Wednesday, March 31, 2010

TransCanada Corporation Added

No Dividend Portfolio is complete without a utility distribution company. such as TransCanada.
I've considered Fortis, and TransAlta, before selecting TransCanada because it looks like the best deal at the moment. though Fortis and TransAlta could be added later for diversification when the price is right.

CIBC Analyst:
Our price target remains at $42, and is based upon a 17.5x 2011E target multiple (unchanged). At 14.5x 2011E EPS, we view current levels as an attractive entry point ahead of what is expected to be very strong growth in 2011+. We maintain our Sector Outperformer rating.
12-18 mo. Price Target $42.00
52-week Range $28.86-$36.49
Market Capitalization $23,892.1M
Dividend/Div Yield $1.60 / 4.6%

Earnings Per Share
2009 $2.03A
2010 $2.10E
2011 $2.41E

2009  17.2x
2010 16.6x
2011 14.5x

Dividend Per Share
2009 $1.52A
2010 $1.60E
2011 $1.70E

TransCanada pays an eligible divided.

Monday, March 29, 2010

Compounding, The Most Powerful Force In The Universe

We get bombarded with advice on how important it is to begin investing when you are young. To truely apprciate the awsome power of compounding we will go through this eye opening example.

The first person A starts saving $5,000 (like you should be in your TSFA) at age 21, and stops saving after his last contribution at age 30 (you shouldn't stop). making 10 x $5,000 investments in total.

The second person B does not invest anything until age 30 however he invests $5,000 a year from age 30 until age 64.  making 34 x $5,000 investments in total.

Now both have turned 65 and want to start living off their savings. who do you think has a bigger nest egg. person A who hasn't saved a dime in 34 years, or person B, who started saving a bit late, but has worked hard and put lots of money away.

well, take a look at the spread sheet using a 7% intrest rate:

At age 64 Person B has not yet caught up with person A.

so is starting early important? yes
I would go so far as to say compounding is one the most fundemental wealth building tool.
The most powerful force in the universe.

Loblaw Companies added

The Dividend Lover portfolio needs some exposure to a retail. my pick here was Loblaws.

whenever I shop at loblaws I notice how everything is overpriced. at the same time i notice how poeple don't seem to mind. and still shop there anyway. either unwilling or unaware that they can get the same groceries for less.

Company Description:

Loblaw Companies, majority owned by George Weston, has more than $30 billion in sales and is the largest food retailer in Canada, with operations in every province.
The idea that deflation always kills earnings, or that there is intense price competition in Canada, are myths.
And of course L pays an eligible dividend.

AGF Management and Gluskin Sheff Added

I added these two Canadian Asset Managers to the dividend lovers portfolio. Canadians love their mutual funds. while it makes me shiver at the thought of paying someone 2% a year to (miss)manage my money. The average Canadian is happy to do it.

These companies make their money off management fees they collect off of mutual funds they manage.

These two were the best value picks in the sector. This addition will also increase the diversification of the dividend lover portolio by adding new sector exposure to the portfolio.

CIBC had this to say about Gluskin:
Alternative strategies represent a large source of potential performance fees and should reduce performance fee volatility compared to equity investment strategies.
We estimate performance fee EPS of $0.87 in F2010 and $0.60 in F2011, which will likely be paid out as special dividends. Dividend growth remains a priority for management, as the company would like to build a long-term track record of annual dividend increases.
Gluskin Sheff currently yields 2.4% based on current regular quarterly dividends. We expect dividends will be able to grow by at least 5% in F2011 Our sum of the parts approach to valuing Gluskin Sheff results in a valuation of $26.25. Accordingly, we believe the shares are undervalued and rate Gluskin Sheff Sector Outperformer.
CIBC had this to say about AGF
AGF Management is the least expensive Canadian asset manager in our coverage universe at 10.2x our 2011E EPS, versus an average of 14.0x for the sector and a historical average of 14.4x. AGF is also the asset manager that provides the most earnings torque Loan loss provisions at AGF Trust resulted in greater earnings contraction vs asset manager peers during the economic downturn, and a return to more normal loss
ratios as the economy recovers should result in a material improvement in earnings.

And of course AGF.B and GS pay an eligible dividend, which is what the dividend lover portfolio is all aboooooout.

