December 2014 Investing Update

Goodbye to 2014

***

One Year Ago

2013 Christmas in Pattaya

This time last year we were on the streets of Pattaya in Thailand. 2014 was our first family Christmas in 15 years.

 ***

December Results

December YTD
Registered -1.40% 7.43%
Non-registered -0.12% 19.23%
TSX -0.76% 7.42%
DJIA -0.03% 7.52%
S&P -0.42% 11.39%

December was not a great month, but it could have been worse.  Oil prices have dropped to the lowest price in years.  The resource heavy TSX lost over 3/4 % for the month, but that represents a recovery from it’s December low.  For the year, the TSX ended with a respectable 7.4%.

The Dow and S&P both lost for the month but the year on the whole was good.

My non-registered accounts, again benefited from the strong US dollar to end the month flat, with a 19% gain for the year (helped by exchange rates).  My registered accounts took a big hit with the drop in oil prices.

I will do further analysis on 2014 and hopefully post some of that analysis before the end of January.

***

Retirement Financing

I have now completed six months of retirement.  My spending during this period of time was way beyond what I would have expected.  Setting up a new home, lots of travel and family costs all took a big bite out of our retirement income.  In spite of that and a weak market towards the end of the year, my net worth is in fact higher now than when we retired.  So if we can get our spending under control and see continued market stability, we should have a comfortable retirement income and see our pot grow at the same time.

***

Articles

More on housing as an investment – from the Wall Street Journal:

Don’t Buy a Home as an Investment

3.7% average annual growth over 30 years not counting carrying costs (insurance, maintenance, fees, taxes, etc.)

(Note:  I’m getting more than that on dividends alone and there are no carrying costs.)

***

Readers Ask

PVT in Abu Dhabi asks:

I’ve got a quick question about IBM as I’m going to be buying some stock soon and this one is under consideration. I read that IBM bought back some of its stock in October and that supposedly weakens the company’s position. Can you tell me what that means, please.

And are you selling your INTC because it’s got a dividend yield of 2.5 vs up there in the 3s? I understand why you want more dividends now, but why was it different before you retired? INTC has been a slower grower for years, so what was it doing before that had you keeping it?

My Response:

Prior to retirement any dividends I got as an expat were subject to a 25% withholding for tax purposes, but capital gains had no tax implications.   As an American, you will be subject to different rules, but I’m not completely conversant with them.  So I didn’t really care if my dividends were lower, as long as there was a chance of capital gains.

Now I am retired I am more concerned with dividends as income. Capital gains are nice, but I really don’t plan on taking my capital gains by selling.  Canadian dividends I receive get a very favourable tax treatment and US withholdings are credited to my tax account in Canada and I am hoping my average tax rate will be well below the 25% withholding.

I have raised my dividend threshold from 2% to 3% for income purposes.  My average yield is closer to 4%.

IBM makes my list, but it never seemed like a good buy compared to others.  INTC was getting close to being bumped off my list as it hadn’t raised it’s dividend in a long time.  Now it has announced a dividend increase, but it is below my 3% limit, so it is on my “sell” list.  The only thing that holds me back from selling is that it has grown so much, which is why the yield is lower.  I will still likely sell this and DD in the spring.

Peter in Doha asks:

I see also the Canadian markets are taking a hit, probably in reaction to falling oil prices. I already have Exxon and Total, so I’m not necessarily looking for more oil purchases. But feel I should look to increase my Canadian exposure. Do you have any non-oil Canadian stocks that you feel might be unduly affected by the fallen dollar and oil prices and are therefore good buying opportunities?

My Response:

Given that you are earning in Canadian dollars, it is best to buy Canadian stocks.  The Canadian dollar is low and will keep dropping to perhaps below 85 cents US.

Valueline lists the timeliness of the Canadian banks as poor, but that was before the recent drop.  I think they are a good buy.  Most of these reports are at least a month old, but they represent good stocks. Any with low current prices make for a good buy now or soon.

