Saturday, May 31, 2008

weekend links

I recently added more General Electric (GE) to my portfolio, and once again GE's CEO Jeff Immelt was thinking along similar lines. Jeff added 115,000 shares at around $30.59-$30.66, he now owns 1.5 Million shares of GE. Hey, I actually got a better price than the GE CEO! That is before trading commissions of course.

Think twice about having your entire wealth tied up in your home, Larry MacDonald writes. This is a negative aspect of using all of your excess funds to pay down your mortgage. In my last net worth check up I saw our house value drop to make up under 70% of our total assets.

Will Home Depot ever return to its dividend growth past?, Dividends 4 Life is watching intently.

Looks like The Dividend Guy is on track to accomplish his short term goal for his portfolio. Nice bar graph too!

Thursday, May 29, 2008

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.

Wednesday, May 28, 2008

gas prices knocking on the door of change...?

Are higher gasoline prices starting to mean something more than filler for the 11 o'clock news?

Maybe so...
"Consumers have been shifting to smaller, more fuel-efficient cars in the last few months at a pace that has stunned the industry. January-April sales of subcompact cars in the U.S. shot up 33 per cent from a year earlier, including 29 per cent for the Ford Focus compact sedan, while overall American vehicle sales slid eight per cent."

What tangible affects of high gasoline prices have you seen?

Tuesday, May 27, 2008

BNS earnings down, dividend up

The dividend train continues to roll on at Bank of Nova Scotia (BNS), which is a Canadian bank with large Latin America operations. BNS reported a 6% drop in second quarter profit from 2007 levels, but they still managed to increase their quarterly dividend by 4.3% from $0.47 to $0.49. I always appreciate the raise as a shareholder. Higher provisions for credit losses and lower capital markets revenue contributed to the earnings decline. Scotiabank said it was unlikely to meet its objective of 7 to 12 percent growth in earnings per share for the year, even as it noted that second-quarter results were better than the first quarter's, and other signals pointed to a stronger second half. The bank also did not rule out acquisitions of cheap U.S. banks in the near future.

This dividend raise by BNS continues the pattern of 2 increases per year going back a few years. The stock is now yielding 4.1%. Royal Bank of Canada (RY) on the other hand actually failed to increase their semi-annual dividend last quarter which ended the pattern they held since January 2005. I summarized the first quarter in the Canadian banking world back in March.

From BNS Investor Relations
The following is a record of increases in the quarterly dividend per common share for the fiscal period 2005 to 2008:

Fiscal 2008 - 1st quarter - increased from 45 cents to 47 cents. 3rd quarter - increased from 47 cents to 49 cents.
Fiscal 2007 - 1st quarter - increased from 39 cents to 42 cents. 3rd quarter - increased from 42 cents to 45 cents.
Fiscal 2006 - 1st quarter - increased from 34 cents to 36 cents. 3rd quarter - increased from 36 to 39 cents.
Fiscal 2005 - 1st quarter - increased from 30 cents to 32 cents. 3rd quarter - increased from 32 to 34 cents.

Saturday, May 24, 2008

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.

Friday, May 23, 2008

added more General Electric

Today I added some more General Electric (GE) to my non-registered portfolio to reduce my Adjusted Cost Base (ACB). Back in December of 2007 in my GE-past success future potential post I detailed what I like about GE as a long term investment.

The reason I added today is purely due to the stock's current valuation...
  • GE is trading at levels not seen since May of 2004; since then earnings and dividends have both been growing nicely
  • Price/Earnings ratio is currently 14.1x
  • Dividend Yield is 4.1%
  • I can currently buy $1 of GE for about 99 cents Canadian

What Does My Chunk of GE Look Like?

  • 127 shares - average cost of $37.64 Canadian
  • Providing $161.29 per year in dividends
  • My yield on cost is 3.4%, while the current yield is 4.1%
  • I plan to hold on to these shares indefinitely, adding to the investment when the valuation is attractive
  • The dividends will be collected and re-invested in GE or another stock of my choosing
  • The dividends are not tax friendly, however you can't get GE's exposure in a Canadian dividend paying stock

Yes there have been, and will be short term issues with GE's earnings related to their large financial exposure. These short term problems are blessings in disguise for a long term dividend growth investor because they are providing an opportunity to pick up a company that has raised its dividend every year for the past 31 years while it's yielding over 4%. You could say the same thing about some U.S. and Canadian banks right now, however I believe GE's current and future earnings and dividend growth prospects look good relative to that of these banks. GE operates in many areas like domestic and emerging market infrastructure as well as alternative energy that should prove to be high growth businesses going forward. It's nice to add non-financial exposure to a dividend growth portfolio, when you are confident of future dividend growth from the starting point of a 4.1% yield.

Wednesday, May 21, 2008

vacation & mj's money

the moneygardener is on vacation! 200 posts and a full time job have me needing some hard-earned rest! In case you haven't noticed I don't really follow a strict posting schedule. Usually I post about 4 or 5 times per week, in no particular pattern. I don't respect weekdays or weekends, and in fact I often have more time for more thought out posts on weekends. I actually come up with most of my posts minutes before I post them. I have never prepared posts days in advance as I know many bloggers do. I hope readers don't mind this randomness. I have a long list of ideas that I want to write about, but most of the time I end up posting spur of the moment on something that just crossed my mind in the minutes before it's online.

