Dividend Growth Portfolio, June 2014 Update

Soooo... we're now past the half way point in 2014. It's felt like a really long 6 months. A lot has happened since New Years 2014.

The year started with tiny Latvia officially adopting the Euro, and becoming the 18th member of the Eurozone. We then had the Winter Olympics in Sochi, Russia, which was filled with typical Olympic controversies (judged competition scandals, ballooning costs of hosting). This was immediately followed by civil unrest in Ukraine, and the annexation of Crimea by a belligerent Vladimir Putin. Kind of made you wonder if they were just waiting for the Olympics to finish... And to think... its still only February...

Just as the world was trying to figure out Ukraine, MH370 went missing with 239 onboard, a Korean ferry capsized and killed 290, and 276 women and children were kidnapped and held hostage in Nigeria. We then had a fantastic World Cup, one of the highest scoring ever, which made it incredibly fun to watch. The climax was when Germany embarrassed the hosts 7-1 on home turf. Lucky for Brazil, Argentina did not win on their soil. Now that would have been really embarrassing.

Now, as July is wrapping up, we have Israel and Gaza going at it again, and yet another Malaysia Airlines hull loss. Honestly, I feel really bad for these guys. TWO hull losses in 4 months? I've never heard anything like it...

It is only July and I feel like we've had enough world events to last me half a decade. Fortunately not a lot has happened to my portfolio in this time. Just some minor tinkering here and there. Personally I believe the stock market overall continues to be at or near full valuation. This does not mean there are no good investments out there. It simply means you have to be more selective, and work harder to find the attractive investments.

If all else fails, blue chips are still within their full valuation band. Recall that one of Warren Buffett's most famous quotes is that it is better to buy great companies at fair prices than fair companies at great prices. You could certainly do a lot worse than buying KO at 22x or JNJ at 20x. These are the types of businesses that will provide above average returns even if you are unable to buy them at bargain prices.

That being said, someone who invests in individual stocks is always attempting to find undervalued companies to buy. Especially so if they are a dividend growth investor, because it allows you to pick up a larger income stream for a cheaper price. So here are 5 stocks which I believe are attractively valued, and could be your next potential investment.

• Procter & Gamble
• Baxter International
• Rogers Communications
• Enbridge
• McDonalds

As always, please do your due diligence and independent research before making any investment decision. Past performance is no guarantee of future returns.

Now that we've gotten the chit chat out of the way, let's take a look at the Dividend Growth Portfolio's Q2 update.

Dividend Growth Portfolio, March 2014 Update

2014 has certainly been an interesting year so far. Thus far, as Q1 is coming to an end, TSX has been outperforming the S&P 500 to the tune of 5%. But wait, all performance is not the same. Since January 1, CAD has depreciated some 6% against the USD. Each Canadian Dollar only buys 0.893 US Dollar now. What does this mean for Canadian investors?

• higher cost of imported retail goods
• higher cost of fuel
• higher cost to invest in US equities & other US dollar denominated assets
• higher cost of cross-border shopping
• paper gains on US dollar assets

Perhaps this is a good time to convert some USD back to our monopoly money (trust me you'll miss having color coded money if you live in the US long enough!) 

McDonalds Analysis

The McDonald's name and brand needs no introduction. The "golden arches" company is the world's biggest quick serve restaurant operator. In many parts of the world, McDonald's is a symbol of an American way of life. In poorer areas of the world, McDonald's is also a safe bet for a clean washroom and cheap meal.

• The world's largest quick serve restaurant
• Over half the countries (119) in the world have a McDonald's restaurant
• 35,000 locations world wide, serving 68 million customers each day
• a leader in increasing the standard of service in emerging markets

Unlike Johnson & Johnson which has a myriad of subsidiaries & products, McDonald's concentrates on its core competency, serving delicious food quickly for a reasonable price! McDonald's strength is not just the corporation itself, but owner/operator franchisees. Many of its now famous products were invented by owner/operators, such as Big Mac (1968), Quarter Pounder (1971), Egg McMuffin (1975), and Canadian developed McFlurry (1997).

