mid year portfolio review

Those of you that have been following this blog for any time know that I write quite frequently about my non-registered portfolio. Part of the reason I started this blog in April of 2007, was to document my progress on this portfolio over the long term. This is a portfolio that I excitedly started on June 1, 2006 as I began my foray into investing in individual stocks.

The history of the money in this portfolio actually dates back to March of 2003, which was the same month that the most recent Iraq war began. The S&P 500 index is actually up about 50% since then, which represents a compound annual growth rate of 8.6%. At that time I socked away the first $500 to start what was then a mutual fund portfolio. I had earned the money working at my first full time job, right out of university. I likely had several other avenues where the money might have been better spent (paying off student debt, saving for a house, or replacing some 'student' furniture), but I wanted to get into the market in some way for the future so I opened the account. As I've mentioned before it's too bad I waited until I graduated from university to put some money away and begin to learn about investing. Five years later, this portfolio has morphed into a group of investments that my wife and I add to very regularly and value dearly for our future financial success.

Today marks the end of the first half of 2008, a good time to update our portfolio. I really can't believe it has been over 2 years since I started the portfolio as it is in its current form. Seems like yesterday, and in the grand scheme of time that should be invested in stocks it is really insignificant. This portfolio and most of the stock within it will be held for at least 15 years or more. Now to the Review...

2008 Returns To Date

The headline number here is -15.3%. That's right our portfolio is down a whopping 15.3% since the start of 2008. This compares poorly with the -12.8% return of the S&P 500 index, as well as the -8.6% return of the XDV (an ETF that tracks Canadian dividend paying stocks). Brutal numbers here...

Dividends and Yield

Our portfolio is now yielding a whopping 4.8%. This essentially means that we are being paid an amount equal to 4.8% of our capital annually. We're currently being paid $1,993.03 in dividends and distributions per year. Alternatively $5.46 per day is a fun way that I like to represent this. This is about 125% more than we were being paid last year at this point. I like to refer back to dividends and yield instead of paper portfolio value, when the market gets tough, as it has been lately. My favourite graph, our income from investments graph keeps on moving up despite the current markets.

Asset Allocation

Click on the pie chart below for current details.

Looking ahead I'm going to keep trudging along through this difficult market. Hopefully I will have some money available later on in the year to take advantage of the plethora of cheap stocks out there. The fact that the markets have been so ugly is actually a positive as I expect to invest a lot of money in 2009, and I'll be able to buy more dividends for every dollar I invest if the market declines persist. Very shortly our income from investments will reach $2,000 per year, which will be a nice milestone. For more on my mentality with this portfolio, check out my investment philosophy.

introducing.. The DIV-Net

It is with great pleasure that I, and the collective membership announce the debut of The Dividend Investing and Value Network (DIV-Net). the moneygardener is proud to be a charter member of this new investing network focusing on dividend investing, value investing and a long-term buy and hold philosophy. The authors of The DIV-Net want this new network to be the premier destination for readers interested in a variety of investing topics, stock analysis, and perspectives that might otherwise be found fragmented across the web. The DIV-Net is a unique network providing exclusive, original, and unpublished content daily from a growing network containing the best authors in the field. Seven Core Members are responsible for maintaining and administering The DIV-Net site and the DIV-Net network. Our Core Members include:

Dividends4Life
The Dividend Guy
Dividend Growth Investor
the moneygardener
Stock Market Prognosticator
The Div Guy
Disciplined Approach to Investing



Here at DIV-Net we believe strongly in the virtues of dividend investing, value investing and a long-term buy & hold philosophy and we'll not limit DIV-Net to just seven Core Members. In our aim to include many bloggers interested in our core focus we created an Associate Membership. Associate Members are eligible to submit original unpublished articles to The DIV-Net, access to use DIV-Net's content on their site, participate in the aggregated feed and a site listing on The DIV-Net's Associates page. Our Associate Members include:

Living Off Dividends and Passive Income
Old School Value
The Dividend Investing Blog
Triaging My Way To Financial Success
Dividend Money

In addition, DIV-Net sponsors a weekly carnival titled "Investing Carnival." The carnival's focus is on Value Investing, Dividend Investing and Long-term Buy-and-Hold Investing, as well as categories for real estate, commodities and other alternative investments. We welcome your relevant articles. To participate please submit your article here no later than 5:00 PM ET each Sunday. The Carnival will post every Tuesday. If you are interested in hosting, please e-mail dividendgrowthinvestor [AT] gmail [DOT] com.

