Tuesday, March 31, 2009

Rogers purchase

Today I purchased shares in Rogers Communications inside my wife's RRSP account.

Here is a post I wrote on Rogers for The DIV-Net, where I described it as one of the companies that will make up the 'Future of Canadian Dividend Growth'.

I am extremely confident holding Rogers for the long term due to their market positioning in Canada, and potential for further growth as they cater to those who crave the latest technology and media experience. Their dividend growth has been stellar and I see no reason for this to stop. This is one company that I believe will outperform even in this tough economy. Cell phones and cable services are sacred to many Canadians and Rogers has the pricing power to inch rates up year over year.

Monday, March 23, 2009

foster & a frugal bachelor

I haven't had much of a chance to blow through my Google Reader lately, until today. Here's what I found:

I wanted to point out a blog that I've been reading that I find quite interesting: Frugal Bachelor 's writing is actually offensive at times, but it certainly makes you stop and think. I have thoroughly enjoyed several of young Texan's posts. He bills his blog as 'personal finance without family values'.

Normally sane Canadian personal finance icon, Canadian Capitalist has gone Derek Foster mad. The "Stop Working, Here's How You Can" author has recently sold all of his dividend paying stocks and he has personal finance circles chatting once again. At the danger of heaping more publicity on top of all the current froth, Canadian Capitalist has been all over Foster in a series of posts lately. One of the posts contains a link to a Foster interview on CBC's The Hour in the comments section.

I read Foster's fist book and I did enjoy it. I especially liked his comparison of dividend income to employment income. I always wondered why he would attempt to live off of dividends from stocks that were the exact opposite of recession resistant. He talks about Colgate Palmolive and Enbridge on The Hour, however I believe a large part of his income was actually coming from trusts that were much more economically sensitive. Trusts like Canadian Oil Sands just didn't make sense with his strategy to me. Living solely off of pay outs from 100% of the riskiest asset class was asking for failure. The man has a talent for marketing and seems to be quite proficient at selling books and getting time with the Canadian press. Currently, it is not clear whether as an investor he suffers from severe over confidence or extreme fear.

Friday, March 20, 2009

'special' income from investments

To quote the eloquent US president Barack Obama, my income from investments has been 'like Special Olympics or something' lately.

Husky Energy (HSE), Bank of America (BAC), and General Electric (GE) have all cut their dividends over the past few months sending my portfolio income spiralling. Yes, the third earner in our family has taken a 6% pay cut. He is however, still pulling in 99.5% more money than he was at this time last year. Our current dividend income sits at $3,271.29, or $8.96 per day. This is down 6% from a high of $3,479 in December of 2008.

If we were living off this income I might consider switching from Australian to Chilean red wine, but since this income is supplementary and gets reinvested anyway I am not concerned and am sticking to my knitting. The financial crisis will have many casualties, including my income from investments. I am not surprised to see it decrease in the short term. I still do expect the generous yearly raises to continue in the mid and long term. The rewards for putting our money at risk are potentially much greater now that the market has suffered as it has. Well-managed companies with strong brands will continue to grow and raise their pay outs to investors in the years ahead.

Wednesday, March 11, 2009

net worth update, march 2009

I'm releasing net worth results early this bi-monthly period.

Results for the 2 Months Ended March 11, 2009:

  • Debt/Asset ratio rose to 0.56 from 0.54
  • Net Worth moved down 7.0%
  • Total Assets declined 2.5%
  • Total Liabilities increased 1.3% (highest since July 2006)
  • House Value/Total Assets rose to 70.3%
  • Non-Registered Portfolio declined 12.5%
  • Calendar Year to Date Gain/Loss: -7.0%

What a crappy two months it has been. This is our second largest two-month net worth decline ever. Once again the markets were the main culprit as the S&P 500 index was down 18% over the same period. Our net worth is now back at January 2008 levels. Our savings levels have also been weak lately as we are going through a planned period of extra spending. Unless something miraculous occurs we will be down in our fiscal year May 2008 to May 2009 on the next update.