Johnson & Johnson Analysis

Johnson & Johnson is the world's biggest diversified health care company. Its roots can be traced back to a surgical dressing company founded in 1886 by brothers Robert, James, and Edward Johnson. Nearly 130 years later, the Johnson & Johnson (JNJ) family of companies includes:

• The world's 6th largest consumer health company
• The world's largest medical devices & diagnostics company
• The world's 5th largest biologics company
• The world's 8th largest pharmaceuticals company

The company is organized into 3 segments: Consumer, Pharmaceutical, and Medical Devices & Diagnostics, representing 20%, 40%, and 40% of total revenues. JNJ is a S&P500 dividend aristocrat, has paid an uninterrupted dividend since 1944, and has increased it for 51 consecutive years. Only 15 companies in the entire world have managed to raise dividends for more than 50 years each. JNJ is truly among the elite companies of the world.

Dividend Growth Portfolio, December 2013, Annual Summary

Its been a while since I posted anything on here. I feel I've been neglecting to update the status of my portfolio. 2013 has been a whirlwind year! I bet not many people predicted S&P 500 would be up over 30% with dividends reinvested. Its definitely been a good year if you were invested in the stock market. The sad part is, many people missed out, either by being too heavy in the Canadian market, or staying on the sidelines.

You know that saying, that your relative performance takes a heavy beating if you miss just the best 10 days of the last 10 years? Well.. imagine what happens if you miss the best year in the past 10 years... (best year since 1997 to be exact)

But all is not lost! After all, its a new year, and a new year means everyone starts fresh! Equities are not expensive. They are not cheap either, but there can still be value to be had, if you know where to look.

Dividend Growth Portfolio, June 2013

Past couple of months have been volatile for many dividend growth areas of the stock market. First we got huge corrections, sell offs (whatever you want to call it) in REITs and utilities. That was followed up with a large slide in Canadian telecoms as news broke that Verizon had made an offer to buy Wind Mobile, 1 of 3 failing small Canadian telecom players, and was exploring the possibility of acquiring Mobilicty, another of the 3 failing small players.

A picture is worth a thousand words, so here's 3

The first depicts the massive slide in VNQ, the Vanguard REIT ETF, a 5% one day drubbing followed by a 20 slide before temporarily bottoming in late June.

Next one is XLU, the Utilities SPDR ETF, victim of a 13% sell off, quite a large move for a normally quiet sector.

Take a Deep Breath

Take a deep breath, and think things through before you take any actions.

No seriously, before you take any action on stock market news, step back, inhale deeply, and clear your mind. It will help you see the big picture, and enable you to make better decisions about your investments.

It is very easy to get caught up in what's on TV, or what is in the newspaper.

The Last Month

May 22, 2013: S&P closes down 35 handles from intraday peak. -14 points from previous day's close

May 28, 2013: S&P 500 rallies 25 pts intraday before closing up only 11 pts

May 31, 2013: S&P 500 closes down 24 pts, with most of that (13 pts) coming in the last 30 minutes of trading

Dividend Growth Portfolio, May 2013

A bit delayed, but better late than never right?

Every time I go on vacation, I get reminded of how my brain seems to be wired to think about investing. Even when I'm vacationing, I can't help but think of things I observe in a financial sense. I guess the phrase 'Money never sleeps' really is true.

Here is a couple of sample pictures from my trip. The first is part way through my 6 hour hike down the South Kaibab Trail into the Grand Canyon.

The second picture is a tail shot of the Space Shuttle Endeavor at the California Science Center.

A few things I noticed or thought about on this trip:

1. Americans love American cars: Here in the Greater Toronto Area, German and Japanese import cars like Benz, BMW, Audi, Toyota/Lexus, Honda/Acura, Nissan/Infiniti are everywhere. During my 2000+ mile drive thru Las Vegas, Grand Canyon, Death Valley, and Los Angeles, these import car brands were extremely rare. I almost want to say I see more of them in 1 day in Toronto/Markham, than I did in my entire 10 day 2000+ miles trip. What did I see a lot of? Dodge, Chevy, Ford, Cadillac, Lincoln, etc. 
2. South Korean cars are really poorly made, American cars are not bad: The crappy quality of both Hyundai cars I got as rentals (Santa Fe and Elantra) astounded me. Poor sound proofing, inconvenient placement of controls, and weak engine were 3 of many things that I did not like on the Hyundai vehicles. The Dodge Charger I drove from Vegas to LA via Death Valley was much more enjoyable, and not to mention very fuel efficient!! This reinforces my belief that Hyundai cars are overrated. 
3. Freeways in LA really suck: I couldn't believe how TERRIBLE the freeways in LA were in terms of road quality. I felt like I was driving over speed bumps at 75mph! I still can't get the ka-thump ka-thump ka-thump out of my head. Infrastructure investment is truly important. America needs to repair its roads and bridges!
4. US McDonalds has a lot more variety than Canadian McDonalds: Egg White McMuffin! I hope they bring it to Canada. It was delicious, the same price as normal McMuffin, and in theory healthier for you. McDonalds is truly an innovation leader when it comes to quick serve food. They also have more burger selections (Deluxe, BLT, etc) than we do up here. I saw a lot of customers having breakfast and coffee at the various McD I visited throughout the trip. It looks like McDonalds is really having a lot of success at getting into the breakfast and coffee markets
5. Americans really do eat A LOT: I swear American sized portions are even too big for me. No wonder I saw so many obese (not just mildly, but to the point their tummies flop on the tables) people on this trip. Made me think of investing more in healthcare businesses. 

