recession reflections

By all popular accounts it now seems as though we are well into a recession in North America. The doom and gloom in the media is extremely evident, and now terms like 'uncertainty', 'recession', and 'tough economic times' have completed the long journey from CNBC to Subway commercials. Grade 10 girls are reflecting on the economic downturn in discussion around their lockers between classes. It is official, the sentiment is bad and times are indeed tough.

Despite the decisiveness of most on this issue though, it is an interesting discussion to have with friends, colleagues, and relatives. How has this all affected you?

Losing your job is very unfortunate, and for those who have been affected I wish them luck and success in the future. I've seen countless examples of where the recession is really hurting on the news; but where is it hurting locally and in the lives of those around me? Well...

• Of all the folks that I know, I am aware of one person who has been laid off recently
• Personally, my investments have been hammered beyond belief, and I'm sure I'm not alone on this

On the other hand:

• I know a few small business owners who are reporting business as usual
• In minus fifteen degree weather I still can't get a parking spot at local malls
• An 'edible arrangements' business just opened up in my area
• Real estate still seems to be on the expensive side

Right now I do feel like there is a chasm between what appears to be going on in the world and what is actually happening locally and to those that I know personally. Is anyone noticing the same thing?

but do they give you a ride home after?

Surely a sign of the times, Hyundai US is offering up an interesting proposition to new car buyers, which are now a rare breed. It is apparently a 'no lose' :)

Hyundai: Lose Your Job, Return Your Car
From About.com (Aaron Gold)
http://cars.about.com/b/2009/01/08/hyundai-lose-your-job-walk-away-from-your-car-loan.htm
“The car market is in shambles right now. It's a great time to buy -- dealers are hungry, gas is cheap, and lenders are loosening their pockets, so cars are hella cheap -- but people are worried about keeping their jobs, so they're understandably reluctant to commit to a car payment. Enter Hyundai and their new Hyundai Assurance program.

Here's the deal: If you buy a new Hyundai and then lose your job, you can walk away from your new car and your new car payments. If you're upside down (you owe more on the car than its worth), Hyundai will even cover the negative equity, up to $7,500. The program is free and covers the first twelve months of ownership. The program also covers disability, loss of driver's license, disability, accidental death, or a last-minute job transfer to Belgium. Details of the program can be found at hyundaiassurance.com.”

http://www.huffingtonpost.com/2009/01/06/hyundai-lose-your-job-ret_n_155492.html

retail musings

I don't particularly like shopping anywhere (except of course Costco). What I do like doing is observing how retail stores and other businesses try to make money, and thinking about ways they could make more of it. I wondered why they don't sell batteries at a local used children's clothes, toys, and accessories store. Seems like an easy high margin impulse purchase to go along with your battery operated toy.

I wondered why my gym let an extremely annoying issue with their electronic gate entry linger for months before fixing it. Do they know the staff are on Facebook while the paper towel dispensers are crying for new rolls? What is the threshold number of members that a gym wants anyway? There must be a target members:equipment ratio. Too high causes problems with overcrowding and disappointed members waiting for free equipment. What percentage of members never work out? I'm sure those couch potatos are their favourites, no wear and tear on the equipment or bodies in the hot showers while their membership fees keep rolling in through direct withdrawal. I'm sure there are stats on all of this. Would it be possible for the energy expended on the cardio equipment to power the gym?

Some Previous Retail Ranting I've Done On the moneygardener:
I don't like shopping at Canadian Tire. I even bought my washer fluid at Costco this year!
I really like shopping at Costco, maybe too much.

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.

coffee with benefits

Down on your luck? Don't despair. Just when you thought the Canadian economy was in shambles, with economic growth sputtering and job losses making headlines daily, a glitter of hope helps all of us Canadians remember how lucky we are to live in this great country.

If you can't quite make out the photo here, it's actually a Tim Hortons coffee cup. What's so special about this cup is, that printed on the bottom it reads:
"Imagine a job that fits your life"

The massive coffee shop chain is actually using their ubiquitous brown and tan cups to solicit for potential new hires. Most Canadians are very familiar with these cups as Tim Hortons (THI) sells about $6B worth of coffee and donuts each year. That's a lot of double-doubles. These cups are probably the most common piece of litter on Canadian roads, as well as fixtures in vehicle cup holders from Kelowna to Kingston. Not to mention, apparently some of the most valuable advertising space in Canada.

