dividends over tenants

I have had the pleasure to engage in some interesting discussions with real estate investors lately. Specifically those who buy property with the intention of renting out units and drawing the rent as income. Investing is investing, and this has it's similarities to buying shares of publicly traded corporations and drawing income that way in the form of dividends as I am doing.

Real estate investing is really not for me though, at least not at this stage in my life. I prefer investing in dividend paying stocks. Here are some of the reasons why:

• No pesky rent cheques to cash. My dividends flow electronically into my brokerage account without hassle, fees, or paper (eco friendly too).
• If given the choice I'd rather not receive phone calls at 4am from tenants with plumbing issues. To date I have not received one phone call from any of the companies that I own.
• Why chase people for rent cheques or listen to a hard luck story about why it's late? Clorox (CLX) is never late with their quarterly dividend, and they don't complain.
• People break leases and decide to move out occasionally, taking your future monthly rent with them. Stocks never go away unless you want them to. They can also be acquired in which case their value spikes.
• I like the word 'DIVIDEND' better than the word 'RENT'....it just sounds cooler and more profitable.
• Owning stocks I can diversify across industries and geographies. Owning an 18 unit apartment building in Windsor, Ontario, I can not.
• My stocks do not require maintenance that involves getting my hands dirty or paying someone else to dirty theirs.
• Stocks are liquid. It would take me about 10 minutes to sell every stock that I own in an emergency. It could take years to sell real estate in a poor market.
• I don't have to decide by what percentage to increase the rent, the companies that I own decide that for me.

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technical difficulties

the moneygardener is experiencing technical difficulties related to changing our domain name to www.themoneygardener.com

These problems should be temporary, and I apologize for the inconvenience.

investing carnival #19

Investing
Blake Delaney presents GIM is Launched posted at Blake's Blog.

Ella Moss presents FINANCIAL CRISIS: IT’S NOT OVER UNTIL IT’S OVER « Zodiac Times posted at Zodiac Times.

Trading Sphere presents Is Trading For You? » Free Stock Market Investing Tips posted at Free Stock Tips.

Kevin presents Risk Management and the Imaginary Portfolio posted at No Debt Plan.

FIRE Finance presents Secure Retirement - At What Rate Should You Save For It? posted at FIRE Finance.

Steve Alexander presents Another Tax Tip for Magic Formula Investors posted at MagicDiligence - The Best Magic Formula Stocks.

Ripe Trade presents 401k strategy Best seasonal period posted at Ripe Trade.

Jae Jun presents Profit From Special Situations - Spinoffs posted at Old School Value.

Adam Freedman presents Be Greedy When Others Are Fearful posted at The Investor's Journal.

Raag Vamdatt presents Equity Investment is Risk Free - Here's the Proof :: RaagVamdatt.com :: Financial Planning demystified posted at RaagVamdatt.com.

Paul Goodwin presents Reconciling Growth and Value Investing posted at The Iconoclast Investor.

Value Investing
Declan Fallon presents Global Panic - But Don't Lose Sight of Opportunity posted at Zignals blog.

Stock Analysis
Try INO - Get your favorite symbols' Trend Analysis TODAY! Click Here

Nurseb911 presents Taking Stock in COST: posted at Triaging My Way To Financial Success.
...I love Costco.

The Financial Blogger presents Apple (AAPL) is a BUY posted at Intelligent Speculator.

Mark presents Micro-cap Value Stock Educational Development Corp. (EDUC) posted at Value Investing with Stock Pursuit: Deep Values and More.

Tony Huynh presents Bet on the US, I am posted at LimitlessUnits.com.

Alternative Investing
The Shark Investor presents Your Money, Your Health And The Earth posted at The Shark Investor.

MBB presents Open A Certificate Of Deposit and Build A CD Ladder posted at Money Blue Book Finance.

Dividend Investing
D4L presents Stock Analysis: The Coca-Cola Company (KO) An Excellent Value posted at Dividends4Life.

