Friday, March 30, 2007

Reader Question

Today I thought I’d answer some questions I received recently from a reader. The reader is in the process of learning about dividend investing and had asked the following questions:

Question: “How worthwhile is it to invest in US dividend-paying stocks seeing that, as Canadians, we do not benefit from the dividend tax credit available to Canadian stocks”

My Answer: Although we don’t receive a tax credit for dividends received from US companies I believe that for diversification purposes it’s necessary to own some American dividend paying companies. There really are no Canadian alternatives to companies such as JNJ. The same is true for large cap diversified industrials (ie- MMM) pharma (ie- PFE) and tech stocks (ie- MSFT). If there were world class Canadian alternatives of similar quality I would definitely own them. However, I don’t think good quality foreign companies should be excluded from a portfolio based on the fact that they don’t qualify for the dividend tax credit (even from a dividend growth portfolio).

Question: Doesn't Derek Foster, author of Stop Working, recommend sticking to Canadian dividend stocks when possible?

My Answer: I can’t speak for Derek… only he can answer this one with 100% accuracy. However, I’m assuming Derek like most Canadian dividend investors would recommend sticking to Canadian dividends WHEN POSSIBLE. In my opinion it is not possible to build a properly diversified portfolio with only Canadian stocks, as I mentioned above there are a few sectors with no Canadian companies that meet my investment strategy and criteria. I’ve read Derek’s book and if I recall correctly he owns a number of US securities - BUD, JNJ, PFE and WMT.

Hope this helps and thanks for reading.

Thursday, March 29, 2007


I purchased JNJ yesterday for a long term hold and here are my reasons why:

- 44 years of consistent dividend growth.
- Dividends issued to shareowners every quarter since 1944.
- Dividend raised each year for 44 consecutive years.
- Sales have increased each year for 73 consecutive years.
- Double digit Earnings increases for 21 consecutive years.
- Current yield of 2.50%
- 44% of sales outside of North America (built-in currency hedge)
- ROE levels of above 21% for the past 10 years
- Current P/E – 16.18
- Projected 2007 P/E – 15.3
- Projected 2008 P/E – 13.44
- 4 Star rating from S&P - $74 one year target
- Argus rates it a buy with a $76 one year target
- I like their diversified holdings within the healthcare sector particularly their consumer products.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

Wednesday, March 28, 2007

Dealing with a Spouse and Money

Ok it’s a common problem...a spender and saver who share a bank account. The saver/spender relationship can often be difficult as the saver is always nagging the spender, and the spender is always accusing the saver of being “cheap”. Does any of this sound familiar? (I might be wrong, but I’m guessing that if you’re reading this you're probably the saver...)I’ve heard of many different ways to deal with this problem but the one I’ve found the best is to use an allowance. Each month both spouses get a certain amount of money in cash that they can blow on whatever they want. I find this to be the best solution as it keeps the saver from constantly nagging the spender about wasting money on crap, it lets the spender buy whatever they want without being hassled, and it lets the saver sleep like a baby knowing that their cash isn't getting blown.

Monday, March 26, 2007

Insider Trading

I just wanted to let readers know about this resource that I came across:

The site allows you to see which corporate insiders are accumulating or selling shares. Personally I don’t put very much importance on insiders selling as they could be selling for a number of reasons unrelated to the future of the company (ie- purchasing a new yacht, divorce, etc...) However, I believe that insider buying can be a powerful indicator of insiders’ opinion on the future of the company. It’s reassuring as a small investor to see corporate big wigs put their money where their mouth is. They live and breathe the company and if they think the company is cheap enough to buy then I definitely think it’s worth a look.

Friday, March 23, 2007

Dividend Growing Stocks - I

A big fat juicy dividend is nice my opinion a modest but rapidly growing dividend is better. So I thought that every once in a while I’ll point out which stocks I think are high quality, stable, long term dividend growers.

I’ll start off with: 3M (MMM)
-49 years of consistent dividend growth.
-362 consistent quarters of paying a dividend
-Current yield of 2.5%

Wednesday, March 21, 2007

Bank Comparison Website - A Middle Class Rant III

I came across this website ( ) while doing my daily read at It is an online guide to bank fees created by the Canadian Government. It provides you with the “tools you need to help you shop around for bank accounts, credit cards and other financial products from the comfort of your home.” The site allows you to search for the best product based on: location, minimum balance, age, number of transactions a month etc...

