April 2016 Update

The Start of Spring

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Brian run start

First race of the year – 5 km run. Time 26:30 – getting slower with age.

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April Results

Although the markets slid in the last part of the month, it was  a pretty good month overall.  The TSX rose 3.39% in April for a YTD gain of 7.24%.  The US markets rose by a quarter to half a percent for a YTD gain of between 1% and 2%.

On the downside for me, the Canadian dollar gained another 3% against the Canadian dollar, eroding my US gains.

Although most of my portfolio kept pace with the markets they are in, my overall portfolio declined by almost half a percent due to the strengthening Canadian dollar.  My YTD gain is about 3.3%, not bad considering the almost 10% gain in the dollar.  That means if you omit the exchange rate effects, my return, in absolute terms, is over 7% for the year.

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Interesting links:

Compound Interest

http://www.moneychimp.com/calculator/discount_rate_calculator.htm

Here is a website that will do a variety of compound interest calculations.  It is very useful for evaluating investment alternatives such as real estate vs stock market.

Inflation Calculator

Use THIS link to check how your income or savings have changed in value due to inflation.

Dividend Investing

Click HERE to see how other people’s portfolios, using a similar strategy to mine, have performed.

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Ideal Portfolio – Canadian

I am always looking for the “Ideal Portfolio” and continue buying and selling to hopefully achieve it.  So what is an “Ideal Portfolio”? Beauty is in the eye of the beholder, so you will get different answers from different people.  Some might say that a portfolio that mirrors the general market is the best, while others may have some other vision.  For sure, every portfolio needs to have diversification on industries and companies within those industries to protect it.

Let’s start with the Canadian market and use the TSX as a start point.  The TSX has the following breakdown

Financials (banks, insurance and related) 33%

The best stocks from my screening that fit this category are the 6 banks, Power Financial (PWF) and a couple insurance companies (GWO, MFC, SLF)

Telecom 5%

The best of this lot is BCE, Telus (T) and Shaw (SJRB)

Consumer goods 5%

I can find no Canadian stocks that fit this category that I would be comfortable owning, so I would ignore this category.

Industrials 6%

Canada has limited high quality industrial stock that fit my criteria, so the only one I suggest is Russell Metal (RUS)

Materials 18%

The only high quality stocks in this category in Canada are the potash companies (AGU and POT), others tend to be volatile and speculative.

Energy 25%

Canada has an abundance of quality energy companies but they are all under assault due to low oil prices.  Not a great time to buy, but the best of the lot are SU, TRP, ENB.

all others 8%

It is hard to find quality Canadian companies in other categories, but Thompson Reuters (TRI) is a good one. Also there are several good utilities such as FTS, ACO.X, H, EMA.

So putting this all together, I would look at an reasonable starting portfolio as follows.  I have assumed a portfolio size of $100,000, but you can adjust to suit your number.  Using current dividend yields and stock price changes over the past 5 years, you would expect to get about $4,500 each year in dividends and an average growth of about $3,600 in capital gains, resulting in an average return of over 8% per year.

Company Ticker Amount Dividend 5 yr growth
Royal Bank RBC 10000 4.50% 5%
TD Bank TD 10000 4.00% 5%
Power Financial PWF 10000 4.70% 3%
Suncor SU 10000 3.20% -3%
Trans Canada TRP 10000 5.00% 5%
Russell Metal RUS 5000 7.90% -5%
Agrium AGU 10000 4.00% 5%
BCE BCE 10000 4.40% 5%
Telus T 10000 4.40% 10%
Fortis FTS 5000 3.80% 5%
Thompson Reuters TRI 10000 3.60% 5%
Average 4.50% 3.64%
4500            3,636

 

Next month I will try to put together a similar look at US stocks.

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Question from reader

Greg (Canadian, formerly of Doha) asks:

I’m interested in  investing in oil sands related companies as I believe over time some of these companies will be good investments.  I think the oil prices will increase and  these companies  over time will be more profitable.
But what I’m seeking are companies that are most likely to whether this current storm and survive to see the profitable times I believe will come for this industry. I’ve been looking at balance sheets and finding companies with low debt and a lot of cash and liquid assets to possibly invest in.
I’m   looking for   good long term plays in this Sector. I understand  so many unpredictable factors are at play here including    government intervention but   despite this and recognising   you’re not a fortune teller (as far as I know) I was wondering if  you   had any  advice on specific companies.

My Response:

Like you, I think that oil will recover, but the current supply and demand positions make the recovery look a long way off.  So I wouldn’t expect much above the current $40 range for the foreseeable future.  What this is doing is forcing the existing players to become more efficient.  During the peak many companies got sloppy as they could turn a profit regardless of how poorly they managed.  Encana and Cenovus are two prime examples here in Calgary.  They were very poorly managed and have really played a price with massive layoffs of redundant and useless management positions where people were just raking in cash and buying lots of toys.  Lots of crying going on now.
 
As for which companies to bet on for the future, that is quite speculative.  The once company that seems to have its act together is Suncor.  It is one of the premier players in the energy industry in general and specifically in the oil sands.  There are others, but I’m not sure I would bet on them.  I try to stick with my strict discipline of criteria and only pick from those stocks on my list.  Basically if its not on my list of suggested stocks, I wouldn’t recommend it.
 