With Alberta's economy zooming along some Tim Hortons outlets in the oil rich province have been forced to close their doors before dinner time due to lack of staff. While the rest of the country may not quite be in the same boat, and not everyone would enjoy working at Tim Hortons, it is nice to know that the coffee chain is so in need of new staff that they're selling their products emblazoned with this help wanted ad.

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 :(

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.

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.

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.

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.

diaper mayhem II - an act of treason

There has been something bothering me for a few days now... I have an apology to make.

Back on my popular diaper mayhem post in January of this year. I blogged about how I was a slave to the Pampers brand, after a full 13 days as a parent. I should have known not to turn my back on one of my long time allies in our quest to financial freedom; Costco Wholesale, this is my official apology:

I am sorry I doubted your Kirkland Signature brand diapers. I was a green parent and the last thing I needed on top of the stress of new parenthood was 200 potentially leaking diapers. Now that we have had the time to get into the groove of parenthood, we finally took the plunge. That's right, once again Costco came through for me, as my son is now comfortably wearing and 'using' Kirkland Signature diapers. I suspect Kimberly Clark makes these puppies, so in essence they are Huggies, but they seem to work fine now. I should have never doubted the good people of Costco, who incidentally now sell Crocs for $24.99 a pair.

Here is the breakdown on the diapers:
$44.99 for 200 diapers size 3 = $0.225/diaper...likely about $1.80/day

I will update the comparison of Costco's Kirkland Signature to other brands and stores in a later post. I am confident Costco is proving, once again, to be the best value proposition on the retail diaper scene.

lowering my ACB on Walgreen

I took the opportunity today to lower my Adjusted Cost Base (ACB) on U.S. drugstore chain, Walgreen Company (WAG). Long time readers of the moneygardener have likely read posts about my accumulating shares of WAG over the past year. Today's purchase was just another wrung on the ladder, decreasing the overall cost of my equity stake in Walgreen.

The thesis behind holding shares in Walgreen long term is simple:

• America is getting older in a big way, with this comes the need for drugs and convenience
• Walgreen has a history of strong growth and dominates the market along with CVS Caremark (Walgreen currently trades at a P/E of 17x while CVS changes hands for 21x)
• The Canadian dollar is nearly at par; U.S. retail sales sentiment is extremely low...

Procter's 2008 raise

In my purchases to date post late last week I pointed out the fact that I can't wait to receive my next dividend raise. I failed to realize when drafting that post that consumer products giant Procter & Gamble (PG) which makes products like Pampers (my favourite), Crest, and Bounty was due to increase my annual pay.

Well, Procter & Gamble (PG) anted up as expected. They gave shareholders a 14% raise, as they hiked their quarterly dividend from $0.35 to $0.40 per share. A great raise, and I didn't even show up for work!

Here is Procter's recent dividend history;
2004 - $0.98
2005 - $1.09
2006 - $1.21
2007 - $1.36
2008 - $1.55 (estimated)

PG has raised their dividend for 52 straight years. It's a great day for shareholders of the makers of Always, Old Spice, and Tampax!

gas prices & me = still friends

I am absolutely fed up with gasoline prices! I just filled up my 2007 Toyota Yaris and it cost me a whopping $43! Obviously I'm joking…gas prices are still not bothering me.

With the summer driving season approaching it will be interesting to see how high pump prices go. I always find it fascinating to read articles about truck and SUV sales vs. higher gasoline prices and whether or not the prices are affecting consumer behaviour. I am in the camp that believes that it will take significant appreciation in the price of petrol for North Americans to change behaviour by driving less, or opt for more fuel efficient vehicles. The migration to more fuel efficient vehicles may have already begun in earnest, however I do not believe the trend has gained any momentum as of yet.

What will it take for North Americans to adapt? I'm not sure. One thing that is interesting is how the Canadian dollar plays into the price of fuel in Canada. If the Canadian dollar was back even close to the levels it sat at years ago we would be in for significant pain at pumps compared with where we are at now. The reason for this is that our fuel marketers buy gasoline in U.S. dollars. So the price I paid today, which was about $1.10 / liter would have actually cost me closer to $1.35 if the Canadian dollar was back at $0.80 U.S. In that case my thirsty Yaris would have taken almost $53 worth of the smelly stuff….

Now if Petro Canada's (PCA) stock price would only perk up....

Toronto Dominion Bank purchase

Today I initiated a full position in Toronto Dominion Bank (TD). TD will now make up about 10% of my non registered portfolio. Since TD is such a widely held stock in a widely followed industry in Canada; instead of a detailed post describing my thoughts on TD, and rationale behind the purchase, and valuation, I thought I would briefly list the most important factors that went into this decision. As always, opinions and comments are appreciated.

