in the last few months at a pace that has stunned the industry. January-April sales of subcompact cars in the U.S. shot up 33 per cent from a year earlier, including 29 per cent for the Ford Focus compact sedan, while overall American vehicle sales slid eight per cent."

What tangible affects of high gasoline prices have you seen?

Tuesday, May 27, 2008

BNS earnings down, dividend up

The dividend train continues to roll on at Bank of Nova Scotia (BNS), which is a Canadian bank with large Latin America operations. BNS reported a 6% drop in second quarter profit from 2007 levels, but they still managed to increase their quarterly dividend by 4.3% from $0.47 to $0.49. I always appreciate the raise as a shareholder. Higher provisions for credit losses and lower capital markets revenue contributed to the earnings decline. Scotiabank said it was unlikely to meet its objective of 7 to 12 percent growth in earnings per share for the year, even as it noted that second-quarter results were better than the first quarter's, and other signals pointed to a stronger second half. The bank also did not rule out acquisitions of cheap U.S. banks in the near future.

This dividend raise by BNS continues the pattern of 2 increases per year going back a few years. The stock is now yielding 4.1%. Royal Bank of Canada (RY) on the other hand actually failed to increase their semi-annual dividend last quarter which ended the pattern they held since January 2005. I summarized the first quarter in the Canadian banking world back in March.

From BNS Investor Relations
The following is a record of increases in the quarterly dividend per common share for the fiscal period 2005 to 2008:

Fiscal 2008 - 1st quarter - increased from 45 cents to 47 cents. 3rd quarter - increased from 47 cents to 49 cents.
Fiscal 2007 - 1st quarter - increased from 39 cents to 42 cents. 3rd quarter - increased from 42 cents to 45 cents.
Fiscal 2006 - 1st quarter - increased from 34 cents to 36 cents. 3rd quarter - increased from 36 to 39 cents.
Fiscal 2005 - 1st quarter - increased from 30 cents to 32 cents. 3rd quarter - increased from 32 to 34 cents.

Saturday, May 24, 2008

diaper mayhem III - going shopping

"diaper mayhem" is a series of posts where I describe my experience trying to get the best value for a new fixed cost in our budget....diapers. In diaper mayhem II - an act of treason
I described how I felt like a traitor seeking atonement, as I finally tried Kirkland Signature Diapers from my favourite retailer Costco Wholesale. This post followed up on the premier post of the diaper mayhem series, where I pledged my early allegiance to the Pampers brand.

The third episode of this series involves comparison shopping using prices from our favourite grocery store, Price Chopper, which is the value banner offered by Sobeys in Canada. Here are how the prices look at Price Chopper:

Huggies $35.00 for 144 = $0.243/ diaper
Pampers $35.00 for 144 = $0.243/diaper
Compliments little ones $24.00 for 120 = $0.20/diaper

Smaller Packages
Huggies $18.00 for 60 = $0.30/diaper
Pampers $18.00 for 60 = $0.30/diaper
Compliments little ones $13.00 for 60 = $0.217/diaper

*Kirkland Signature at Costco are $45.00 for 200 = $0.225/diaper ($657/year)

Assuming your baby goes through 8 diapers per day, purchasing Kirkland Signature diapers instead of Huggies or Pampers could save you about $53/year. Overall the most money can be spent by buying diapers in smaller packages. Buying Pampers or Huggies in the smaller packages of 60 will cost $876 per year, while the large packages will cost you only $710. Compliments little ones in larger boxes would only cost you $584 per year. I would be interested to hear from anyone who has tried these diapers, as the price is right.

We've actually been very pleased with Kirkland Signature Diapers, which are most likely made by Kimberly Clark (the maker of Huggies). I would rate them as good or better than Pampers Baby Dry, which we were previously using.

Next time I'll be looking at diaper prices from other retailers and hopefully we'll get some new brands into the fray as well.

Friday, May 23, 2008

added more General Electric

Today I added some more General Electric (GE) to my non-registered portfolio to reduce my Adjusted Cost Base (ACB). Back in December of 2007 in my GE-past success future potential post I detailed what I like about GE as a long term investment.