Although the site could be useful for some people I don’t like the fact that the government has gone ahead and wasted time and money on the construction of it (if an individual or business created it then hey no problem). In my opinion it’s really none of the governments business. I think that consumers are smart enough to shop around on their own (and if not then the dumb ones can pay a higher fee and raise the EPS of my bank stocks). Part of my problem with the government poking its’ nose into bank fees has to do with the fact that bank fees really aren’t that high (I bank at a big bank and pay $0 a year in fees). Why is the government wasting time and resources in an effort to save Canadians a few dollars a month at best? Additionally, the type of people who are going to be visiting the site are mainly going to be financially savvy people like you and me who probably don’t pay many fees anyways. Those who pay extravagantly high bank fees probably won’t use the site, because if they’ve been dumb enough to pay high fees up to now and haven’t done anything about it why is this website going to make a difference?

Since when is the government in the business of being a comparison shopper for consumers anyways? What’s next? Restaurants? Hotels? Groceries? Actually, I think that a grocery comparison website would save the average Canadian far more money each year than the bank fee website (I converted a friend from A&P to No-Frills and he now saves about $30 a week in groceries --- for him that’s about 3 years worth of bank fees saved each week). point is the government should stick to governing (defense, infrastructure, health, education) and leave the rest up to the market.

Tuesday, March 20, 2007


Well big surprise… today I’m writing about the budget. In my opinion this budget had a lot of hype and very little substance. I (like many others) was expecting some announcement (or even direction) on were the government is going on capitals gains tax but...sigh...nothing...maybe next year… I’ve outlined the good and bad of the budget below.

The Bad
-No capital gains tax relief (despite the fact that this was a campaign promise). The exception to this is if you’re a small business owner, fisherman or farmer, who received an increase in the one time capital gains allowance from $500,000 to $750,000.

-No broad based tax cuts.

The Good
-If you make over $40,000 a year you’ll save $310 a year for each child (under 18).

-Eliminated the annual $4,000 RESP limit and raised the lifetime maximum to $50,000.

-Raised the maximum RESP grant limit (20% of annual contribution) from $400 to $500 annually

-Raised the age limit of RSP conversion from 69 to 71 (In my opinion this is a mixed blessing. Call me pessimistic but I think it’s the first step in increasing the receiving age of both CPP and/or OAS)

-If you buy a qualifying fuel-efficient car you could get a rebate of $1,000 to $2,000.

In my opinion none of the positive aspects of the budget even come close to being able to provide the same benefits as the promised, but not delivered relief from capital gains tax.

Monday, March 19, 2007

How Many Securities Should You Have?

I’ve been asked this question before and my general rule of thumb is 20. I touched on this in my January post about diversification however I’ll just rehash it a little bit. I think that if you own over 20 stocks you run the risk of becoming too diversified. If you’re too diversified you basically become the market and if that’s the case why waste the time and commission fees buying individual stocks? Simply buy some low MER index funds and get it over with, because if you diversify too much you’re going to mimic the index anyways.

There are of course exceptions, for example if you’re pursuing a high risk strategy such as penny gold stocks it would probably be wise to create a basket of these high risk stocks and hope for a few big winners. Additionally, if your portfolio is under $70,000 I don’t think that you should be aiming to hold 20 stocks. I believe that if you can’t commit a minimum of 2.5% to 3% of your portfolio to a stock you probably shouldn’t buy it. I will often buy a half position ie- 2.5 to 3% of a stock and if it increases and grows into my target 4 to 8% of my portfolio great! but if not I will wait and average down to increase the weighting. You might have noticed that I have a few holding under 2.5% (which I better explain) --- BA.UN was spun off of BCE and the commission to sell it doesn’t make it worth while. The other 2 mutual funds I’ve owned since I was 16 – bought on the recommendation of a broker and haven’t looked at or added to since. Incidentally they are some of my worst performers.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

Friday, March 16, 2007

Limit vs. Market Orders

This question was asked recently on the forum whether it’s better to use limit orders or market orders. Personally, I always use limit orders. I usually put them in for a 5 day period but will occasionally adjust them (depending on the market). Using limits has caused me to miss some opportunities in the past (sometimes within a penny of my strike price) but it has also allowed me to buy some good companies 3% to 5% lower than a market order would have. I am a long term investor so the 5% initial savings will add up over the long term and will hopefully make up for any missed opportunities. Although, there’s no problem with market orders I would definitely advise that investors who purchase low volume stocks use limit orders in order to avoid any spikes caused by liquidity issues.

Thursday, March 15, 2007

Questrade Process

I now have a working Questrade account.