At The DIV-Net we are dedicated to providing the best independent and original dividend, value, and a buy-and-hold investing content available on the web. We strive to bring these views together in one community focused on the highest quality membership of authors available. It is our hope that publishing, reading, following, and participating in The DIV-Net will pay long-term dividends for all involved.Join us at The DIV-Net, and see what all the excitement is about!

ready for the market crash?

A post by fellow Canadian blogger Million Dollar Journey titled RBS Predicts A Global Market Crash, got me thinking...

Let's say you had $100,000 portfolio invested in the stock market and you woke up tomorrow morning and S&P futures were down 300 points. Food and fuel costs were out of control, inflation could not be tamed, the housing crisis was worse every day, Bank of America announced another $15 Billion write down, China's GDP growth slowed to 2%. There is blood on Bay, Wall, Main, and several other streets including Dufferin and Wellington.

Later on in the day you see that the DJIA, TSX, and S&P 500 were all down about 40%! That's right, you didn't read that wrong, 40%. By the end of the day the value of your $100,000 portfolio had shrunk to $55,876!

What would you do? Could you stomach this? It's easy to sit back and believe in the virtues of buying when everyone else is selling, but could you really do it in the heat of the moment? Does it matter how old you are and what your time horizon is? Do you really not need the money? If you did need the money anytime soon should it have been invested in this fashion?

Personally I would like to think that I would be licking my lips and planning my next moves as I watch dividend growers like Procter & Gamble (PG), Toronto Dominion Bank (TD), and Johnson & Johnson (JNJ) drop to multi year and decade lows. Envisioning myself in this scenario right now I would be a big buyer for the days, weeks, and months to come after the crash. That being said, I'm 29 years old and I've been investing seriously for less than 5 years. I've never lived through anything even close to this type of event. There is always a chance that I could be frightened, afraid of losing my job, afraid of losing my capital, and downright pessimistic about the short, medium, and long-term future of the economy and of the market. As an investor, I believe you should always be ready for this type of event, if 'ready' means only ready in your mind.

I do believe that I am truly ready. I have the economic lifestyle, discipline, and mindset to be a buyer when fear rules the day maybe more than at any other time in the history of the stock market. Call it persistence, call it discipline, call it stupid, but knowing what I know and departing on the path that I've departed on, I feel that it's not just the only choice, but the best choice. How could you handle it?

UPS getting cheaper

Earlier this month I wrote about why I really like United Parcel Service (UPS), but the stock never seems to get cheap enough to satisfy my requirements for a purchase. Well, all that seems to be changing as UPS is guiding down for earnings per share going forward. Specifically UPS is estimating earning $0.85/share down their prior view of about $1.00 per share. Package volume is down and fuel is up. The shares were hammered 6% today.

I will have to run my valuation model on UPS to see where I believe a good entry point might be. Just scratching the surface, here are some interesting facts:

• P/E ratio of 15.5x trailing earnings is a 5 year low, and well below the average P/E of each of the last 10 years.
• 2003 is the last year the stock last traded down to these levels ($62.26)
• 2.9% yield is at least a 10 year high.

UPS has been a solid grower of dividends over the past several years; they also have a phenomenal brand and moat. I see UPS as a business for the ages that will still be around, and more importantly still be essential 50 years from now. As mentioned in my previous post, I really like their recent move into logistics and specialized, convenient, services for businesses of all shapes and sizes. It is a little known fact that UPS actually performs tasks such as fixing laptops for Toshiba, and picking and shipping running shoes for Nike. These service oriented tasks that surround the shipping experience are all added value, and will only increase in popularity as transportation costs rise, workforce ages, and the global economy becomes increasingly intertwined.

I may get my chance yet to open up a position in this global package delivery and logistics leader. I'm staying tuned. Now only if I had some money laying around....

Ford's delayed reaction

“We view the move to smaller, more fuel-efficient vehicles as permanent, and we are responding to customer demand,” Ford CEO Alan Mulally said in the statement. “For the long term, we are moving fast to introduce more small cars, crossovers and fuel-efficient powertrains — including more hybrids — and we will adjust our manufacturing facilities to match our updated product lineup.”