The reason I added today is purely due to the stock's current valuation...
  • GE is trading at levels not seen since May of 2004; since then earnings and dividends have both been growing nicely
  • Price/Earnings ratio is currently 14.1x
  • Dividend Yield is 4.1%
  • I can currently buy $1 of GE for about 99 cents Canadian

What Does My Chunk of GE Look Like?

  • 127 shares - average cost of $37.64 Canadian
  • Providing $161.29 per year in dividends
  • My yield on cost is 3.4%, while the current yield is 4.1%
  • I plan to hold on to these shares indefinitely, adding to the investment when the valuation is attractive
  • The dividends will be collected and re-invested in GE or another stock of my choosing
  • The dividends are not tax friendly, however you can't get GE's exposure in a Canadian dividend paying stock

Yes there have been, and will be short term issues with GE's earnings related to their large financial exposure. These short term problems are blessings in disguise for a long term dividend growth investor because they are providing an opportunity to pick up a company that has raised its dividend every year for the past 31 years while it's yielding over 4%. You could say the same thing about some U.S. and Canadian banks right now, however I believe GE's current and future earnings and dividend growth prospects look good relative to that of these banks. GE operates in many areas like domestic and emerging market infrastructure as well as alternative energy that should prove to be high growth businesses going forward. It's nice to add non-financial exposure to a dividend growth portfolio, when you are confident of future dividend growth from the starting point of a 4.1% yield.

Wednesday, May 21, 2008

vacation & mj's money

the moneygardener is on vacation! 200 posts and a full time job have me needing some hard-earned rest! In case you haven't noticed I don't really follow a strict posting schedule. Usually I post about 4 or 5 times per week, in no particular pattern. I don't respect weekdays or weekends, and in fact I often have more time for more thought out posts on weekends. I actually come up with most of my posts minutes before I post them. I have never prepared posts days in advance as I know many bloggers do. I hope readers don't mind this randomness. I have a long list of ideas that I want to write about, but most of the time I end up posting spur of the moment on something that just crossed my mind in the minutes before it's online.

In the meantime, I wanted to point out a blog that I have started frequenting that I find to be extremely insightful and certainly worth following:

Michael James on Money is an "amateur's clear explanations of personal finance and money". This blog provides a very interesting, every day, perspective on common themes within personal finance and investing. The author writes very well, with a style and perspective that are very familiar to me. I feel that many of the themes are similar to thoughts that I often express here on the moneygardener. Always interesting, short, and unique, his posts often draw you in to participate in the tangible content. If you haven't visited Michael James on Money, I would highly recommend reading most posts there, and subscribing via a reader.

Wednesday, May 14, 2008

net worth update year end may, 2008

Results for the 2 Months Ended May 15, 2008
  • Debt/Asset ratio dropped to 0.51% (very close to having 2x more assets than liabilities)
  • Net Worth moved up 11.3%
  • Total Assets increased 4.7%
  • Total Liabilities decreased 1.0%
  • House Value/Total Assets dropped to 69.7%
  • Non-Registered Portfolio grew 30.1%
Results for the Year Ended May 15, 2008
  • Debt/Asset ratio fell from 0.60% to 0.51%
  • Net Worth moved up 39.6%
  • Total Assets increased 12.5%
  • Total Liabilities decreased 5.4%
  • House Value / Total Assets dropped from 76.5% to 69.7%
  • Non-Registered Portfolio grew 107.9% over the year

Results for Two Years Ended May 15, 2008

  • Net Worth moved up 190.7%
  • Debt/Asset moved from 0.77% to 0.51%

In two years we grew our net worth by an average value of $4,168 per month. We also went from having $0.77 cents of debt for every $1.00 in assets, to presently having $0.51 cents in debt for every $1.00 in assets.


Wow, what a great bi-monthly report! A combination of several factors allowed us to rebound in a big way from the March, 2008 update. These include an employment income bonus, tax return, and stock market gains.