Setting up my Questrade account was relatively easy and trouble free. There are basically 3 easy steps:

1. Fill in the online forms and print the acceptance agreement afterwards.

2. Send the following item to Questrade
-Signed acceptance agreements
-$5 personal cheque (deposited to your account once it’s approved)
-Photocopy of both sides of your drivers license

3. Fund your account. You need to deposit at least $2500 before your account can be activated (I did bill payment from my bank account – it took about 2 business days to get from big bank to Questrade)

After all 3 steps have been completed they will send you your trading account username which works with the password you setup in step 1. I haven’t used it yet but I can now trade for $0.01 a share.

Wednesday, March 14, 2007

How much are you actually making?

How much is your time worth? Have you ever actually calculated what you make per hour? I don’t just mean what’s your hourly rate or yearly income. I mean how much do you make when all work related costs and times are factored in?

I’ve made a list of costs that I think should be factored in:
1. How many hours do you commute each day?
2. How much gas do you use going back and forth from work?
3. Does your job require you to buy expensive clothes?
4. How much do you spend in dry cleaning?
5. How much is your child care?
6. How many extra unpaid hours do you work (both at work and take home)?
7. Do you own an extra vehicle because of work?
8. How much do you spend paying people to do things you would do if you didn’t work so much (ie – mowing the lawn, shoveling the driveway, etc…)

Just a hypothetical example but let’s say an average couple with 2 kids both making $40,000. This would give them an $80,000 pretax household income.

$80,000 / 52weeks / 40hrs = $38.46 hour

Now let’s look at the actual hourly cost based on these assumptions.

1. They each commute for 1 hour a day = 2 hours a day
2. Each do 2.5 extra hours of work each week (ie- checking email from home) = 1 hour a day
3. Have daycare costs of $70 a day:$70 X 49 weeks = $3430/year
4. Have someone mow their lawn in the summer = $500/year
5. Have a 2nd vehicle payment and insurance: $350month X 12 = $4200/year
6. Gas for the cars: $10 day X 49weeks X 5days = $2450/year
7. Parking for work = $1000/year
8. Each spend $600 a year on “work clothes” = $1200/year
9. Conservatively assuming a 20% tax bracket = $16,000/year

New hourly wage (before taxes):
$80,000 / 52 / 43 = $35.77/hr

New hourly wage (after taxes):
$64,000 / 52 / 43 = $28.62/hr

New hourly wage (after taxes and work related expenses):
$64,000 – $12,780 = $51,220
$51,220 / 52 / 43 = $22.9/hr

This means that the real wage of the couple is $22.9/hr or $11.45/hr individually. A far cry from what it initially appears to be. This is just an example, so work it out on your own and see what your real wage is (might make you think twice about frivolous or impulse purchases).

Monday, March 12, 2007

Proctor and Gamble

I recently came across this post on the moneysense forum. It was posted by a savvy amateur investor (investor99). I believe him to be competent and have asked his permission to post his comments.

“I decided to bite on PG today, and leave the U.S. financials for another day.

After PG's dramatic 5% fall and recovery I thought I had missed my opportunity, however the stock fell again to the low $62 level where I got in. I've wanted to own this one for quite some time now, but it was never cheap enough. It's still not cheap but I think the multiple is warranted and I like the technical clue that I got when huge amounts of buying came in at $61.25. Obviously there is major resistance at that price so the risk reward was tilted IMO, to the reward side. One dollar down and a fair amount more than that up. If it falls lower over the next few days or weeks I'm going to double my position.

2007 EPS estimate = +15% YOY
2008 EPS estimate = +14.5% YOY
Not bad growth for a $197 Billion company. Their stated goal is 10% EPS growth annually.

I like the play on the developing world including the BRIC countries, and the stability of earnings due to the fact that many of their products are 'essentials'. Everyone reading this post has probably used a P&G product today. Also the fact that they have raised their dividend at a pretty healthy rate (10%+), every year for the last 50 years doesn't hurt either. 10/16 analysts have it as a buy and S&P has it as a 'Strong Buy'.”

Here are some other stats for P&G.

P/E – 22
Forward P/E - 20
Price/Sales – 2.66
Price/Cashflow – 15.5
Yield – 2%
S&P – 5 star, strong buy
Half of it’s sales are outside of North America

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

Friday, March 9, 2007


I purchased a small amount of EIT.UN on Wednesday. As you can tell from my portfolio I’m not a firm believer in the income trust model (and never have been). However, I felt that the valuation on EIT.UN was quite compelling and the risk/reward was in favour of purchasing a small amount for my portfolio. For those of you who are unfamiliar with EIT.UN here is a short excerpt from their site.