Recent transactions of mine have been shedding ECA, CVE and HSE (not necessarily oil sands players, but energy non-the-less).  Dividends have been cut or suspended and other key ratios don’t look so great.
 
In my portfolio right now are SU, TOT, RDS (recently downgraded by Valueline) and ENB.  Pipelines may be a prospect as well and have some relationship to the oil sands (TRP, PPL).
 
In all cases we should have seen the bottom already, but big gains may be a while yet. That is why I like to stick with the proven dividend payers.

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My Portfolio

I spent a good part of April readjusting my portfolio – getting rid of unwanted items and replacing with securities that fit my criteria – basically still cleaning up from some of the errors of my late financial advisor.  By the way did I ever tell you to NOT use a financial advisor?  I still have a couple of securities to shed at the right time (in italics), but here is what my portfolio looks like right now:

Canadian    US
ATCO Ltd. ACO.X Cisco Systems, Inc. CSCO
Agrium Inc. AGU Chevron Corporation CVX
BCE Inc. BCE Emerson Electric Co. EMR
BCE INC. PREFERRED SHARES SERIES AD BCE-D International Business Machines Corp. IBM
Brookfield Infrastructure Partners L.P. BIP.UN Intel Corporation INTC
Bank of Montreal BMO Johnson & Johnson JNJ
Bank of Nova Scotia BNS Kimberly Clark Corp KMB
Canadian Imperial Bank of Commerce CM The Coca-Cola Co KO
Enbridge Inc ENB Lockheed Martin Corporation LMT
Enbridge Inc ENB-B Merck & Co., Inc. MRK
Fortis Inc FTS Public Service Enterprise Group Inc. PEG
Great-West Lifeco Inc. GWO PepsiCo, Inc. PEP
Manulife Financial Corp. MFC Pfizer Inc. PFE
National Bank of Canada NA Procter & Gamble Co PG
Potash Corporation of Saskatchewan Inc POT Royal Dutch Shell plc (ADR) RDS.A
Pembina Pipeline Corp PPL AT&T Inc. T
Power Financial Corp PWF Total SA (ADR) TOT
Russel Metals Inc RUS Unilever plc (ADR) UL
Royal Bank of Canada RY Verizon Communications Inc. VZ
Shaw Communications Inc SJR.B
Sun Life Financial Inc SLF
Suncor Energy Inc. SU
TELUS Corporation T
TransAlta Corporation TA
Toronto-Dominion Bank TD
TransCanada Corporation TRP

The dividend yield on my Canadian portfolio is 4.44% and on my US portfolio 3.50%.  This yield is providing me with a very comfortable living in retirement. So far I have only withdrawn 2.15% in 2015 and 1.7% in 2016 (likely to grow to 2.6%).  My portfolio structure and income stream has been very tax effective, resulting in an effective tax rate of about 16%.

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Suggested Stocks

The following lists are taken from the ValueLine stock screener.  For US stocks I have used the strongest rating only (A++) with a dividend yield of at least 2% and a 10 year history of increasing dividends.  For Canada and Europe I have used the same criteria, but as ValueLine seldom rates foreign stocks at A++, I have included some lower ratings.  The Canadian and European stocks are only those that are traded on the US markets.  There may in fact be good stocks listed on the domestic markets.

US Stocks

Company Ticker Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
3M Company MMM A++ 2.63 8.5 21.06
Abbott Labs. ABT A++ 2.37 1.5 20.7
AT&T Inc. T A++ 5.1 3.5 13.57
Automatic Data Proc. ADP A++ 2.57 13 26.44
Boeing BA A++ 3.43 12.5 16.43
Bristol-Myers Squibb BMY A++ 2.17 2.5 43.04
Cardinal Health CAH A++ 2.02 26 19.08
Chevron Corp. CVX A++ 4.22 10
Coca-Cola KO A++ 3.21 9.5 22.62
Colgate-Palmolive CL A++ 2.29 11 45.99
Deere & Co. DE A++ 2.9 15.5 19.48
Dover Corp. DOV A++ 2.52 9.5 19
Du Pont DD A++ 2.46 2.5 23.08
Emerson Electric EMR A++ 3.44 8 17.8
Exxon Mobil Corp. XOM A++ 3.38 9.5 32.51
Gen’l Dynamics GD A++ 2.21 13.5 14.83
Grainger (W.W.) GWW A++ 2.05 17.5 19.33
Home Depot HD A++ 2.05 19.5 22.36
Honeywell Int’l HON A++ 2.07 9.5 17.87
Illinois Tool Works ITW A++ 2.1 12 19.62
Int’l Business Mach. IBM A++ 3.62 20 12
Intel Corp. INTC A++ 3.25 17.5 12.94
Johnson & Johnson JNJ A++ 2.82 9.5 19.75
Kimberly-Clark KMB A++ 2.79 8 29.21
Lilly (Eli) LLY A++ 2.64 3.5 22.56
Lockheed Martin LMT A++ 2.99 20.5 19.56
McDonald’s Corp. MCD A++ 2.86 20 23.6
Medtronic plc MDT A++ 2.01 15 14.87
Merck & Co. MRK A++ 3.25 1.5 15.38
Microsoft Corp. MSFT A++ 2.58 19 19.85
Novartis AG ADR NVS A++ 3.62 14.5 19.36
PepsiCo, Inc. PEP A++ 2.97 11.5 20.91
Pfizer, Inc. PFE A++ 3.61 4.5 26.17
Procter & Gamble PG A++ 3.32 10 20.1
Public Serv. Enterprise PEG A++ 3.65 3 15.64
Qualcomm Inc. QCOM A++ 3.72 22.5 12.76
Raytheon Co. RTN A++ 2.32 11.5 17.91
Schlumberger Ltd. SLB A++ 2.49 15.5
Smucker (J.M.) SJM A++ 2.22 9.5 20.09
Texas Instruments TXN A++ 2.58 29.5 19.95
Total ADR TOT A++ 5.61 8 31.92
Travelers Cos. TRV A++ 2.46 8 10.88
Unilever PLC ADR UL A++ 2.84 6.5 23.51
Union Pacific UNP A++ 2.52 21 16.76
United Technologies UTX A++ 2.43 12.5 17.09
Verizon Communic. VZ A++ 4.52 3 12.54
Wal-Mart Stores WMT A++ 2.92 14.5 16.19

