Tuesday, August 28, 2007

On Vacation

Sorry I forgot to post this last week but I'm on vacation until Sept 4 (this was the first time I could get on the internet).

Enjoy the last few weeks of summer.


Thursday, August 23, 2007

8% Pay Raise

Well in the midst of the whole sub-prime scare TD decided to give me an 8% raise. They recently reported great third quarter results and raised their quarterly dividend by 8%. This move simply reinforces my conviction in the dividend growth strategy that I’m pursuing. Simply put the strategy involves buying out of favour but stable, high quality, blue chips that have a long history of dividend increases.

Wednesday, August 22, 2007

Investing Based on Demographics

It’s a fact North America is getting older. The baby boomers have made their mark in every stage of their life and their retirement and old age will be no different. I’ve compiled a little list of some of my favorite companies that will be directly benefiting from the aging North American population. Please feel free to add your companies to the comments section and then I’ll compile a comprehensive list later in the week.


Monday, August 20, 2007

Dividend Growth Stock VI

Bank of Montreal BMO

“Founded in 1817 as Bank of Montreal, today BMO Financial Group is a highly diversified financial services provider. We offer clients a broad range of personal, commercial, corporate and institutional financial services across Canada and in the United States through BMO Bank of Montreal, BMO Nesbitt Burns, BMO Capital Markets and our Chicago-based subsidiary, Harris Bank.”

-founded in 1817
-policy to payout 45% to 55%
-paid dividends for over a century
-dividend increased 80% from 2002 to 2006
-current yield of 4.2%
-trailing P/E 13.4
-2007 estimated P/E 11.5
-2008 estimated P/E 10.8
-ROE 19%

Friday, August 17, 2007

Major Purchase and Depressed Markets

Although the markets have fallen a lot recently I haven’t made any purchases. The main reason I haven’t pulled the trigger yet is simple...I have very little available cash. I recently purchased a cottage and as such will need all of my available funds for the down payment. However, I have a small amount of money available to invest in my RRSP and I’m currently looking to add one of the following companies IPL.UN, BMO, BNS. Longer term I believe all of the above three names are a good buy and I currently have an order in for IPL.UN at $8.50 (I’m doubtful that it will reach that level but if it does I’ll be an owner). I may have more available cash after the financing for the cottage is worked out. However, until the details of the cottage financing are worked out I only have enough money for one position.

The timing of the cottage purchase was certainly not perfect however, we have been looking in the area that we bought in for about 4 years and this was the first opportunity to buy in that time period so we jumped on it. We don't view the cottage as an investment and plan on never selling.

Tuesday, August 14, 2007

Time to Buy Financials?

Is there actually a global credit crunch? Is there a major economic crisis in the making as a result of the US sub-prime mortgage market? I don’t think anyone really knows but if I was a betting man I’d bet YES to the above two questions. Ok, so now that we’ve established that there might be a legitimate credit crunch what do we do? Panic? Sell all our holdings? Never buy another stock? That might work for some people but what I’d suggest is scan the market, identify which sectors and companies are taking the biggest hits and evaluate whether or not these out of favour stocks might be a good fit for your portfolio. The recent market declines are eminiscent of 2002 when I picked up TD. With many of the Canadian banks hitting 52 week lows I think that the time might be near for Canadian investors to get their fingers back on the buy button. Remember...BUY ON FEAR, SELL ON GREED.

Friday, August 10, 2007

How I Select Securities

I am for the most part a value investor and as such invest primarily based on fundamentals. Some of the main metrics that I use are:

-Forward P/E
-Dividend growth rate
-Average EPS growth
-debt levels
-revenue growth

I am not going to provide specific numbers for each of the above metrics as it varies from industry to industry. However, one number that I generally view as being important is the forward P/E and I will rarely invest in a company with 1yr forward P/E of over 18 and a 2 year forward P/E of over 15. Due to that fact I generally do not invest in the technology sector (regardless of how great a company’s technology is I’m not going to pay over 18X next years earnings for it). From my experience, growth companies and those with a high P/E will often get caught with “multiple compression” when either the economy stalls or they fail to meet expectations.

I also look at qualitative factors such as:
-barriers to entry
-competitive advantage
-long term prospects of the industry (ie- I wouldn’t invest in a Cassette tape manufacturer that was trading dirt cheap---unless of course they had some valuable underlying assets such as real estate that weren’t factored into the price)
-management (do not focus on it though)
-cyclicality of the industry
-the fit of the stock in my portfolio

I usually don’t set target prices but in almost all cases I use limit orders when both buying and selling.

Wednesday, August 8, 2007

Retirement Nest Egg at the close of August 3, 2007

-Down 2% from last month
-Up 6.8% in 2007

TRP – 4.16%
ABX – 4.25%
CSH.UN – 3.24%
GWO – 4.82%
PFE – 3.78%
POW – 4.21%
BA.UN – 0.41%
L – 4.06%
UNS – 2.83%
GZ – 2.82%
TD – 13.35%
EIT.UN – 2.95%
JNJ – 5.80%
MMM -4.13%
ZED - 0.52%
GO.A – 2.97%
ATD.B – 3.77%
O'Shaughnessy’s Global Fund –3.93%
American Growth Fund –1.0%
Canadian Value Fund – 3.73%
Small Cap Growth Fund – 4.27%
Chou Associates Fund – 10.42%
Health Science Fund – 0.87%
Money Market Fund – 7.68%

My portfolio is down 2% from last month. Most of the lost was a result of the general decline in the market. However, both CSH.UN and EIT.UN declined approx. 8% over the month. I am going to continue to hold all my positions and will begin to look at accumulating more shares if the market declines further. I am currently taking a hard look at BNS.

Tuesday, August 7, 2007

Why I Chose a Dividend Growth Strategy

In this post I’m going to explain why a dividend growth strategy works for me.

1.In my opinion a growing dividend is usually a good indicator that a company is healthy (although certainly not the only indicator). Annual dividend increases indicate that the executive and director insiders are sufficiently confident in the long term prospects of the business to payout their earnings as dividends.

2.Dividends from Canadian sources are taxed at a preferential rate (see this post for details on the tax treatment of dividends)

3.Commission costs are dramatically lower as positions are usually held for the long term.

4.Annual dividend growth can protect your income stream against inflation. Additionally, companies with a history of increasing their dividend can usually pass much of the price inflation on to their customers.

5.The share price of the company usually increases with the dividend (ie-you don’t see many high quality blue chips yielding more than 4% because the share price increases with the dividend)

6.I have the patience, risk tolerance and long term time horizon necessary to ride out market cycles and successfully implement a dividend growth strategy.