For the year, I am very happy with the results as we grew our net worth by $43,226, which amounts to $3,602 per month, or $7,204 per bi-monthly update. All of this occurred in an environment with generally declining stock markets. The S&P 500 index is down more than 6% looking one year back from today. Basically all of this tells me that a significant portion of our income went towards growing our net worth. I believe if we can continue this while we are young, it should pay serious dividends later in life.

*previous net worth figures were adjusted for an error that I made on a debt repayment calculation

clorox hikes dividend 15%

Manufacturer and marketer of consumer products The Clorox Company (CLX), have raised their quarterly dividend by 15%. Clorox are the folks behind consumer products ranging from Glad bags and Brita water filters, to Armour All. Clorox has also announced that they'll buy back an additional $750 million in stock.

Here is a glance at Clorox's recent dividend history in fiscal years:
  • 2005 = $1.10/share
  • 2006 = $1.14/share
  • 2007 = $1.20/share
  • 2008 = $1.60/share
  • 2009 = $1.84/share (EST.)

This represents an average compounded annual increase of the dividend of over 13%. Clorox recently announced earnings which included an outlook that was better than the street was expecting. This would explain the spike in the stock from its lows. The company is currently fighting against rising resin costs as they're being affected like everyone else by high oil prices. They are also integrating a major acquisition and have just launched several new products. Read more about Clorox at my link above.

*I own shares in Clorox (CLX)

Tuesday, May 13, 2008

canadian investment styles diverge

An interesting trend has emerged in the Canadian market this year to date. The Toronto Stock Exchange Index is near a record high, while investors in Canadian dividend paying stocks are in negative territory year to date. To illustrate this point let's look at some year to date returns:

XIC (Barclays ETF that tracks the largest most liquid names in Canada)
Year To Date = +5.8%
Some Highlights = Encana (ECA) +35%, Research in Motion (RIM) +25%, Potash Corp. of Saskatchewan (POT) +38%

XDV (Barclays ETF that tracks the 30 highest yielding dividend growing Canadian firms)
Year To Date = -2.7%
Some Lowlights = Bank of Montreal (BMO) -12.5%, Manitoba Telecom (MBT) -10.8%, National Bank of Canada (NA) -0.3%

It's no wonder the Canadian index is soaring while dividend paying stocks flounder. Commodities have been on fire lately, while banks remain under the dark clouds of the credit crunch. Financial services firms make up a much larger portion of the dividend paying universe in Canada than they comprise the total index.

One might assume that these two ETFs would perform quite similarly but this year to date is really showing that this would be a false assumption. Does this mean now is a great time to buy some of the growthy companies that make up the Canadian index? Who really knows, but as a dividend growth investor it is much easier to find value in some of the beaten down constituents of the boring old XDV. When most investors are ignoring these dividend paying firms, is usually the best time to get involved. The Canadian XDV will have its days in the sun in future years and that is perhaps when you want to be accumulating cash or diversifying into other areas. The nice thing about many of the Canadian financial service industry stocks is that at the end of the day they should benefit from any successes that the commodity economy in Canada garners through increased economic activity.

Monday, May 12, 2008

manic monday links

..wishing it was still Sunday...perhaps these articles will cheer you up, or at least stop you from thinking about The Bengals...

Money Under 30 is hosting the 152nd Carnival of Personal Finance, my article hedge yourself™ - gasoline costs was included. An astounding amount of articles there on several personal finance topics.

In the new economy 'Free' becomes inevitable. This is a fascinating article that everyone should read. I think we'll be hearing more about this trend in the months and years to come. This is really cutting edge, and is changing everything about the way business is done.

Walgreen is a 'big strong and healthy' buy from blogging stocks (you thought I could put together a group of links without including Walgreen..?)

PepsiCo (PEP) announces a healthy dividend increase of over 13%.