Canadian Stocks

Company Ticker Domicile Code Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
Agrium, Inc. AGU CA A 4.34 39 13.34
Bank of Montreal BMO.TO CA B++ 4.21 7 11.78
Bank of Nova Scotia BNS.TO CA A 4.49 9 11.02
BCE Inc. BCE CA B++ 4.27 8.5 21.77
CAE Inc. CAE.TO CA B+ 2 6.5 16.27
Cameco Corp. CCO.TO CA B+ 2.55 15.5 12.84
Can. Imperial Bank CM.TO CA A+ 4.7 6.5 10.58
Can. Natural Res. CNQ.TO CA B++ 2.43 23.5
Empire Company Ltd. EMP/A.TO CA B++ 2.11 10 13.48
Enbridge Inc. ENB.TO CA B++ 3.95 11.5 22.37
Fortis Inc. FTS.TO CA B+ 3.86 9 17.66
Jean Coutu Group PJC/A.TO CA B++ 2.11 10.5 16.7
Magna Int’l ‘A’ MGA CA A 2.32 7.5 8.77
Manulife Fin’l MFC CA B++ 3.56 3.5 11.45
Methanex Corp. MEOH CA B+ 3.12 23 85.93
Nat’l Bank of Canada NA.TO CA B++ 4.96 10.5 9.82
Pembina Pipeline Corp. PPL.TO CA B++ 4.94 4.5 30.89
Potash Corp. POT CA B++ 5.54 34.5 17.36
Power Financial PWF.TO CA B+ 4.78 7 10.23
Rogers Communications RCIB.TO CA B+ 3.91 51.5 17.34
Royal Bank of Canada RY.TO CA A 4.31 10.5 11.3
Russel Metals RUS.TO CA B++ 7.05 16 22.47
Shaw Commun. ‘B’ SJRB.TO CA B+ 5.1 28.5 13.06
SNC-Lavalin Group SNC.TO CA B++ 2.19 18.5 19.04
Suncor Energy SU.TO CA A 3.22 24
TELUS Corporation T.TO CA B++ 4.66 15.5 16.19
Thomson Reuters TRI.TO CA B++ 2.63 6 22.5
Toronto-Dominion TD.TO CA B++ 3.91 10.5 12.53
TransCanada Corp. TRP CA B++ 5.55 5.5

European Stocks

Company Ticker Domicile Code Financial Strength Dividend Yield Dividend Growth 10-Year Current PE Ratio
Novartis AG ADR NVS CH A++ 3.62 14.5 19.36
Daimler AG DDAIF DE B++ 6.04 6 8.49
Siemens AG (ADS) SIEGY DE A 3.51 13.5 12.2
Total ADR TOT FR A++ 5.61 8 31.92
AstraZeneca PLC (ADS) AZN GB B++ 4.65 13.5 22.83
Brit. Amer Tobac. ADR BTI GB B++ 3.99 14.5 18.23
BT Group ADR BT GB B++ 3.5 2.5 12.27
GlaxoSmithKline ADR GSK GB A+ 6.21 7 47.42
Rio Tinto plc RIO GB A 3.67 10.5 15.84
Vodafone Group ADR VOD GB B++ 5.24 14 38.41
WPP PLC ADR WPPGY GB A 3.04 17.5 16.3
Tenaris S.A. ADS TS LU B+ 3.3 16.5 60.64
Philips Electronics NV PHG NL B+ 3.25 8.5 54.5
Unilever PLC ADR UL NL A++ 2.84 6.5 23.51

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Happy Investing!!

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About borgford

Feel free to contact me with questions: brianborgford@hotmail.com
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One Response to April 2016 Update

  1. Pingback: June 2016 Update | Brian Borgford – Investing

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