Saturday, August 30, 2008

dividend income update Sept 1, 08

My Favourite Graph - Sept 1, 2008 Update

Of all the Excel charts and graphs that I keep in managing our personal finances and investments, I must admit I am partial to one. I have explained previously how powerful I believe dividends can be, as well as how I consider them crucial to our investing philosophy long term. Dividend increases mean more money in your pocket, and they have the added benefit of being one of the more permanent aspects of investing. The graph below is immediately affected in this relatively permanent way every time a company that we own raises their annual dividend, as well as every time I add new shares of a dividend paying company to our non-registered portfolio. It is this relative permanence of value that really has me routing for this graph to rise week to week and month to month.

Our annual portfolio income now sits at $2,094. In other words, we are taking in $2,094 in income before taxes per year for simply having our money invested in the stock market. Below is a snapshot of how we've grown this income per year over the last while.

January, 2007 = $311
June, 2007 = $767
January, 2008 = $1,523
June, 2008 = $1,993

Friday, August 29, 2008

TD raises dividend

TD Bank Financial Group (TD) raised its quarterly dividend from $0.59 to $0.61. This represents a raise of 3.4%. TD has been raising dividends twice per year since at least 1999.

Here is a glance at TD's recent dividends paid per year:
2004: $1.40
2005: $1.64
2006: $1.84
2007: $2.20
2008: $2.40 EST
*dividend schedule was changed in late 2006 causing an overlap effect after this point

This represents a compound annual growth rate (CAGR) of dividends of 14.4%.

Tuesday, August 26, 2008

there's a hole where my kraft dinner used to be

Sometimes I come across something so funny, that I must share it. This insightful consumer commentary post really had me laughing out loud. Please enjoy the post below from the wordsmith, Potato @ Blessed By The Potato ....MG

There’s a hole in my cupboard between the Penne and the Zoodles, the demarcation between boxed and canned food where my Kraft Dinner used to be. It’s empty right now. That used to be a dire sign of a Kraft Dinner shortage, and somewhere in my house a klaxon and flashing orange light would go off signalling me to run off to the 24-hour grocery store to get more post haste.

Now, however, that hole will stay there, a sad gap toothed reminder that somehow they broke Kraft Dinner. I first noticed a few months ago, in the last box I had right before they changed to the new box artwork. The cheese was not right, and not in the way that it’s usually not right. It had a strange chemical taste to it… which is difficult to describe considering it was fake cheese and food colouring to begin with. Something has definitely changed though: the cheese is runnier and just not as tasty, and I haven’t been able to find anything I’ve been doing to cause that. So it’s their fault, whether it was a cost cutting measure in the face of rampant food price inflation, a change in suppliers, or just a damned mistake, it matters little now. Kraft Dinner is broken, and there is none in my cupboard.

For a while, at least, I will keep the hole there, an empty space preserved in memory of my most popular hot lunch. While I mourn. As time passes perhaps that spot will be filled by PC macaroni and white cheddar sauce, or maybe the general pasta supplies will spill over and fill it up. Perhaps I will try again in a few months, once the memory of what real Kraft Dinner tastes like fades (if such a thing is ever possible); perhaps I will grow to miss it so much that I buy a box just for show. Perhaps the Fast ‘n Fancy rice dishes can return to the bottom shelf from their exile above, reuniting with the other starchy foods in the midst of this tragedy. For now though, there’s a hole in my cupboard where my Kraft Dinner used to be.

And there’s a hole in my heart where my Kraft Dinner used to live :(

Monday, August 25, 2008

unique analyst advice on Telus

One has to wonder about stock analyst thinking when they read releases like the one I've copied below. Please feel free to take the advice of Jeffrey Fan and 'sell' shares of Canadian Telecom provider Telus (T.A) for the short term, but make sure that you buy Telus shares because they're cheap if you are a long term investor. It would be very easy to interpret this advice to mean 'sell the shares now, but buy again later when the stock is still at these low levels'. In other words trade/time the stock. What ever happened to sound, long term investing in quality companies. Easier said than done I guess.... Hey, at least he predicted a CAGR of the dividend of 10% through 2011.