Friday, May 9, 2008

yellow pages Q1

Yellow Pages Income Fund (YLO.UN), a publisher of print directories, various online references like Canada411, and owner of Trader Media which operates Auto Trader, announced their first quarter earnings yesterday. Despite the recent mass dumping of the stock, and scathing forecasts from some analysts, YLO's numbers don't seem to point to a weak company operating in a declining industry. Here are some of the highlights:
  • Adjusted Directory Revenue (not including acquisitions) increased 4.2%
  • Directories margin reached a new high at 60.2%
  • Online Revenue now makes up 13% of Total Revenue, as it grew 48%
  • Total Earnings up 5%, Total Revenue up 8%
  • Adjusted EBITDA +11.7%, Adj. Revenue +7.8% (excludes acquisition impacts)

Since the first quarter of 2007 the units are actually down a whopping 25%. The units are currently yielding 10.5%, and the company is distributing only about 80% of their cash available for distributions. Yellow Pages has stated that they plan to continue distributions at the current level through the income trust tax changes that will occur in 2011. For both sides of the trade on Yellow Pages see Middle Class Millionaire and I post on both angles. The company actually bought back 2.8 Million units in April of 2008 as it deems them to be undervalued.

Thursday, May 8, 2008

hedge yourself™ - gasoline costs

Life is full of personal expenses that are hard to avoid. Whether they're necessities and essential services that we can't go without like gasoline, hot water, food, and banking, or discretionary like clothes, restaurant fare, or alcohol. I'd like to introduce a post series (hedge yourself™) about negating, or at least buffering the affects that these personal expenses can have on our finances. The way I propose that an individual eliminates the affect of these expenses is to hedge themselves against the expense by purchasing instruments (stocks and/or income trusts), that will provide income and perhaps capital gains that will at least buffer, one's expenses in this area. More interestingly the way one will hedge these costs will be to profit from the very source of the expense. This makes a lot of sense because if one is choosing to expend money in this area, odds are many other people are doing the same. Wouldn't it be nice to make a trip to the pump, grill, bank, mall, or liquor store a net neutral financial choice? "If you can't beat em, join em!"

The elephant in the room lately when it comes to personal expenses has to be gasoline costs. Sometime within the past two years in Canada gasoline was selling for about $0.85/Liter. This price seems very attractive as I write it, because today in Brantford, Ontario gas is flowing into vehicles for about $1.20/Liter. Let's assume Joe drives the average car, a 2009 Toyota Corolla, with a fuel tank capacity of about 50L. 2 years ago Joe was paying $42.50 to fill up, while today he is paying $60. That is a difference of $17.50 per tank.

Assuming Joe fills up his Corolla once per week, he is spending an extra $17.50 today, versus what he was paying 2 years ago.

Joe is not happy about this extra $17.50, and he would like to mitigate it's affect on his budget. This is an extra $910 per year, assuming he fills up once per week. His options are limited: drive less (he has to get to work), comply with that chain email and boycott certain gas stations (this will surely get the price down...?). There is one more option that Joe may want to consider, a hedge. Joe should open a discount brokerage account if he doesn't already have one, and perform one of the following.

  • Buy 114 units of Canadian Oil Sands Trust (COS.UN). This is an income trust that pays you cash monthly when you invest your money in their business. COS.UN extracts oil from the tar sands in Northern Alberta and benefits greatly from high oil prices.

COST TO JOE = ~$5,472 for 114 units of COS.UN including a trading fee.

WHAT THIS WILL ACCOMPLISH = This investment will provide Joe with $456 per year and eliminate approximately half of the impact that high gasoline prices have on his budget. Also if Joe is willing to hold COS.UN for the long term, his investment should appreciate, and his cash from the investment should increase with high energy prices allowing his hedge to be more effective or at least keep pace with his expenditures for years.

At the end of the day this allows Joe to pay about $1.02/liter for gas when in reality it actually sells for $1.20/liter.

*taxes on Joe's investment are not included, I am not a financial advisor

Monday, May 5, 2008

carnival & notable results

The First-Ever Carnival of Wealth, Money and Life is proceeding over at Dollar Frugal. There are probably about 30 articles there, on topics ranging from spending and saving to dividends and investing.

Canadian wealth manager Investors Group (IGM) had their profit come in flat for the first quarter as assets under management fell.

Automatic Data Processing (ADP) reports fiscal third quarter earnings increased 18%, as revenue grew 12%.

Canadian media giant Rogers Communications (RCI.B) doubles dividend on strong first quarter profit growth.

