Monday, December 15, 2008

potato wedges - joint finances

After enjoying and featuring "..Kraft Dinner.." by the colourful blogger, Potato, over at Blessed By The Potato, we thought we'd sign him to a temporary guest column series contract with the moneygardener for an undisclosed sum... This post series promises to be unlike any other consumer reporting/ offbeat commentary you've ever read. John Stossel eat your heart out.... This series will be a change of pace, and we're calling it potato wedges. Enjoy...

Well, I'm married now.

We talked early on about money. We agree on a surprising amount: we both are fairly frugal, and are comfortable with equity investing, we're both responsible and pay bills on time, and can keep (roughly) to a budget.

The one thing I was not expecting after the marriage was that we couldn't figure out the nuts and bolts of actually managing joint accounts. Before, we had recorded all our spending during a month, who paid for what, then would transfer money between us so that we both paid roughly half the household expenses, maintaining always our own individual accounts. I figured that there were a number of approaches to take once we were married: we could continue to split things equally; we could just simply pay for things and not worry about whether it was equal or not, perhaps transferring between our individual accounts if the balances got out of...balance; we could split the monthly costs instead according to who made what, so that our savings/investment accounts went up at about the same rate; or, we could have the higher-income person pay for everything, so that investments are made in the hands of the graduate student lower-tax bracket person. In all of my scenarios, there wasn't an explicit need for a joint account of any sort, and I hadn't really planned on making an extensive use of one.

Wayfare, being a more sentimental person (i.e.: female), was appalled at my down-to-earth practicality, and insisted that a joint account was a must, because we're married, damnit! So any wedding gifts that came in the form of cash or cheques went into the newly-minted joint account (and I wish I could describe with words the look on her face when I suggested we just split the wedding gifts and put them in our existing accounts and just record the wedding-gift-house-downpayment fund balance in a spreadsheet). This was just the beginning though, because that's our joint house savings account is for that purpose only now. It's sentimental and carries with it a certain lingering magic from the wedding (I wonder if PC financial offers bonus interest for magic?). In the face of a looming liquidity crisis, I suggested she just use the money in the joint account to pay her tax installment to the CRA, and re-deposit it when her paycheque arrived.

Whoa. It was a good thing there was halloween chocolate nearby, or I might not be here to blog about the experience.

So as you can plainly see, money is just money to me. But to Wayfare, things can be a bit different.

We still haven't fully figured out exactly how we're going to do this. Right now we're working off the "doesn't matter who pays for what, just let it ride" method, largely because it involves the least amount of work. We know that we don't really want to get a Joint Account for everything -- we don't really want all our paycheques going into some common pool and merging our credit cards and just working from there: we both like our autonomy, and don't want the other person to know what we spend on gifts, etc. Besides, it's all "our money" in the end. We don't really have a model to work from: talking about money is not a big topic for most people, especially the nitty-gritty of how they combine their individual accounts after marriage. We know that both our sets of parents have Joint Accounts (capitalized for emphasis that this is not merely a shared account) and one spouse takes care of all the finances. Since we're both financially savvy though, we both want to keep some measure of control, to keep our fingers in the pie as it were.

Michael James beat me to it this morning with a great quote: "Sharing a bank account feels sort of like sharing a toothbrush to me. It can be done, but you'd have to be in quite a romantic mood to think that sharing a toothbrush is a good idea."

Friday, December 12, 2008

married household finances

The next potato wedges column will deal with Potato's take on managing joint household finances. He was recently married so this topic has been on his mind lately. I thought I'd preamble potato wedges with my view on married household finances....

My wife and I met during university in 1999. Since then our finances have just kind of slowly melded together and formed solid like a good jello. It is actually difficult to pinpoint exactly how all of this evolved, but a turning point must have been before we were married when my wife (girlfriend) at the time loaned me $4,600. When I completed university I decided that I wanted to do away with my $4,600 student loan, pronto. The only problem was I didn't have $4,600. However I knew someone that did, and she happened to live in the same one bedroom apartment with me. I drafted up a win/win proposal where she would lend me the money right away in full, I would pay off the loan and then proceed to pay her half of the monthly rent until the loan was paid back with 5% interest. It saved me from paying the Ontario Scholarship Assistance Plan any interest, and instead she made an easy $230. I'd much rather give the interest to her. This showed her trust in me and began to foster the trust that exists now in our relationship around money. I really think most of managing money in married life comes down to trust.