Telus upgraded to 'buy' on valuation, but short-term 'sell' remains
UBS analyst Jeffrey Fan remains bearish on
Telus Corp., although he has bumped up his rating on the stock to "buy" from "neutral" on share price depreciation. News concerning fresh wireless entrants to the Canadian market and the potential Telus will build a next-generation HSPA network over its current CDMA one could weigh on shares in the short term, Mr. Fan wrote in a note to clients. He maintains his short-term "sell" rating on the stock. Telus shares have lost a third of their value since peaking at a 52-week high of $58.95 last September. Mr. Fan also noted the company has a four-year track record of announcing dividend increases alongside its third-quarter results. He believes this trend will continue and projects a three-year dividend CAGR of 10% through 2011.

Friday, August 22, 2008

how risky is my financial life?

According to Wikipedia - Risk is a concept that denotes a potential negative impact to some characteristic of value that may arise from a future event, or we can say that "Risks are events or conditions that may occur, and whose occurrence, if it does take place, has a harmful or negative effect". Exposure to the consequences of uncertainty constitutes a risk. In everyday usage, risk is often used synonymously with the probability of a known loss.

In Engineering the definition is put simply:

This begs the question for us all; How Risky is My Financial Life? Put more dramatically, To What Extent am I Risking Bankruptcy or Financial Hardship?

Factors that I am going to take into consideration to determine this are:
  • Allocation of Financial Assets
  • Employment Status and Stability
  • Alternative Income Status and Stability
  • Age
  • Health
  • Debt Level
  • Dependants
  • Time Horizon
  • Area and Country of Residence
  • Cost of Lifestyle
  • Definition of Risk
  • Flexibility of Lifestyle and Skillset
  • Current Net Worth and Income Potential
  • Untapped Resources
  • Others....

Readers are encouraged to provide comments and opinions on financial risk as I go through the process.

What defines Financial Risk? How Do I Guard Against Financial Risk? What Put Us In a Good or Bad Position? Generally, Whom Among Us Are Leading Risky Financial Lives?

Thursday, August 21, 2008

3 worthwhile investing links

Investing Lessons From Baseball by the moneygardener favourite, Michael James on Money

Only 2 Real Reasons Why We Invest by another favourite, The Dividend Guy

Triaging My Way To Financial Success fills us in on The Numbers involved in stock analysis.

Wednesday, August 20, 2008

getting more for less$

A recent report shows that Canadians are paying more out of pocket money for less stuff. Retail sales rose 0.5% in June but actual retail sales volumes decreased by 0.4% from May. Basically the 0.5% rise in retail sales came from higher prices at the gasoline pumps, to the tune of a 4.2% increase in sales of petrol. The Canadian consumer spent more in dollar terms during June, but bought less with their money in terms of the volume of goods and services. I am sure that the increase in food prices is not helping.

Where does that leave the average consumer? Well spending more for less is never a good scenario, but I like to think that we are beating this trend by buying smartly in bulk. By doing this, we are actually getting more for less. We buy the following items at Costco Wholesale for prices per unit that are far below what you would pay at any traditional grocery store.
Bread, toilet paper, Ziploc bags, baby wipes, diapers, fresh and frozen vegetables, fruit, salmon, tuna, lunch meat, paper towel, granola bars, juice, toothpaste, cottage cheese, shampoo, conditioner, deodorant, cheese, garbage bags, ketchup, sausages, and chicken among other items

I would estimate that we probably save thousands of dollars per year doing this. Obviously you must be careful not to buy goods that you don't really want or need, and careful to not buy something in bulk that perishes to quickly. If we could only do this for gasoline...we'd be set. We have an area in our home ('the stock room') where we store these items so that we can take advantage of sales and not take space from the kitchen and bathrooms. The prices on these items may rise, but we are still gaining the benefit of cost savings through buying in bulk.

Another added benefit of doing this the elimination of hassle. I hate having to think about whether or not we need bread, toilet paper, or paper towel every time we're at a grocery store, as we constantly buy the same items over and over. By buying in bulk we're always covered, and we only buy and stock the best stuff, as Costco never carries inferior products. We've actually eliminated the need to make a large weekly trip to a traditional grocery store.

'Do we need baby wipes?' , 'Let me check our inventory'.