Wealth Accumulation
Mac presents Top 10 Secrets of True Wealth posted at Actorlicious.

Steve Alexander presents Is It Time To Panic? - MagicDiligence posted at MagicDiligence - The Best Magic Formula Stocks.

ChristianPF presents The Recession cycles posted at ChristianPF.

Save Money presents Customer Service Issues At CVS posted at How I Save Money.net.

Thanks to all who submitted content, and thank you for visiting the moneygardener.

online trading accounts spike in popularity

Perhaps the high level of volatility and media attention in the stock markets are causing people to rush to open new accounts at Canada's online brokerages. Many popular online brokerages are reporting increases in opened accounts over the past few weeks to the tune of 70 - 91%.

Rob Carrick of The Globe & Mail has released his annual ranking of Canadian online discount brokerages.

If you are looking to open a self directed investment account, consider Questrade, where most trades cost $4.95/trade. They are offering $50 worth of free trades now by signing up via the moneygardener by visiting Questrade HERE.

added Scotiabank

Yesterday I added to my position in Bank of Nova Scotia (BNS) at $37.60. The Canadian financial institution was yielding 5.2% on my purchase price. Scotiabank was trading near a 4 year low with a P/E of 10x earnings.

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why would anyone buy stocks now?

Investing should be really simple, you buy low and sell high. The problem is that when the 'low' is available, stocks are about as attractive as the girl who did the 100 meter dash in the 90 meter gym. Has the five letter word 'S-T-O-C-K' become a four letter word yet...?

As Canadian Dream: Free at 45 puts it, I have been buying up storm since the S&P 500 index plunged really hard in early October. I thought I'd summarize the additions I've made to my non-registered portfolio since the sky came crashing down.

Oct 6 Alcoholic Beverage Firm, Diageo PLC (DEO) at $58.61 (BEER)
Oct 9 Integrated Energy Co., Husky Energy (HSE) at $33.85 (GAS)
Oct 16 Utility Firm, Fortis Incorporated at $21.31 (LIGHTS)
Oct 22 Financial Services Co., Sun Life Financial at $29.37 (RETIREMENT)

These stocks were all yielding at least 4.7% at my time of purchase. This means that I'll be paid at least 4.7% of my money back annually in the form of dividends for my investment in these companies.

It is no secret that the reason I am doing a great deal of buying right now is because I feel there is a lot of really good long term value in the stock market right now. Many of the stocks I've purchased and attempted to purchase were trading at or near multi-year lows, and I feel that their potential to grow their earnings and dividends in the long term are very good. Near term there are currently countless hurdles and issues such as writedowns, economic pain, and consumer and investor fear, that are keeping many companies from growing their earnings. It is my belief that the companies in which I am investing will move through this period to excel in the future.

I must take advantage of these low valuations and high volatility in order to truly 'buy low'. Has the market bottomed? Who knows, but I will do my best to buy whenever I see value that is hard to resist when I look out long term. Hopefully I can stagger my purchases enough that when we look back at this period I'd have done at least some buying at the most opportune times to do so. If I'm wrong, my significant income in the form of dividends will be my solice. As long as dividend cuts are rare I'll be quite happy in the long term. I'm no Warren Buffet, but even Warren himself could give you a list of what he is buying right now.

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added more Sun Life

Yesterday I continued to take advantage of the plethora of cheap stocks available as I added more to my Sun Life Financial (SLF) position under $30/share, reducing the average cost of my stake in the process. Sun Life recently reported a loss in their third quarter due to massive writedowns and charges related to the failure of Washington Mutual (WM), Lehman Bros. (LEH), etc.. Excluding the impact of these write downs Sun Life's earnings would have come in flat from 2007 at $1.00 per share.

Sun Life's CEO Don Stewart mentioned that SunLife is well positioned to weather the global storm and reiterated Sun Life's dividend (currently $1.44/share, yielding about 4.9%). There has been speculation that Sun Life recently sold it's stake in CI Financial (CIX) as a way to shore up capital instead of bulking up for a U.S. acquisition as reported.