Friday, March 26, 2010

Thompson Reuters Added

Thomson Reuters is an e-information and solutions company in the business and professional marketplace.

The company has a relatively stable revenue stream, with more than 85% of revenues realized on a recurring basis, and TRI's has a track record for generating significant free cash flow.

I am also excited about the fact that TRI will provide good diversification to the Dividend Lover Portfolio since it is highly unlikely that I will add another name in the Printing & Publishing sector.

And of course Thompson pays an eligible dividend, which is what the dividend lover portfolio is all about

Thursday, March 25, 2010

Killam Properties added

I added  Killam Properties to the divident lover portfolio.  I know I said no Reits, however this reit is not a reit lol. it pays an eligible dividend. and so is tax efficient for me to hold it in a non registered account.

Company Description:
Killam Properties is the largest apartment landlord in Atlantic Canada with over 8,900 apartments and also owns more than 9,200 manufactured home lots across Canada.

I am a firm believer that realestate is the path to riches. I am a fan of Reits but only when they are trading below NAV, as this one currently is:

At $8.27, Killam trades at 10.5x 2010E FFO, a 13% discount to our NAV estimate of $9.50 (at a 7.00% cap rate), and yields 6.8%. Our 12- to 18- month price target is $9.50 (from $9.00) or approximately 12.0x 2010E FFO. We continue to rate Killam Properties Sector Outperformer.
Picking up realesate below NAV has always been a no brainer so long as you've done your due dilligence. The payout ratio is a respectable 72% of FFO which is respectable for a reit.

Reits are also known as poor mans strategy for investing in realesate. Reits pass on to their owners some of the rewards of owning realesate however reits do not provide their owners with  phantom income (from depriciation), tax defferals, and tax deductions. On the other hand, reits are more liquid and less hands on.

And of course Killam pays an eligible dividend, which is what the dividend lover portfolio is all about

Stock Rating: Sector Outperformer
Sector Weighting: Overweight

12-18 mo. Price Target $9.50
KMP-TSX (3/3/10) $8.27
Avg. Daily Trading Vol. 70,600
Market Capitalization $318.4M
Dividend/Div Yield $0.56 / 6.8%
Net Asset Value $9.50 per Shr

FFO per Share Prev Current
2009 $0.73E $0.73A
2010 $0.80E $0.79E
2011 $0.82E

2009 11.3x 11.3x
2010 10.3x 10.5x
2011 10.1x

Wednesday, March 24, 2010

The Widow Portfolio

The widow portfolio is a conservative, income producing portfolio a financial planner would put together for a widow when a husbands dies after years of work and his work sponsored term life insurance pays off. The goal of this portfolio is to provide income to the widow and kids to be able to live without the husbands wages. The social realities up until the mid 80's would not allow women to earn any income and so the widow portfolio phenomenon was born.

Incidently the Dividend Lover portfolio we are building here would fit this bill.

First Trade Enbridge Inc.

I've added 100 shares of Enbridge as the first holding in this portfolio. I believe a utility pipeline company is a one of the most basic building block of a dividend portfolio.

Enbridge has a gas distribution network, and some power generation assets. I use enbridge gas at my home and my rental properties. the residential distribution network component is a natural monopoly.

The most hilarious thing I find about them is the equal billing plan where they offer to even out your bill for you over the year. and is the default setting for new accounts. so customers are forced to save month with them at 0% intrest, then if they are late to pay a bill then get charged 1% intrest a month, even though enbridge has money saved up for you. in your plan.

I believe enbridge is a good solid company in any canadian dividend portfolio and so I have added it as my first stock. it has low risk and highly visible earnings and capital investment plans.

and of course Enbridge pays an eligible dividend, which is what the dividend lover portfolio is all about

The CIBC analyst had this to say:
Enbridge continues to offer the strongest, most visible and lowest risk earnings growth, with 10% EPS growth expected to continue into the middle of the decade and beyond. We maintain our SO rating.

- Enbridge represents one of the best risk/reward situations in the Pipelines and Utilities sector.
- We expect 10%+ EPS growth through 2013, with comparatively low risk, driven largely by fully contracted pipelines already under construction, with negligible volume risk, and substantially mitigated capital cost risk. Growth is likely to continue thereafter as 2012+ project portfolio fills.
- Net free cash + dividends is expected to grow from $3.40/share in 2009 to $6.35 in 2013, which suggests that this stock could double over the next three years.
Sector:        Pipelines, Utilities, Power
Company:   Enbridge Inc.