In the meantime, I wanted to point out a blog that I have started frequenting that I find to be extremely insightful and certainly worth following:

Michael James on Money is an "amateur's clear explanations of personal finance and money". This blog provides a very interesting, every day, perspective on common themes within personal finance and investing. The author writes very well, with a style and perspective that are very familiar to me. I feel that many of the themes are similar to thoughts that I often express here on the moneygardener. Always interesting, short, and unique, his posts often draw you in to participate in the tangible content. If you haven't visited Michael James on Money, I would highly recommend reading most posts there, and subscribing via a reader.

Wednesday, May 14, 2008

net worth update year end may, 2008

Results for the 2 Months Ended May 15, 2008
  • Debt/Asset ratio dropped to 0.51% (very close to having 2x more assets than liabilities)
  • Net Worth moved up 11.3%
  • Total Assets increased 4.7%
  • Total Liabilities decreased 1.0%
  • House Value/Total Assets dropped to 69.7%
  • Non-Registered Portfolio grew 30.1%
Results for the Year Ended May 15, 2008
  • Debt/Asset ratio fell from 0.60% to 0.51%
  • Net Worth moved up 39.6%
  • Total Assets increased 12.5%
  • Total Liabilities decreased 5.4%
  • House Value / Total Assets dropped from 76.5% to 69.7%
  • Non-Registered Portfolio grew 107.9% over the year

Results for Two Years Ended May 15, 2008

  • Net Worth moved up 190.7%
  • Debt/Asset moved from 0.77% to 0.51%

In two years we grew our net worth by an average value of $4,168 per month. We also went from having $0.77 cents of debt for every $1.00 in assets, to presently having $0.51 cents in debt for every $1.00 in assets.


Wow, what a great bi-monthly report! A combination of several factors allowed us to rebound in a big way from the March, 2008 update. These include an employment income bonus, tax return, and stock market gains.

For the year, I am very happy with the results as we grew our net worth by $43,226, which amounts to $3,602 per month, or $7,204 per bi-monthly update. All of this occurred in an environment with generally declining stock markets. The S&P 500 index is down more than 6% looking one year back from today. Basically all of this tells me that a significant portion of our income went towards growing our net worth. I believe if we can continue this while we are young, it should pay serious dividends later in life.

*previous net worth figures were adjusted for an error that I made on a debt repayment calculation

clorox hikes dividend 15%

Manufacturer and marketer of consumer products The Clorox Company (CLX), have raised their quarterly dividend by 15%. Clorox are the folks behind consumer products ranging from Glad bags and Brita water filters, to Armour All. Clorox has also announced that they'll buy back an additional $750 million in stock.

Here is a glance at Clorox's recent dividend history in fiscal years:
  • 2005 = $1.10/share
  • 2006 = $1.14/share
  • 2007 = $1.20/share
  • 2008 = $1.60/share
  • 2009 = $1.84/share (EST.)

This represents an average compounded annual increase of the dividend of over 13%. Clorox recently announced earnings which included an outlook that was better than the street was expecting. This would explain the spike in the stock from its lows. The company is currently fighting against rising resin costs as they're being affected like everyone else by high oil prices. They are also integrating a major acquisition and have just launched several new products. Read more about Clorox at my link above.

*I own shares in Clorox (CLX)

Tuesday, May 13, 2008

canadian investment styles diverge

An interesting trend has emerged in the Canadian market this year to date. The Toronto Stock Exchange Index is near a record high, while investors in Canadian dividend paying stocks are in negative territory year to date. To illustrate this point let's look at some year to date returns:

XIC (Barclays ETF that tracks the largest most liquid names in Canada)
Year To Date = +5.8%
Some Highlights = Encana (ECA) +35%, Research in Motion (RIM) +25%, Potash Corp. of Saskatchewan (POT) +38%

XDV (Barclays ETF that tracks the 30 highest yielding dividend growing Canadian firms)
Year To Date = -2.7%
Some Lowlights = Bank of Montreal (BMO) -12.5%, Manitoba Telecom (MBT) -10.8%, National Bank of Canada (NA) -0.3%

It's no wonder the Canadian index is soaring while dividend paying stocks flounder. Commodities have been on fire lately, while banks remain under the dark clouds of the credit crunch. Financial services firms make up a much larger portion of the dividend paying universe in Canada than they comprise the total index.

One might assume that these two ETFs would perform quite similarly but this year to date is really showing that this would be a false assumption. Does this mean now is a great time to buy some of the growthy companies that make up the Canadian index? Who really knows, but as a dividend growth investor it is much easier to find value in some of the beaten down constituents of the boring old XDV. When most investors are ignoring these dividend paying firms, is usually the best time to get involved. The Canadian XDV will have its days in the sun in future years and that is perhaps when you want to be accumulating cash or diversifying into other areas. The nice thing about many of the Canadian financial service industry stocks is that at the end of the day they should benefit from any successes that the commodity economy in Canada garners through increased economic activity.