Sun Life is trading at a P/E of 7.6x and very close to five year lows. The stock is off about 48% year to date.

Emera hikes dividend

Emera Inc. (EMA) has increased it's dividend 6.3% from $0.2375/share to $0.2525/share. Emera is engaged in the production and sale of electric energy in Nova Scotia, Canada and the state of Maine. Emera pays out about 66% of it's earnings in the form of dividends and now yields 4.9%.

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

2004 - $0.88
2005 - $0.88
2006 - $0.88
2007 - $0.90
2008 - $0.95
2009 - $1.01 (estimated)

This represents a compound annual growth rate of the dividend of 2.8%.

dividend stocks for a weak economy

If we truly are headed into a deep recession domestically as well as globally, the stocks of companies that provide goods and services that we are unlikely to go without during a recession are probably a good bet to continue to grow earnings and dividends throughout a slowdown. The problem is that many of these companies have not been sold off as hard as some of the more economically sensitive names due to investors being aware of this very fact. Paying closer attention to these types of stocks when selecting investments is one strategy; probably the more conservative option, during times like these.

Another strategy is to look for deep value in companies that are economically sensitive, and thus have been sold off dramatically, but should be able to thrive again when growth resumes. In either strategy, especially the latter, a low pay out ratio (the amount of money paid out as dividends as a percentage of earnings) is ideal.

Nevertheless, here are some stocks that at least warrant a look for conservative investors looking to be defensive as we enter the downturn:

Pepsico Inc. (PEP) - 3.2% yield - Snacks, juice, soda, and oatmeal.
Unilever N.V. (UN) - 6.2% yield - Soap, margarine, soup, olive oil, etc.
Johnson & Johnson (JNJ) - 2.9% yield - Health care, Band-Aids, Tylenol.
Diageo PLC (DEO) - 5.3% yield - Alcoholic beverages.
Phillip Morris International (PM) - 5.0% yield - Tobacco products.
Rogers Communications (RCI.B) - 3.0% yield - phone, cable TV, & Internet
Telus (T.A) - 4.8% yield - phone, cable TV, & Internet
Enbridge Inc. (ENB) - 3.5% yield - Energy distribution.
Fortis Inc. (FTS) - 4.3% yield - Utilities.
TransCanada Corp. (TRP) - 4.3% yield - Pipelines/Utilities.
Canadian Utilities (CU) - 3.5% yield - Utilities.

No matter how bad the economy gets you'll still have people sitting on their couch smoking, watching cable TV, eating Doritos®, and drinking Guinness® by the can. In the morning they'll use soap in the shower after taking some Tylenol® for their hangover.

I've tried to not include stocks which I feel are still a little on the expensive side, indicating a flight to safety into these names. Reported yields were as of the market open this week.

stock links

Reasons to Buy TD Bank, from the National Post.

Now Is The Right Time To Buy U.S. Equities, Warren Buffet explains.

A Cautionary Tale About Dividend Stocks, from The Globe & Mail

Stay Optimistic, & Invest in a Bear Market, from MSN Finance.

new to the moneygardener?

I'd like to welcome readers of two great Canadian personal finance blogs, Million Dollar Journey and Canadian Capitalist to the moneygardener. I hope you enjoy our blog!

If you like this blog and you use a reader, please feel free to subscribe by clicking the orange RSS reader icon seen down the right sidebar.

Here on the moneygardener I write about personal finance topics including, but not limited to:
budgeting, dividend investing, saving, spending, retail ranting, planning, goal setting, observing people's habits and relationships with personal finance, risk taking, borrowing, analyzing net worth, growing net worth, childcare expenses, bear markets, oil, and of course Costco.

If you are interested in everything surrounding money, and the ongoing task of growing wealth I think you will enjoy my unique perspective.

Fortis Inc. purchase

Yesterday I initiated a position in Fortis Inc. (FTS) at $21.31, where it was trading near its 52 week low of $20.70.