Friday, August 15, 2008

the market's view on oil

The general rule when buying and selling energy and commodity names is the reverse to other stocks; "buy when P/E ratios are high and sell when P/E ratios are low". This strategy would work like a charm right now, if and only if, the energy and commodity bull market is coming to a close. That is, the cycle is turning and these things will come crashing down without touching the sides. You want to be selling when earnings have grown so high that when they're compared with the stock price they produce a very low P/E ratio.

Keeping with the theme of 'is oil dropping to $60/barrel?' Here are some of the Price to Earnings (P/E) ratios and yields that the market is currently offering for these names:

Petro Canada (PCA) - P/E= 5.8, Yield = 1.7%
Conoco Phillips (COP) - P/E= 7.5, Yield = 2.4%
Exxon Mobil (XOM) - P/E= 9.5, Yield= 2.1%
Husky Energy (HSE) - P/E= 9.4, Yield = 4.4%
Canadian Oil Sands Trust (COS.UN) - P/E= 14.0, Yield = 10.3%
Chevron Corp. (CVX) - P/E= 9.2, Yield = 3.0%
BP PLC (BP) - P/E = 9.1, Yield = 5.7%
Devon Energy (DVN) - P/E= 9.9, Yield = 0.7%

These things are all trading as if their earnings growth is done. They are likely all pricing in earnings growth of less than 6% going forward (at most). In the face of production that is becoming more and more difficult to grow, their futures likely depend on the price of oil. Where is it headed?

Conoco Phillips chart below:

Thursday, August 14, 2008

is oil dropping to $60/barrel?

Looking at the shares Canadian integrated oil and gas firm Petro Canada (PCA) you would assume that oil is on the way down to where it was in the days where you could pay 20 bucks to fill up your car.

If we can forget about $60 oil and $0.60/L gas, then Petro Canada shares are looking cheaper than the samples at Costco. The stock is now trading at a Price to Earnings (P/E) ratio of a staggering 5.8x trailing earnings. This comes after a 77% profit gain and a 54% dividend raise in the most recent quarter. Is this type of earnings momentum sustainable? Likely not, as oil has touched $145 recently before dropping to the current $115 range; but it is difficult to see the current share price as reflecting anything other than sector rotation due to the current sentiment (right or wrong). Traders seem to be betting that oil is sinking down to at least $90/barrel the way the oil sector is trading, however Petro Canada traders must be betting on a much lower price for oil for a long time. Either that or some very negative, company specific results.

It is hard to imagine that there would be much downside on this stock while it trades at these levels. In order for this price to truly reflect the company's mid term future I would imagine that their production would have to decline in tandem with oil declining in a big way. With this stock you get exposure to conventional oil, oil sands, refining, marketing, and natural gas.

Wednesday, August 13, 2008

the future of canadian dividend growth I

This article originally appeared on The DIV-Net on August 6, 2008

In the quest to select solid dividend paying stocks that will appreciate over time and pay ever-increasing cash back to us in the form of dividends, success lies in the future, not the past. Sometimes the best dividend growing stocks for the future might be only in their infancy as far as dividend growth goes. As investors, if we can spot these stocks early we can be rewarded in spades as the years go by.A few Canadian companies strike me as fitting into this category very well.

Shoppers Drug Mart (SC) is a very well run retail drugstore chain with over 1,000 locations across Canada. Shoppers is in the sweet spot of demographic and transportation-cost trends. They have paid a dividend since March of 2005 only. Since they paid their first dividend Shoppers has raised their the cash payout by an astonishing compound annual growth rate of 30%. The stock currently yields about 1.6%, and the dividend pay out ratio as a percentage of earnings per share is only 28%.

In summary I believe the future is bright for Shoppers Drug Mart. Their dividend growth should continue as long as earnings push forward, which I believe they will. Even if the dividend growth and earnings growth rates slow significantly, most investors would be very happy with growth rates half of what Shoppers has produced from 2005 to date.

The caveat to Shoppers as an investment right now though is that the stock is not cheap. Trading at 22x earnings, any earnings miss or slowdown in growth could send this stock spiralling. That being said, I feel that any major weakness in this stock would be a huge buying opportunity, which is why I remain on the sidelines ready for such an event.

Monday, August 11, 2008

welcome to investing carnival #7

Investing Carnival #7 is brought to you by The DIV-Net. Enjoy...

