Middle Class Millionaire

Inflation

2008-08-21T08:30:00.000-05:00

Well for anyone (except apparently economists) it really shouldn’t come as a surprise that inflation in Canada is on the rise. The inflation rate in Canada is now sitting at approximately 3.4% versus 3.1% during the same period last year. Although 3.4% is quite manageable for most households it is the largest increase we’ve seen in the last five years. Here are the main culprits behind the rise:

-gasoline up 28.6%
-natural gas up 25%
-food (avg) up 4.3%
-bakery products up 13.2%
-mortgage costs up 8.3%

Note: Although our inflation is rising we are still a full 2 points lower than our U.S neighbours.

Great West Life – GWO

2008-07-31T13:01:00.001-05:00

Well I’m happy to report that I’ve received another raise courtesy of one of my perennial dividend paying favourites, Great West Life (GWO). They announced yesterday that the quarterly dividend would be increased by 5%. They now payout $0.3075/share quarterly, which gives them a current yield of about 4.1%. It’s not a huge raise but in this environment I’ll take it.

U.S Housing - Just Walk Away...

2008-07-29T09:34:00.001-05:00

Well if you’re in the market for a house in Las Vegas or Miami they all just went on sale for 28% off. I’m not suggesting that they’re good value, just cheaper than they were. Compared with the previous year house prices in both Las Vegas and Miami dropped a whopping 28% last month. These markets sagged a full 12% lower than the national average, which saw declines of approximately 16%. With declines like these it is no wonder that the delinquency rate is rising. In many markets it’s now cheaper and faster to simply default on your mortgage and walk away from the house than it would be to pay off an inflated mortgage. In the amount of time it would take to pay off the value that you’ve lost on your home you could have saved enough money for another house and rebuilt your credit. For example, if you purchased a house last year in Las Vegas or Miami for $350,000 you would now be down a whopping $98,000 in equity. At that point the only financially responsible thing to do would be to default on your mortgage. Why not just walk away?

CDN REIT Sector Index Fund – XRE

2008-07-22T13:56:00.001-05:00

ABOUT XRE

“The iShares™ CDN REIT Sector Index Fund seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the S&P®/TSX® Capped REIT Index through investments in the constituent issuers of such index, net of expenses. The Index is comprised of securities of Canadian real estate investment trusts ("REITs") listed on the TSX, selected by S&P using its industrial classifications and guidelines for evaluating issuer capitalization, liquidity and fundamentals.”

HOLDINGS

RIOCAN REAL ESTATE INVST TR (REI.UN) - 25.33%
H&R REAL ESTATE INVSTMNT-UTS (HR.UN) - 14.77%
CAN REAL ESTATE INVEST TRUST (REF.UN) - 10.36%
BOARDWALK REAL ESTATE INVEST (BEI.UN) - 9.32%
CALLOWAY REAL ESTATE INVESTMENT (CWT.UN) - 7.49%
CAN APARTMENT PROP REAL ESTATE (CAR.UN) - 6.98%
PRIMARIS RETAIL REAL ESTATE (PMZ.UN) - 6.10%
CHARTWELL SENIORS HOUSING (CSH.UN) - 4.90%
COMINAR REAL ESTATE INV-TR (CUF.UN) - 4.42%
INNVEST REAL ESTATE INVESTME (INN.UN) - 4.01%
DUNDEE REAL ESTATE INVESTMEN (D.UN) - 2.72%
EXTENDICARE REAL ESTATE INVE (EXE.UN) - 2.58%

OTHER RELEVANT DETAILS

Mer: 0.55%
Annual Dividend: 7% (paid quarterly)
Single holdings are capped at 25%

HISTORICAL PERFORMANCE (EXCLUDING DISTRIBUTIONS)

5 year: up 20%
4 year: up 15%
3 year: down 3%
2 year: down 10%
1 year: down 24

Turbulent Markets

2008-07-21T12:49:00.001-05:00

Anyone with even the slightest interest in the markets is now fully aware of the recent turbulence in the both the Canadian and American markets. Both the housing and financial markets have been in a virtual free fall for most of 2008. The analysts and newscasts have also switched from optimistic to doom and gloom. Consumer confidence is falling and the general feeling about the markets and housing is now very negative. On top of all that it looks like inflation along with interest rates may start to rise. All in all it’s not really a pretty picture. Given the dismal outlook on the economy what’s an investor to do? That's a great question that I certainly don’t have the answer to so...I’ll defer to my response to an investor who’s been here before.

WARREN BUFFET

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

“Our favourite holding period is forever.”

“Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years”

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market”

“A public-opinion poll is no substitute for thought.”

“Lethargy, bordering on sloth should remain the cornerstone of an investment style.”

Keeping those quotes in mind tomorrow I'll be posting about a name that I'm planning to add to my portfolio.

What Exactly is Personal Disposable Income?

2008-07-18T12:21:00.002-05:00

This is just a follow up to yesterday’s post and will hopefully clarify the definition of Personal Disposable Income that was used yesterday.

According to Statistics Canada personal disposable income is :

“the amount left over after payment of personal direct taxes, including income taxes, contributions to social insurance plans (such as the Canada Pension Plan contributions and Employment Insurance premiums) and other fees. It is a measure of the funds available for personal expenditure on goods and services and personal saving for investments as well as personal transfers to other sectors of the economy.”

So basically personal disposable income = income – taxes

Canadian Household Debt On the Rise

2008-07-17T09:02:00.001-05:00

The level of household debt has been steadily increasing for the last 20 years in Canada so it should be no surprise that it continued to rise again this quarter. The average Canadian household now has an average of 19.6 cents of debt for every dollar of networth and household debt is averaging about 123.8% of personal disposable income.

This is a frightening figure at this stage of the financial cycle as it is much more likely that interest rates will be rising than decreasing. An increase in interest rates will of course make managing this debt much more difficult for many Canadian households. How does your household debt compare to your personal disposable income?

How satisfied are you?

2008-07-11T11:41:00.002-05:00

If you are thinking about enlisting the services of a full service broker you may want to check out the results of the following survey by J.D. Power and Associates. Their survey measured how satisfied Canadian investors are with full-service investment firms. Based on a 1,000-point scale here are the results:

Edward Jones: 758
Berkshire Investment: 752
Wellington West Capital: 747
Dundee Wealth: 731
Raymond James: 729
RBC Dominion: 728
National Bank Financial: 727
Credential Securities: 726
Desjardin Securities: 724
Canaccord Capital: 723
Industry average: 720
Laurentian Bank: 717
CIBC Wood Gundy: 713
Assante: 709
Scotia McLeod: 699
TD Waterhouse: 694
BMO Nesbitt Burns: 689

High Interest Saving Accounts - Guest Post

2008-07-10T07:01:00.001-05:00

GUEST POST FROM http://nocommunism.blogspot.com/

Middle Class Millionaire has foolishly agreed to let me do a guest post. I apologize in advance for the mass exodus away from his blog.... to mine! Ha ha!

Sucker.

Oh, right. I was supposed to make a serious point about something.

Okay, most of us have a very similar problem. We don't have enough money. Even when we get a little extra, we're either using it to pay down debt, or we're plowing it back into our investments.

If you were, say, this guy or this guy, you'd definitely want to place to park your excess cash. But where? Don't worry son, I can help!

Let's start with the big banks, just so we can get them out of the way early. They all suck. The best one offered is RBC, which offers a high interest savings account at 2.75%. The catch is that all you get on that account is online banking.

As for the other big banks? You either need ridiculously high minimum balances, or the rate sucks. Most are 2.25%, and quite a few have a minimum balance of at least $5000.

Now onto some more interesting options.

E-Trade Canada will let your uninvested cash earn 3.05%. This is interesting if you already have an account at E-trade, since there'd be no transferring back and forth. Even though there's better rates out there, if I was an existing E-Trade client I'd just plow my money there.

ING was the company that started the high interest savings revolution, at least in Canada. They offer a rate of 3%, combining that with the promise of zero service charges if you switch all your banking to them. They also have an interesting option for your U.S. dollar cash, an account yielding 1.75%.

PC Financial's rate is a comparable 3.05%, plus a bonus of about .05% on your anniversary date. It sure was nice for PC to remember our anniversary date, cause I, uh, forgot to get PC Financial a present. Guess I'm not getting any tonight.

Manulife offers 3.00% on a pretty standard account. HSBC is the same.

Canadian Tire Financial Services is interesting. They offer 4.3% for the first 90 days, (up to $100k) then the rate drops to a more realistic 3.05%. Still, if you average those out over a year you get 3.32%, which isn't too shabby. No word on whether they pay you in Canadian Tire money, but I'd hope not.

Altamira offers a decent yield of 3.2% for their account. Citizens bank is at 3.15%.

The winner is... ICICI BANK! With an astonishingly high 3.4% interest rate, the boys from India come through on this one. Great job guys. There's just one thing. What's up with that name? Get on that, wouldja?

Upon further searching at Globefund, the average 5 year return on a money market fund is around the 3% range. You could try to cherry pick a better fund, but good luck with that.

Taking the time to set up one of these is actually worth your time. The difference between ICICI and my savings account is 3.15%. (3.40%-.25%) Having a 10,000 balance would get you an extra $315 per year.

Want to Retire Rich? Stay Married

2008-07-08T13:14:00.001-05:00

I think everyone out there knows at least a few people who have had to for one reason or another part ways with their spouse. Other than the emotional costs of divorce there is a huge financial burden as well. Let’s just do a little exercise, take all of your networth (including pension) and divide it in half. Before you divide your networth in half don’t forget to subtract the thousands of dollars usually required to legally file for divorce and all of the associated real estate fees that go along with selling the cottage, house etc...Next you’ll want to take all of your shared living expenses, mortgage, heat, hydro, gas, cable, internet, house taxes etc... and double them (because you’ll each need your own place now).

Get the point? Divorce is expensive...so if money is tight it just might be worth working a little bit less (not more) and spend that time with your spouse instead....(especially if you live in Quebec)

PROVINCIAL DIVORCE RATES
Newfoundland and Labrador - 17.1%
Prince Edward Island - 27.3%
New Brunswick - 27.6%
Nova Scotia - 28.9%
Saskatchewan - 29.0%
Manitoba - 30.2%
Ontario - 37.0%
British Columbia - 39.8%
Alberta - 40.0%
Quebec - 49.7%

Source: Statistics Canada, 2003

BCE Deal is Done!

2008-07-04T12:45:00.002-05:00

Well the BCE deal is finally going to be done and is expected to close before the 11th of December! I purchased BCE in December 2007 and although I didn’t expect the volatility, or the favourable ruling for the bondholders it is nice to see that my rational for buying was correct. To see my original thesis behind purchasing BCE please click here.

Whether BCE is actually worth $42.75 is a whole other story though....

Requesting Guest Posters

2008-07-02T13:18:00.003-05:00

As you can probably tell by the reduction in posts this is turning out to be a very busy summer for me at Middle Class Millionaire. So...I am asking you (readers and/or other blog owners) if you would be interested in submitting a post or two over the next couple of months. I am open to receiving posts on anything related to finances, investing, retirement planning, market conditions etc... I will post it on my blog but will of course give you all the credit for your writing. If you are interested please send me an email at middleclassmillionaire.blogspot.com or just leave me a comment with your email address and I’ll get back to you.

Thanks.

Requesting Guest Posters

2008-07-02T13:18:00.001-05:00

Are you Worried about a Breakup?

2008-06-25T21:00:00.001-05:00

Since posting about my recent purchase of GE I’ve been emailed a number of times asking if I’m concerned about the increasing pressure being exerted on GE to breakup. Well the answer is no, absolutely not! Personally, I think that the real value of a world class conglomerate like GE would be unlocked if it was broken up into their separate operating divisions. It’s very rare that large conglomerates trade at a value equal to the sum of their parts and I think that GE is no exception. As a shareholder of a conglomerate you really have nothing to lose from a breakup. Instead of owning many shares of one world class company you’d own less shares of many world class companies. The only difference being is that you can sell the divisions you don’t like and in all likely hood the value of the separate companies would be greater than that of the conglomerate. So to make a short answer long----breakups are an investors best friend.

BCE – A Sigh of Relief

2008-06-23T17:22:00.000-05:00

You could almost hear a communal sign of relief today as the Supreme Court of Canada dismissed bondholder objections to the proposed $35-billion deal to privatize BCE. Despite this ruling there is obviously still a lot of doubt on the street as the 30 million shares traded today resulted in only a 5.7% increase in the share price. Personally, I will continue to hold my shares and am speculating that this ruling will solidify the deal in the $41 to $42.75 range. Here is what some of the professional are predicting:

-Troy Crandall at MacDougall, MacDougall & MacTier – $42.75 (80% likelihood)
-Joseph MacKay at Desjardins Securities Inc. – $39.25
-David Lambert at Canaccord Adams – $42.75

How I Added $20,000 to My Home in 3 Days - Part 2

2008-06-16T15:06:00.001-05:00

Here are the Details:

Time Spent:
In total there were 3 of us working on the house from 8AM until Midnight Friday, Saturday and Sunday.

Improvements Made:

Hallway
* Removed dated wallpaper and chair rail - Free
* Re-Mudded sections of the wall after the paper was removed - $5
* Primed and painted walls- See Paint costs
* Primed and painted 3 doors in the hall

Half Bathroom
* Replaced cabinet - $50(we bought this used new it would be around $300)
* Replaced Sink and Faucet - $300
* Replaced toilet paper and towel holders - $50
* Bought new towels - $20 (and we take them with us)

Dining Room
* Removed dated crown mouldings - Free
* Primed and painted - See Paint costs

Kitchen
* Removed dated wallpaper - Free
* Re-Mudded sections of the wall after the paper was removed - $2
* Removed dated oak cabinet doors and primed and painted them with cabinet paint - $80
* Replace old hardware on the cabinets - $50
* Replaced counter tops - $250 (bought precut sections from Home Depot)
* Replaced sink - $150
* Replaced faucet - $100
* Replaced hood above the stove - $60
* Put up a stylish border around the kitchen - $30
* Bought new curtains - $30
* Primed and Painted - See Paint costs

Living Room
* Primed and Painted - - See Paint costs

Bedrooms
* Primed and Painted - See Paint costs

Full Bathroom
* Removed old floor and tilled - $50
* Painted the shower grout with grout paint - $15
* Bought new towels - $40 (and we take them with us)
* Removed old wall paper - Free
* Re-mudded one whole wall - $5
* Primed and Painted - See Paint costs
* Replaced toilet paper and towel holders - $50
* Re-cocked the shower and bathroom cabinet - $10

Back Deck
* Cleaned and re-stained - $20

Front Deck
* Cleaned and painted - $10

Back & Front Yard
* Raked - Free
* Grass cut - Free
* Planted flowers (annuals). Some perennials were already there. - $30

Garage
* Cleaned - Free
* Primed and painted the door - - See Paint costs

Everywhere
* Thoroughly cleaned everything (there wasn't a single surface that wasn't cleaned)
* Repainted all trim and doors - See Paint costs
* De-cluttered the house. We removed almost all of our possessions from the house prior to listing. We only left enough items to stage the house.