Ford Motor Company (F) is cutting production and delaying the release of its latest F150 pick up truck, because of the declining market for trucks and SUVs. This statement by Ford CEO Alan Mulally comes a few weeks after GM echoed similar thoughts when they announced the closing of their pick up truck plant in Oshawa, Ontario. The trouble is that Ford's whole problem stems from delaying in the first place. These two companies are about as prescient as birds flying into closed windows. Quick, name 2 smaller fuel efficient vehicles that are made by Ford?

It is easy to see why these two companies have struggled the way they have in the recent past when their lack of foresight comes out so clearly in statements like Mulally's above. I'm no economist or fortune teller but I'd like to think that if you would have asked me 3 years ago which type of vehicles would trend higher in popularity I would not have pointed to the F150 and Sliverado. On the other hand, Toyota (TM) has been putting out small fuel efficient cars for ages. Even Toyota's larger vehicles are far superior in fuel efficiency than their U.S. headquartered competition. Ford and GM have been failing for years to provide the vehicles that people want to drive. Add this problem to their array of other issues such as health care costs and a U.S. slowdown, and it's easy to see why these companies are in trouble. I hope they don't pull their ad from below this post...

Gasoline is currently selling for about $1.30/L in my area.

free stuff

If you are a fan of the free stuff like I am you may like this one. My wife has discovered a great blog called 'Smart Canucks, The First Canadian Deals Blog'. This blog appears to offer the latest links, codes, coupons, and news about all things free in Canada. For example they posted a coupon for a free iced coffee from McDonalds which was valid from 11am to 6pm today only. I picked one up on my way home from work. This may not be a bad blog to keep tabs on by subscribing or bookmarking it.

new jersey devils investing

I am often asked by friends, family, and associates if I've noticed the recent performance of stocks like Research in Motion (RIM), Potash Corp. (POT), and Encana (ECA). They would like to know if this is a good time to get involved with stocks like these because they have been rising nicely over the short term. Heck, Canada's benchmark index is at a record high, let's make some money.... I often explain to people who don't read my blog that I am about as exciting an investor as many successful New Jersey Devils teams. Remember when the NHL's New Jersey Devils used to excel every year playing hockey that could be compared to watching paint dry? Let's just say my investment style is tantamount to hockey's 'trap'. Dump it in, don't send anyone in deep, and watch the dividends roll in from the neutral zone! Our goalkeeper is always our MVP.

If you are a long term investor who gets stars in your eyes when you look at charts for the above mentioned stocks, please do yourself a favour and read the latest post at the great blog, Dividend Money, Are dividend investors idiots? This post references the Globe and Mail Article - I may be an idiot, but I'm sticking to my plan, which is along similar lines. Unfortunately I'm a Leafs fan....

Target-ing dividend growth

U.S. general merchandiser Target (TGT) increased their dividend by $0.02 or 14% from $0.14 to $0.16 per share last week. Target's dividend growth history is impressive. Since 1998 Target's dividend has grown at a compounded annual growth rate of 13.5%. Having a quick glance at Target's EPS (earnings per share) history since 1998, I would rate Target as an excellent candidate for a dividend growth investor's portfolio. Target's EPS growth history has been strong and consistent, as it has not decreased in any year over year period for the past 10 years. One share of Target purchased in 1998 would have cost $21, and therefore an investor who bought shares at that time would be garnering a yield of over 3% on their original investment.

Although Target currently yields only 1.2%, they could likely be compared with Walgreen (WAG), as far as past dividend growth and earnings growth goes. TGT and WAG are both low yielding stocks with strong past dividend and earnings growth. They are also both retailers that operate exclusively in the United States. As an investment idea I like Walgreen much better as I believe convenience-based drug retailing has a strong future due mainly to demographics, as well as other trends such as high energy prices, and changing consumer preferences and time constraints.

Target may not be a bad name to consider adding to my watchlist due to their consistent earnings and dividend growth as well as their strong brand, marketing and position in the U.S. marketplace.