Investing Stuff

Writer's Coin presents Are Index Funds Really That Great? posted at The Writer's Coin.

ye presents How to Find Money to Invest posted at Value Investing and Entrepreneurship by Qovax, a Software Startup.

Tammy Powell presents Factoring Taxes in Real Estate Investing posted at Majestic Tech by an Enlightened Wealth Institute student.

Contrarian Profits presents The Basics of Forex Investing posted at Contrarian Profits.

Surfer Sam presents How Day Traders Make Money. Day Trading ! Surfer Sam posted at Surfer Sam and Friends.

The DIV-Net presents I got a 10% raise from CSL (Carlisle Companies) posted at Dividend Growth Investor.

LAL presents To Roth or Not? posted at LivingAlmostLarge.

FIRE Finance presents Investing - Dilbert's Personal Finance posted at FIRE Finance.

Stockaholic presents Oil & Natural Gas - Worried About Demand Destruction? Think Long Term posted at Traders Corner.

The Dividend Guy presents Keeping Investing Simple: Only 2 Real Reasons Why We Invest posted at The Dividend Guy Blog.

Tool presents Grand Yield Direct’s FDIC Insured Savings Review posted at Savings Toolbox.

Miles Moen presents WaMu: The Gamble posted at The Necessities of Life.

Silicon Valley Blogger presents The Optimal Foreign Investment Allocation posted at The Digerati Life.

Benjamin Dinsmore presents Should You Participate In Your Company's Employee Stock Purchase Plan (ESPP)? posted at Trees Full of Money.

David presents Investing in Bonds - The Basics posted at Physician Entrepreneur.

Alternative Investing Stuff

Briana presents Upromise Reminder…. Bargain Briana posted at Bargain Briana.

Card Blogger presents 0% Balance Transfer Credit Cards posted at My Credit Card Blog.

Alvaro Fernandez presents posted at SharpBrains.

Ben presents Currency Investing - Should You Buy A Currency ETF? posted at Money Smart Life.

Wealth Accumulation Stuff

Matthew presents The Plan posted at Investing Five Daily.

MBB presents Payday Cash Advance Loan Dangers posted at Money Blue Book Personal Finance Blog.

The Shark Investor presents Alternative Income: Selling Illustrations, Photos or Videos posted at The Shark Investor.

Real Estate Stuff

Maria Gudelis presents maria gudelis hot real estate tip Maria Gudelis posted at Maria Gudelis.
Tammy Powell presents Real Estate Investment Is A Good Business For People To Earn Good Profit posted at Majestic Tech by an Enlightened Wealth Institute student.

Joe Manausa presents Tallahassee Market Update posted at Real Estate Market Reports.

Stock Analysis Stuff

Hitesh presents Time to get out of Commodities? posted at Stock Trading Ideas.

Steve Alexander presents Quick Take: American Eagle Outfitters Inc. (AEO) - MagicDiligence posted at MagicDiligence - Optimizing Joel Greenblatts Value Stock Strategy.

Bullish Dividends presents Dividend Stock Analysis: Finning International (TSE: FTT) posted at Traders Corner.

JH presents Money Management: 7 Steps Survivor Guide Stock Trading Ideas posted at Stock Trading Ideas.

Dividends4Life presents Stock Analysis: M&T Bank Corporation (MTB) posted at Dividends4Life.

Vlada Kynsky presents Technology stocks with high projected growth. posted at StockWeb.

Other Stuff

The Financial Blogger presents Hedge funds… an absolute return vehicule? posted at The Financial Blogger.

Friday, August 8, 2008

yellow pages hikes distribution

Another raise to wrap up my holidays, I'll take it. Canada's largest directly publisher, Yellow Pages Income Fund (YLO.UN) has raised its cash distribution to $1.17 per unit per year, from the previous $1.13 per unit, this is a raise of 3.5%. The cash distribution currently consists of mainly interest income, with a small portion consisting of dividend income and return of capital. Interest income is taxed much more heavily than dividend income, which makes income trust distributions less valuable to a Canadian investor compared with eligible dividends. I own 385 units of Yellow Pages Income Fund so this raise represents $1.28 of extra cash being deposited in my investment count each month of the 15th.