now, onto regular business :)

Dividend Growth Portfolio, April 2013

The stock market is soaring to new highs. Chasing yield is the new fad, like dotcoms around the turn of the century, and housing in 2005-2007. People are buying dividend paying equities without adequate research, believing that getting paid 10% somehow is a good return for low risk. On top of this, good securities are getting bid up, thus driving yields broadly lower. REITs are yielding where utilities used to be. Utilities are yielding where out-of-favor stocks used to be, etc.

As a dividend growth investor, I do invest in higher yielding assets, but my strategy does not revolve around absolute yield. Historical data shows the highest yielding equities do not even have average performance, let alone best. At best, yield chasing yields mediocre returns. At worst, its odds are not much better than roulette.

Where do I see the best value at the moment? I've mentioned these in the past, but I still continue to see good value in the defense and health care insurance industries. To add to those, now I also see attractive value propositions in energy and financials.

At these levels, be careful when committing new money. Buy in increments, and keep some cash on hand, continue to look for opportunities.

Portfolio for Beginners

The hardest step of doing anything is getting started.

When I talk to various people (friends, co-workers, people on the internet), they often say 'I would love to invest and grow my wealth, but I have no idea how or where to start!'. Its true. While the concept of investing or why you should invest, is not a hard one to grasp, or a hard one to accept, many people get stuck on how to begin doing it. To an outsider, the world of investments often looks at best confusing, and at worst, scary. So many investments to choose from, where do I start?  What makes the process of getting started even more difficult, is that beginner investors often have a fear of seeing paper losses.

Today's your lucky day. I'm going to help you get started with a portfolio for beginners. I will even track it over time to see how you would have done, had you actually followed through on it.

First, let's set some rules, or guidelines, regarding portfolio management.

New Pages!

decided to add more content to the blog

First up, an section about us/me
About

Next, a section of various interesting things I've come across on the web, that may have some practical use for you
Around the Web

To come, a section for investors, detailing my historical returns vs various benchmarks
Open to more ideas, both investing related and non-investing related.

thanks for reading!

Dividend Growth Portfolio, March 2013

Well after all that excitement in the first 2 months, March was certainly boring. No new purchases, no sales. I did receive a bigger than expected dividend hike from JP Morgan, although I was disappointed Citigroup did not move its dividend at all. The share buyback announcement was good, considering how far below tangible book the shares are trading at, even vs its peers, but I wanted a dividend hike!

How cheap are Citigroup (assuming economy continues to recover) and Bank of America vs its peers and Canada's big 3?

Yield on Cost, the Big Picture

Sometimes, it's easy to feel after so much hard work each year, our investment portfolios are barely going anywhere. This feeling is amplified when you look forwards and back and see how far you are from your goals.

Yield on cost is a good way for dividend growth investors to see meaningful fruits from their labor, as well as track their progress.

If you're unfamiliar with the term 'yield on cost', it simply means the current dividend yield based on your original cost of investment. It is simply the annual dividend divided by your original per share cost.

Here are some yield on costs for investments from several years ago:

Dividend Growth Portfolio, February 2013

Wow what a year 2013 has been so far. January and February have delivered solid returns for investors. To some degree, it actually scares me how well the stock market has performed. I fear that the exuberance may be too much too soon, perhaps even... irrational?

Nonetheless, it is very difficult, if not impossible, to determine where the market is headed in the short to medium term. What is clear, however, is that we are at or nearing levels unseen since 2007. Levels that also marked a market top in 2000. That should worry you, at least a little bit. Below is a 40 year chart of the S&P 500, and the triple top forming from 1999 to 2013 is quite obvious in the graph.

Sowing the Seeds For Your Dividend Growth Portfolio

A dividend growth portfolio is a lot like an orchard. First you have to plant the seeds.