Miscellaneous Decorations
We probably spent around $200 on decorations (however we get to take them all when we move).

Paint Costs
I'm estimating that we spent around $200 on paint and painting supplies.

So in total we spent around $1800 (I'll round up to $2000 in case I forgot something). So basically over the course of 3 very long days we were able to turn $2000 into $20,000. Not bad for 3 days work.

How I Added $20,000 to My Home in 3 Days - Part 1

2008-06-12T17:26:00.000-05:00

As many of you know I have recently relocated to my country property and switched to a slower paced lifestyle. As a result there was no need to keep our house in the city so about a month ago we listed the house and I'm happy to say that this week it sold for 98% of the asking price.

In order to make the house more appealing we decided that if we wanted to get top dollar for our home some improvements were needed. Being a frugal kind of guy we of course did all the improvements ourselves and on the cheap. I wanted at least a rough idea of how much value we'd be adding to the house so prior to beginning the work I had 2 real estate agents in to view the property and provide me with a suggested listing price. After the renovations were complete I had them in again to re-evaluate the listing price and both were about $20,000 higher. In my next post I'll explain exactly what improvements were made and the approximate time and cost involved.

GE

2008-06-10T19:43:00.002-05:00

I recently initiated a position in GE for the following reasons.

"General Electric is one of the largest and most diversified industrial corporations in the world. GE is engaged in developing, manufacturing and marketing a wide variety of products for the generation, transmission, distribution, control and utilization of electricity. Some of GE's products include major appliances; lighting products; industrial automation products; medical diagnostic imaging equipment; motors; electrical distribution and control equipment; locomotives; power generation and delivery products. Their operations are divided into six different segments; Infrastructure, Industrials, Healthcare, Commercial Finance, GE Money and NBC Universal."

-2008 Estimated PE – 13.8X
-2009 Estimated PE – 12.5X
-2010 Estimated PE – 11.25X
-Current Yield – 4.05%
-5 Year Average Yield – 2.6%
-Current Payout Ratio – 53%
-5 Year Historical Payout Ratio – 52%
-3 year dividend growth rate – 10.56%
-5 year dividend growth rate – 9.16%
-Argus rating of "Buy" and a 1 year price target of $40
-S&P rating of "4 Stars", "Buy" and a 1 year price target of $38
-increased their dividend every year for the past 31 years.
-their dividend has been paid quarterly since 1899

I like the fact that GE has clearly defined goals (8% organic growth) and I believe they are definitely moving in the right direction with their “ecomagination” concept. I don’t think it will be long until green technologies will start to really sell, and GE is taking an aggressive stance on their green (and profitable) technologies. They also have a dominant global position in one of my favourite areas, infrastructure. Shares of this world class comglomerate have recently been under pressure due to an earnings miss caused by weakness in their financial services, healthcare and domestic consumer segments. However, their global and infrastructure segments remained strong and I believe they'll continue to due so. Although, GE may experience further short term declines I iniated this position for the long term and just couldn't resist picking up some of this world class company at valuations not seen for over a decade.

[As always please do your own research and consult your own financial advisor before making any decisions.]

Back From Vacation

2008-06-09T21:35:00.000-05:00

I'm officially back from vacation now and will start posting regularly again. Here is a little preview of the topics I'll be posting about this week.

1. Provide an analysis of a new addition to my portfolio.
2. Post my regular monthly portfolio update
3. Talk about how I added $20,000 to the value of my home in 3 days.

Vacation

2008-05-29T06:10:00.002-05:00

Sorry for the late notice but I've been on vacation recently and will return to a more regular posting schedule in the 2nd week of June.

Cheers,
MCM

Some Recent Dividend Increases

2008-05-21T16:03:00.000-05:00

For those dividend hungry investors here are some of the companies that have raised their dividend/distribution over the last month:

-AGF Management (AGF.B) - Annual dividend increased by 25.0% from $0.80 to $1.00
-Barrick Gold Corp (ABX) - Annual dividend increased by 33.3% from $0.30 to $0.40
-Baytex Energy Trust (BTE.UN) - Annual distribution increased by 11.1% from $2.16 to $2.40
-Boyd Group Income Fund (BYD.UN) - Annual distribution increased by 11.1% from $0.18 to $0.20
-Calian Technologies (CTY) - Annual dividend increased by 25% from $0.48 to $0.60
-Cineplex Galaxy Income Fund (CGX.UN) - Annual distribution increased by 5% from $1.20 to $1.26
-Clorox Company (CLX) - Annual dividend increased by 15% from $1.60 to $1.84/share
-Easyhome Ltd (EH) - Annual dividend increased by 21.4% from $0.28 to $0.34
-Finning Int'l Inc (FTT) - Annual dividend increased by 10% from $0.40 to $0.44
-Freehold Royalty Income Fund.(FRU.UN) - Annual distribution increased by 20% from $1.80 to $2.16
-Johnson & Johnson (JNJ) - Annual dividend increased by 10.8% from $1.66 to $1.84.
-McGraw-Hill Ryerson (MHR) - Annual dividend increased by 6.7% from $0.90 to $0.96
-Melcor Developments (MRD) - Annual dividend increased by 25% from $0.40 to $0.50
-Methanex Corporation (MX) - Annual dividend increased by 10.7% from $0.56 to $0.62
-Power Financial Corp (PWF) - Annual dividend increased by 7.2% from $1.25 to $1.34
-Richelieu Hardware (RCH) - Annual dividend increased by 14.3% from $0.28 to $0.32
-Seamark Asset Management (SM) - Annual dividend decreased by 12.5% from $0.32 to $0.28
-Talisman Energy Inc.(TLM) - Annual dividend increased by 11.1% from $0.18 to $0.20
-Wajax Income Fund (WJX.UN) - Annual distribution increased by 3.0% from $3.96 to $4.08

High Fuel Prices

2008-05-16T15:26:00.001-05:00

With the long weekend upon us you’re bound to hear a plethora of opinions and complaints about how the government and oil companies are gauging the poor working man. At some point during these many rants someone always suggests (in a very confident manner) that the government should be doing something about these prices. Although I agree that it would be nice if someone magically made fuel prices cheaper I don’t think it’s practical, realistic or appropriate to expect governments to do this. Since oil is a global commodity what exactly should the government be doing to protect us poor Canadians from high fuel prices? Maybe they could eliminate the gas tax altogether? Sounds like a great idea but then where are they going to make up that revenue? Maybe spend less on hospitals, schools etc? Or perhaps they could initiate a communist style business policy and claim the private owned oil companies as government property? This obviously isn’t a reasonable option either.

In my opinion if you want to remain living in a democratic, civilized, industrial nation there are only two options available if you really want to fight the high cost of fuel:

Option #1: Use less of it. (ie- drive, boat and heat less).
Option #2: Protect yourself from high fuel prices by buying part of the oil companies. When you buy shares of a publicly traded company you’re buying a small percentage of the company. As a part owner you’ll benefit (in the form of capital appreciation or dividends) each time the pump prices go up. Hey if can’t beat them join them.

If you’re interested in Option #2 here are a few companies that you might want to start your search with PCA, HSE, SU, COS.UN, TLM.

Macquarie Power & Infrastructure Income Fund - (MPT.UN)

2008-05-13T21:46:00.002-05:00

Macquarie Power & Infrastructure Income Fund invests in essential infrastructure assets, with an emphasis on power infrastructure.

MPT's POWER PORTFOLIO INCLUDES:

-Gas Cogeneration – Cardinal, a 156 MW gas cogeneration plant, is located in Cardinal, Ontario.

-Wind – MPT owns the 99 MW Erie Shores Wind Farm in Port Burwell, Ontario, which currently represents about 6% of Canada's installed wind capacity.

-Hydro – MPT owns four hydroelectric facilities, located in Dryden and Marathon, Ontario, and Sechelt and Dease Lake, British Columbia, totalling 36 MW.

-Biomass – MPT owns a 28 MW biomass facility in Whitecourt, Alberta, and holds investments in a 31 MW facility located in Chapais, Quebec.

MPT's SOCIAL INFRASTRUCTURE INCLUDES:
An indirect 45% investment in Leisureworld, which is currently the fourth largest provider of long-term care (LTC) homes in Ontario.

FINANCIAL HIGHLIGHTS:
-I have listened to the last conference call and management seemed to be very conservative and selective in any growth opportunities that they’ll investigate in the future.
-12.2% yield
-They have provided 2008 payout ratio guidance in the range of 95%-100%
-Trading at approximately book value
-Involved in recession resistant, government regulated industries.
-S&P stability rating of SR-2 which is the second highest rating and described by S&P as “An entity rated ‘SR-2’ has a VERY HIGH level of distributable cash flow generation stability.”
-Estimated 2008 PE - 21X
-Estimated 2009 PE – 17X
-Although this trust is fairly small ($420 million market cap) their income streams are diversified with 23% of distributable cash from their investment in Leisure World with the remainder coming from their power generation facilities.
-One note of caution is they do pay relatively high fees to their Australian based parent company “The Macquarie Group”
-TDWaterhouse rates them a very strong buy with a $10.00 one year target price (recently reduced from $10.50).

[I do not own units of MPT.UN. As always please do your own research and consult your own financial advisor before making any decisions.]

Best of the Blogs Winners

2008-05-12T19:48:00.001-05:00

Well the results of the “Best of the Blogs” contest are in and Middle Class Millionaire was voted the “Best Blog on the Internet”…well not quite… Middle Class Millionaire came in tied for 14th place. The real winners deserve their crowns and are listed below:

1. iBankCoin (formerly known as Fly on Wall Street)
2. Wall Street Fighter
3. Dealbreaker
4. Paul Kedrosky
5. Canadian Capitalist

Thanks to everyone who voted.

How Many Securities Should You Have?

2008-05-08T20:30:00.001-05:00

I’ve been asked this question before and my general rule of thumb is 20. I touched on this in a January, 2007 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.

Best of The Blogs

2008-05-06T20:36:00.001-05:00

I thought that I’d use this post for some shameless self promotion as Middle Class Millionaire has recently been nominated as one of the "Best of the Blogs" by The Globe and Mail. I am definitely in good company as fellow bloggers Canadian Capitalist, Four Pillars, Dividend Guy, and Million Dollar Journey were also on the list.

Does 1% Really Matter?

2008-05-05T20:17:00.001-05:00

When it comes to investing and your portfolio does 1% really matter? If you are paying an MER of 2.5% instead of 1.5% is it a big deal? What about if your portfolio returns 7% instead of 9%?

If your investment horizon is between 1 and 2 years than a couple percent really doesn’t matter. Your portfolio won’t be affected in any meaningfully way. However, if you are a long term investor 1 or 2% certainly does matter and will have a huge impact on your total portfolio return. I created the below chart to illustrates just how much difference 1 or 2 percent can make. The chart makes the following assumptions:

1. Initial investment of $10,000 in year 1.
2. No additional contributions.
3. Interest compounded annually.
4. All interest is reinvested.

So although it may seem petty to be wasting time and squabbling over a one or two percent difference it could mean a difference of hundreds of thousands of dollars in retirement.

Portfolio Update as of May 1, 2008

2008-05-01T23:26:00.002-05:00

-up 3.1% from last month
-up 3.5% in 2008
-CDN 66%
-U.S. 30.5%
-International 3.5%

TRP - 3.99%
CSH.UN - 4.03%
GWO - 4.25%
PFE - 4.39%
POW - 3.80%
WAG - 3.22%
L - 2.64%
UNS - 1.95%
GZ - 2.82%
TD - 12.61%
EIT.UN - 2.68%
JNJ - 5.82%
MMM - 3.38%
C - 3.57%
ATD.B - 2.59%
BCE - 5.26%
IIC - 2.65%
O'Shaughnessy’s Global Fund - 3.43%
American Growth Fund - 0.89%
CDN Value Fund - 3.00%
Small Cap Growth Fund - 3.71%
Chou Associates Fund - 9.14%
Money Market Fund - 10.20%

There were no changes to the composition of my portfolio last month and I don’t anticipate any major changes this month either. However, I am taking a close look at BPT.UN and CU and may initiate a position in one of those names this month.

Moving to the Country…The Finances

2008-04-28T19:18:00.001-05:00

As promised here is a little update on the finances of our move to the country. As you’ll see below this move is being done solely for lifestyle reasons and is certainly not financial motivated in any way.

My wife is on maternity leave for the next 2 months so the move will have no impact on what she brings in (in the short term). However, she works in a field that is in demand everywhere and she doesn’t anticipate having any trouble finding work once her maternity leave is up. However, it’s a different story for me as I currently work in a specific area of technology that doesn’t exist up north. Luckily for me I do have some other skills to bring to the table and was able to get a part-job in Information Systems for a government organization. My new hourly wage will be considerably below what I currently make and accounting for the lower wage and reduced hours I will probably be taking around a 65 to 70% pay cut. However, for what it’s worth my actual take home pay will probably be about 40% of my current take home due to less taxes, benefits and pension contributions.

On the plus side I’m still under thirty, live where I want, in the house that I want, and for all intents and purposes am semi-retired.

Thinking about Investing? Start Now

2008-04-25T09:47:00.002-05:00

The below chart illustrates the importance of investing early and the power of compounding interest. When it comes to investing time really is on your side.