***

Apple

APPL doesn’t fit my criteria, so doesn’t reside in my portfolio or on my suggested list.  Its dividend is low and they have a very short history of giving dividends.  However that doesn’t make it a bad stock.  As one of the largest market-cap companies in the world, you might consider it for long term capital appreciation as many analysts feel it is a solid pick.  Here is a recent report from ValueLine:

 

IAN GENDLEROn My Radar
In this week’s issue of The Value Line Investment Survey, we are shining the spotlight on Apple (AAPL), the largest (by market capitalization) company traded on U.S. Exchanges. We expect that earnings growth will accelerate in fiscal 2015 (ends September 26th). The bottom line should benefit from one of the strongest product lineups in the company’s storied history, highlighted by two new larger-screen smartphones. The new devices, released in mid-September, have been a huge hit thus far, with over 10 million units being sold in just the first three days. In fact, many retail outlets continue to report that demand still far outweighs supply. For the fiscal year, we expect share net of $7.75, 20% higher than the previous year’s tally. As for the stock, it possesses broad appeal. It is ranked favorably for both Timeliness™ and Safety™, and looks to be a solid choice for longer-term investors.Best,Ian Gendler
Executive Director
Value Line Research

 

***

Suggested Stocks

Here is the list of current suggested stocks.  ValueLine A++, Dividend Yield above 2%, 10 year growth in dividends.

I have included all stocks with dividends above 2%, however I am only selecting those with yields above 3% as I am most interested in income for my retirement.

I will be seriously looking at culling out my lower dividend stocks in the new year and replacing them with higher yields.  A couple of targets are DD and INTC.

One way of looking at good value in stocks is to add the dividend yield and dividend growth together and pick the highest numbers.  In doing so, the oil companies bubble to the top due to the low oil prices and suppressed stock prices on those companies.  There is no telling how long the low oil prices will last, but if you have staying power, I’m convinced that there is long term value there – but it may take 5 years or more to be rewarded.  I will hang on to my oil stocks as they are producing good income – as long as they don’t cut dividends.  The only recent example of that happening was when BP cut their dividends after the Gulf oil spill – and that was due to political pressure, not for financial reasons.

LMT and MCD still come to the top as good value, but MCD has lots of nay-sayers that feel it is in for a rough ride.

Company Ticker Dividend Yield Dividend Growth 10-Year Current PE Ratio
3M Company MMM 2.48 6.5 21.11
Abbott Labs. ABT 2.1 5 19.9
AT&T Inc. T 5.61 4.5 12.65
Automatic Data Proc. ADP 2.29 13.5 25.42
Baxter Int’l Inc. BAX 2.81 10 14.64
Boeing BA 2.9 10 16.69
Bristol-Myers Squibb BMY 2.44 2 37.07
Chevron Corp. CVX 3.93 9.5 9.56
Coca-Cola KO 3.07 10 20.38
Colgate-Palmolive CL 2.16 12.5 25.17
ConocoPhillips COP 4.19 13.5 11.4
Deere & Co. DE 2.68 15 12.68
Dover Corp. DOV 2.22 9.5 14.28
Du Pont DD 2.6 2 16.27
Emerson Electric EMR 3.03 7 15.12
Exxon Mobil Corp. XOM 3.13 8.5 12.93
Honeywell Int’l HON 2.06 7.5 17.2
Illinois Tool Works ITW 2.03 12 19.36
Int’l Business Mach. IBM 2.85 19 10.45
Intel Corp. INTC 2.43 26.5 16.24
Johnson & Johnson JNJ 2.62 11.5 17.6
Kimberly-Clark KMB 2.91 9.5 19.43
Lockheed Martin LMT 3.13 23.5 17.23
McDonald’s Corp. MCD 3.63 25.5 18.96
Merck & Co. MRK 3.05 1.5 16.95
Microsoft Corp. MSFT 2.61 28 18.78
Novartis AG ADR NVS 2.92 15.5 20.25
Novo Nordisk ADR NVO 2.03 28.5 26.27
Occidental Petroleum OXY 3.71 15.5 12
PepsiCo, Inc. PEP 2.87 13.5 20.12
Pfizer, Inc. PFE 3.5 5.5 18.59
Procter & Gamble PG 2.8 10.5 20.91
Public Serv. Enterprise PEG 3.57 2.5 15.26
Raytheon Co. RTN 2.28 9.5 15.17
Royal Dutch Shell ‘B’ RDSB 5.56 7 11.3
Schlumberger Ltd. SLB 2.04 11.5 13.99
Smucker (J.M.) SJM 2.52 10 16.85
Texas Instruments TXN 2.5 25 20.87
Total ADR TOT 6.04 13 9.21
Travelers Cos. TRV 2.08 4.5 10.49
Unilever PLC ADR UL 3.72 9 18.55
United Technologies UTX 2.02 15 16.27
Verizon Communic. VZ 4.68 3 13.14
Wal-Mart Stores WMT 2.23 18 16.4

***

Advertisements

About borgford

Feel free to contact me with questions: brianborgford@hotmail.com
This entry was posted in Commentary. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s