This is all to be expected as we are highly leveraged to the stock markets and they have been terrible. We'll take our lumps and keep looking to the long term. Keep your head up...

Sunday, March 8, 2009

sunday links

I always like authors that find ways to simplify and get to the heart of a complicated issue. Michael James on Money presents A Thousand Foot View of The Credit Crisis. This is a very interesting post, and really inspires some thinking about the future.

Frog of Finance's Net Worth was down 3.8%, for the next few months he'll be concentrating on debt reduction.

My friend, Nurseb911 at Triaging wonders if this is the Bottom For Canadian Bank Stocks

Friday, March 6, 2009

still shovel ready

Well it has been one week and I haven't posted a single thing on the moneygardener. I haven't been on vacation, I've been where I always am, working my 9-5 and tending to my young family. My wife and I are finding ourselves very busy lately as we juggle our full time jobs and daycare commuting. I think I may have a little writer's block. Or maybe I am feeling like a deer in the headlights.

I'm still following business and the stock market daily, as depressing of a practice as that is becoming. I have a feeling that after this credit crisis/bear market is over nothing will phaze me as an investor.

I really can't get over how bad things have become in such a short time. This past week alone jobs are being shed all over the place including in my own backyard at US Steel in Hamilton and Chrysler in Windsor, Ontario, Canada. Dividends are being slashed and the S&P 500 continues to slide to new lows day after day. The light at the end of the tunnel has not appeared yet.

I still have some more funds that I would like to throw at the stock market but I want to try to avoid the mistake of becoming insolvent before we really see the toilet flush on this whole thing. The best I can do right now is hunker down and continue to watch things play out. I am looking forward to an upcoming vacation in Las Vegas and still keeping a keen eye financially to the long term. the moneygardener is still 'shovel ready'.

Saturday, February 28, 2009

added more P&G;

Just in case anyone hasn't noticed, consumer staples stocks, those that are usually deemed to be safe havens in a market storm, having been falling like rocks lately. Procter & Gamble is down 22% year to date, Coca Cola (KO) (10%), Diageo (DEO) (19%), Pepsico (PEP) (11%), Johnson & Johnson (JNJ) (14%), and Wal-Mart (WMT) down 13%.

I think this is just a natural stage in a major market decline where investors are realizing that these names have been piled into when the market got ugly and they are now being liquidated due to their relatively higher value. Another reason for the declines are likely due to evidence in some sectors that consumers are trading down and using less brand name goods that people might normally consider recession resistant. For example, alcohol and some health care goods have shown signs lately of reduced demand. For these large global names, the fact that the US dollar has strengthened over the past year has not helped.

In my opinion the recent decline in global consumer goods firm Procter & Gamble has been overdone. This stock is trading at 2003 levels, when it's earnings and dividends per share were $1.85 and $0.91 respectively. The company now earns $3.68 and pays a dividend of $1.60, which will be raised by April, 2009.

With a P/E ratio of 13x, this is certainly good value for a company with 25 Billion dollar brands and a growing presence in the developing world. I confidently added to my investment in PG this past week.

Thursday, February 26, 2009

trading under book value

A Company's Book Value is defined by Investopedia as follows:
1. It is the total value of the company's assets that shareholders would theoretically receive if a company were liquidated.
2. By being compared to the company's market value, the book value can indicate whether a stock is under- or overpriced.

The Price to Book ratio is used to compare a stock's market value to it's book value. The following stocks have been beaten down to the point where their market price is actually less than their liquidation value (book value). Therefore in a way the company is getting little credit for any future earnings, and in fact the market is betting earnings will decline and is valuing the company at less than the sum of it's parts. Another way to look at it is that the market is betting that book value will decline due to company specific issues.