Case 1:
• $2,000 invested annually in years 1 to 5
• No contributions after year 5
• Assumed rate of return of 10%
• Interest compounded annually.
• All interest is reinvested.
• Total invested $10,000

Case 2:
• No money invested in years 1 to 10
• $2,000 invested annually in years 11 to 40
• Assumed rate of return of 10%
• Interest compounded annually.
• All interest is reinvested.
• Total invested $60,000

You have probably seen similar charts on the front of mutual advertisements and although I’m not a huge proponent of mutual funds I think the underlying message is valid---The earlier you start investing the better.

Boralex Power – BPT.UN

2008-04-23T06:28:00.002-05:00

ABOUT BORALEX
Created in February 2002, Boralex Power Income Fund (the “Fund”) is an unincorporated open-ended trust that indirectly owns ten power generating stations with a total installed capacity of 190.0 MW. Eight of these power stations are located in Quebec (Canada) and two are in the State of New York (United States).

•The Fund owns seven hydroelectric power stations – five in Quebec and two in the United States – with a total installed capacity of 96.4 MW.
•In Quebec, the Fund owns two wood residue-fired facilities – a thermal power station and a cogeneration plant – with a total installed capacity of 62.6 MW. The cogeneration plant also produces 1,780,000 thousand pounds of steam annually.
•The Fund also owns the only natural gas-fired cogeneration plant in Quebec, which has an installed capacity of 31.0 MW and approximately 862,000 thousand pounds of steam annually.

FINANCIAL HIGHLIGHTS
-14% Yield
-expected 2008 payout ratio of 95%
-trading at approximately 30% below it’s book value.
-estimated 2008 PE – 11.5X
-estimated 2009 PE – 11.6X
-Trading at 6.5X cash flow.
-Current Ratio of 2.11
-TDWaterhouse rates them a high risk HOLD and have a one year target price of $6
-DBRS Stability Rating of STA-2(low)
-S&P Stability Rating of SR-2/stable
-DBRS Long-Term Debt Rating of BBB
-Have long term power purchase agreements at all 10 of their locations with contracts expiring between 2012 and 2035.
-Distributions are tax friendly. Approximately 48% of the distribution is return of capital, 31% dividend income, 18% taxable income, 3% capital gains.
-They are a small player in the power generation industry (225 million market cap) and trading below their book value. If they are able to resolve some of their biomass and hydrology issues they would become an attractive takeover candidate.

RISKS
-2007 was a very rough year for BPT.UN. The fund has suffered a number of setbacks in addition to the general malaise of the power generation industry. As a result they have seen their unit price plummeted from a 52 week high of about $11 to it’s current price of around $5.
-In order to increase their financial flexibility and maintain their emergency cash reserves the distribution was recently cut by 22% from 90 cents a unit to 70 cents a unit.
-The weak results in 2007 were primarily caused by the following 3 issues: a weakening U.S dollar, problems sourcing a cheap supply of biomass fuel and below average hydrology. How will these issues affect their results in 2008?

WEAK US DOLLAR
I believe that the weakening of the U.S dollar will continue in 2008 however, I’m not anticipating as large of a move as in 2007.

BIOMASS SUPPLY
Two of their power stations are fueled using wood residue from the forestry industry. As the forestry industry has been devastated in Quebec it’s becoming increasingly difficult, and expensive to obtain an affordable and reliable supply of fuel.

HYDROLOGY
This is anyone’s guess. Like the weather we won’t know until it happens. It may be below average again in 2008 or it may be above however, over time it should revert to the mean.

[As always please do your own research and consult your own financial advisor before making any decisions.]

Adjusted Cost Base

2008-04-21T10:57:00.002-05:00

With the end of the tax season approaching I’ve been asked a few times about how to account for capital gains as a result of the sale of income trusts. Well, the process is basically the same as with common shares except with income trusts the cumulative “return of capital” (ROC) received from distributions must be accounted for in the adjusted cost base (ACB).

What is Return of Capital?
Basically return of capital is the tax deferred portion of income trust distributions. Return of capital can also be described as money the trust gives back to you from your original investment. The exact amount of ROC is provided to you annually by the trust.

What Do You Do With The ROC?
Once you’ve calculated the cumulative ROC you use it to re-calculate your ACB, which will be used to calculate your taxable capital gain when you sell. For example, suppose you paid $10 a unit and received a $1 per unit return of capital. Your adjusted cost base would be $9 ($10 - $1 = $9). Now if you sold that income trust for $12/unit your capital gain would be $3 dollars a share ($12 - $9 = $3) because your cost base was reduced from $10 to $9 due to some of your capital being returned in the form of a distribution. As is the case with common shares, only 50% of the capital gain on income trusts are taxed.

[I’m not an accountant so please consult your own tax professional before implementing any of the above advice.]

The Secret to Financial Success

2008-04-17T08:14:00.003-05:00

Many people have the view that finances and investing is some kind of mystical puzzle that once solved will instantly eliminate all their financial troubles. The code will be broken and the chest of gold will fly open (just watch any late night infomercial). In my opinion the notion of a financial quick fix is the most dangerous and damaging perspective that anyone can have. Having this view effectively removes individuals from their current financial problems. It rationalizes the belief that you don’t have to diligently and effectively manage your money because once you figure the secret out everything will be OK.

In my opinion the real secret to financial success is the realization that there is no secret, and that for 99.99% of the population (myself included) there is no formula or secret that is instantly going to solve all your financial problems. The real secret to financial success can be found by following these 3 easy steps:

1. Spend less money than you make.
2. Invest your saved money.
3. Repeat 1 and 2 until you can retire.

Well the secret is out...that’s really all there is to it.

Johnson & Johnson – JNJ

2008-04-16T06:34:00.001-05:00

In typical fashion Johnson & Johnson announced that they have once again beat analyst consensus earnings estimates. Their quarterly earnings came in at $1.26/share, 6 cents above analyst estimates of $1.20/share. However, their two major businesses, pharmaceuticals and medical devices, would have experienced declines had it not been for the weak American dollar.

The recent increase in earnings due to currency is viewed as a negative by many analysts however, as an investor it helps to reaffirm one aspect of my investing strategy. One of the criteria that I used to select the U.S names in my portfolio is their international exposure. Over a year ago when I first initiated a position in JNJ I stated that one of the reason that I bought was that 44% of their sales were from outside of North America which would act as a built-in currency hedge. It works like this: JNJ reports their earnings in U.S dollars so the 44% of their revenue that was generated outside of the U.S. has to be converted back to American dollars for accounting purposes. This of course would inflate their international earnings as the U.S dollar falls and conversely shrink them as the U.S dollar rises.

Moving to the Country...Permanently

2008-04-14T07:42:00.002-05:00

For the last five years Mrs. Middle Class Millionaire and myself have been talking about selling our house in the city and moving back to our very very rural home town. Well...the talking is over and over the course of this month we’ll be packing up all our stuff and making the 350km trip straight north. Long time readers of this blog will remember that last year I purchased a recreation property up north well we’ve decided that we’re going to be moving there permanently. Here are some of the details below:

WHY THE MOVE
-lifestyle
-lifestyle
-lifesyle

ABOUT THE HOUSE
-located at the end of a dirt road.
-no cell phone or high speed internet service (looking into satellite internet)
-30 minute drive to “town” which is where we would have to work.
-our backyard is now 60acres which is surrounded by 1000’s of acres of crown land.
-land has 2 stream fed trout ponds.
-house is smaller than our current home (we plan to put an addition on sometime in the future).
-house is only 20 years old and very structurally sound (new roof, solid foundation) but aesthetically the inside of the house needs work as it’s very dated. Every room will have to be re-done to “make it nice” but the whole house is currently functional.
-the house already has a new well and new septic.
-has a detached garage that needs siding a new roof.

It is a drastically different lifestyle and community than where we live now. However, both my wife and I grew up there so we know exactly what we’re getting into. Stay tuned because sometime in the next week I’ll get to the part everyone wants to read about the finances...

If Only You Had the Inside Scoop

2008-04-09T06:43:00.003-05:00

Bought too early? Sold too soon? Should have seen it coming? Well don’t feel too bad, here’s a list compiled by Micheal Brush of MSN Money of some of the biggest insider mistakes of 2007.

*The losses above were as of Jan 18, 2008. As we know the market hasn’t performed well this year so many of the above losses are potentially much higher.

Toyota - Soon to be the Worlds Biggest Car Maker?

2008-04-07T06:41:00.002-05:00

Toyota’s strategy of shifting their focus to emerging markets seems to be paying off as they are now expected to surpass GM in annual sales by the end of 2008 making them the world’s largest automaker.

According to an article by Martin Foster in the New York times.

"While sales declined in North America, they increased in Asia, especially in Indonesia and Thailand, and in other regions including South and Central America, Africa and Oceania.

In the nine months through December, less than half of Toyota sales came from its showrooms in North America.

Sales to North America slid to 44 percent from 57 percent a year earlier, while Asian sales rose to 25 percent from 15 percent."

As a consumer it’s no surprise that GM is about to be bumped from the #1 spot. I am by no means a picky shopper but for me it’s basically at the point that when I’m car shopping I don’t even bother looking at North American cars anymore. My reason for this is simple…I want to own a car that isn’t going to break down and from experience and the experiences of people I know GM can’t seem to meet my single criteria.

200 Hundredth Post

2008-04-04T07:03:00.000-05:00

I just realized that yesterday marked the 200th post here at Middle Class Millionaire so I just wanted to take today’s post to thank the readers of this blog for their continued support and readership. I would also like to thank the regular commenters who not only keep me honest but also provide some added depth and perspective to many of the posts.

Cheers,
MCM

Portfolio Update as of April 1, 2008

2008-04-02T07:22:00.000-05:00

-no change from last month
-up 0% in 2008
-CDN 65.8%
-U.S. 31.6%
-International 2.6%

TRP - 4.14%
CSH.UN - 4.02%
GWO - 4.36%
PFE - 4.78%
POW - 3.79%
WAG - 3.66%
L - 2.66%
UNS - 2.25%
GZ - 2.65%
TD - 12.30%
EIT.UN - 2.61%
JNJ - 5.89%
MMM - 3.67%
C - 3.41%
ATD.B - 2.91%
BCE - 5.14%
IIC - 2.63%
O'Shaughnessy’s Global Fund - 2.57%
American Growth Fund - 0.90%
CDN Value Fund - 2.95%
Small Cap Growth Fund - 3.73%
Chou Associates Fund - 9.30%
Money Market Fund - 9.68%

There were no changes to my portfolio over the last month – no buys, no sells.

Yellow Pages - YLO.UN

2008-03-31T06:57:00.001-05:00

When I invest in companies I invest for the long haul. Ideally, I would like to hold a company indefinitely so one of the first criteria I look at before adding something to my portfolio is the sustainability of the business model, and I just don’t see YLO.UN existing long term using their current model. That being said, I certainly don’t consider them a dead company and they are making steps in the right direction by transitioning online. However, unless they can completely transform themselves into a dominant online advertiser it’s my opinion that they will not exist at some point in the future.

I do like and use some of their online services such as canada411 and autotrader and I am positive on their recent agreement with Google to become the first Canadian based reseller of Google AdWords adverts. However, the bulk of their revenue still comes from print and I don’t think print will be around longer term.

Personally, I’m skeptical that even if they did transform themselves into a completely online company that they’d be able to compete longer term in the online world. To date I haven’t seen any competitors that rival the online services that YLO.UN provides but in my opinion any one of the major internet players could be getting ready to launch Yellow Pages death swoop. All it would take is Google adding a phone book and local category search to their main page, or to Google Earth for that matter. Mapquest is already halfway there as they have a category search that in addition to providing the contact information generates a map and direction to get there from your house. I used it instead of canada411 last week to search for directions to all of the Thai restaurants in my part of town.

So although I don’t think that YLO.UN is on deaths door I just can’t see any reason to buy them based on my long term investing style and their current business model. For a short to medium term hold YLO.UN should keep spitting out cash. If they successfully transform themselves into a dominant online advertiser and secure some kind of competitive advantage than I’d certainly be willing to give them another look.

Just to give you the other side of the coin Fellow Blogger the MoneyGardner is a holder of YLO.UN and will be writing up a post on the buy case later this week.

Canadian Tire Scraps its Print Catalog – A Foreshadowing of Yellow Pages Fate?

2008-03-28T06:37:00.003-05:00

Canadian Tire announced yesterday that they will be phasing out the print edition of their catalogue and replacing it with an online edition.

“all of our research was indicating that readership levels were decreasing and more and more people are on line,” Canadian Tire spokeswoman Lisa Gibson said in a telephone interview Thursday. “So that's why we decided to let people know on line and not make a big production.”
-Quoted from an article by John Partridge of the Globe and Mail

In my mind the above quote could easily apply to the print edition of Yellow Pages. Shares of YLO.UN have slid 30% over the last 3 months and as the yield creeps higher I’m increasingly being asked if I think now is a good time to buy YLO.UN. My short answer is that if you’re a long term investor I don’t think there is a good time to buy. In my next post I’ll explain my rational behind my don’t buy recommendation.

Some Recent Dividend Increases

2008-03-27T07:17:00.002-05:00

With all the negative press over the last month I thought it might be a little refreshing to hear a little good news. So here’s a little summary of some of the recent Canadian dividend increases over the last month.

-T.D. Bank (TD) Annual div increased 3.5% to $2.36
-TECSYS Inc (TCS) Declared first dividend of $0.02
-Canadian Tire (CTC.A) Annual dividend increased by 13.5% to $0.84
-Constellation Software (CSU) Annual dividend increased by 20% to $0.18
-Stella-Jones Inc (SJ) Annual dividend increased by 14.3% to $0.32
-Transcontinental (TCL.A) Annual dividend increased by 14% to $0.32
-Aecon Group Inc (ARE) Annual dividend increased by 42.9% to $0.20
-Bonterra Energy Income Fnd (BNE.UN) Annual distribution increased by 4.5% to $2.76
-CCL Industries Inc (CCL.B) Annual dividend increased by 16.7% to $0.56
-Guardian Capital Group (GCG.A) Annual dividend increased by 11.1% to $0.15
-SNC-Lavalin Group (SNC) Annual dividend increased by 33.3% to $0.48
-Superior Plus Income Fund (SPF.UN) Annual distribution increased by 3.8% to $1.62
-AGF Management (AGF.B) Annual dividend increased by 25% to $1.00
-North West Company Fund (NWF.UN) Annual distribution increased by 18.5% to $1.28

If I’ve left any out that should be mentioned just leave them in the comments section.

