portfolio update Q4 2009

It has been quite a while since I updated my progress with my non-registered stock portfolio. the moneygardener blog was really born as a journal for this portfolio, so I like to summarize every now and again. Here are some of the key metrics that I track:

*All results to October 1, 2009
Return, (including dividends) Year To Date = +16.9%
S&P 500 Return To Date (no dividends) = +14.0%
XDV (Canadian Dividend ETF) (no dividends) = +26.5%

Current Yield = 4.4% ($8.75 per day)
Yield On Cost = 3.9%
One Year Dividend Growth Rate = 24.7% (includes purchases)

My one year dividend growth rate is in serious risk of going negative on November 1 as I am now starting to have tough comparables. Husky Energy (HSE), Yellow Pages Income Fund (YLO.UN), Manulife Financial (MFC), and General Electric (GE) have all cut their dividends over the past year. This will put pressure on my one year dividend growth rate from November 1 to at least May 1, assuming no more cuts come.

Average Portfolio Savings Per Month Last 12 Months = $893
Portfolio Value = $73,264
Leverage Ratio = 24.5% (percentage funded by HELOC)

My goal is to grow this portfolio to $175,000 with a leverage ratio of 0% by February, 2014. This will be very difficult, but not impossible, given the credit crisis' impact as well as another upcoming maternity leave. We are currently not meeting our goal of saving $1,000 per month but we are coming close.

Top Performing Stock Versus Cost = Royal Bank of Canada (RY) +28%
Worst Performing Stock Versus Cost = Bank of America (BAC) -53%

Overall this portfolio is still underwater including dividends, although there is a good chance that I could poke my head above water sometime in late 2009 or early 2010.

dividends, a love story

They're a bird in the hand, and they're worth fussing over. Although they don't require getting your hands dirty.

They're a friend when you're in trouble, and they'll give you a raise.

Why not get paid while you're sleeping?

are you overweight real estate?

Thicken My Wallet posted an interesting piece today on asset allocation. I contributed to his article and he used my concept of tracking the ratio house value / total assets.

You can find the article here.

the herd is never right

Why is it that the contrarian point of view seems to always be the correct one when it comes to the stock market?

For almost a solid 6 months everyone and his dog has expected the stock market rally to falter, and falter hard. Supposed pundits from every echelon of the financial system, including analysts, money managers, reporters, bloggers, and individual investors have all sung the same tune for the better part of 2009. The conventional wisdom was that the rally was weakly based and we should all get ready for another dip. I don't know if it was because people had just seen one of the largest collapses in confidence and the markets ever, and people tend to get cautious after an event like this, or just downright pessimism. We all should have known that whenever this many people agree that they can foresee a drop in the markets, the indices are headed higher.

The rally party pooper who sold in April of 2006 after the rally accelerated has missed a nice 26% charge in the S&P 500 since then.

net worth update, Sept 09

It's time to report my bimonthly net worth. I report my net worth on the moneygardener or around the 15th of May, July, September, November, January, and March.

Net worth results for the 2 Months Ended September 13, 2009:

• Debt/Asset ratio dropped to 0.48 from 0.50 (record low)
• Net Worth gained a huge 9.3% (record high)
• Total Assets rose 4.2% (record high)
• Total Liabilities shrunk by 1.0%
• House Value/Total Assets fell to 63.4% (record low)
• Non-Registered Portfolio grew 11.4% (record high)
• Net Worth Calendar Year to Date Gain/Loss: +23%

As I type this update I am extremely pleased with our financial progress, as we look forward to March when our second child arrives. Everything is moving in the right direction and the moves are substantial. Our non-registered portfolio grew by a very strong 11.4% over two months and our net worth is up a staggering 23% since January 15. Our house value is now making up only 63% of our total assets, meaning that we are riding the roller coaster of the equity markets to a greater degree. Running against the wind was difficult over the past year, however the wind has been at our back lately. Home improvements are on the horizon and will eat into our potential savings as we move toward another maternity leave period.

lowered my cost of borrowing

As I've previously mentioned, last year I began borrowing money inside a line of credit and investing the funds in dividend paying stocks as the market took a nosedive. I deployed the majority of the money between October 6, 2008 and February 26, 2009. I should have instead invested all of the money in early March, 2009, but I'm just not that good...