Fast forward to 2008 where we run our financial household like this:
  • One joint bank account, 100% managed by me
  • Pay for everything possible on credit cards and always pay balances in full
  • We're both pretty frugal, and have very similar money habits and attitudes toward money

This has to be one of the simplest ways to manage your joint-finances. I basically manage the works and my wife likes it that way. I enjoy it as you can probably tell, and it's one less thing for her to worry about. She trusts that I'll do a good job. I have the best interest of our family and our future as my driver in managing our family finances. I am really happy to say that I can not recall a money-related argument ever cropping up. The key to the whole thing is likely the last bullet point above, and we are lucky that this happens to be the case.

How do you handle joint-finances?

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Wednesday, December 10, 2008

Fortis charges up dividend

Canadian utility form Fortis Inc. (FTS) has increased it's dividend by 4%, from $0.25 to $0.26 per share. Fortis has increased it's dividend for 36 straight years.

Shares of Fortis, which I own as part of my non-registered portfolio, are only down 13% year to date, and are currently yielding 4.1%. Utilities in general have really outperformed the market this year as investors have flocked to their relatively safe earnings streams in the midst of the credit crisis and recessionary fears. Here is a glance at Fortis' recent dividend activity:

2004 - $0.540
2005 - $0.588
2006 - $0.670
2007 - $0.820
2008 - $1.000
2009 - $1.040 (estimated)

This represents a compounded annual growth rate of the dividend of 14%.

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Tuesday, December 9, 2008

added to TD Bank

Last week I added to my large position in TD Bank (TD) at $41 per share. Even though TD made up a large proportion of my portfolio (about 8%), I thought the valuation level was too hard to resist. TD is the best retail Canadian bank and they derive a large portion of their earnings from Canadian retail banking. I also believe that TD's dividend is not at risk of being cut. The bank is currently yielding about 6% as of writing this.

An investment in TD or Royal Bank (RY) is similar to an investment in the Canadian economy, since these banks have a large, stable market share and derive a large proportion of their earnings from economic activity in Canada. I feel confident making this long term investment while we are visiting very low valuations due to the current credit crunch and recessionary outlook.

My three investments in TD Bank over the last year were made at $65, $55, and this recent tranche at $41 per share putting my average cost base (ACB) at about $56/share.

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Monday, December 8, 2008

the loonie, a petro-currency

If you ever doubted the fact that the Canadian Dollar is a petro-currency; that is it's value is highly correlated to the value of petroleum, have a look at these two charts.

The chart on top is value of the Canadian Dollar versus the US Dollar. Note how the value stayed in the $0.96 USD to $1.02 USD range until August. Then in September the Loonie fell off a cliff as it plunged from $0.96 to a $0.77-$0.80 range. No more cross boarder shopping, and my US stock holdings essentially all increased their dividends and didn't fall as much as they truly did in the market.

Now look at the chart on the bottom showing the value of oil through the US Oil Fund ETF which tracks the price of the black stuff. The exact same pattern is evident, a July/August drop preceded a September plunge. One of my vehicles now costs $20 to fill up and the other costs $30.

Saturday, December 6, 2008

dividends, a bird in the hand

The saying 'A Bird in the Hand is Better Than Two in the Bush', really can be used to describe several life choices, as well as financial decisions. For example you might apply this credo to the following decisions:
  • Should I take part in a lottery pool with my co-workers?
  • Should I accept a lower amount for a prepayment for my goods or services than I would for a 'net 30 days' or more type of credit arrangement with an unknown credit risk?
  • Should I accept a position with company X now, even though company Y might hire me for more pay and benefits at a later date?

Dividends, the Ultimate Bird in the Hand

I've explained in the past some of the reasons why I am so focused on dividends as part of my investing strategy. Dividends have a human side and they're something to fuss over. Another reason I like dividends comes back to the 'Bird in the Hand' concept:

Companies like TD Bank (TD) and IGM Financial (IGM) constantly garner fee revenue each day without having to really employ many intensive resources. Inter Pipeline (IPL.UN), Fortis (FTS), and CP Rail (CP) generate consistent revenue as well by various means including the distribution of electricity, energy liquids, and goods. These functions are part of every day life for these companies and if they can keep their costs down the result is pure, consistent profit. The challenge for these company's is growth. The easy part is their consistent, stable, fee-type revenue.

When I make an investment in a company I am looking out several years so that someday I will receive 'two in the bush' in the form of a tidy capital gain. In the meantime though, why can't the company pay me for my trouble? They can pay me out of their stable fee-type revenue in, ideally ever increasing amounts, called 'Dividends'. These dividends will be some fraction of the actual capital that the company requires for it's future growth. I rely on the company to grow and provide my two in the bush someday, but for now I'll take my bird in the hand now as payment for the capital that I am providing the firm.