Facebook Worth 15 Billion?

2008-03-25T06:42:00.001-05:00

For those of you who haven’t heard of Facebook here is an extract from the “about” section of Facebooks website.

About Facebook
Facebook is a social utility that connects people with friends and others who work, study and live around them. People use Facebook to keep up with friends, upload an unlimited number of photos, share links and videos, and learn more about the people they meet.

Anyone can join Facebook
All that's needed to join Facebook is a valid email address. To connect with coworkers or classmates, use your school or work email address to register. Once you register, join a regional network to connect with the people in your area.

Discover the people around you
Facebook is made up of many networks, each based around a company, region, or school. Join the networks that reflect your real-life communities to learn more about the people who work, live, or study around you.”

Microsoft recently invested $240 million for a 1.6% stake in facebook while Hong Kong billionaire Li Ka-shing invested $60 million for a 0.4% stake. Using those figures, would value the company at a whopping $15 billion. I have little doubt that the 4 year old company and its 23 year old founder are brilliant but are they worth $15 billion? Just to put this into perspective here are the market capitalizations of some popular Canadian large caps.

Telus – $7.7 billion
Shoppers Drug Mart – $11 billion
Tim Hortons – $7.4 billion
Loblaws – $7.9 billion
Bombardier – $10 billion

Although there is no denying the popularity or marketing potential of Facebook I would have reservations about investing in an online “social utility” that is valued the same as Tim Hortons and Telus combined. The valuation may be appropriate if its current growth were to continue indefinitely however, personally I think there is a chance that Facebook has the potential to become a “flavour of the month”. Anyone remember geocities? Of course there is a chance that it may stick around however, if I had $15 billion to invest I think I would rather take my chances and buy both Telus and Tim Horton than gamble on Facebook. Which would you rather own?

Core Portfolio Holdings

2008-03-19T06:46:00.002-05:00

You often hear analysts talk about “core holdings” but what exactly is a core holding? Well according to investorwords.com:

“A core holding is bought with the express purpose of being held for a very long time, and is often a high-quality security with a history of fairly steady performance.”

I thought that in this time of market turbulence it would be refreshing to go over a model portfolio of companies that I would consider core holdings.

CANADIAN:
TRP, ENB (pick 1)
RY, TD, CM (pick 1)
BNS
GWO, SLF, MFC (pick 1)
POW, PWF (pick 1)
BCE, T, RCI.B (pick 1)
REI.UN, XRE (pick 1)
CNR, CP (pick 1)
FTS, EMA, EP.UN (pick 1)
TLM, PCA, ECA, CNQ (pick 1)
COS.UN, SU (pick 1)
L, WN, EMP.A (pick 1)
BAM.A

U.S:
JNJ
C, BAC, JPM (pick 1)
GE, UTX (pick 1)
PG, CL (pick 1)
FDX, UPS (pick 1)
WMT
Large International Drug Company (PFE, TEVA etc…)

What do you consider your core holdings?

How Much Does It Cost To Beat the Market?

2008-03-17T06:47:00.000-05:00

I was recently reading the New York Times and came across a very interesting article by Mark Hulbert. In his article he outlines the results of a recent study that attempted to quantity the collective cost of Americans trying to beat the market. The study entitled “The Cost of Active Investing” found that collectively it is costing Americans roughly $100 billion annually to try and beat the market. The study “took into account the fees and expenses of domestic equity mutual funds (both open- and closed-end, including exchange-traded funds), the investment management costs paid by institutions (both public and private), the fees paid to hedge funds, and the transactions costs paid by all traders (including commissions and bid-asked spreads). If a fund or institution was only partly allocated to the domestic equity market, he counted only that portion in computing its investment costs.

Professor French then deducted what domestic equity investors collectively would have paid if they instead had simply bought and held an index fund benchmarked to the overall stock market, like the Vanguard Total Stock Market Index fund, whose retail version currently has an annual expense ratio of 0.19 percent. The difference between those amounts, Professor French says, is what investors as a group pay to try to beat the market.”

The results of this study imply that there are really only 2 strategies that investors should stick with:

1. Buy and hold a diversified portfolio.
2. Play the market through low cost ETFs.

To view the entire article please follow this link.

Global Credit Crunch

2008-03-13T06:34:00.000-05:00

The credit crunch caused by the mortgage fiasco in the United States is now truly a global phenomenon. The Bank of Canada announced yesterday that they will be injecting $4 billion in an attempt to ease some of the liquidity issues caused by the mess south of the border. During the same period a credit infusion will also be offered by the Federal Reserve, the Bank of England, the European Central Bank and the Swiss National Bank. It may be too little too late however at this stage in the game what other reasonable options are there? The bottom line is more liquidity is required to allow financial institutions to continue doing business. At this point the only other alternative would be to force the financial sector to liquidate its rotten assets and wipe out the leverage which would cause many of them to go bankrupt. That would be a lose-lose for everyone.

Stock Selection Process

2008-03-11T06:55:00.000-05:00

Here is the general process I use to evaluate a stock.

1. Are their products/services in a growing or stable industry?
-for me this would exclude companies such as newspapers, tobacco etc. Basically, I look for companies that I think will still be around in 50 years.

2. Do they have a competitive advantage or are there large barriers to entry?
-for example companies like TRP and CNR have huge barriers to entry. Other than the billions of dollars that would be required to build the infrastructure it would takes year and years to get the proper approvals.

3. Do they have a history of returning value to shareholders?
-for example, JNJ has raised their dividend for the last 44 years. MMM has paid a dividend since 1916. A history of share buy backs would also be a plus.

4. Are they trading at a reasonable price?
- I use my fair value calculation when appropriate.

To calculate fair value I use a modified discounted cash flow model. Basically, I calculate the present value of the future dividend income and the present value of the future estimated EPS (multiplied by the PE ratio that I think the company SHOULD be trading at) and the sum of those two numbers is the fair value

My stock selection process has evolved over the years and I find it effective to select companies for my particular investing style. However, for other strategies or investing styles my selection process would be very ineffective. I’d also just like to note that the formula I use to calculate fair market value is not valid for all types of companies. For example, it’s not effective for many REIT’s or resource companies as their share prices are generally based on NAV, FFO, or reserves which are not included in my formula.

New Billionaire on Top

2008-03-07T07:23:00.003-05:00

There’s been a little shuffling at the top of the billionaire list this year. Warren Buffet is now officially the world’s richest man. His net worth is now an estimated $62 billion up from $52 billion last year. His 10 billion dollar ride has ended the 13 year reign of his longtime friend Bill Gates who was been bumped down two notches to the world 3rd richest man. But come on...once you hit a few hundred million does it really matter anymore? Regardless here is a list of the top 20 richest people in the world.

1. Warren Buffett
2. Carlos Slim Helu
3. William Gates III
4. Lakshmi Mittal
5. Mukesh Ambani
6. Anil Ambani
7. Ingvar Kamprad
8. KP Singh
9. Oleg Deripaska
10. Karl Albrecht
11. Li Ka-shing
12. Sheldon Adelson
13. Bernard Arnault
14. Lawrence Ellison
15. Roman Abramovich
16. Theo Albrecht
17. Liliane Bettencourt
18. Alexei Mordashov
19. Prince Alwaleed
20. Mikhail Fridman

U.S. Recession?

2008-03-05T07:00:00.000-05:00

The talking head on business networks like BNN and CNBC have been debating the issue now for months, “is the U.S going into recession?”. Some economists are saying yes, while others are saying no. Well Warren Buffet has an answer for us…yes the U.S is in a recession.

Based on the technical definition of a recession (two consecutive quarters of negative GDP growth) we haven’t yet entered a recession. However, Mr.Buffet was recently quoted as saying “I would say, by any commonsense definition, we are in a recession”. That’s good enough for me. If the world most successful investor says we’re in a recession I believe him.

Portfolio Update as of Feb 28, 2008

2008-03-03T07:38:00.000-05:00

-no change from last month
-up 0% in 2008
-CDN 66.2%
-U.S. 30.4%
-International 3.4%

TRP - 4.46%
CSH.UN - 4.19%
GWO - 4.31%
PFE - 4.72%
POW - 3.76%
WAG - 3.30%
L - 2.39%
UNS - 2.27%
GZ - 2.50%
TD - 12.74%
EIT.UN - 2.65%
JNJ - 5.31%
MMM - 3.41%
C - 3.39%
ATD.B - 3.05%
BCE - 5.31%
IIC - 2.80%
O'Shaughnessy’s Global Fund - 3.38%
American Growth Fund - 0.84%
CDN Value Fund - 2.96%
Small Cap Growth Fund - 4.02%
Chou Associates Fund - 9.48%
Money Market Fund - 8.78%

The only change in my portfolio over the last month was that I added a quarter position to my Citibank holding.

TFSA – Tax Free Savings Account

2008-02-29T10:47:00.002-05:00

As I’m sure you have probably heard the recently released budget contains a proposed “Tax Free Savings Account”. This proposed account will allow individuals to contribute up to $5000 annually into an account that can accumulate interest, capital gains and dividend tax free. As there is already a lot of information circulating regarding these new accounts I won’t try to rehash it all but instead provide you some links to sites that you may be interested in:

-How to Profit from a Tax Free Savings Account (click here)

-TFSA Bonanza (click here)

-The Tax-Free Savings Account (TFSA) – A Creative Financial Approach (click here)

-Federal Budget 2008: Tax Free Savings Account (click here)

-Benefits of Tax Free Savings Account (click here)

-Tax Free Savings Account (click here)

-Juggling the Mortgage, RRSP’s and TFSA’s (click here)

-Tax-Free Savings Account (click here)

Citigroup - C

2008-02-27T08:17:00.002-05:00

"Citigroup is organized into four major business groups: Global Consumer; Markets and Banking (M&B); GlobalWealth Management; and Alternative Investments. The Citigroup Global Consumer business includes banking services, credit cards, loans and insurance. The M&B business is in about 100 countries and advises companies, governments, and institutional investors on the best way to realize their strategic objectives. The GlobalWealth Management division at Citigroup is comprised of The Citigroup Private Bank, Smith Barney (private wealth management), and Citigroup Investment Research,and serves both private and institutional clients.”

Here are my reasons for averaging down:
-As a general rule I’ve found that the best time to buy large multinational blue chips is when everyone else hates them.
-Currently 45% of their revenue is generated outside of the United States and their current focus is to increase this number to 60%.
-They have the world’s largest credit card operation.
-In my opinion they are extremely well positioned to expand their international operations.
-Management is aggressively working to rebuild their capital base.
-The potential exists to unlock some value if Citi is broken up into separate entities.
-I believe long term this franchise will be a survivor

PE – 34.3
Estimated 2007 PE – 8.9X
Estimated 2008 PE – 6.8X
Current dividend yield – 5.13%
Price/Book – 1.1X

Other Facts:
-S&P recently downgraded them from 5 stars (strong buy ) to 3 stars (hold). However, they have a 12 month $35 price target
-Argus recently reduced their 1 year target price to $35 from $55 but are maintaining a buy rating.

Calculated Fair Value:
I’ve calculated the fail value of C (based on current information) to be approximately $32.81. My estimate is a little more conservative than both S&P and Argus however, from it’s current price there is a 31% upside.

As I mentioned in yesterday’s post, I initiated a half position in C last November and a bought another quarter position last week. I will continue to watch the developments on this name and am not opposed to initiating another quarter position in the future.

(Disclaimer: I currently own shares of C. However,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.)

Citigroup – C

2008-02-26T12:59:00.001-05:00

I'm currently travelling so this post will be short.

Last Friday I added about a quarter position to my Citigroup holding. I continue to like Citi for the same reasons as I did when I originally initiated a position in November. Tomorrow I’ll provide a full analysis of C as well as the new fair price that I’ve calculated.

Johnson & Johnson - (JNJ)

2008-02-22T07:45:00.000-05:00

“Johnson & Johnson is engaged in the manufacture and sale of a broad range of products in the health care field in many countries of the world. The company's worldwide business is divided into three segments: Consumer; Pharmaceutical; and Professional.”

Dividend Yield: 2.64%
Dividend Yield 5yr Avg: 1.9 %
ROE levels of above 21% for the past 10 years
Current P/E– 17.3
Projected 2008 P/E –14.3
Projected 2009 P/E – 13.6
4 Star rating from S&P - $74 one year target
Argus rates it a buy with a $75 one year target

Other information:
-44 years of consistent dividend growth.
-3 year average dividend growth rate: 14%
-5 year average dividend growth rate: 15.5%
-5 year average dividend payout ratio: 40%
-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.
-44% of sales outside of North America

Calculated Fair Value:
The fair price I calculated for this stock is $67.

(Disclaimer: I currently own shares of JNJ. However, I am not a financial advisor. Please do your 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.)

Sub Prime Explained

2008-02-20T07:55:00.001-05:00

Here's a funny little cartoon series that actually does a good job explaining the subprime mess. It’s definitely worth the read.

http://docs.google.com/TeamPresent?docid=ddp4zq7n_0cdjsr4fn&skipauth=true&pli=1

3M - MMM

2008-02-19T11:32:00.000-05:00

Today I’d like to take a look at this member of the “Broad Dividend Achievers”.

“3M Company is a diversified technology company with leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation and other businesses. They are an integrated enterprise characterized by substantial intercompany cooperation in research, manufacturing and marketing of products.”

They trade under the symbol MMM on the New York Stock Exchange and are included in the following indexes Dow Jones Composite, Dow Jones Industrial, S&P 100, S&P 500 and S&P 1500 Super Comp.

-Current P/E – 14.5X
-2008 Estimated PE – 14.7X
-2009 Estimated PE – 13.3X
-ROE – 37.74%
-Current Yield – 2.36%
-5 Year Average Yield – 2%
-Current Payout Ratio – 33.5%
-5 Year Historical Payout Ratio – 39%
-3 year dividend growth rate – 10.02%
-5 year dividend growth rate – 10%

Other Facts:
-Dividend History: Paid quarterly since 1916
-60% of their revenues now come from outside the US
-Increased the quarterly every year for the last 50 years.
-Have a long history of innovation
-S&P Rating: 3 stars, Hold, $85 target price (5.4% upside)
-Argus Rating: Buy, $105 target price (30% upside)

Calculated Fair Value:
The fair price I calculated for this stock is $85.62. This is virtually identical to the target calculated by the analysts at S&P. This represents a 5.2% discount to the current price of $79.52.

