Portfolio Update (Sept 2014)

It’s been a while, and I’ve been neglecting my blogging somewhat. But at the very least, I thought I should update everyone on some of my portfolio transactions. I’ve now exited four positions on my portfolio and have three new ones.

In general, I am trying to stay mostly invested while raising a little cash. As I have been selling some positions, I have not been reinvesting everything. I am reinvesting only my original capital while keeping my gains on the sidelines.

The Sells

Sells
Date Ticker Name Shares Sell Price Sell Value
23 Jul 2014 NBD.TO Norbord 550 $24.66 $13,563.00
18 Aug 2014 CSE.TO Capstone Infrastructure 4900 $4.40 $21,560.00
8 Sep 2014 FCR.TO First Capital Realty 700 $18.80 $13,163.01
16 Sep 2014 CFN.TO Carfinco 1650 $11.36 $18,744.00
Total $67,030.01

Reasons For Selling

Norbord – I sold out of Norbord back in July at $24.66 as the US housing market was basically tanking. The stock continued to fall as low as $20.51, another 17%, so I think this was a good decision. It’s since crawled back close to my exit position, but I’m not really interested. Lumber prices have to be high enough that NBD can sustain its dividend long-term, and I don’t think they’re at that point yet. Small capital loss of 15% (about $2k) but I did receive $1.3k in dividends. The proceeds went into an initial position in LRE.

Capstone Infrastructure – I exited CSE with a good profit, a return of about 20% over a year. Nothing wrong with the company, but I do predict low and possibly negative earnings for the next couple of years as they start a new power contract. This is supposedly well-known and built into the stock price, but I’m concerned that when low earnings do come out next year that there will be sticker shock. Might be a buying opportunity if it drops on bad news in the future. The proceeds went into an initial position in MIC and the rest in cash.

First Capital Realty – FCR just announced a dividend increase, so why am I selling? I just don’t see the growth anymore. The company issues a lot of stock, and book value per share is dropping. I don’t see a lot of opportunity for capital gains. They even issue stock for all of their convertible debentures instead of paying cash. If it drops below $17, I might get back in. The proceeds went into, at the time, CFN, LRE and KMP (see below), which I thought all had better potential upside.

Carfinco – The reason here for selling is simple – Carfinco is being bought out by a Spanish bank. I actually just added to my CFN position on 8 Sep at $7.75. I sold my shares on 16 Sep and on 17 Sep I used about 60% of the money to add to three positions (below).

The Buys

So what am I doing with the money? I’m being very particular – only good value plays are getting investments. There are plenty of overpriced stocks out there – like pipelines.

All of my buys are a little contrarian. The stock prices are moving down, not up. Then again, Carfinco’s price was moving down when I bought on 8 Sep. Good things can happen to cheap stocks – you have a margin of safety on your side.

Buys
Date Ticker Name Shares Buy Price Buy Value
17 Jul 2014 LRE.TO Long Run Exploration 2900 $5.68 $16,472.00
8 Sep 2014 LRE.TO Long Run Exploration 1000 $5.05 $5,050.00
17 Sep 2014 LRE.TO Long Run Exploration 700 $4.95 $3,465.00
18 Aug 2014 MIC.TO Genworth MI Financial 450 $38.15 $17,167.50
17 Sep 2014 MIC.TO Genworth MI Financial 100 $36.45 $3,645.00
8 Sep 2014 CFN.TO Carfinco 450 $7.75 $3,487.50
8 Sep 2014 KMP.TO Killam Properties 250 $10.41 $2,602.50
17 Sep 2014 TPH.TO Temple Hotels 650 $5.30 $3,445.00
Total $55,334.50

Reasons for Buying

Long Run Exploration – Definitely amongst the cheapest of the dividend paying oil companies with a payout that looks sustainable. In fact, they increased it earlier this year, and have made several major acquisitions. Even though oil prices are down, this is accounted for in their projections. If oil prices stay here or move higher, I expect a dividend increase within 6-9 months and likely a big jump in the stock price. Look at Surge Energy – very comparable.

Genworth MI Financial – Genworth MI insures mortgages in Canada. They’re amongst the cheapest of any financial company in Canada right now (P/E of 9), have four dividend increases in the last four years, a low payout ratio, trade only slightly higher than book value, and bought out a huge number of shares last year, boosting all metrics. They are in excess of regulated capital requirements, so I expect more dividend increases and share buybacks. These guys are like a regulated cash machine. The government recently ordered increases to premiums, which is guaranteed higher revenue. And if interest rates do rise, they have a natural hedge as they’re able to invest premiums at higher interest rates even if house prices fall (they’re an insurance company after all).