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Friday, December 5, 2008

friday reading

The Wealthy Boomer suggests, Leverage Now or Never? I've chosen to leverage now as I've currently borrowed about 12% of my net worth and deposited it into dividend paying stocks at these levels.

UBS says, Stocks to Rise 53% in 2009, saying the S&P 500 is currently valued at 11.3x earnings.

Dividend Money says, Invest Now When The Odds Are In Your Favour

Frog of Finance announces Canadian energy distribution firm, Enbridge's latest dividend increase.

Wednesday, December 3, 2008

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.

Tuesday, December 2, 2008

portfolio weighting breakdown

For those of you who don't know, I keep a regularly updated section down the right side panel which outlines my current stock holdings within my non-registered portfolio. The company name, ticker symbol, and my percentage allocation are represented there. Currently my largest holding is conglomerate, General Electric followed by Toronto Dominion Bank. Among other holdings I am invested in vodka, milk, and soil...

I don't really have a target allocation for any of these stocks or sectors yet. I have a rough idea in my head about the type of industry diversification I want to maintain, but I generally buy stocks when I find them attractive no matter how much it sways my allocations. Since I am currently in a major accumulation stage with this portfolio, my industry and stock asset allocation might vary wildly from month to month. I expect to have an opportunity in the future to strategically add to bring up sector or stock weightings if need be. This is what my portfolio looks like currently:

General Electric (GE) 8%
Toronto Dominion Bank (TD) 8%
Yellow Pages Inc. Fund (YLO.UN) 8%
IGM Financial (IGM) 7%
Inter Pipeline Fund (IPL.UN) 7%
Sun Life Financial (SLF) 7%
Bank of Nova Scotia (BNS) 6%
Walgreen Co. (WAG) 6%
Procter & Gamble (PG) 5%
Reitmans (RET.A) 4%
Johnson & Johnson (JNJ) 4% *
Husky Energy (HSE) 4%
Royal Bank of Canada (RY) 4%*
Clorox Company (CLX) 4%
Telus (T.A) 3% *
Fortis Inc. (FTS) 3%
Saputo (SAP) 3%
Canadian Pacific Rail (CP) 3%
Diageo PLC (DEO) 3%
Manulife Financial (MFC) 2%*
Scotts Miracle Gro (SMG) 2%
Bank of America (BAC) 1%
Cash 0%

*holding is in a dividend reinvestment plan where dividends paid automatically get reinvested in shares of the firm.

Monday, December 1, 2008

Saputo purchase

Today I initiated a position in Canada-based dairy operator Saputo Inc. (SAP) at $22.20 per share. Saputo is one of the largest milk processors in the world; you can't get much more defensive than milk and cheese.

Why Saputo?
This company is extremely recession resistant. Even if we we are headed into a deep, deep recession I am betting consumers will not let go of their weekly purchases of cheap unhealthy snacks such as Jos Louis, as well as dairy products such as cheese, yogurt, and milk. Saputo's earnings should hold up better than most other firms against the wrath of a nasty recession. You'll find Saputo products in the coolers of Wal-Mart (WMT) as well as Costco (COST), the two best retailers in the business.

Saputo's fundamentals are excellent. Some highlights:
  • 14.8% compound annual earnings growth rate since 1999
  • Return on Equity has been consistently above 15%
  • Long term debt has come down steadily over the years and the current debt/equity ratio is a very conservative 0.21
  • Pay out ratio under 33%
  • Current yield of 2.4%, with a 3 year dividend growth rate of 15.8%

Why Now?

I must admit Saputo is not a cheap stock. Even at 14.8x earnings and a price to book of 2.7, Saputo still seems a little on the pricey side if you are comparing it to many of the more cyclical firms out there. Historically though these are reasonable levels to get into Saputo as the stock rarely trades below a P/E of about 15x. Here are some comparable P/E ratios for stocks that are in very similar businesses to Saputo:

Pepsico (PEP) = 15.3x, Kraft (KFT) = 16.7x, Campbell Soup (CPB) = 16.9x, Kellogg (K) = 13.8x, General Mills (GIS) = 16.5x.

Saputo is down 25.6% year to date, while the S&P 500 is down over 44%. In this case I feel that the premium I am paying for Saputo is warranted due to their stellar growth, marketing position, and defensive nature.

More blogging on Saputo: Milk Runs In My Veins, & Dividend Analysis, Saputo

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