TD Bank (TD) 0.96x book
CP Rail (CP) 0.93x book
Petro Canada (PCA) 0.83x book
General Electric (GE) 0.86x book
Ford Motor (F) 0.75x book
Bank of Montreal (BMO) 0.81x book
Dow Chemical (DOW) 0.54x book

When you look at the Price to Book ratio for a stock it is important to note what assets the company owns and how they earn money. For example Microsoft (MSFT) has a very high Price to Book ratio of 4.4x because their main income source is from selling software that smart people develop in offices, versus Toyota Motor (TM) who manufactures automobiles in enormous facilities filled with expensive equipment and supplies; they have a low Price to Book of just over 1x.

Generally companies that own and market softer goods bearing well recognized brands and having competitive advantages will have higher Price to Book ratios. This contrasts against more economically sensitive firms, and hard goods firms who's goods or services trend more toward commodities and less towards brands and intellectual property.

Wednesday, February 25, 2009

Intact's dividend intact

Wow, a Canadian financial company just raised their dividend!

It was the Dutch, 'SAVE YOUR MONEY' guy. Insurance firm, ING Canada (IIC), soon to become Intact Insurance Co. has increased it's dividend by 3.2% or 1 cent per share to $0.32/share. Their shares have been cut in half since April of 2006. Recently the dutch firm ING Group has sold it's 70% majority ownership in this company. This came on a day where US insurer Allstate (ALL), a very good past dividend grower, slashed it's dividend by more than half.

ING Canada, with an 11% market share, offers automobile, property and liability insurance to individuals and businesses through its insurance subsidiaries. It is the largest provider of property and casualty insurance in the country with more than $4 billion in direct written premiums.

According to ING Canada President and CEO, Charles Brindamour, "the decision to increase our quarterly dividend reflects our objective of returning value to shareholders. With today's announcement, we continue increasing our dividend on a yearly basis. The increase is also a reflection of the strength of our financial position, as well as the quality of our operating earnings." ING Canada reported earlier that at the end of the year2008, it had $427.5 million in excess capital, a minimum capital test ratio of 205% and no debt.

Albeit a small increase, it is very impressive for them to raise their pay out in this environment. ING Canada seems to have a focus on returning value to shareholders in the form of dividends. The stock now yields about 4.3%.

Monday, February 23, 2009

is any dividend safe?

Dividend cuts are now becoming fast and furious as companies scramble for cash amid these difficult credit markets and plummeting asset values. The list of companies that have cut their dividend in the past few weeks would be very long. Just today, JP Morgan Chase (JPM) as well as Russel Metals (RUS) in Canada were examples of the latest dividend casualties. No dividend is safe in this market.

As far as I could see today the S&P 500 index came very close to breaching it's 10 year low of 741 points, which it sunk down to on November 20, 2008. Investors are seeing no reason to own stocks right now as earnings estimates continue to decline and economic indicators are downright ugly and getting worse. This week is setting up to be an interesting one.

Despite all of this doom, gloom, and towel throwing, I still believe a lot of dividend streams are safe and these stocks can be bought confidently for the long term. My income from investments chart is struggling to keep it's head above water, and it doesn't feel great. This was the chart that was supposed to have one direction....up.

Dividends At Risk
Any company involved in the financial industry might cut their dividend. This includes the Canadian banks and insurance firms. Also, any company who derives their earnings from commodities could cut their dividend if they have not already done so. Does this make these firms bad long term investments? Not necessarily. Should you automatically sell a company that cuts it's dividend? Absolutely not.

Safe Dividends
While no company's dividend is 100% safe, I believe there are many companies in the market who derive their earnings from stable sources and have strong balance sheets. These stocks pay dividends that should not be cut. Examples of these companies are those who sell consumer staples, most health care firms, telecommunications and utility firms, and other companies that derive earnings from relatively stable sources. A low pay out ratio, strong brands, and a history of raising dividends helps. Does this make these firms good long term investments? Not necessarily. Is keeping a dividend always a bullish sign? Absolutely not.