Scotts to grow dividend

Scotts Miracle Gro (SMG) is a company which dominates their industry probably more than any other firm that I can think of. I don't post much about the stock which makes up a very small percentage of my portfolio, but their recent earnings report is worth noting and it came with a special bonus.

Scotts reported EPS of $1.80 compared with a the street's expectation of $1.46 and last year's $1.25. They also raised their full year guidance to $3.25+ from previous guidance of $3.00-$3.10. The special bonus was that the company stated on a call with analysts that they have a bias toward a share repurchase program and a dividend increase later in the year. This is great news for shareholders as Scotts' dividend has been at the same level since they introduced it in 2005. The stock only yields 1% currently.

The company seems to be on a roll recently as a major competitor left the market and North Americans have prioritized their lawns & gardens in the last year as money has become tight. I see gardening as a long term trend that will only become more popular as demographics change. Scotts Miracle Gro's strength lies in their savvy marketing, category domination, and decisive management.

wtf

Whatever happened at around 2:45pm on Thursday, May 6 was definitely interesting for anyone who follows the stock markets closely. I got back in my office after a birthday gathering for a coworker, and the first thing I noticed was that the Canadian utility Fortis (FTS), which is part of my portfolio, was down about 35%!

My first thought was that Google Finance was acting up as I have seen before. Next I noticed that Inter Pipeline Fund (IPL.UN) which I also hold was down by a catastrophic amount as well. After I saw this I quickly browsed over the the Financial Webring Forum where my fellow investors were already chatting about the Fortis situation. I then signed into my account at BMO Investorline to see if I could buy Fortis at $17/share, but the stock was up to $26. The day's low did read around $16 so this made me think that this drop was actually legit which boggled my mind. I then started seeing the reports on Google Finance and the Financial Webring about how this event was erroneous and trades will probably be cancelled. Kinda makes me glad that I don't believe in stop losses.

An interesting video clip to watch is CNBC personality Jim Cramer live seeing Procter & Gamble fall to $45 per share and calling it as a market error.

http://www.youtube.com/watch?v=2BQ0-194Igs

telus upgrades dividend

Canadian telecommunications company Telus (T.A) has increased their dividend by 5.3% to 0.50 per share. This came as a bit of a surprise as the company missed increasing their dividend at the usual time and has been investing heavily in business infrastructure recently. I do DRIP shares of the firm so I welcome the bump. They also beat earnings epectations.

I don't expect much out of my investment in Telus; just consistent but small earnings and dividend increases as more Canadian citizens, employees, and businesses need smart phones, connectivity and other IT systems.

added to SunLife position

I added to my existing position in Canadian financial services firm SunLife Financial (SLF) today at $29.00/share. My rationale for the acquisition was simply that the stock looked like pretty good value in a recent market where several stocks look rich. Let's look at the numbers:

SunLife just reported first quarter earnings today after the closing bell of $0.72/share. This eclipsed the street's expectations by 11%. Earnings expectations for the company for 2010 were $2.89 per share before the release today. Assuming SunLife earns $2.89 this year the stock was trading at 10x 2010 estimated earnings when I made the purchase. I feel that this is a very reasonable valuation given their potential for earnings growth.

Another reason why this valuation was attractive was that at $29 per share SunLife was yielding 5% in dividends. Assuming that the company does not cut their dividend, which I don't believe that they will, this is a guaranteed 5% return. Combining this with a valuation of 10x earnings this seemed like a good point to add to my SunLife holding.

SunLife makes up about 7% of my non-registered portfolio.

asset diversification update

When accumulating wealth as we grow older I am a believer in diversification. I want to be able to grow our asset base at good average rates year after year. In order to accomplish this and at the same time build flexibility into our finances we set out to push down the percentage of our assets that our home value makes up. I believe that it only makes good wealth building sense to diversify and not be over concentrated in real estate assets like many North Americans are.

I check up every other month on our net worth and at the same time I look at a percentage which I call: HOUSE VALUE AS A PERCENTAGE OF TOTAL ASSETS. This is simply the appraised value of our residence as a percentage of our total assets. Total assets include our home, registered and non-registered investments, cash, vehicles, etc.