(Disclaimer: I have a position in MMM but am not a financial advisor. Please do your 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.)

3M – Increases Dividend

2008-02-14T11:30:00.002-05:00

On Feb 11th, 3M announced a 4.2% increase in their quarterly dividend, making 2008 the 50th consecutive year that the company has increased their dividend. Although, the dividend increase is only marginally above the rate of inflation their payout ratio has slowly been coming down. The 5 year average payout ratio is approximately 39% while their current payout ratio is about 33.5%. The Moneygardener has suggested on his blog that perhaps the paltry dividend increases are a result of 3M bulking up for future acquisitions and I certainly agree that’s a probable option. However, another reason for the small dividend increase could simply be that management is taking a cautious approach. I’m speculating that the management at 3M is like most of the large and small players in the market, just waiting to see what happens to U.S economy. Will there be a recession? If so how bad will it be? Although, 60% of 3M’s revenue now comes from outside the U.S they are still very closely tied to the U.S economy and are often used as a barometer for the overall health of the U.S economy.

As an investor in 3M I like to see management taking a cautious approach. Personally, I would rather a small dividend increase in uncertain markets than a large dividend increase that could become unsustainable if global markets start to erode.

(Disclaimer: I currently own shares of MMM. However, I am not a financial advisor. Please do your 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.)

Subprime – Do We Have a Problem Managing Risk ?

2008-02-12T16:00:00.000-05:00

Due to the ongoing subprime fiasco many banks and financial institutions are in the process of redefining how they assess risk. As an investor I find it hard to believe that these major financial players could have miscalculated risk to the degree that it now has some of them teetering on bankruptcy while potentially throwing the U.S into a recession. Personally, I’m hoping that they knew the risk and were just greedy. As an investor the greed argument is much more reassuring than the notion that almost all of the major financial players in the U.S do not have the ability to accurately assess risk, and therefore were investing in products that they didn’t understand.

Recently Citigroup Chairman Win Bischoff was quoted as saying “managing risk within a bank is not just a matter of relying on internal processes but also requires taking the right decisions at the top of the company”. Is this new? Is he proposing a new standard for risk management? His quote leaves me asking “what were they doing before?”

This might be my naivety but I had assumed that since the bread and butter of financial institutions is assessing risk that the top brass was already committed to “taking the right decisions at the top of the company”. I was under the impression that the huge pay checks distributed to those at “the top of the company” were because they were able to assess risk and make decisions. Just to put this into perspective, recently ousted CEO Chuck Prince is leaving the company with $94 million in vested stock in addition to the $53.1 million he made over the last 4 years. While former of Merrill Lynch CEO Stanley O’Neal is being pushed out for a paltry $161.5 million. With salaries approaching the hundred million mark I’d say yes Mr. Bischoff perhaps....“managing risk within a bank is not just a matter of relying on internal processes but also requires taking the right decisions at the top of the company”.

Thinking about Taking a Vacation?

2008-02-11T11:13:00.000-05:00

If you love adventure and go on vacation for an adrenaline rush then you might want to check out the below hot spots. Reuters has compiled a list of great travel destinations for the really depressed/insane. The article entitled “Travel Picks: The world's top 10 dangerous destinations” provides a brief description of each destination as well as the possible risks ie- warlords, kidnapping, land mines etc…

Here they are in order of danger:

1. Somalia
2. Iraq
3. Afghanistan
4. Haiti
5. Pakistan
6. Sudan
7. Democratic Republic of the Congo
8. Lebanon
9. Zimbabwe
10. Palestinian Territories

To view the entire article please click here.

A Correction vs. a Bear

2008-02-08T08:42:00.000-05:00

When does a market correction become a bear market? Well according to InvestorWords.com the definition of a bear market is:

“A prolonged period in which investment prices fall, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is instead called a correction. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly.”

Another general guideline that is used to distinguish a correction from a bear is that a correction can be defined as a 10% decline, while a bear market is a 20% drop. So what do you think correction or bear?

Portfolio Update as of Feb 2, 2008

2008-02-05T07:43:00.000-05:00

-up 1% from last month
-up 9% in 2007
-CDN 67%
-U.S. 30%
-International 3%

TRP - 4.31%
CSH.UN - 4.27%
GWO - 4.49%
PFE - 4.99%
POW - 3.97%
WAG - 3.27%
L - 2.62%
UNS - 2.47%
GZ - 2.17%
TD - 13.02%
EIT.UN - 2.45%
JNJ - 5.43%
MMM - 3.52%
C - 2.68%
ATD.B - 3.09%
BCE - 5.22%
IIC - 2.36%
O'Shaughnessy’s Global Fund - 3.39%
American Growth Fund - 0.87%
CDN Value Fund - 3.11%
Small Cap Growth Fund - 3.87%
Chou Associates Fund - 9.34%
Money Market Fund - 9.08%

The only change in my portfolio over the last month was the purchase of IIC. I also contributed some cash to the portfolio which increased my cash position to 9% from 6%. The cash injection was also responsible for the 1% portfolio increase. Excluding the cash injection the portfolio would have been down approximately 2%. The reason for the decrease was the general malaise that the markets have experienced over the last month, no individual name was down in any significant way. As always I’ll continue to monitor the markets and make acquisitions when I perceive value.

ING Canada – IIC

2008-02-04T07:44:00.000-05:00

I recently purchased a small amount of ING Canada (IIC - TSX). I am going to continue to follow it and possibly double down in the future. I plan on holding this name for approximately 2 to 5 years (due to the cyclicality of the P&C industry). However, I don’t expect much movement in the stock for the next 6-12 months.

ABOUT
“ING Canada Inc. is the largest provider of property and casualty (P&C) insurance in Canada, operating through ING Insurance, ING Novex, Nordic, belairdirect and Trafalgar. Our principal products are automobile, property and liability insurance, which we provide to individuals and small to medium-sized businesses across Canada. Consumers can purchase insurance products from ING Insurance through a network of 2800 brokers across the country, from belairdirect through its web site and call centres as well as from Trafalgar Insurance through Grey Power brokers and call centres”

Current P/E – 8.5X
-2008 Estimated PE – 9.1X
-2009 Estimated PE – 8.1X
-ROE – 20% (over the last 10 years they have outperformed their industry peers by 820bps)
-Current Yield – 3.1%
-Current Payout Ratio – 19 %
-trading at 1.4X book
-Debt to Equity Ratio – 0%

Other Facts:
-have captured 11% of the P&C market share in Canada.
-trading on the TSX since 2004 when their parent company, The ING Group, spun out 30% of their Canadian operations.
-largest and best in class of the Canadian P&C insurers.
-potential for the parent company to repurchase the shares (however do not buy this company on the potential of a takeover)
-they are the major industry consolidator in Canada.
-$1.5 billion available for acquisitions.
-no U.S subprime exposure.
-hedge all U.S foreign currency risk.

(Disclaimer: I’m am not a financial advisor. Please do your 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.)

TransCanada Corp – TRP

2008-01-30T07:43:00.000-05:00

"TransCanada is a leader in the responsible development and reliable operation of North American energy infrastructure. Our network of more than 59,000 kilometres (36,500 miles) of pipeline taps into virtually all major gas supply basins in North America. TransCanada is one of the continent’s largest providers of gas storage and related services with approximately 360 billion cubic feet of storage capacity. A growing independent power producer, TransCanada also owns, or has interests in, approximately 7,700 megawatts of power generation."

Investors in TranCanada Corp. all received a pay raise yesterday (albeit a small one). TRP raised their quarterly dividend by 6% and reported fourth quarter net income of $0.70/share (up 27% from last year). While fourth quarter earnings were up 8% from 2006. Year over year net income was 5% to $2.31/share, while earning were up 10% to $2.09/share.

In my opinion TRP is a solid Canadian company that should part of the foundation of any diversified dividend growth portfolio. Here’s why I continue to hold TRP:

-Has paid a dividend for the last 42 years
-Long history of increasing dividends (with the exception of 1999 where they cut it from $1.12 to $0.8)
-The purpose of the dividend cut was "to strengthen its financial flexibility and capture North American energy growth opportunities."
-Current P/E – 17.7X
-2008 Estimated PE – 17X
-2009 Estimated PE – 16X
-ROE – 14.1%
-Current Yield – 3.8%
-5 Year Average Yield – 3.5%
-Current Payout Ratio – 63%
-5 Year Historical Payout Ratio – 54%
-3 year dividend growth rate – 11.66%
-5 year dividend growth rate – 6.73%
-Good growth profile with the proposed 3,456-kilometre (2,148-mile) Keystone Pipeline project.

(Disclaimer: I’m am not a financial advisor. Please do your 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.)

Dividend Reinvestment Plans - DRIPs

2008-01-28T07:36:00.000-05:00

If you are unfamiliar with Dividend Reinvestment Plans please read the following posts from November, 2007 “DRIPS” and “To DRIP or not to DRIP”.

I have recently chosen to enroll my entire account in a synthetic DRIP program. In a previous post I had mentioned that I chosen to DRIP some of my holdings however all holdings are now DRIPed and all new holdings will automatically be enrolled in a synthetic DRIP program without me having to notify a broker.

Setting up an automatic DRIPing program is extremely easy and can be done with one five minute phone call to your discount broker. You simply call your discount broker, and tell them which account you’d like to enroll.

I’ve chosen to DRIP my entire account to take advantage of recent declines in the market. Additionally, my portfolio is now at the point where I won’t be adding a lot of new names and as a result won’t require the cash flow from my current holdings to finance the purchase of new names. Additionally, with approximately 20 holdings in my portfolio it’s become inefficient to add small amounts to so many names.

Before enrolling in a DRIP program it’s vital that you understand that all purchases made through a DRIP must be accurately tracked (unless you’re DRIPing within an RRSP) as you’ll eventually be responsible to the taxman for all purchases made. If/when you eventually decide to sell (or the company is bought out) you have to be able to accurately calculate your adjusted cost base in order to calculate your capital gains.

The Facts about Wal-Mart

2008-01-25T09:06:00.000-05:00

I discovered a great article by Charles Fishman, “The Wal-Mart You Don’t Know”while doing my daily read over at Million Dollar Journey. The article explores Wal-Mart from the suppliers’ point of view and illustrates the enormous power that Wal-Mart can exert not only on their suppliers but also on the entire global economy. The author argues that:

“The giant retailer's low prices often come with a high cost. Wal-Mart's relentless pressure can crush the companies it does business with and force them to send jobs overseas. Are we shopping our way straight to the unemployment line?”

Here are some aspects of the article that I found interesting.

-“ Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric.”

-Last year they sold $255.5 billion worth of goods.

-In 3 months they sells more than number-two retailer Home Depot sells in a year.

-They do “more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined.”

-They have approximately 21,000 supplies.

-Wal-Mart is single handedly responsible for about 10% of all Chinese exports to the United States.

-Partly responsible for the low rate of inflation in the U.S.

- “12% of the economy's productivity gains in the second half of the 1990s could be traced to Wal-Mart alone.”

-Last year, 7.5 cents of every dollar spent in any store in the United States (other than auto-parts stores) went to the retailer.

This article is definitely worth a read and can be viewed by following this link.

Johnson & Johnson (JNJ) - A Sliver of Good News

2008-01-23T07:41:00.000-05:00

Well it’s been a pretty dismal couple of weeks for the markets with many companies (particularly financials) releasing earning reports that surprised even the bearish of analysts. However, despite all the doom and gloom there are a few positive results out there.

Yesterday Johnson & Johnson announced record sales of $16 billion (a 16.6% increase from Q4 2006) and a 10.8% increase in fourth quarter EPS. Excluding special items their fourth quarter EPS was $0.88 beating the analyst consensus of $0.86 a share. Although these aren’t blockbuster results they are exactly what I’d expect from JNJ, consistent and steady. Even more importantly I think it’s important to look at where the growth is coming from:

CONSUMER SEGMENT
U.S Sales: Up 37.6% to $1.63 billion from $1.18 billion
International Sales: Up 57.9% to $2.18 billion from $1.38 billion
Total Growth: Up 48.5%

(The huge increase in this sector is partially a result of the acquisition of Pfizer’s consumer division.)

PHARMACEUTICAL SEGEMENT
U.S Sales: Up 2% from last year's $3.87 billion
International Sales: Up 17.8% to $2.45 billion from $2.08 billion a year ago
Total Growth: Up 7.5%

MEDICAL DEVICES & DIAGNOSTICS SEGMENT
U.S Sales: 6.8% to $2.66 billion from $2.49 billion
International Sales: Up 15.4% to $3.09 billion from $2.68 billion
Total Growth: Up 11.3%

The results are certainly indicative of where the growth is for JNJ (international) and also one of the reasons I originally initiated a position in JNJ.

The company also gave guidance for 2008 and indicated that their EPS would be in the range of $4.39 - $4.44. This represents an increase of 5.8% to 7% not bad considering it looks like we're heading into a recession.

(Disclaimer: I currently have a position in JNJ but am not a financial advisor. Please do your 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)

Warren Buffet’s Holdings as of September 30, 2007

2008-01-21T12:05:00.001-05:00

As Warren Buffet is arguably the worlds most successful investor I think it’s worth the time to periodically check his holdings to see where he’s deployed his capital. The below chart lists his holdings as of September 30, 2007. Although, this information is around 4 months old Warren Buffet is a very long term investor and has been quoted as saying “Our favourite holding period is forever” as such I don’t think the composition of his portfolio would have changed in any significant way since September.

Canadian Bank Yields & Payout Ratios

2008-01-18T08:04:00.000-05:00

I came across these numbers yesterday in an article entitled “Could U.S. bank dividend contagion spread north?” by Rob Carrick from the Globe and Mail. Rob Carrick calculated the below figures based on the stock prices at the close of January 16th, 2008 and on the estimated earnings per share for 2008. Please click here to view Rob Carricks’ entire article.