The only piece of this strategy that continued to bother me was the fact that I was paying an interest rate of prime + 3% on an unsecured line of credit from a major bank. Even though I am able to claim this interest on my taxes, I was still unhappy with this rate. After attempting to negotiate a lower rate with a few banks on an unsecured line of credit, I decided to go instead with a home equity line of credit secured against our home.

I've just completed the process of opening a home equity line of credit with President's Choice Financial (CIBC Bank). The process was fairly easy and I was quite pleased with PC's price of $150 to open this loan. This option compared very favourably to the fees asked for by two other banks. On the eventual occasion that I close out this loan with PC I will be required to pay a $225 closing fee. The rate on this loan is prime + 1%, currently 3.25%.

Overall this dramatically decreases my cost of borrowing and I will make up the total fees of $375 in mere months. Writing off this interest at 3.25% makes this pretty close to free money.

doubled Husky holding

Today I doubled my position in Canadian oil firm, Husky Energy (HSE), just in time for the hurricane season.

The reasons I added to Husky here are many:

• The dividend was recently cut, sitting now at a conservative $1.20 per share on 2009 estimated trough earnings per share of $1.80
• Given the growth in China and emerging economies, I like the outlook for oil post banking crisis
• Husky has very little debt and a great balance sheet
• Given the company's ties with China, capital position, smaller size, and aggressive management, a takeover may not be out of the question
• As mentioned previously, if I'm investing in a commodity that fluctuates wildly, I like to get paid regularly, instead of trading in and out; Husky provides this
• If earnings snap back even close to 2006-2008 levels, Husky should be quick to prop the dividend back up
• I also considered an investment in Crescent Point Energy (CPG), however I think Husky offers a better valuation at these levels

SYSCO & P&G; still look good

With the run up the market has had since the March lows, it has become difficult to find stocks with attractive valuations. Many of the more cyclical stocks, as well as financials have really run up and I'm not sure that future earnings will justify the current prices in some cases.

Luckily there are still a few good buys out there. For dividend growth investors, it's a nice bonus when a company is still raising it's dividend through thick and thin. These two firms have solid balance sheets and fit that bill. They have stable product offerings and they've navigated through tough times before. Their dividends are growing and very secure. I've added to my positions in both companies over the past 6 months, and I am considering doing so again at these valuations.

Food distributor SYSCO (SYY) is yielding 4%, and trading at a P/E of 13.6x.

Consumer products giant, Procter & Gamble (PG) is yielding 3.4%, and trading at a P/E of 14.7x.

There are headwinds afoot for both of these firms, but I believe that as long term investments they may be ripe for the picking right now. I may put my money where my mouth is in the near future. For my further thoughts see the posts below.

Added More P&G

Took a Helping of Sysco

crisis takes it's toll on Manulife's dividend

The credit crisis has taken it's toll on the dividend of Canadian-based insurance giant Manulife Financial (MFC). Manulife's decision to cut its dividend by 50% to $0.13/share is part of an effort to build a strong capital position for what is sounds like are future acquisitions.

The CEO made the following statement today:
While we recognize the importance of the cash dividend to many of our common shareholders, we believe that retaining more of our earnings is the most effective means of building capital, while still providing an attractive yield for our shareholders who will benefit as we deploy our capital for growth. We believe that companies that build fortress levels of capital will benefit their policyholders and shareholders and be recognized favourably by regulators and ratings agencies."

This move was mildly expected, however I believe it will still come as a shock to many dividend investors, as Manulife has long been viewed as a stalwart on the Canadian and global financial scene.

Saputo pushes dividend up

Dairy producer Saputo (SAP) has increased it's quarterly dividend by a meagre 3.6% to 14.5 cents per share after reporting a flattish quarter on the earnings front.

Saputo shares are up 5% today and the stock now yields 2.3%. The pay out ratio on the actual quarter's EPS was 35%.

The company was hit by lower cheese prices in the US placing downward pressure on earnings and revenues, which were still up by 6.2%. This was the first quarter for inclusion of the acquired Neilson Dairy business which was the reason for the revenue increase.

This company is always strongly affected by cheese prices as well as US/CAD exchange. They seem to be focused on growth and I think the investment provides a nice mix between growth and stability; having a staple-type product.