Below is our progress on this since May of 2006. Over the past four years we've driven down this percentage from 83% to about 59% today.

weird distribution increase at canadian oil sands

The largest owner involved in the Syncrude Oil Sands Project, Canadian Oil Sands Trust (COS.UN) has increased their distributions by 43% to $0.50 quarterly per unit. Higher oil prices have benefited the company in a large way as oil has rebounded since the financial crisis
($43 per barrel - $79 per barrel)

The kicker, and what makes this a weird increase, is that the company is outright stating that the distribution level is probably not sustainable and part of the reason they raised it is to maximize their tax position going into conversion into a corporation for 2011. During 2010 the trust is planning to pay out more in distributions than cash from operations less capital expenditures. Go figure...

Investors in this trust quickly need to get used to changes in dividend levels as the company has historically just adjusted the payout with rising or falling crude prices.

J&J; dividend rises & shares should be bought

Ho hum...Johnson & Johnson (JNJ) has increased it's dividend for 2010 by 10.2%. The stock has essentially gone nowhere over the past 8 years - since 2002. However:

Earnings per share have doubled over this period.

Dividends per share have tripled over this period.

J&J used to trade at a P/E multiple of 26x back in 2002 and now trades close to 13x. Net profit margins are actually higher now than they were in 2002, and return on equity has been fairly flat in the mid to high twenties. The company's debt position has grown slightly since 2002, however it sits at a very manageable level currently.

Pharmaceuticals are a tricky business as drugs come off patent and new drugs are hard to come by but J&J is only about 40% pharma. Consumer healthcare and medical devices provide more stable earnings to bolster the company year after year. The stock looks attractive right now at historic low P/Es.

personal finance activities

Like any other family our personal finances are under a constant state of flux. We are in the process of or have recently completed the following changes to our financial situation:

1. Paid off a 4 year old vehicle in full. We ended up saving some interest on this open loan.
I was just sick of this payment and I felt that it would be nice to be payment free for my wife's maternity leave.

2. Renewing our mortgage; choosing a variable rate, changing our amortization to 35 years & lumping our HELOC balance into our first mortgage.
Going variable was an easy choice due to the current rate options and my view on the economy and Canadian rates going forward. Increasing the amortization just means that our mortgage is manageable and I'd prefer to put it on the back burner and enjoy lower rates during this period. The money not deployed here will be invested. The HELOC was lumped in to get a better interest rate on the HELOC portion.

3. Opening a second RESP with TD e-funds for our second son.
I've been very pleased with TD's online portal and the fund fees are hard to beat. I'll continue to focus on using the $200 per month UCCB as the base to fund the RESPs. We will add aditional money when appropriate to take advantage of the full grant.

Procter & Gamble pays more

Consumer products giant, and often misspelled, Procter & Gamble (PG) has raised it's dividend by 9.5%.

Here is a glance at Procter's recent dividend history:
2007 = $1.36
2008 = $1.55
2009 = $1.72
2010 = $1.89 (EST)

This represents a compound annual growth rate of the dividend of almost 12%. Industry leading firms with iconic brands that raise their dividends annually can really pay off if you hold them for the long term.

Here is a brief list of other companies that fit this bill and would be worth having a look at:

McDonalds (MCD)
Johnson & Johnson (JNJ)
Diageo (DEO)
Intel (INTC)
Microsoft (MSFT)
Pepsico (PEP)
Coca Cola (KO)
Clorox (CLX)
Colgate Palmolive (CL)
3M (MMM)
Kimberly Clark (KMB)

banks have finger on dividend button

Canadian bank CEOs have been going out of their way in the last few weeks to hint at upcoming dividend increases. The top brass at Royal Bank of Canada (RY), National Bank of Canada (NA), and even high pay out ratio, Bank of Montreal (BMO) have been expressing their thoughts on dividend raises lately. All three CEO's have essentially hinted at dividend raises in the near future. While regulation is holding them back a bit I am looking forward to the resumption of dividend growth in Canadian banks very soon. These canuck banks are overcapitalized! Share the wealth...

Here are the current dividend yields:

Royal = 3.4%
National = 4.0%
BMO = 4.5%
TD = 3.2%*
Bank of Nova Scotia = 3.9%
CIBC = 4.7%

*TD is my favourite bank and they make up the greatest portion of my portfolio (about 12%). It is interesting to note that they have actually trademarked the word 'WOW' in the US. They are very customer service focused in Canada and the US. The stock has given me a return on investment of over 39% including dividends since April of 2008.