Bank of Montreal (BMO)
Yield: 5.09%
Payout Ratio: 46.7%

National Bank of Canada (NA)
Yield: 5.06%
Payout Ratio: 39.3%

Cdn. Imperial Bank of Commerce (CM)
Yield: 5.03%
Payout Ratio: 38.7%

Royal Bank of Canada (RY)
Yield: 4.11%
Payout Ratio: 41.7%

Bank of Nova Scotia (BNS)
Yield: 4.00%
Payout Ratio: 40.0%

Toronto-Dominion Bank (TD)
Yield: 3.43%
Payout Ratio: 36.2%

Brookfield Asset Management (BAM.A)

2008-01-16T07:46:00.000-05:00

“Brookfield is a global asset manager focused on property, power and other infrastructure assets with approximately US$90 billion of assets under management. We own and manage one of the largest portfolios of both premier office properties and hydroelectric power generation facilities as well as transmission and timberland operations, located in North and South America and Europe.”

In my opinion BAM.A is the perfect candidate for a long term hold as they are in relatively recession resistant, renewable areas that will continue to grow in the future. Their five primary areas interest are:

1. Property - $35 billion of property assets under management in North and South America, Europe and Austraila

2. Power – invested primarily in high quality, long life hydroelectric power facilities located primarily in north east North America as well as Brazil.

3. Timber - have 2.5 million acres of high quality timberlands under management

4. Infrastructure – over 11,000 kilometers in Northern Ontario and South America. Over $3 billion transmission assets under management.

5. Equities & Fixed Income - significant experience value investing in real estate and a broad range of other industries and geographic regions.

-Current PE – 17.9X
-ROE – 22.91%
-Current Yield – 1.6%
-5 Year Average Yield – 1.9%
-Current Payout Ratio – 28%
-5 Year Historical Payout Ratio – 78%
-3 year dividend growth rate – 18.95%
-5 year dividend growth rate – 11.6%

I’ve been watching this one for a while and it has finally started to come down to reasonable levels (I’m sure partly because of their 50% ownership of BPO). However, I believe that BPO is also starting to look attractive at these levels as well. I don’t currently have a position in BAM.A but it is one that I will continue to watch closely.

(Disclaimer: I’m am not a financial advisor. Please do your 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)

40 Year Mortgages are now in Canada

2008-01-14T07:32:00.000-05:00

Well it’s official 40 year mortgages have been in Canada for about 6 months now. On June 20, 2006 Wells Fargo became “the first lender to offer nationwide to Canadian consumers a mortgage with a 40-year amortization". Since then virtually all of the major mortgage players in Canada are offering similar products. The timing seems impeccable given what’s currently happening in the United States mortgage market. Now everyone, even those who probably shouldn’t have a mortgage, can afford to buy a house in Canada. Although I disagree with 40 year mortgages in principle and under no circumstances would consider one for myself I’m not complaining as I currently have a significant amount of my portfolio in Canadian financial companies and any chance they get to increase earnings is fine by me. The disadvantages of 40 year mortgages are obvious (from the borrowers point of view) but just to drive the point home here is a little example of how much a 40 year mortgage would actually cost you.

Amount Borrowed: $300,000
Mortgage Rate: 6%
Amortization Period: 40 Years
Payment Frequency: Monthly

Given the above scenario you would have paid a whopping $784,926.71 over the 40 years with $484,926.41 of that being interest. Now if you were to take the same mortgage and amortize it over 25 years you would only be paying $575, 828.93 with only $275,828.3 of that being interest. By amortizing over 25 years you would only pay an extra $280 monthly on your mortgage but save over $209,000 in additional interest payments.

If you want a little more information on the subject Ellen Roseman from the Toronto Star wrote a great article that you can view by clicking here.

CIBC A History of Screw Ups and a Time to Buy?

2008-01-10T08:44:00.000-05:00

CIBC certainly seems to be unique among the big 5 Canadian banks. They have made themselves unique by the fact that they can’t seem to be able to avoid screwing up. They seem to have an innate ability to identify and then participate in risky market shenanigans. Let’s briefly take a look at some of the more recent debacles.

Dec 22, 2003
Canadian Imperial Bank of Commerce agreed to pay 80 million dollars to settle US charges that it aided Enron's financial fraud and pledged to assist a federal criminal investigation

August 2005
They took a $2.5 billion after-tax charge against its profit in the third quarter ended July 31, 2007 to cover the payment and other Enron issues.

After taking this huge write down in 2005 CIBC was adamant about avoiding “risky investments”. Just 2 short years later they announced that they would incur approximately $1 billion in charges due to their exposure to the U.S sub-prime mortgage market. However, many analysts now believe that CIBC will need to write down a further $2 billion. As a potential investor a $3 billion dollar write down while at the same time having a mandate of “avoiding risky investments” is unacceptable. The market seems to agree with me and the stock has been hammered down to about $67/share from it’s 52 week high of $107. In response to their latest disaster there has been some major changes in senior management at CIBC including a new Risk Officer, Chief Financial Officer and Chief Executive Officer.

This stock has been punished and deserved it. However, I think there is some real hidden value here and in my next post I’ll talk a little bit about why I’ll most likely be initiating a position in CM in the near future.

About Warren Buffet

2008-01-09T09:32:00.001-05:00

I don’t think there is anyone out there who doesn’t know who Warren Buffet is however, just in case I’m wrong I’ll give you a quick bio with a few of the lesser known facts.

- Born in 1930, Nebraska, Omaha
- Arguably the world’s most successful investor.
- 2nd richest man on the planet with an estimated net worth of over $52 billion.
- At 11 he bought his first stock. He purchases 6 shares of Cities Service preferred stock [3 shares for himself, 3 for his sister, Doris]
- At 13 he filed his first income tax return, deducting his bicycle as a work expense for $35.
- Received a Bachelor of Arts/Science from the University of Nebraska Lincoln, Science
- Was rejected from Harvard grad school for “being too young”
- Received a Masters of Science from Columbia where he studied under his mentor and investing legend Benjamin Graham.
- Bought control of textile firm Berkshire Hathaway 1965. Today Berkshire Hathaway is a huge holding company that owns controlling interests in a multitude of stocks.
- If you had invested $10,000 (U.S.) in Berkshire Hathaway when Warren Buffet took control in 1965 you would have more than $50-million today. Had you invested the same amount in the S&P 500 index during the same period you would have just under $500,000.

Click here if you would like more complete bio.

Dividend Growing Stocks VIII – Manulife Financial (MFC)

2008-01-07T08:31:00.000-05:00

“Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 19 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were Cdn$399.0 billion (US$400.5 billion) as at September 30, 2007.”

-Current PE – 14.2X
-2008 Estimated PE – 12.5X
-2009 Estimated PE – 11.11X
-ROE – 16.32%
-Current Yield – 2.5%
-5 Year Average Yield – 1.7%
-Current Payout Ratio – 30%
-5 Year Historical Payout Ratio – 24%
-3 year dividend growth rate – 28.17 %
-5 year dividend growth rate – 30.10%
-Well diversified internationally with a strong presence in the emerging asian markets.
-“Manulife Financial is one of two publicly traded life insurance companies in North America whose rated life insurance subsidiaries hold Standard & Poor's Rating Services' highest "AAA" rating and Moody's Investor Services' second highest "Aa1" rating, both representing financial strength.”

Disclosure: I don’t currently own MFC however, it is certainly one that I would like to eventually add to my portfolio. I will be keeping a close eye on this name over the next few months.

Bottom Line vs. Top Line

2008-01-04T13:04:00.000-05:00

I’ve received a few e-mails from readers asking the difference between top line and bottom line growth. I thought it would be appropriate to post my answer here as these are very common terms that most companies use in both their reports and in conference calls and interviews. For example, you’ll often hear statements such as “although bottom line growth slowed a little more than expected this quarter we were very pleased with the top line growth and are on target to blah blah blah...”

Simply put, the bottom line is a company’s income after all expenses have been deducted. If you take a look at an income statement the reasoning behind the term “bottom line” will become obvious as net income is literally the bottom number on the statement. Other terms for the bottom line are “net income” or “net profit”.

Top line growth refers to the “gross sales” or “gross revenue” of a company. For example, if a company increased their sales or revenue by 20% then they are said to have experienced top line growth. You probably would have guessed this by now but, the revenue section of an income state is at the top of the document and thus the term “top line growth”.

Hope this helps.

Portfolio Update as of Jan 1, 2008

2008-01-02T08:43:00.000-05:00

-up 0.7% from last month
-up 8.7% in 2007
-CDN 66%
-U.S. 31%
-International 4%

TRP - 4.46%
CSH.UN - 4.67%
GWO - 4.91%
PFE - 4.83%
POW - 4.41%
WAG - 3.44%
L - 2.80%
UNS - 2.87%
GZ - 2.67%
TD - 13.25%
EIT.UN - 2.46%
JNJ - 5.73%
MMM - 3.67%
C - 2.65%
ATD.B - 3.32%
BCE - 5.81%
O'Shaughnessy’s Global Fund - 3.65%
American Growth Fund - 0.90%
CDN Value Fund - 3.39%
Small Cap Growth Fund - 4.19%
Chou Associates Fund - 9.52%
Money Market Fund - 6.39%

The only change in my portfolio over the last month was that my very small position in BA.UN was sold through the “Small Unitholder Selling Program”. My strategy of buying out of favour, high quality, dividend growth companies will remain the same in 2008 as it was in 2007.. I don’t anticipate initiating many new positions in 2008 however, I will be keeping a close eye on U.S financials and suspect that I’ll be making some acquisitions in this sector later in the year.

Favorite Quotes from Warren Buffet

2007-12-30T19:15:00.000-05:00

I thought I would use my final post of the year to share a few of my favorite quotes from the world's most successful investor, Warren Buffet.

“Wide diversification is only required when investors do not understand what they are doing.”

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

“We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'”

“Time is the friend of the wonderful company, the enemy of the mediocre.”

“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

“Our favourite holding period is forever.”

“Only when the tide goes out do you discover who's been swimming naked”

“Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years”

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

“If past history was all there was to the game, the richest people would be librarians.”

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market”

“A public-opinion poll is no substitute for thought.”

“Lethargy, bordering on sloth should remain the cornerstone of an investment style.”

2008 U.S Dividend Growth

2007-12-28T11:51:00.000-05:00

It has been a great year for dividend growth investors with over 60% of the S&P constituents increasing their dividend in 2007. On average the companies comprising the S&P 500 increased their dividend payments by a healthy 9.7%. Total dividends paid by S&P 500 companies broke a new record with a whooping $256.6 billion distributed to shareholders. This is up $31.8 billion from $224.8 billion in 2006.

According to S&P analysts dividends will continue to rise 2008 with the average estimated increase to be 9.3%. However, this growth is not expected to be evenly distributed amongst the S&P 500 group of companies. U.S financials are going to be the obvious laggards as virtually all growth in that sector is expected to be muted by the on going sub-prime fiasco. Many analysts are in fact predicting some significant dividend cuts from the large U.S financials, which account for 30% of the dividends paid by S&P constituent companies. Respected analysts such as Goldman Sach’s William Tanona, Betsy Miller and Neil Sanyal believe that Citigroup will have to cut their dividend by as much as 40% if the estimated $18.7 billion fourth quarter write down occurs.

Citi would not be unique as many other large financial players in the U.S have already slashed their dividend such as and Washington Mutual (WM – NEW YORK),Fannie Mae (FNM – NEW YORK) and Freddie Mac (FRE – NEW YORK).

My personal opinion is that 2008 will be a terrible year for large dividend paying U.S financials. However, I also believe that they will probably be over punished, over sold and possibly ignored by many investors. Thus creating the possibility of 2008 being a once in a decade buying opportunity for quality, dividend paying large cap U.S financials.

Canadian ETFs

2007-12-26T12:37:00.000-05:00

Those of you that are pursuing (or interested in pursuing) an index or ETF based investment strategy might find the below list helpful. I’ve listed every ETF that trades on the TSX for your perusal.

iShares CDN S&P/TSX 60 Index Fund (XIU)
iShares CDN S&P/TSX Global Gold Index Fund (XGD)
iShares CDN MSCI EAFE 100% Hedged to CAD Dollars Index Fund (XIN)
iShares CDN Scotia Capital Universe Bond Index Fund (XBB)
iShares CDN S&P/TSX Capped Energy Index Fund (XEG)
iShares CDN Scotia Capital Short Term Bond Index Fund (XSB)
iShares CDN S&P 500 Hedged to Canadian Dollars Index Fund (XSP)
iShares CDN S&P/TSX Capped Financials Index Fund (XFN)
iShares CDN S&P/TSX Capped Composite Index Fund (XIC)
iShares CDN Dow Jones Canada Select Dividend Index Fund (XDV)
iShares CDN S&P/TSX Capped REIT Index Fund (XRE)
iShares CDN S&P/TSX Completion Index Fund (XMD)
iShares CDN S&P/TSX Capped Materials Index Fund (XMA)
iShares CDN S&P/TSX Capped Income Trust Index Fund (XTR)
iShares CDN S&P/TSX Capped Information Technology Index Fund (XIT)
iShares CDN Scotia Capital Real Return Bond Index Fund (XRB)
iShares CDN Scotia Capital All Corporate Bond Index Fund (XCB)
iShares CDN Dow Jones Canada Select Growth Index Fund (XCG)
iShares CDN Scotia Capital Long Term Bond Index Fund (XLB)
iShares CDN Dow Jones Canada Select Value Index Fund (XCV)
iShares CDN Jantzi Social Index Fund (XEN)
iShares CDN Russell 2000 Index - Canadian Dollar Hedged Index Fund (XSU)
iShares CDN Scotia Capital All Government Bond Index Fund (XGB)
iShares CDN S&P/TSX SmallCap Index Fund (XCS)
Horizons BetaPro S&P/TSX 60 Bear Plus ETF (HXD)
Horizons BetaPro S&P/TSX 60 Bull Plus ETF (HXU)
Horizons BetaPro S&P/TSX Global Gold Bull Plus ETF (HGU)
Horizons BetaPro S&P/TSX Capped Energy Bear Plus ETF (HED)
Horizons BetaPro S&P/TSX Capped Financials Bear Plus ETF (HFD)
Horizons BetaPro S&P/TSX Capped Financials Bull Plus ETF (HFU)
Horizons BetaPro S&P/TSX Capped Energy Bull Plus ETF (HEU)
Horizons BetaPro S&P/TSX Global Gold Bear Plus ETF HGD)
Claymore Canadian Financial Monthly Income ETF (FIE)
Claymore BRIC ETF (CBQ)
Claymore S&P/TSX Global Mining ETF (CMW)
Claymore Canadian Fundamental Index ETF (CRQ)
Claymore CDN Dividend & Income Achievers ETF (CDZ)
Claymore Canadian Fundamental 100 Monthly Income ETF (RFI)
Claymore US Fundamental Index ETF C$ hedged (CLU)
Claymore Oil Sands Sector ETF (CLO)
Claymore International Fundamental Index ETF (CIE)
Claymore S&P/TSX CDN Preferred Share ETF (CPD)
Claymore Japan Fundamental Index ETF C$ Hedged (CJP)
Claymore Global Balanced Income ETF (CBD)
Claymore Global Balanced Growth ETF (CBN)
Claymore S&P Global Water ETF (CWW)

Recent Canadian Dividend Increases

2007-12-21T08:27:00.000-05:00

There is nothing more satisfying to a dividend growth investor than a nice juicy dividend increase. Here is a quick recap of some of the Canadian dividend increases in the last 3 weeks.