“EnerVest Diversified Income Trust invests in a diversified portfolio of income, royalty, real estate investment trusts and limited partnerships listed on the Toronto Stock Exchange. The key components of the Trust’s investment objectives are to maximize monthly distribution relative to risk, provide a tax-deferred diversified portfolio and provide the potential for capital appreciation. The investment manager utilizes a disciplined, conservative approach to investment selection, focusing on quality of management, financial strength and reasonable valuations.”

Here are my reasons for buying:
-trading at approximately 15% under its net asset value.
-current yield of 13.7%
-MER of approx 1.3%
-their current trust declaration allows them to hold common stock.
-diversified holding with only 20% weighting in oil/gas.

(Disclaimer: I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice)

Wednesday, March 7, 2007

Mutual Fund Fees

I just read an interesting article “Do Fees Really Matter” by Duncan Hood on It was timely as I recently posted on my dislike of mutual funds.

Here is an excerpt from the article that I particularly enjoyed:

“If you bought a cheap mutual fund, wouldn't your performance suffer? Probably not. No one has ever been able to prove that funds with higher fees perform better on average than funds with lower fees. In fact, when Gene Hochachka, a former quantitative analyst for Vancouver mutual fund company Phillips, Hager & North, looked at how fees affected the performance of Canadian funds between 1986 and 2003, he found that for every extra percentage point that was charged in fees, performance went down by a percentage point.”

The article is short and sweet and gives readers a breakdown of how your “real returns” would be affected by both inflation and mutual fund fees. It’s worth a read.

Tuesday, March 6, 2007

Re-Investing Dividends

Should you re-invest dividends or take the cash? You often hear about the benefits of enrolling in DRIPs (and I agree with all of them) but today I’m going to present an alternative view of reinvesting dividend and explain why personally I take the cash.

The main reason I chose cash over the DRIP plan is that I like to determine the price at which I buy a stock. Additionally, I plan on keeping most of my dividend paying stock indefinitely and the DRIP programs would result in many of my holdings becoming too large a percentage of my portfolio. For example, TD is already approximately 14% of my portfolio and I’ve held it for 5 years however if I’d been in the DRIP it would probably be around 17% or 18% (and growing). Instead I took the dividends and reinvested them in other high paying dividend stocks (when I thought they were on sale). If there ever reaches a point where a dividend paying stock falls below a reasonable percentage allocation in my portfolio I will wait for a price I believe is fair and purchase more to bring the weighting up.

Monday, March 5, 2007

Canadian Securities Course (CSC)

I’ve received about half a dozen e-mails recently from readers who wanted my opinion on the value of the Canadian Securities Course (CSC) and the value of a BComm. I just thought I’d share with everyone as this seems to be a common question.

To be honest I think that I learned more from my BComm than the CSC. However, I don’t think it’s necessary to have either in order to be a successful amateur investor. Most of what I know about the market and stocks has come from reading on my own (buffet, graham, foster etc…) and from listening to experts and talking with friends who share my interest in investing. In my opinion what you need to be a successful amateur investor is a passion for investing, a defined strategy and a genuine interest in the markets, securities valuation and retirement planning. That being said I would recommend the CSC for people without a background in finance as it does provide a general introduction to securities valuation... but be warned there is also a lot of regulatory info in the course that I didn’t really find very useful. Compared to a University exam I found the course easy and if you put a little time into it I don’t think you should have any problems as the regulatory info is just memory work and the math involved in securities valuation (ratios, time value of money etc...) is fairly simple.

Friday, March 2, 2007

Retirement Nest Egg March 1 - 2007

Networth at the close of March 1, 2007 (up 6.8% from last month)

TRP - 4.18%
ABX - 4.09%
CSH.UN - 3.80%
GWO - 4.94%
PFE - 4.30%
POW - 4.18%
BA.UN - 0.38%
L - 3.78%
UNS - 2.80%
GZ - 2.87%
TD - 13.26%
MMM - 3.80%
O'Shaughnessy’s Global Fund - 4.02%
American Growth Fund - 1.08%
CDN Value Fund - 3.77%
Small Cap Growth Fund - 3.85%
Deep Value Fund - 10.89%
Health Science Fund - 0.92%
Bond (9% yield) - 5.53%
Money Market Fund - 17.57%

You may have noticed that my networth increased by a large percentage this month. Although this looks good it's not, because all of the percentage gain was a result of contributions and not investment returns.