My decision to invest in TD for the long term right now was based on:

• industry leading retail bank in Canada, operating within an oligopoly; I am attracted to retail banking as it tends to lend itself more towards consistency, loyalty, brands, and repeatable revenue and earnings
• the credit crisis has improved the valuation of all banks; to a certain degree the babies were thrown out with the bathwater, TD has little exposure and is 15% off it's 52 week high
• the above point is true to a large extent with U.S. banks; I'd like to entrust TD to acquire for me skillfully and take advantage of good value in U.S. institutions
• TD has a great history of earnings and dividend growth and currently sports a dividend pay out ratio of only 38%, and a solid yield of 3.7%

canucks still spending

Perhaps surprisingly Canadian consumers are still shopping. In January retail sales in Canada jumped 1.5%; this came after a revised 0.8% advance for December, 2007. This apparently reflected higher spending on cars, clothing, and furniture. The market is interpreting this as unexpected good news for Canadian retail stocks. Take a look at their performance in the last few days.

5 day returns:

Canadian Tire (CTC.A) = + 5%
Shoppers Drug Mart (SC) = + 6%
Reitmans Canada (Ret.A) = + 12.5%
The Brick Inc. Fd. (BRK.UN) = + 8%
The Forzani Group (FGL) = + 4%

XIC (ETF for Canadian large caps) = + 0.7%
_______________________________________

my Walgreen mistake

As many readers of the moneygardener know I have a long position in U.S. drugstore chain Walgreen (WAG). I first bought shares in Walgreen on January 29, 2007, over one year ago, when the stock was trading at around $45. In October WAG announced a bad quarter, and investors dumped the shares hard. The day of the dramatic drop I actually doubled my position in the stock to average my cost down. This was a mistake!

Was this a mistake because Walgreen is a poor company, with a sketchy future? Absolutely not. I still believe shares of Walgreen should be a phenomenal investment long term. So why was averaging down on the day of that dramatic 15% drop ($47 to $40) a mistake?

The reason I believe this was a mistake, but a mistake I will learn from is:

• This trade exhibited my lack of patience, as an investor

Why I thought I needed to average down so quickly when they announced that weak quarter, is a mystery when one looks back at it now. Yes hindsight is 20/20 but, in reality, I made the trade in fear that WAG would bounce back up to $43 or $44 very quickly, when investors came to their senses. It showed overconfidence on my part that I thought I knew more than the market. No one becomes enamoured with a good growth stock, just after they report flat earnings. In reality I had months to watch the stock and average down. I've been kicking myself over the past few months as shares of WAG have drifted down to a low of $32.50. I could have got them 19% cheaper than my averaged down price, if I could have shown some patience.

• Why catch a falling knife when you can buy a stock on the rise later?

The interesting fact is that what I thought was such a great deal at a 15% discount at $40/share back in October, has been down to $32.50 and has now bounced back to today at over $37. It is my belief that Walgreen has now bottomed. If I would have just waited until all the pessimism was wrung out of the stock, even if I didn't catch the bottom I could have bought it today 8% cheaper, and on the rise, instead of reaching for that falling knife.

The good news is that over time, this should all be water under the bridge as I expect my shares of Walgreen will appreciate smartly over time. I want to try to learn from experiences like this as I continue on my quest to buy great companies, that pay growing dividends, at reasonable prices.

'step away from the bagels'

Just when things seemed like they couldn't get any worse for Canadian grocery retailer Loblaw (L), they make a few startling announcements. I actually bought and sold Loblaw before I began this blog. Loblaw is the only stock that I have ever completely sold out of. The reasons I sold the stock were many, including the company's poor outlook and direction.

Some of the information released by Loblaw today was confounding and really shows the weakness of this company right now in my opinion.

• Loblaw said they're trying to tackle the 1 Billion dollar problem of goods disappearing from their stores because of theft or mismanagement, by weeding out prospective employees with criminal records, while trying to reduce employee turnover by offering up a 10% employee shopping discount.

---- Wow, I don't know where to begin....Loblaws 2007 revenue was about 30 Billion. So 3.3% of their annual revenue was simply being lifted from their stores, or otherwise disappeared. This surely shows poor management. Never mind Wal-Mart, Loblaw's own staff is quite literally eating their lunch.

---- Hiring employees with criminal records might have been a bad idea from day one. Ya think..?

--- I appreciate the attempt to have their employees as customers, but is a 10% shopping discount going to really reduce turnover? Perhaps it might keep a few employed there, but I'm not sure Loblaws can take that kind of margin hit.