1.National Bank (NA) increased their quarterly dividend 3.33% to 62 cents/share.

2.Reitmans (RET.A) increased their quarterly dividend 12.5% to 18 cents/share.

3.Astral Media (ACM.A) increased their semi-annual dividend 25% to 25 cents/share.

4.Canadian Western Bank (CWB) increased their quarterly dividend 11% to 10 cents/share.

5.Bank of Nova Scotia (BNS) increased their quarterly dividend by 4.44% to 47 cents/share.

6.A&W Royalties Income Fund increased their monthly distribution 2.9% to 10.6 cents/unit.

7.Laurentian Bank (LB) increased their quarterly dividend 10.3% to 32 cents/share.

8.Fortis (FTS) increased their quarterly dividend 19% to 25 cents/share.

9.Cameco (CC) increased their quarterly dividend 20% to 24 cents/share.

10.Encana (ECA) stated that they would increase their quarterly dividend 100% to 40 cents/share.

11.Vermillion Energy Trust(VET.UN) increased their monthly distribution by 12% to 19 cents/unit.

12.Agnico Eagle Mines (AEM) increased their annual dividend by 50% to 18 cents/share.

13.Fortis (FTS) increased their quarterly dividend by 19% to 25 cents/share.

14.Westshore Terminals Income Fund (WTE.UN) increased they quarterly distribution by 24% to 36 cents/share.

Santa Claus/Christmas Rally

2007-12-20T08:03:00.000-05:00

Every year there is talk about whether or not we are going to have a Santa Claus rally, and like many other phenomenon in the world of investing we can speculate about the possibilities until we’re blue in the face. However, we won’t actually know if there is going to be a rally until after it’s happened.

What is a Santa Claus or Christmas Rally?

A Santa Claus rally is the phenomenon of the stock market rallying in the week between Christmas and New Year (this of course doesn’t always happen).

Why does it Happen?

There is no single reason behind the Christmas rally but there are many possible explanations that have been suggested:

1. People investing their Christmas bonuses

2. General happiness of fund managers and investors due to the festive season.

3. Investors erroneously equating increased sales over the Christmas period to increased future share prices.

4. Money managers pilling money back into the market so that they don’t have to explain why they ended the year with such a high cash percentage when there was no pullback in the market.

5. People investing in the market in anticipation of a Santa Claus rally.

Personally, I pay no attention to Santa Claus rallies, and spend none of my time trying to predict them however, it’s impossible to ignore it altogether as the financial media seem to love talking about it which forces everyone to at least give it a passing thought.

Recession Resistance Portfolio - compiled

2007-12-17T08:22:00.000-05:00

As promised here is a compiled list of recession resistant stocks. Thanks to “Thicken my Wallet” and “Money Gardener” for contributing.

Sin Stocks
CDL.A - TSX
MO - NYSE
ROC- TSX
BUD - NYSE
DEO - NYSE
UTX - NYSE
BA - NYSE
BTI - AMEX
ITY - NYSE
RAI - NYSE
CG - NYSE
TAP.A - TSX

Health Care
JNJ - NYSE
CL - NYSE
WAG - NYSE
TEVA - NASDAQ
PFE - NYSE
BAX - NYSE
CLC.UN - TSX
SC – TSX
MRK - NYSE
CVS - NYSE
GSK – NYSE
PG - NYSE
SGP - NYSE
GILD- NASDAQ

Utilities
TRP - TSX
ENB - TSX
EP.UN - TSX
FCE.UN – TSX
EMA - TSK
CU – TSX
MPT.UN – TSX
APF.UN – TSX
ACO.X – TSX
MPT.UN – TSX
IPL.UN - TSX
PIF.UN – TSX
T-NYSE
T.A-TSX
RCI.B - TSX

Staples
KO - NYSE
THI-TSX
L - TSX
PEP-NYSE
CLX-NYSE

Financials
SLF - TSX
MFC - TSX
GWO - TSX

Recession Resistant Funds and ETFs

2007-12-14T08:12:00.000-05:00

If you don’t have a lot of capital to deploy or simply want to limit to your exposure to any individual names here are some mutual funds and ETFs that you might want to consider:

MUTUAL FUNDS

1. Vice Fund (VICEX)
“The Vice Fund invests in companies, both domestic and foreign, engaged in the aerospace and defense industries, owners and operators of casinos and gaming facilities, manufacturers of gaming equipment such as slot machines, manufacturers of cigarettes and other tobacco products, and brewers, distillers, vintners and producers of other alcoholic beverages”

2. T. Rowe Price Health Sciences (PRHSX)
“To invest at least 80% of net assets in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences. While the fund can invest in companies of any size, the majority of fund assets are expected to be invested in large- and mid-capitalization companies.”

3. MFS Utilities (MMUFX)
"The fund focuses on utilities stocks believed to have strong growth prospects. These stocks generally come from the gas and electric utilities, telecommunications, and cable TV industries. A portion of the portfolio is typically invested in bonds and convertible securities.”

ETF’s

1. Utilities Select Sector SPDR Fund (XLU)
The Utilities Select Sector Index includes companies from the following
industries: electric utilities; multi-utilities; independent power producers &
energy traders; and gas utilities. The funds objective is to provide investment results that, before expenses, correspond generally to the price and yield performance of the index components that compose the utilities sector of the S&P 500.

2. PowerShares Dynamic Utilities Portfolio (PUI)
“The PowerShares Utilities Portfolio (Fund) seeks to replicate, before fees and expenses, the Utilities Intellidex. The Intellidex thoroughly evaluates companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. Securities shown to possess the greatest capital appreciation potential are selected by the Index and incorporated by the portfolio manager.”

3. Health Care SPDR (XLV)
The Health Care SPDR tracks companies in the health care sector and includes companies primarily involved with health care equipment and supplies, health care providers and services, biotechnology, and pharmaceuticals industries. The funds objective is to provide investment results that, before expenses, correspond generally to the price and yield performance of the index components that compose the health care sector of the S&P 500.

4. PowerShares Dynamic Healthcare Services Portfolio (PTJ)
“The PowerShares Dynamic Healthcare Services Portfolio (Fund) is based on the Dynamic Healthcare Services Intellidex Index. The Index thoroughly evaluates companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investments and risk factors. Securities shown to possess the greatest capital appreciation potential are selected by the Index and incorporated by the portfolio manager.”

Building a Recession Resistant Portfolio

2007-12-13T07:37:00.000-05:00

As promised in my last post “Recession Proof your Portfolio” here is a list of securities that you can use as a starting point to research your own recession resistant portfolio. Please feel free to add any other picks you feel I’ve missed in the comments section and I’ll post a compiled list.

Sin Stocks
CDL.A - TSX
MO - NYSE
ROC- TSX
BUD - NYSE
DEO - NYSE
UTX - NYSE
BA - NYSE
BTI - AMEX
ITY - NYSE
RAI - NYSE
CG - NYSE
TAP.A - TSX

Health Care
JNJ - NYSE
CL - NYSE
WAG - NYSE
TEVA - NASDAQ
PFE - NYSE
BAX - NYSE
CLC.UN - TSX
SC – TSX
MRK - NYSE
CVS - NYSE
GSK - NYSE
SGP - NYSE
GILD- NASDAQ

Utilities
TRP - TSX
ENB - TSX
EP.UN - TSX
FCE.UN – TSX
EMA - TSK
CU – TSX
MPT.UN – TSX
APF.UN – TSX
ACO.X – TSX
MPT.UN – TSX

In my next post I will list a few mutual fund and Exchange Traded Funds that would be appropriate for a recession proof portfolio.

(Disclaimer: As always please do your own research and make your own decisions on which investments on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

Recession Proof your Portfolio

2007-12-11T10:00:00.000-05:00

If you’re like many other small investors out there you might be feeling a little pang of worry about the possibility of a recession and are starting to unload some of your more cyclical and economically sensitive names. You could simply take the proceeds of your sale and dump them into fixed income products but with bond yield so low what’s the point? Unless of course your only goal is capital preservation as current yields will just barely beat inflation. For those of you nervous about the future of the economy but want to stay invested in equities you might want to take a look at the following three recession resistant areas:

1. Sin Stocks – These would include companies involved with: booze, cigarettes or weapons. Do you know anyone who’s stopped drinking or smoking when they’ve fallen on economically bad times? Wars continue on regardless of the state of the economy.

2. Health Care – Even if the economy is in rough shape people will continue to visit the doctor, continue to take their prescriptions and continue to treat their ailments. As the North American population ages the demand for health care products is going to continue to rise regardless of the state of the economy.

3. Utilities – Regardless of the state of the economy the lights will remain on, the phones will remain connected and houses will continue to be heated in the winter and cooled in the summer.

In my next post I will provide a list of names you can use as a starting point to assemble your own recession resistant portfolio.

Recession

2007-12-07T12:16:00.000-05:00

There has been a lot of talk recently in the financial news about the big “R”… recession. If you’ve tuned in to any business channel in the last week you would have inevitably heard at least one talking head espousing their prediction of whether or not the US will enter a recession. We all know that a recession is bad but what exactly does it mean? And how do we know when we get there?

There is no absolute universal definition of a recession however, the definition used in the press and financial media is simply “two or more consecutive quarters of real GDP decline.” However, I prefer the description given by the National Bureau of Economic Activity (NBER):

“It's more accurate to say that a recession-the way we use the word-is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when the economy is contracting. The following period is an expansion. Economic activity is below normal or diminished for some part of the recession and for some part of the following expansion as well. Some call the period of diminished activity a slump.”

The above description describes why it’s so hard to both predict recessions and determine if we are in one. By their very definition you have to use historical data to identify the “trough” or “slump” between the periods of economic expansion.

Retirement Nest Egg at the Close of Dec 3, 2007

2007-12-05T07:37:00.000-05:00

-up 1.4% from last month
-up 7.9% in 2007
-CDN 64%
-U.S. 32%
-International 4%

TRP - 4.37%
CSH.UN - 4.24%
GWO - 4.91%
PFE - 5.12%
POW - 4.52%
BA.UN - 0.37%
WAG - 3.37%
L - 2.81%
UNS - 2.50%
GZ - 2.06%
TD - 14.29%
EIT.UN - 2.49%
JNJ - 5.95%
MMM - 3.65%
C - 3.06%
ATD.B - 3.35%
BCE - 5.77%
O'Shaughnessy’s Global Fund - 3.78%
American Growth Fund - 0.95%
CDN Value Fund - 3.44%
Small Cap Growth Fund - 4.01%
Chou Associates Fund - 10.06%
Money Market Fund - 4.92%

I made a few changes over the last month, I initiated a half position in C and took a full position in BCE. The 1.4% increase in my portfolio was a result of contributions and not share appreciation. Discounting my contributions in November my nest egg was actually down 2% from the end of October and up only 5.9% in 2007. The majority of the decline was a result of the underperformance of three of my holdings L, ATD.B and CSH.UN. I will continue to watch all three of my decliners and am considering selling L for tax reasons and switching into WN.

Purchased BCE

2007-12-04T07:35:00.001-05:00

Shortly after Friday’s post I decided to take a full position in BCE. I am fully aware that there is some risk in this play. However, I believe that the risk reward favours investing in BCE. The worst case scenario as an investor is that the buyout does not occur and I’m left holding a position in Canada ’s largest telecommunications company.

Although the possibility exists that the deal will not go through here are the reasons I believe it will:

1. The Teachers Pension plan is not dumb and they are aware that there has always been regulatory risk and rumours regarding the opening of telecommunications markets in Canada.

2. The bond holders trying to block the deal are Bell bondholders not BCE bondholders.

3. Credit markets are in disarray due to the sub prime mess, which could cause problems raising the necessary capital. However, if financing cannot be obtained they have other options such as: increasing the amount of capital invested and refinancing later.

4. The consortium could simply walk away from the deal. However, I think that is highly unlikely as there is a $1 billion dollar break free in addition to the teachers losing hundreds of million of dollars on their existing shares of BCE.

If you want more information on the deal here is a link to the privatization page at BCE.

I would just like to reiterate that I am making an educated gamble and that buying BCE at this juncture is NOT RISK FREE so please do your own research and make your own decisions.

BCE – Still a Play?

2007-11-30T11:11:00.001-05:00

As I’m sure everyone knows a consortium led by Teachers' Private Capital, Providence Equity Partners and Madison Dearborn Partners have made arrangements to acquire all of outstanding common and preferred shares of BCE. The deal is expected to close in the first quarter of 2008 and shareholders have overwhelmingly approved the $42.75 offered for each common share. Despite this fact (at the time writing) BCE is only trading at $39.40. This represents a discount of $3.35 or approximately 7.8%. Additionally, two dividends will be paid before the buyout for a total which will add another $0.73 per share. Combine the capital appreciation and the dividend income and that represents an upside of $4.08 or 10.3% between now and the second quarter of 2008. In my opinion a potential six month return of 10.3% is certainly very attractive in this environment. There is only one obvious risk to this scenario, the takeover does not happen. In my opinion the risk of this is minimal (but does exist) and I’ll probably be making a purchase of BCE in the near future.