Caterpillar is hot

Heavy equipment maker Caterpillar Inc. (CAT) raised its quarterly dividend by 17% this week, from $0.36/share to $0.42/share. CAT has impressively doubled their dividend since 2005, however their dividend growth history has not been as consistent as I would like it to be in order to add this stock to my watch list. For example, from July, 2000 to April, 2004 CAT's dividend grew from $0.170/share to $0.185/share, growth of a measly 2% per year. CAT's EPS (earnings per share) were actually higher in 1998 vs. 2003.

Obviously CAT is a cyclical company who benefits from large scale construction and mining activity but can be hit hard when the cycle turns and activity slows down. Overall I think CAT is a great company and a great brand, however I view the business model as not consistent enough for my long term dividend growth portfolio. The stock has had a massive run up since 2002 as their earnings have increased nicely. CAT currently yields about 1.8%.

top 5 stock picks - 1 year update

About one year ago I selected 5 stocks that I believed were undervalued at that time. Just for fun, I update the performance of these stocks vs. comparable benchmarks. Here is the 1 year update:

Manulife Financial -1.4%% vs. / Canadian Financials ETF (XDV) -13.2%
Walgreen -20.2% / Vanguard Consumer Staple ETF (VDC) +0.8%
FedEx -20.3% / Dow Jones US Transport Index (.DJUSTS) - 8.1%
Lowes - 28.1% / Vanguard Consumer Discretionary ETF (VCR) - 23.2%
Johnson & Johnson +4.7% / U.S. Healthcare ETF (IYH) -12.4%

Overall my 5 stocks had an average return of -13% over the past year, while their benchmarks had an average return of -11%. Well, I'm trailing the indexes by 2 solid points after one year. The poor performance of the markets continue to show through as 8 of the 10 securities are down over the year period.

one up the moneygardener

Like any of the stocks that I hold? Want a better entry point than I had? The following dividend stocks, which I happen to currently hold, can be bought cheaper right now than at most times in the past few years. I believe they're all great buys at today's prices.

Bank of America (BAC) $30.00 8.5% dividend yield
We are all well aware of the trials and tribulations of the U.S. banking sector due to the subprime mess. Whether a dividend cut is in the offing or not, might not matter. If BAC cuts their dividend by 50%, you are still receiving a respectable 4.25% yield on today's price. Contrary to current sentiment the U.S. economy will survive and people will eventually buy homes and seek loans again. When they do, BAC is a well positioned, dominant lender.

Reitmans Canada (RET.A) $15.70 4.6% dividend yield
Earnings for this retailer came in flat last quarter as sales fell. Reitmans operates banners that span demographics and they're extremely well located. Retailing clothing can be a fickle business and can be hurt by odd weather, but RET.A has proven in the past that they can provide what Canadian consumers want and they know how to grow earnings. They're also paying you 4.6% to wait...

General Electric (GE) $30.20 4.1% dividend yield
Emerging markets, alternative energy, and ageing and new infrastructure work.

The Clorox Company (CLX) $53.50 3.4% dividend yield
Just raised their dividend by 15%. Innovative new product lines and industry leading brands.

UPS & the flat world

Always the value investor, always the contrarian......"Buy stocks when there is blood in the streets", "You want to be buying stocks when everyone else is selling'. Well today was one of those days when the stock market was all of a sudden a bad idea for many. I was actually down about $900 today! Good day to keep the eyes on the old income from investments chart. It didn't budge one dollar.

One stock that I always keep an eye on, but never seems to get cheap enough for my liking is United Parcel Service (UPS). I wanted to mention UPS today for 2 reasons, one that I found an article today that sums up what I'll call the 'kicker' on why I like UPS going forward. Another way to put this is that I see this trend as the catalyst for the growth of UPS in the years to come. One word: LOGISTICS. Basically they are doing supply chain and operations management for other firms. I first read about this trend in the book 'The World is Flat' by Thomas L. Friedman. I see this move by UPS as pure genius and a service that will pay huge dividends as the global economy evolves, and only gets more attractive as energy prices rise. If you think UPS is simply a package delivery firm, you are dead wrong. Needless to say that I wouldn't care much about UPS unless they were a solid raiser of dividends and a consistent grower of earnings, with a huge moat and brand - which they are.