About Fortis
Fortis Inc. (FTS) is the largest investor-owned distribution utility in Canada, serving almost 2,000,000 gas and electricity customers. Its regulated holdings include a natural gas utility in British Columbia and electric utilities in 5 Canadian provinces and 3 Caribbean countries. It owns non-regulated hydroelectric generation assets across Canada and in Belize and upper New York State. It also owns hotels & commercial real estate in Canada.

Why Would I Buy Fortis
Fortis fits into my portfolio in my utilities/telecom. section, being most similar to Inter Pipeline Fund (IPL.UN) in the nature of its business. Being mainly an electric and natural gas utility owner/operator, Fortis draws extremely stable revenues from it's customers. Much of Fortis' business is also regulated, which adds further stability to their revenue. Fortis has a stellar history of earnings and dividend growth dating back to 1972. Fortis is a Canadian company which pays eligible dividends, currently to the tune of 4.7% yield.

Why Now
Similar to Diageo (DEO), I feel that Fortis has been unfairly sold off during this period of turmoil in the markets. Companies that are resistant to changes in economic activity and consumer spending should be able to maintain solid earnings through these troubled times. Electricity, like alcohol, is an essential good no matter what the economy brings.

By my estimation Canadian dividend paying utility companies including Fortis and TransCanada (TRP) have been expensive stocks for a few years now. These businesses have always attracted me, but I have never been able to rationalize a purchase of these companies due to their high valuation. The recent drastic market sell off has brought these stocks back down to earth. The market panic selling and need for cash is affecting all stocks, Fortis being no exception.

Valuation By Price to Book Ratio
A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
Fortis Current Price/Book Ratio = 1.25x
Fortis' annual average Price/Book Ratio has been less than this level one time in the previous 10 years (1999 only).

Risks
Being a utility, Fortis has a significant amount of debt (Deb/Equity ratio of 1.82). Fortis also has a dividend pay out ratio as a percent of earnings of 64% showing that there is little room to raise dividends if earnings become flat for an extended period.

I have confidence that given the stability of Fortis' revenue and earnings, as well as their emphasis on growth they should continue to provide stable returns to investors for years to come despite economic conditions.

the golden arches raise dividend 33%

This article originally appeared on The DIV-Net on October 1, 2008

Iconic fast food chain McDonalds (MCD) has raised their dividend from $0.375/share to $0.50/share. This represents an increase of 33%. McDonalds' global sales were credited as fuel for the pay out raise. The company has raised its dividend each year since the company began paying one in 1976.

Here is a glance at the company's recent dividend history:
2004-$0.55
2005- $0.67
2006-$1.00
2007-$1.50
2008-$1.625
2009 -$2.00 (estimated)

This represents a compounded annual growth rate of the dividend of 29.5%. The stock is currently trading at around $56 and yielding about 3.6%. This company has really been executing well over the past few years. In March of 2003 the stock actually traded below $13/share. This is certainly one we all wish we had owned for the past 5 years. As a former employee I wish I had been paid in stock instead.

relax, take the longview

I'm sure as investors we've all seen the studies which indicate that over the long term we are better off being invested in the market, rather than not. Removing your money from the market for even a few days or weeks as part of an attempt to time the market can really handicap you from garnering good long term returns because nobody can predict what the market will do; and often the upward moves are quick and powerful. Case in point today as the S&P 500 index soared over 11%, the largest one day gain ever. Some stocks were up as much as 18%. The Bank of Nova Scotia was up 17.6%. This is not a penny stock, or oil and gas junior, or a hot tech. firm where large day to day swings in per share price are expected; this is Canada's third largest bank, a fourty billion dollar company.

What is happening in the stock market as well as the broader economy right now is ugly and there are real underlying issues that will take time and pain to resolve. The bottom line for me as an investor is that I don't require the money that I am putting at risk in the market for at least seven years. Due to this I can afford to brush off paper losses and take advantage of major weakness in stock prices to do some buying. The recovery is inevitable, the timing is unknowable. Corporations will continue to strive to grow earnings year after year and our capitalist world will enable them to do so over time. These same corporations will also continue to throw me growing cash in the form of dividends, to keep me satisfied as an investor in their profitable firms.