A Couple Stocks with Huge Buyback Programs

2007-11-29T10:20:00.000-05:00

I just wanted to point readers to these two high quality companies that have initiated massive share buybacks.

1. Cisco (CSCO) – Cisco just increased the amount of their share buyback plan by $10 billion bringing their total buyback program up to $62 billion. With a market cap of 170 billion this buyback represents approximately 36% of their outstanding shares. In further support of the stock David Dreman, a respected and successful value investor has recently been a buyer.

2. American International Group (AIG) – AIG has been aggressively buying back it’s shares over the last year (69 million shares) and will be adding another $8 billion to it’s buyback plan. Supporters of the stock include famous investors Micheal Price and Bruce Kovner who both have positions in AIG.

In my opinion any company that is undertaking massive share buybacks are at least worth taking a look at, as it indicates that the management of the company believes that the shares are fundamentally undervalued and are willing to put their money where their mouth is.

DRIPs

2007-11-26T09:24:00.000-05:00

After my last post about DRIPs I received a few e-mail enquiries regarding different aspects of DRIPs so I thought it would be worthwhile to go over the basics.

What is a DRIP?

DRIP stands for Dividend Reinvestment Plan. There are 3 different types of DRIPs however they all work on the same principle, instead of shareholders receiving dividend payouts in cash they receive their dividend payout in the form of more company shares.

3 basic types of DRIPs

Company Run
This type of DRIP is administered directly through the publicly traded company. Fractional shares are permitted in this type of DRIP meaning that if you receive a quarterly dividend of $1 and the share price is $5 you would receive an additional 1/5 of a share. Additionally, many company run DRIPs also provide shareholders some incentive for staying enrolled ie – 3% bonus to the regular dividend. Company run DRIPs also usually offer a Share Purchase Plan which is a plan that allows investors to buy additional shares with no commission.

Transfer Agent-Run
For the shareholder this type of DRIP is the same as a company run DRIP. Transfer Agents are employed by companies to streamline their DRIP process and reduce the administrative costs associated with running a DRIP. Transfer Agents run DRIPs for a many customers and as a result can run offer the same program to multiple companies using the same resources resulting in lower costs.

Brokerage Run
Many brokers will now allow customers to reinvest their dividends at no cost. This type of DRIP is not a “real DRIP”, it is more of a service that the brokers provide to their customers and is often referred to as a “synthetic DRIP”. One benefit of brokerage run DRIPs is that they will allow you to DRIP many companies that do not even have a formal DRIP program. This allows investors to now DRIP virtually every blue chip company on the Canadian and US exchanges. Although synthetic DRIPs have really expanded the number of drippable companies they do have a few drawbacks. The first of which is brokerage run synthetic DRIPs do not allow for fractional share ownership, only full shares will be purchased and the remainder of the dividend will be deposited as cash into the customers trading account ie-company ABC has a $15 quarterly dividend and a $10 share price, this would result in the customer receiving 1 share of ABC and $5 cash instead of 1.5 shares. The second drawback of brokerage run DRIPs is that share purchase plans are not available. If you want to buy additional shares you have to pay the regular commission price of your broker.

I would just like to point out that if you plan to DRIP in a non-registered account it’s very important that you track the purchase price of each share bought through your DRIP as you’ll need to calculate your adjusted cost base if you ever do eventually sell some/all of your shares.

To DRIP or Not to DRIP

2007-11-22T09:58:00.000-05:00

I have recently decided to enroll in the DRIP of many of my holdings. For those of you that have followed this blog for a while you’ll know that this is contrary to the opinion I had in March of 2007. However, before I’m labeled hypocritical (or possibly fickle) let me plead my case and explain the rational behind enrolling some of my positions.

My portfolio is now at the point where I won’t be adding many more new names as I plan on only holding between 20 and 25 securities. I believe that 20 to 25 holding will provide me with adequate diversification as well as allow me to keep informed on the names I own. As I’ll only be adding between 3 and 8 more positions I will be concentrating on increasing the amount invested in each of my holdings so I’ve decided that DRIPs would be the most effective method to do that as it would become burdensome and not very cost efficient to make 17 to 25 small additional purchases each year. I have chosen to exclude both TD and CSH.UN from the DRIP simply because I already own enough of them. The dividends and distributions from those names will be paid in cash which will be used to eventually add new positions. It’s important to note though that although I’ve enrolled in the DRIP I wouldn’t hesitate to add to existing positions that I felt were undervalued.

Here are the positions that I’ve decided to DRIP:
TRP
C
GWO
POW
WAG
L
UNS
JNJ
MMM
PFE
EIT.UN
ATD.B

Bell Aliant (BA.UN)

2007-11-20T19:05:00.000-05:00

I recently took the opportunity to sell (commission free) my very small amount of BA.UN. I was able to do this through Bell Aliants “Small Unitholder Selling Program”. Bell has decided to allow unitholders who own less than 100 units to “sell all, but not less than all, of their Units without incurring brokerage charges.” You might be wondering why BA.UN would go out of their way and absorb the cost of this initiative...well the answer is easy, money. Bell is anticipating that this initiative will save them money by reduce the administrative burden and cost associated with having so many unitholders. It takes the same amount of administrative resources to issue distributions, annual report etc...to a unitholder with 5 units as it does to one with 200. Well your next question might be “who would buy only 5 units of BA.UN?” well...the answer is nobody. However, thousands and thousands of BCE shareholders were issued units of BA.UN when it was spun off last year. If I remember correctly you received around 7 shares of BA.UN for every 100 shares of BCE that you owned. This resulted in thousands of people receiving a very small amount of BA.UN.

Here’s why I decided to take advantage this offer:

1. BA.UN is an insignificant portion of my portfolio (less than half a percent)
2. Like thousands of others I acquired my shares when they were spun off of BCE.
3. Although I believe the distribution is stable I invest for the long term and don’t see any growth in the landline business.

If you’re interested in selling your units the offer is open until January 17,2008. The official press release by BA.UN can be found here.

Questrade – Recently Closed My Account

2007-11-16T12:36:00.000-05:00

I’ve recently closed my Questrade account for a few reasons. The first and most important one is that my big bank now offers me the same commission rates as Questrade in addition to all the other great features that Questrade lacks. Additionally, I’ve been very unimpressed with their customer service. I’ve only called fours times however, each time I felt very rushed by the representative and on one occasion they would not stay on the phone to verify that I could indeed login again and I was told to call back if it didn’t work. That wouldn’t normally bother me except that it took nearly 30mins to talk to a rep in the first place. Additionally, on their website they claim that it’s 1-2 days for an electronic funds transfer from Questrade to your bank account. However, my experience is that it takes approximately a week. After waiting on the phone for about 30mins I was told that it was 1-2 business days after it’s processed at Questrade but there was no guarantee on the processing time. Personally, I wouldn’t even trade through Questrade if there were absolutely no trading fees. After my multiple dealings with them I don’t trust them and don’t have any confidence in their customer services or technology. That being said Questrade might be an option for individuals that don’t qualify for discounted rates at one of the big banks and don’t mind extremely sub-par customer service.

I would like to note that this is only my opinion and it could be that my experiences are not typical of other Questrade customers. I know that some Questrade representatives read this blog so please feel free to comment.

Dividend Growing Stocks VII – Walmart (WMT)

2007-11-13T07:33:00.000-05:00

“Wal-Mart Stores, Inc. is the world's largest retailer. They are engaged in the operation of mass merchandising stores, which serve their customers primarily through the operation of three segments, which are the Wal-Mart Stores segment, the SAM'S Club segment and the International segment.”

-Current PE – 15X
-2008 Estimated PE – 14.3X
-2009 Estimated PE – 12.9
-ROE – 21%
-ROI – 13%
-Current Yield – 1.95%
-5 Year Average Yield – 1%
-Dividends Paid Since 1973
-Current Payout Ratio – 26%
-5 Year Historical Payout Ratio – 21%
-3 year dividend growth rate - 14.63 %
-5 year dividend growth rate – 20.80%
-22% of their revenue is from international operations

Like many other large caps the earnings have been growing while the share price remains relatively stable and over the last 10 years WMT has been seen it’s PE contract from 28X to 15X.

I don’t currently own WMT however it is one I would eventually like to add to my portfolio.

25 Stocks to Avoid

2007-11-09T08:15:00.000-05:00

I recently read an article by Jon Markman over at MSN Money Central. In his article he explains his rational for avoiding the following 25 stocks.

To read the entire article please click here.

25 COMPANYS JON MARKMAN SAYS TO AVOID

1. Merrill Lynch (MER, news, msgs)
2. Lehman Bros. (LEH)
3. Bear Stearns (BSC)
4. Bank of America (BAC)
5. Citigroup (C)
6. Washington Mutual (WM)
7. KeyCorp (KEY)
8. Wachovia (WB)
9. Moody's (MCO)
10. McGraw-Hill (MHP)
11. YRC Worldwide (YRCW)
12. JB Hunt Transport Services (JBHT)
13. Con-Way (CNW)
14. Knight Transportation (KNX)
15. Old Dominion Freight Line (ODFL)
16. McClatchy (MNI, news, msgs)
17. The New York Times (NYT)
18. Gannett (GCI)
19. Arctic Cat (ACAT)
20. Bed Bath and Beyond (BBBY)
21. Williams-Sonoma (WSM)
22. La-Z-Boy (LZB)
23. Stanley Furniture (STLY)
24. Bassett Furniture Industries (BSET)
25. News Corp. (NWS)

Of course you should do your own research as it's been my experience that the best buying opportunities are often when everyone else says don't buy (however sometimes they're right)

PFIZER (PFE)

2007-11-08T08:02:00.000-05:00

For those of you that track my portfolio and keep me honest during my monthly nest egg updates (thank you)...and...I forgot to mention that I topped up my position in PFE last week bringing it back to approximately 5% of my portfolio.

Citi Group – C

2007-11-07T07:47:00.001-05:00

I initiated a half position in C on Monday and plan on holding this name indefinitely.

“Citigroup is organized into four major business groups: Global Consumer; Markets and Banking (M&B); GlobalWealth Management; and Alternative Investments. The Citigroup Global Consumer business includes banking services, credit cards, loans and insurance. The M&B business is in about 100 countries and advises companies, governments, and institutional investors on the best way to realize their strategic objectives. The GlobalWealth Management division at Citigroup is comprised of The Citigroup Private Bank, Smith Barney (private wealth management), and Citigroup Investment Research,and serves both private and institutional clients.”

Here are my reasons for buying:
-As a general rule I’ve found that the best time to buy large multinational blue chips is when everyone else hates them.
-S&P credit rating = AA (second highest rating)
-Moodys credit rating = Aa1 (second highest rating – very little credit risk)
-Currently 45% of their revenue is generated outside of the United States and their current focus is to increase this number to 60%.
-They have the world’s largest credit card operation.
-In my opinion they are extremely well positioned to expand their international operations.

PE – 8.7X
Estimated 2007 PE – 9.7X
Estimated 2008 PE – 7.7X
Current dividend yield – 6%
5 year avg. dividend yield – 2.9%
5 year avg. dividend growth – 24.1%
3 year avg. dividend growth – 9.26%
Payout ratio – 47%
ROE – 17.9
Price/Book – 1.4X

Other Facts:
-S&P recently downgraded them from 5 stars (strong buy ) to 3 stars (hold). However, they have a 12 month $45 price target and rate them a low risk investment. From my purchase price this represents a total one year return of 26% (20% capital gains + 6% dividend). If I was an analyst I would find it hard to rate a company that I believed would return 26% in 12months with limited risk a hold…
-Argus recently reduced their 1 year target price to $55 from $60 but are maintaining a buy rating.

As I mentioned above I’ve initiated a half position in C and am going to take a wait and see approach from here. However, if the stock declines significantly from here I will be doubling down.

(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.)

ZED - Sold & Lesson Learned

2007-11-05T07:31:00.000-05:00

I recently sold my position in ZED for about a 30% loss. If you’ve been following this blog for any length of time you’ll know that ZED accounts for only 0.4% of my portfolio so selling at a 30% loss will certainly not affect my portfolio in any meaningful way. However, my brief foray into speculative, cyclical, micro-caps has taught me a couple valuable lessons.

1.I should stick to large companies that I’m able to properly analyze. Before buying ZED I used the same techniques that I use for large caps. However, with small caps the earnings are often much more volatile and the accuracy of earning estimates is often low as there are usually very few analysts following each name.

2.I have been developing and using a value oriented dividend growth based investment strategy for the past 8 years that has been working successfully for me. I should stick with what I know and continue to invest in what I’m comfortable and successful at.

Retirement Nest Egg at the Close of Oct 31, 2007

2007-11-02T10:15:00.000-05:00

-down 1% from last month
-up 7.6% in 2007
-CDN 69%
-U.S. 27%
-International 4%

TRP - 4.52%
CSH.UN - 5.08%
GWO - 5.23%
PFE - 3.49%
POW - 4.55%
BA.UN - 0.41%
WAG - 3.52%
L - 3.69%
UNS - 2.88%
GZ - 2.41%
TD - 13.9%
EIT.UN - 2.75%
JNJ - 5.49%
MMM - 3.68%
ATD.B - 3.83%
O'Shaughnessy’s Global - 3.97%
American Growth Fund - 0.96%
CDN Value Fund - 3.74%
Small Cap Growth Fund - 4.4%
Chou Associates Fund - 10.15%
Money Market Fund - 11.37%

No huge changes from last month. I initiated a position in WAG and unloaded ZED for a loss which I’ll talk about more on Monday. The decrease in my portfolio is largely due to the weakness of the US dollar. I’ll also start including the amount of Canadian, American and International exposure that I have for each network update. I’m currently sitting with about 11% of my portfolio in cash and am watching quite a few stocks but am closely watching C,BAC, TOC, IIC, BMO, WMT as well as opportunities to add to my existing positions on weakness.

Government Sued Over Income Trusts

2007-10-31T08:30:00.000-05:00

I came across an article by John Partridge while doing my daily read on Globe Investor and thought that it was worth sharing.

SYNOPSIS:
A U.S. couple is currently in the process of suing the Canadian government claiming that the 2006 unexpected changes to the income trust tax laws are in breach of the NAFTA agreement.

To read the entire article please follow this link.