Then you have to be patient, and take good care of your saplings & young trees.
Eventually the mature trees will bear fruit for you for many years.

Dividend Growth Portfolio, January 2013

New year! New beginnings! Time to re-evaluate the portfolio. One of my goals in 2013 is to drive more dividend growth while maintaining current yield levels.

Dividend growth investment opportunities are essentially split into 4 categories.
1. Low current yield + low dividend growth
2. High current yield + low dividend growth
3. Low current yield + high dividend growth
4. High current yield + high dividend growth

I've ordered these from least preferable to most preferable in terms of long term total returns. This basically means I need to reduce investments that fall into first two categories, in favor of ones that fall into categories 3 and 4. These kind of investments are truly the gems.

By following me as I update my portfolio activity and dividend status each month, you can see how I execute my strategy to achieve that goal. In 2012, my portfolio had intrinsic dividend growth of 12%. I aim to beat that in 2013.


New Purchases
General Dynamics - $183.60
Scotiabank - $4.56 (DRIP reinvested shares)

Sales
3M - $106.20

S&P 500 Rallies to Levels Unseen Since 2007

Its now been more than 5 years since we've seen these levels in the Dow and S&P 500 indices. Not coincidentally, bond yields and the VIX have also reached 5 year highs and 5 year lows, respectively.

Recent data shows bond funds are experiencing the highest outflows, and equity funds experiencing the highest inflows, in years. Is this the beginning of a shift to equities, or is this another case of the retail investor getting back in near market tops?

Dividend Growth Portfolio, December and FY2012

We're well into the 2013 year now, and I've been neglecting my blog... Hopefully as January rolls by I will have more time to dedicate towards informative or update posts.

December (and early January) brought a flurry of activity for me. Some of it was fiscal cliff risk driven, and some of it was simple top ups or just taking advantage of dwindling market opportunities. Let me list my transactions for the month, then I'll go over them.

New Purchases
Coca Cola - $56.10
Kinder Morgan Inc - $72
CSX - $70

New Transfers In
Fidelity Spartan 500 Index Fund - $84.82

Sales
Western Union - $87.50

Intrinsic Dividend Changes
Boeing - $25.56 (quarterly dividend increase 10.2% from 44 cents to 48.5 cents)


November 2012 Annualized Dividend: $4237.20

+ $198.10 (from new purchases)
+   $84.82 (from new transfers in)
-    $87.50 (from sales)
+ $25.56 (from intrinsic changes)

December 2012 Annualized Dividend: $4458.18
End of 2012 Goal: $3800 to $4000
Whisper Goal: $4400

Market Gyrations Creating Value and Opportunity

The last few months of the stock market has been very interesting. The S&P 500 is basically right back where it was in August, 3-4 months ago, around 1400. It's gone as high as 1470s, and fallen as low as 1340s during this period. That is about 130 points, or roughly 10%, around its mid point. It's been one heck of a roller coaster ride

A quick glance at the market might not reveal any interesting opportunities, as we're basically 5% from the highs, and we've been taught to wait for pull backs to buy, right? But it is important to remember the market index is made up of many sectors, and each sector contains many stocks, and all together they make up the index. What have the underlying components of the S&P 500 been doing lately? Let's take a look.

Dividend Growth Portfolio, November 2012 Update

Holidays are comin'. Holiday are comin'
Holidays are comin'. Holiday are comin'
Holidays are comin'. Holiday are comin'
Tis the season
Watch out, look around, somethin's comin', comin' to town (coming to your town)
Doo doo doo doo doo, doo doo doo doo
Doo doo doo doo doo, Always Coca Cola (coming to your town)
Something magic, in the light, can you see it, shining bright (shining bright)
Fa la la la la, la la la, la la
Fa la la la la, la la la, la la (It's always Coca Cola)
Holidays refreshments is what we bring
Tis the season, its always the real thing.

It's only fitting that one of the most iconic brands in the history of mankind always is the creator of one of the Christmas time commercial classics.

The Coca Cola story is one of incredible brand value and awareness. This is the kind of stock long term investors love to own. These investments form the core of your portfolio, and you almost never sell them. They're also the investments you buy when shit hits the fan. They won't be the best values (riskier stocks will fall more) but they will be at valuations typically seen once in a generation (like Coca Cola at a split-adjusted $20-$22 back in 2009)

Anyway, onto business! Here's this month's Dividend Growth Portfolio update.