I am not sure if we have hit the bottom yet, nobody is, but one thing I do know is that many stocks are offering up much better value lately than they were months ago. Yields are up and P/E ratios are down. Many companies have earnings that are able to remain fairly stable through recessions and other market turmoil. Some companies will earn less money in the next few years than they did in the last few, but their share prices are reflecting anemic growth for the next ten years.

The point is that it really doesn't matter if we've hit bottom or not. A bell will not ring when we do, and the economic world will still look as bleak as it does now when we do. All a long term investor can do is remember that they are just that, long term investors, and continue to evaluate potential investments for purchase as they have always done or simply dump more money into the general indices, since they can buy more of them than they could last quarter. Avoid the temptation to do something reactionary with your long term equity positions to combat against the crash we saw last week. If you are not buying, consider doing nothing.

Yes, it is a giant sale on stocks, Shop Wisely For The Long Term.

Some great further reading here:
Your Retirement Income is On Sale, by Dividend Money

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doubled Husky position

Yesterday I doubled my original position in Canadian oil integrated oil and gas firm Husky Energy (HSE). I bought Husky at $33.85 where it was trading at a P/E ratio of 7.0 and a dividend yield of 5.9%. This purchase likely brought Husky up to about a 6-7% weighting in my non-registered portfolio. Buying oil when the U.S., and possibly the world is going into a recession has its risks, but I believe most of those risks are already priced into this stock. At a 5.9% yield I am not concerned about Husky's 1-2 year forward earnings outlook. With their low pay out ratio they should be able to maintain the dividend if oil stays at reasonable levels. If the worst case occurs and oil tanks down to sub $60 levels for a sustained period then all bets are off, but I see the odds of the 'sustained period' being measured in years very unlikely. The world is still running out of oil, OPEC is still in the business of making money, and emerging markets continue to strive for the Western life. The race to find alternatives will only be hampered by lower relative oil prices.

leverage use in this bear market

The equity markets are now offering up some unprecedented bargains in high quality, dividend paying stocks. I will continue to buy stocks that I feel offer exceptional value if the S&P 500 index continues to drop to (year) 2003 levels and beyond. I feel that as part of my long term strategy I have a responsibility to take advantage of massive downswings in the equity markets. I am now borrowing a very small amount of money from our unsecured line of credit, at a low interest rate, to fund purchases of quality dividend paying stocks. Aside from my attempts to time the market....I am able to claim interest paid on this loan when I file my taxes. Also, I gain the benefit of receiving the dividend income sooner, instead of later if I had waited to purchase the equities in 2009. We have established ourselves as great net savers. The saved money normally went directly into stocks (would occur in 2009), if this strategy is needed the money will be used instead to lower the line of credit balance (in 2009).

This strategy does not come without its risks, as any investing strategy does. I feel that given our current personal financial situation, age, and given the recent events in the market, the timing is ideal for such a strategy. If the S&P comes roaring back several percentage points I will likely halt stock purchases and dedicate funds to pay back the line of credit. The total quantity of leverage used will likely be modest when compared to my portfolio value.

To read an informative series on leveraged investing please look here at Quest For Four Pillars.

Diageo purchase

During the steep 8% sell of of the S&P 500 this past Monday I picked up shares of global branded alcoholic beverage company, Diageo (DEO) at $58.61, where they were off 10%. Diageo is the company behind products like Guinness Stout, Crown Royal Whiskey, Baileys, and Smirnoff Vodka. Mmmm.....

At a 5.4% yield Diageo was hard to pass up. To read a brief post about why I bought the stock now, please visit The DIV-Net and read my regular Wednesday post titled 'Diageo, Happy Hour On The Cheap'.