Another reason I brought up UPS today goes back to the opening paragraph of this post. When do you want to be thinking about buying a company that ships packages for profit? Perhaps a good time would be when oil touches $138/barrel and every economist and his dog sees black gold going to $200/barrel. It seems that these days that the biggest bull on oil wins.

More on 'Brown' in posts to come....

shrink yourself or grow your net worth

I'd be willing to bet that at some time in most people's lives they have set out to accomplish one or both of the following:
Lose Weight, Eat Better, & Get Healthier (Shrink Yourself)
Save More Money & Invest It For The Future (Grow Your Net Worth)

These two popular 'worthy' pursuits of self improvement don't actually have a lot in common. OK, they both require discipline, but the similarities end there.

• Saving Money and Investing it is Passive

Spending less money takes less effort than spending more money. It might be a lot of work to figure out different ways to trim your budget, but buying a house well below your bank pre-approval amount, and avoiding large frivolous purchases is easy. One of the keys of investing for the long term is sitting on your hands. Tinkering with a portfolio and trading in and out of different stocks and different instruments will often take a large percentage out of your return. Spend less than you earn, invest the difference, and ignore it for several years...no sweat.

• Working Out Regularly and Choosing Healthier Foods is as Active As It Gets

Getting active and/or getting to the gym regularly takes a great deal of effort. Sticking to a workout regimen is very difficult. Changing your diet in order to take in less calories and more healthy foods takes some thought, adjustment, and effort. Lot's of sweat and activity here...

If you are reading this blog you might find the former much easier than the latter, as I do, but is it really easier to most? How do personality types and values affect one's successes in these areas?

the most popular dividend in America

In my short history following stocks and participating in the stock market, I can't remember a set of dividends that was so anticipated, and so questioned as the upcoming Bank of America (BAC) pay outs. In November, 2007 when I purchased Bank of America shares I asked the question, 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. At the time BAC was yielding 5.7% and I was betting that they would not cut their dividend, and that they would survive the credit crunch. Needless to say that even though I purchased BAC when the Loonie was trading around $1.07 vs. the Greenback, I am currently underwater on my BAC position.

Fast forward to today where BAC yields a whopping 7.8% and the CEO, Ken Lewis recently made the following comments:
Chief Executive Officer Ken Lewis said on Monday the second-largest U.S. bank has no plans to cut its dividend. "You have to do what is in the best interest of the company, but we see no reason to cut the dividend," Lewis said "

Should we believe Ken? Considering all the dividend payments in the U.S. banking sector that have fallen by the wayside, I'm not sure. WaMu, Citi, and Wachovia among others, have all cut their dividend since November, 2007. It does seem that Ken left some ambiguity in his statement. He sees no reason to cut right now, but he may see a reason in the future; if he does he'll do what is in the best interest of the company.

The next few dividend payments that BAC pays out will tell the story. If BAC raises their dividend within the next few payments I am certain that several dividend investors will be adding to their positions or getting in for the first time, as these yield levels are hard to pass up for a bank with such a solid history of dividend growth. One would have to assume that because of where BAC is trading today (7.8% yield), the market is pricing in a dividend cut.

4 goals progress report

Last year I set 4 goals for our non-registered portfolio. Since June is now upon us, which marks about 6 months from the time I posted the goals, I'd like to update our progress toward these portfolio goals.


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

Progress - For 2008 we've saved an average of $2,559 per month. This is a tremendous result especially considering my wife has been on maternity leave for the year. I expect this average figure to be peaked out right now and decline for the balance of 2008, as the month of April included some one time funds that won't be repeated this year.

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

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

Goal #3 - Keep our portfolio dividend yield between 2.0% and 4.0%.

Progress - Currently our portfolio yield is 4.3%. This means that we are being paid 4.3% of the money we have invested annually. We are not meeting our goal in this area. The reasons for this are that a part of our portfolio was purchased to provide some additional income for my wife's maternity leave, and this section is made up of high yielding income trusts. The other reason for this is the poor performance of the stock market. If not for the recent weakness in the stock market our yield would likely sit just below 4.0%.

Goal #4 - Grow our portfolio to $175,000 by February, 2014.

Progress - Currently our portfolio is worth $45,875. This is the most difficult goal to gauge progress on. Looks like if we are able to save an average of $1,200 per month and we get an annual investment return of ~8% we'll meet the goal.