Yellow Pages announced this raise at the same time as reporting their latest earnings numbers which were very solid. Consolidated net earnings were up 6.3%, while print directory organic growth pushed forward 4% and organic online revenues rose 44%. Management expects to grow distributable cash 8-10% in 2009, which is the same growth target they are currently working on for 2008.

Here is a glance at Yellow Pages' recent distribution growth:
2006 - $1.03
2007 - $1.10
2008 - $1.15

This represents a compound annual growth rate of the distribution of 5.7%. Yellow Pages expects to at least maintain its current level of cash distributions after converting from an income trust to a corporation on December 31, 2010.

Thursday, August 7, 2008

Manulife's latest raise

Always nice to receive a raise while I'm on holidays... Large Canadian insurer Manulife Financial (MFC) announced today that they are increasing their dividend from $0.24/share to $0.26/share. That is an increase of 8.3%. Manulife, like Sun Life (SLF), also announced a decline in second quarter earnings. Manulife's earnings were lower than Q2 of 2007 by around 8.5%. Weak equity markets, a strong Loonie, and tax provisions were blamed for the lower results.

Here is a glance at Manulife's recent dividend activity:
2006 - $0.725
2007 - $0.880
2008 - $1.000

This represents a compound annual growth rate of the dividend of about 17.5%.

Sunday, August 3, 2008

added more Sun Life

The nice thing about being a long term investor that focuses on dividends and dividend growth is that when stock prices go down yields go up. Canadian financial services firm Sun Life Financial (SLF) offered up a dividend yield of 3.7% this past week as the stock was sold off further after a negative earnings report due to U.S. operation weakness. The analyst downgrades, including Credit Suisse, also came right on cue which encouraged more selling.

When the smoke cleared toward the closing bell Friday I had to add to my position to lower my cost base. This was just too tempting to pass up:
  • As far as I can see, 3.7% is the highest this stock has ever yielded in its history
  • Earnings were up 6% in their Canadian operations within a tough market
  • The stock traded at these levels in late 2004 when the trailing 12-month earnings per share (EPS) was $2.88; trailing EPS is now $3.83
  • My valuation models using discounted cash flow (using an EPS growth rate of 9% and a P/E of 11x) show that the stock should be bought under a share price of about $45.00 (I bought today at about $38.60/share)
  • Price/Earnings ratio is right around 10x trailing earnings which has to be considered good value for a company with very low debt, a juicy yield, and a solid earnings and dividend growth history.

This purchase lowered my adjusted cost base (ACB) by about $3/share. Sun Life Financial (SLF) now makes up about 9% of my non-registered portfolio.

Friday, August 1, 2008

brands grow dividends

This article originally appeared on The DIV-Net. If you haven't checked out The DIV-Net yet, what are you waiting for?

I previously wrote about my dividend growth philosophy. This is my investing plan that I employ through good times and bad, no matter what the market throws at me. One factor in the last point within my investment philosophy, and a factor that I consider crucial when selecting and analyzing investments, is brands.

A brand is the most valuable asset that many companies own. This product or company identity captures a corner of the consumer's mind, which is the most valuable real estate that they can own for future growth and stability. In simple terms, a strong brand offers the benefit of repeatability of sales through loyalty and trust. These factors are perfect traits for us to look for in a company that we might be considering for a long term dividend growth investment. Brands are a piece of the puzzle that can go a long way towards creating consistency, which is another key feature of a dividend growth company.Brands are one of the factors that allow the company's customers to continue to buy their products or services as the years go by. In some ways, brands can contribute in creating a 'moat' around the company that inhibits other entrants from taking market share or gaining confidence in the market.

If you ever doubt the power of brands consider the following: Some brands are confused with actual item names: Examples include Kleenex®, Band-Aid®, iPod®, and Ziploc®. Some brand names are actual words for items in different languages than they originated in. For example, 'Gillette' is the word for shaver in some developing countries. Some brand names pervade vocabulary in other ways, as an example consider the saying "That is a Band-Aid solution".

In summary, brands are a key factor that I consider when analyzing a potential dividend growth investment. Due to the loyalty, trust, and the competitive advantages that brands build, they create moats and allow companies to build consistency of sales.