the moneygardener turns 1!

I created the moneygardener on April 30, 2007, and since then have logged 192 posts, 110,000 hits, and 243 subscribers; these days we are averaging 322 daily visitors.

I would like to thank everyone who has ever posted a comment to one of my posts, as I read and give some thought to them all. I would also like to thank everyone who has taken the time to send me an email over the last year. I have received several emails from readers, and most of these have been thoughtful and flattering; I have them all posted on my board in my home office. It is motivating, and downright astonishing to me how people feel about this blog, and that they take the time to let me know this. Please note that my email address has changed, and you can find it on the bottom of the right panel. Finally I'd like to thank all the other personal finance bloggers out there who have helped and supported me in the last year. A special thank you to Middle Class Millionaire, The Dividend Guy, Quest for Four Pillars, Canadian Capitalist, Financial Jungle, triaging my way to financial success, and Million Dollar Journey for supporting me in some way over the past year.

I feel like I have learned quite a bit over the last year; about myself, about personal finance, stocks, and the market. I hope others have been able to take something, no matter how small, away from reading this blog. Thanks again, and break out the Champagne or Heineken, whichever you prefer!

'sell Royal Bank' - citi

As the credit crunch rages on, the latest arrow comes from Citigroup, who have downgraded Royal Bank of Canada (RY) to a 'SELL'.

Citi analyst says, "In our view, as the largest of the Canadian banks, Royal likely has significant exposure to the deteriorating credit markets. Given the bank's size, C$632B in assets and diversified lines of business we think long term the bank will be able to withstand the current credit crunch. In the near term, we anticipate credit related write downs to adversely impact earnings and book value. We also expect increased provisions for loan losses as credit trends continue to deteriorate. "

No doubt Royal has exposure to melting credit markets, and given their size they do have their hands in a lot of cookie jars. It is important to note though that Royal derives a significant portion of the revenue from Canadian retail banking, as well as Canadian wealth management, which are in healthier current states and will buoy them. One of the large Canadian banks, in fact the largest and arguably the best positioned and strongest, being rated as a 'Sell' is likely a rare call in Canada or the U.S. for that matter. If Citi's call comes to fruition this could be a great opportunity for long term dividend growth investors. Citi changed their target price for shares of RY from $47 to $40.

Royal trading at $40/share (citi's target price) means:
P/E = under 10x trailing EPS
Dividend Yield = pushing 5%

It is reassuring for Citi to point out that Royal should survive the credit crisis long term and thus should not go bankrupt due to it. I'm glad they pointed this out, as I would have assumed the bank would fail. (sense the sarcasm here)

weekend links

A few articles, from Canadian personal finance blogs that caught my attention in the past week....

Wheredoesallmymoneygo found a very cool mortgage calculator.

Quest for Four Pillars wonders if being 'upside down on your mortgage' is such a bad thing...

Dividends are steady income, without the market volatility, writes Financial Jungle, he uses the example of Johnson & Johnson, who incidentally raised their dividend this past week

bought Husky with petro dollars

Today, in an uncharacteristic move, I sold all my shares of Petro Canada (PCA) for a profit and used the capital and proceeds to initiate a position in Husky Energy (HSE).

Why was this move uncharacteristic?

• According to my investment philosophy I rarely sell stocks
• I bought Husky near its 52 week high (I usually buy stocks that are well off of their highs due to valuation reasons)
• I am buying an energy company while oil is trading north of $118/barrel, this probably represents some downside risk
• I sold Petro Canada within 2 years of buying it; I fashion myself as a holder of stocks for the long term

So, why did I make the trade?

• I purchased Petro Canada before I developed my current dividend growth strategy. Husky is a better fit for a dividend growth investor as they prioritize returning growing earnings as cash to shareholders.
• Petro Canada has failed to execute, and has underperformed the entire universe of energy stocks by a wide margin for the entire time I've owned it. I even trimmed my position when the stock hit $60 in July of 2007 because I felt the company was overvalued, and in hindsight I turned out to be correct on that call, as today it trades around $50.
• Husky's dividend growth record speaks for itself, and it currently yields 3.5%, whereas Petro Canada yields 1.1%.
• Husky's regular and special dividends allow me to directly profit from high worldwide energy prices today, hedging me against my personal energy expenditures. This is not including the potential for captial gains long term. This may come in handy when gasoline reaches $2.25/liter in the year 2012.
• Husky is well managed, and really emphasizes shareholder returns as their company aim.
• Husky has higher returns on equity than Petro Canada does.
• The only advantage that PCA holds over HSE that I can see is their stock is cheaper, I am tired of owning PCA for their valuation, besides I am not getting paid to wait.
• I was in a profit position in Petro Canada anyway, so owning the laggard actually did yield modest gains in the end.
• Buying Husky Energy (HSE) allows me to keep the same exposure in my portfolio that I had with Petro Canada (PCA). Husky, explores, refines, and markets just like PCA.