For more great information on Diageo from The DIV-Net, check out Dividend Growth Investor's post from August 22, titled "Diageo Dividend Analysis". I'll likely talk further about why I like Diageo in future posts on the moneygardener. Diageo now makes up 3% of my portfolio.

View the full DEO chart at Wikinvest

B of A gets the scissors out

Bank of America (BAC) finally cut their dividend by 50% which saves about $1.4 B per quarter. I've talked a lot on this blog about whether or not BAC will cut their dividend and now they finally have. The credit crisis has obviously got to a point that is much worse than anyone had imagined. BAC recently purchased Merril Lynch and they're also paying out a lot of money for bad loans, lawsuits, etc. related to the Countrywide Financial acquisition. These needs, along with the fact that the credit crunch got worse than expected with many casualties, were probably paramount in the decision to cut the dividend. My initial bet that BAC would not cut the dividend as one of my reasons for purchase, was wrong.

Having a firm that you own cut their dividend is probably the worst thing that can happen to a dividend investor. In this case because BAC was such a small part of my portfolio (about 3%) this dividend cut barely affected my income from investments. Another factor that is really offsetting its affect is the appreciation of the U.S. dollar recently versus the Loonie. The dividends that all of my U.S. holding are paying me have become more valuable over the past few weeks. I will update my income from investments very soon.

I am holding on to my BAC shares despite the dividend cut for several reasons:

• Now would be a terrible time to sell BAC, and if I were to sell I'd sell into strength
• Because of all of the failures and consolidations in the U.S. financial industry due to the credit crisis Bank of America looks like it will turn out to be bigger and have more market share, talent, and influence in the global market which looks positive for the company going forward
• Bank of America is currently the bulk of my exposure to financials outside of Canada which I intend to maintain exposure to
• I believe the company still values dividend growth and should begin to re-grow the dividend after credit and economic conditions stabilize

recession pricing

With the S&P 500 index now re-visiting levels not seen since 2004, it is no surprise that several great companies with long histories of earnings and dividend growth are getting down to some notable lows. This massive sell off is not being felt the same across all sectors. Not surprisingly consumer staples seem to be holding up very well as recession fears loom. Consumer staples are typically products that people will continue to buy in hard times. Major selling is certainly at hand for companies operating in sectors that are directly affected by the broader economy in general and consumers discretionary spending.

Typically during such a steep, quick sell off like this it is wise to avoid 'catching a falling knife' when attempting to buy stocks at good value. Easier said than done, but one should try to wait until a particular stock stops going down and meets some support partnering with large volume before buying. Here are a few examples which I feel are notable and possibly worth taking a look at now or at some point soon. I am keeping a close eye on the following, and I'll likely make a purchase soon based on a list of stocks which includes these 4. Ideally equity investors should have a time horizon of more than 7 years and ensure they are properly diversified.

3M Company (MMM) - The diversified technology company which has paid a mostly rising dividend since 1977 is trading at levels not seen since July of 2003. Yield = 3.1%

Walgreen Company (WAG) - The U.S. drugstore chain with a stellar history of earnings and dividend growth is trading at levels not seen since February of 2003. Yield = 1.6%

Diageo PLC (DEO) - The maker of branded alcohol who has grown their dividend at a compound annual growth rate of 8% over the past 10 years is changing hands at levels last seen during April of 2006. Yield = 4.8%

General Electric (GE) - The diversified conglomerate with an outstanding record of earnings and dividend growth is trading at levels only seen briefly in February of 2003. Yield = 5.8%

Of course there are several more examples in the stock market today. You might call this the start or the end(?) of recession pricing.... Investors out there: What stocks are getting your attention lately?

do not call me

The Canadian National 'Do Not Call' Registry went live in Canada yesterday and I managed to add our home phone and cell phone to the list last night. I have heard that the system has been flooded so its operation has been hit and miss. After you register it will take about one month for the calls to subside.

To add your phone and fax number(s) to this registry and avoid annoying telemarketers go to:
'WhereDoesAllMyMoneyGo' who features a helpful post on the topic.