Saturday, May 3, 2008

economic green

Over the last year I have noticed a sizable shift in the general public's movement toward environmentalism. Friends, family, community, media, whether it be local, national, or international, seem to really be shifting to a more green approach to life. While I am certain that much of this is just posturing in response to Al Gore or high gas prices, there has seems to be a marked change in every day exposure to everything green. What a noble and worthwhile endeavour, but can saving the planet be accomplished?

While normally I tend to stick to issues relating to personal finance, stocks, and the market on this blog; I believe the answer here lies in a related realm. I think this one simple fact seems to be forgotten by many policy makers, green activists, and other environmentally concerned...

Being Green Must Be Economic, Otherwise Motivation Of The Masses Is Lost!

Here are a few examples of what I am getting at:
  • Ontario's The Beer Store, which interestingly is actually owned by Labatt, Molson, and Sleemans, runs what is probably the best example of 'Economic Green' I can think of. The Beer Store's returnable bottle system claims a re-use rate of 99% for regular beer bottles. Each bottle is typically used 12 to 15 times. I wonder how many bottles would make it back to the store or find their way into blue boxes if customers could not receive the $0.10/bottle that The Beer Store doles out? What a fabulous success story of environmentalism. So that Heineken that we all drank to celebrate the moneygardener's one year birthday could have been swigged on by 14 people before toasted to Walgreens and Household Savings Rates, that's about as green as it gets. All of this because most people won't turn down an easy dime.
  • The City of Woodstock, Ontario's garbage collection program has residents paying $1.25 to purchase a tag that they affix to each of their weekly garbage bags in order to have them picked up at the curb. This is 'Economic Green' at its best. Every city should implement such a program and perhaps we'll all use the first 'R' more often (REDUCE). Don't charge me a flat fee for collection inside property taxes, instead a pay-per-use system like this is true green motivation.
In summary, it's ridiculous to think the masses will recycle, reduce, re-use, and use less carbon out of the goodness of their hearts. Green Must Be A Win:Win Proposition, Or It Will Never Work!

Thursday, May 1, 2008

why all the fuss over dividends?

Why do I get so excited about income from investments? In a recent post I explained that we are currently taking in $5.18 per day in the form of dividends and distributions from investments in our non-registered portfolio. If I ever ran this little fact past the average person, they would likely think I'm nuts for thinking this financial tidbit was even worth mentioning. $5.18 is less than one hour's pay for the clumsiest burger flipper on the supper shift. It's just about enough to cover a Venti Vanilla Bean Skinny Latte (a favourite of mine). So why all the fuss?

Well, the actual amount of money is really secondary to why I get excited about income from investments, and why I cheer for ours to grow month after month. Here are some of the reasons why I believe income from investments in the form of dividends (or re-earned income) is important, and why I really get behind our income from investments graph:
  • They're Passive! That's right, I don't have to get up early, I don't have to check my inbox, I don't even have to attend any meetings. I get paid simply because I am allowing my money to be at risk. My money sits patiently at the whim of the fickle and hyperactive stock market. As a fellow middle class guy once said, I get paid while I'm sleeping.
  • They Grows Like Nobody's Business Ok, it is somebody's business, but they are a heck of a lot more generous with raises than my employer is. Many companies have grown their dividend payments at rates north of 10% annually for decades. Examples of these would be Johnson & Johnson (JNJ), Bank of Nova Scotia (BNS), and McDonalds (MCD)
  • They're Human Dividends are tangible, and give us long term investors a warm and fuzzy feeling. Dividends affect our psychology as investors in a healthy way, they're also relatively permanent, and they're not 'paper gains'.
  • They Sneer at The Government of Canada A resident of British Columbia earning $50,000/ year pays only 4.4% tax on Canadian dividends. In Ontario they would pay 8%.

Sometimes it's easy to be shortsighted and jaded when it comes to money. Passive income, especially when it comes from dividends, is one of the best things going. It can not be compared to employment income. Why not plant the oak tree seed early so that you can enjoy the shade it provides as the years get on.

This post was inspired by Re-Earned Income by Mr.Cheap, from Quest for Four Pillars.