I'm sure now that I have sold out of Petro Canada the company will report fabulous earnings and the stock will shoot past $60/share. I'll find comfort in the fact that today I have increased my income from investments without having to add a dime of new money to my portfolio.

Johnson's 2008 raise

Global diversified healthcare company Johnson & Johnson (JNJ) came though with my raise today as expected. JNJ raised their quarterly dividend from $0.415 to $0.460/share. This represents a raise in my annual dividends from JNJ of 10.8%, and I didn't even have to lift a finger. The makers of Band Aids and Tylenol rewarded investors for holding shares in their company by increasing the amount of cash they distribute to them every quarter. JNJ is now yielding about 2.75%.

Here is their recent dividend payment history:
2005 - $1.275
2006 - $1.455
2007 - $1.620
2008 - $1.795 (estimated)

This represents a compounded raise of about 12% annually.

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.

still pulling the dividend sled

Husky Energy (HSE) today continued to build on their strong history of dividend growth by raising their quarterly dividend by 21% from $0.33/share to $0.40/share. This announcement came on the back of a 36% increase in profit for the quarter. As I explained in my 'a Husky dividend' post back in October of 2007, Husky has been a spectacular investment over the past several years. Husky has actually returned 457% (not including dividends) over the last five years, compared with 123% for the TSX composite index.

Husky Energy is proving itself to be the Canadian dividend growth investor's energy stock. I just wish I had bought it in 2006 when I began to wade into individual Canadian stocks. At times during the past few years there have been instances when the oil price was moderate and the outlook was bleak for energy prices. These instances turned out to be buying opportunities as oil has since not looked back as it now approaches $120/barrel.

reader q&a; on net worth gains

A reader, yohann (from France) asked a question in response to my latest net worth post from March of 2008:

could you please provide more info about how you did it ? I saw that you had some 6 000$ increase per month when going from 83k to 95k, was it only salary?

On the particular update that johann was referring to, our net worth did increase by about $12,000 in 2 months. In valuing our home within our net worth I try to keep an eye out for the selling price and time on the market of very similar houses in our area. Our neighbourhood is actually made up of bit of a monoculture of homes, which likely makes this valuation more accurate. I use comparable homes and I attempt to be very conservative when valuing our home. In this particular update I increased the value of our home by $6,000. Therefore this made up half of the increase yohann was asking about. Real estate in my area had two very good years in 2006 and 2007, however I expect my home value to remain fairly flat over the next few years.

During this same period we were able to save about $6,000 for our non-registered portfolio. It looks as though the market return during that period was likely modest to negative so that did not help out whatsoever. Our normal savings for our other registered accounts, as well as our traditional slow and steady debt reduction also contributed. It's interesting to look at the period in question when compared to our latest update (March of 2008) which yielded a paltry $1,193 increase in net worth.

Generally, going forward our net worth gains month by month (reported bi-monthly) should be attributed to a few factors:

• We Spend Much Less Than We Earn (probably half, including bonuses, etc.)
• We Save & Invest the Balance
• Our Investments Should Grow in Value Over Time
• Our Investments Pay Us Income (dividends & distributions), Which in Turn get Re-invested

On another note this is the first post on the moneygardener which I have actually written outdoors! There is nothing like those first few beautiful Spring days!

canadian financial stocks have bottomed!

Wait a minute….Do you really think I would be brash enough to make such a statement, considering as you know, nobody can predict where the market is going. While I am not signing my statement in blood, the trading action over the last couple weeks including this morning's high volume rally in Canadian financials has to have one wondering if we have seen the worst for companies in the money business.

See for yourself, take a gander at the 3 month stock charts for Bank of Nova Scotia, Toronto Dominion Bank, and Bank of Montreal. I am not much of a technical stock chart analyst, however I believe these charts may appear to be showing a bottom. Call it an ABC correction, a double bottom, a higher high, a higher low, or a triple sow cow, but they sure look bullish to me. Readers know I've been wrong before and I'll be wrong again, and they should always make their own decisions based on their own judgement system whether they're a do it yourself investor, or use a financial advisor.

Does any of this matter? Likely not, but if you've been considering buying a position in a Canadian financial, it seems as though the charts are at least showing overcast skies as opposed to a hail storm….. If you buy them for their dividends, and pay little attention to the noise, these charts can become to you nothing but indicators of sale prices, like flyers or coupons. In that case March 17, 2008 would have been a great day to be a frugal shopper.

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...