Stock Rating: Sector Outperformer
Sector Weighting: Overweight
12-18 mo. Price Target $58.00
Dividend/Div Yield $1.70 / 3.6%
Book Value $18.86 per Shr

Earnings Per Share
2009 $2.34E $2.35A
2010 $2.59E $2.60E
2011 $2.89E $2.92E

2009 20.4x 20.3x
2010 18.4x 18.3x
2011 16.5x 16.3x

Dividend Per Share
2009 $1.48A
2010 $1.70E
2011 $1.88E

2009 3.1%
2010 3.6%
2011 4.0%

Blogger Introduction

Okay so now that I've completed the Introduction post of this blog I will disclose a limited amount of information about myself.

I am an Engineer with a technology Job. but I do it for the love of it.  let me explain.
I entered the work force in 2003 I worked long and hard with my end goal was to be able to stop working, and live of the fruits of my labour when I turn 30.

Today I am 30 years and 2 months old. I still work. though admittedly not as much as I once did. As I am older and wiser. I came to the realization that I enjoy the drive to work and back ( thank you 407 ) I enjoy going to the gym during the lunch break, and I enjoy programming and problem solving in general. and I enjoy chatting with co workers.

My outlook on work has changed from wanting to retire ASAP. to wanting to work in an environment I enjoy, and to work for the love of work, not for the money though the money still has to be good.

I am a firm believer in moderation. I advocate a strategy of increasing one's income, rather than reducing ones standard of living. which admittedly is more difficult because higher income pays more tax and spending less is spending after tax money. but that is where good tax planning can help you.

my experience in the stock market is extensive. I've been trading for 10 years, watch BNN, I read all the bloomberg articles, any tsx analyst report published by CIBC WM or RBC CM. and I read many finance blogs

I hope to share some of my expertise with my readers, and hopefully provide some useful information and opinions as I build this portfolio.

Blog Introduction

The purpose of this blog is to track my progress of putting together a non registered investment portfolio with 150% allocation of eligible dividend paying canadian stocks listed on the TSX.  Thats right the 150% is not a typo. I'm plannig to use 50% margin in this portfolio.

I'm going to justify the use of margin by stating that
1. I am 30 years old.
2. I have a stable job.
3. I am single with no dependents.
4. I have no other debts and the cost of capital (intrest rate) on the margin is low and is tax deductable.
5. This portfolio is going to be a very long term buy an hold. I intend to leave it for my kids and widow(s).
6. 50% leverage will stil leave significant margin in the account. it will be unlikely for me to get a margin call.
7. The holdings in this account are be fairly conservative.
8. I already hold significant non leveraged RRSP portfolio and TSFA.
9. I intend to let the portfolio deleverage itself as it grows older.

and conclude that my risk tolerance supports the use of this much margin.

now that I have justified the margin, I'm going to justify the reasons behind creating this portfolio.

1. I am 30 years old. It is time to start investing more conservatively.
2. I have been maxing out my RRSP and TSFA the first trading day every January.
3. I don't own any eligable dividend paying stocks in my RRSP or TSFA. since they don't belong there.
4. I am currently very poor in this major asset class with less than 1% of my net worth
5. My employment salary puts me in a high tax bracket. the dividend tax credit is going to help me reduce my tax burden and keep more of these earnings.

Portfolio Strategy:

1. I will invest only in eligible dividend producing instruments. no Reits no Income trust and no bonds. those belong in a tax advantaged account, not here.
2. I will not be using drips. The reason being is that the dividends comming in are going to be used to deleverage the portfolio by paying down the margin.
3. Low turnover, stocks will be bought and held forever.
4. I will be allocating about most of my free cash flow into this account. plus any special one time piles of cash that come along. for the next 2 years
5. In 2 years when I turn 32  I plan to redirect my free cash flow to another project I have in mind which i will reveal 2 years from now. so cash flow into this portfolio will stop.
6. Once the cash inflows have stopped this portfolio will be left to deleverage.
7. When the margin is mostly paid off to 5% margin I will turn on the drip. since this broker doesn't offer a synthetic drip, the change left over from the drip will finish off the remaining margin.