Killam Properties – I’ve owned this company for years and continue to add when I find more cash. Q1 was poor because of weather and unforeseen budget costs, but Q2 is back on track with $0.19 in FFO (79% payout ratio, P/FFO of 13.5). I now have 1450 shares.

Temple Hotels – I first added this position in January, and I still like them. I think the dividend is sustainable and could grow once they digest all of their acquisitions. A similar company, HLC, has been up almost 50% in the last three months and the same thing could happen to TPH. If not, I will be happy to collect the fully eligible dividend.

Conclusions

After all of this trading, I have a net cash position gain of $11,695.51 plus a pile of dividends over the summer. I also have an empty investment line of credit with a $33,000 balance. My portfolio is down to 22 positions, but I’m not going to add a new name unless I see a buying opportunity. Stock markets have been choppy, but they tend to start going up late in the year, so August and September are my favorite times to acquire stocks. Good luck to all.

If you have any questions, feel free to comment or send an email to inbox@dividendblogger.com.

Summer vacation

Greetings all. I am currently on vacation, and also in the middle of moving to a new province. There won’t be much in the way of posts for the next month. I was hoping to get Q2 results out, but relocating has taken more time than I thought.

Meanwhile, I have been pleased with the performance of my portfolio. I’ve been neck and neck with the index over the last few months. I was ahead in May and then the index pulled ahead in June.

Recent strong performers include Clarke (TSE: CKI) and Noranda Income Fund (NIF.UN). For Noranda, zinc prices continue to be strong and there is a worldwide decrease in supplies. The next few quarters should be very good if they have good operations.

There is one big laggard in my portfolio, which is Norbord (TSE: NBD). They are severely lagging their peers as well, more diversified companies such as Western Forest Products (TSE: WEF), West Fraser Timber (TSE: WFT) and even Canfor (TSE: CFP). It’s not a huge weighting for me, so I’m holding for now, but I could see myself selling by the end of the year.

Have a great summer!

If you have any questions, feel free to comment or send an email to inbox@dividendblogger.com.

Dividend Increases #2 – June 2014

Opening Comments

The TSX broke its all-time record closing value on Wednesday. It also set a record close on Thursday before falling back. The index doesn’t concern me too much – 8 of my 25 stocks in my portfolio are part of the TSX 60, which makes up most of the index weighting. This means I only have a 32% overlap. Many companies aren’t even part of the wider index, but sometimes they grow large enough that they are added, like Autocanada was this past week.

There are a couple of reasons why I’m not a big fan of Canadian stock indexes. I don’t like all of the stocks in the index for various reasons (usually because they’re too expensive, or don’t pay dividends. Or both).  And, the index is cap weighted. This means the biggest companies have the most influence. It is fairly well proven that smaller companies have greater long-term returns. Why wouldn’t I want exposure to the smaller companies on the TSX?

One solution would be an equal weight ETF that holds all of the stocks in the index in equal amounts. Unfortunately, there are no such products in Canada that I am aware of. So, I continue to pick and choose the companies I see the most value in.

My strategy now that the index is in record territory: I am staying invested, but not adding new cash at this time. I have been happy adding cash fairly indiscriminately for the last 5 years, but now I think it’s time to pause. I’ll let the portfolio run though – I’m not much of a market timer, but I really am looking forward to another bear market with very low valuations. If I don’t have some funds available, I won’t be able to get the one-in-a-decade bargains when they eventually arrive.

The Dividend Increases

Ticker Name Dividend Increase New Yield P/E Payout 1 Year Return
SGY.TO Surge Energy 11.1% 7.5% - 64.7%
LRE.TO Long Run Exploration 4.5% 7.3% 23 165.7% 57.6%
CVL.TO Cervus Equipment 1.2% 3.9% 15 57.5% 9.8%
CAR.UN Cdn Apartment REIT 2.6% 5.0% 15 72.9% 10.1%
NAL.TO Newalta Corporation 13.6% 2.3% 24 55.7% 63.7%
AD.TO Alaris Royalty Corp 4.2% 5.2% 24 124.1% -3.2%

About The Increases

The first two companies, Surge Energy and Long Run Exploration, are smaller oil producers with high dividend payouts. These companies have been doing very well with the recent run-up in oil prices. I’m not currently invested in any small oil companies, although I have in the past. They aren’t very easy to value, and they are often unprofitable. But they don’t pay taxes and have oil reserves which become more valuable when the price of oil increases. Surge has four dividend increases in the last year since starting a dividend – they seem determined to return cash to shareholders. Long Run has an even smaller dividend history – six months – and this is the first dividend increase.

Cervus Equipment is a retailer of industrial, construction and agricultural equipment. They have a very interesting dividend history – 10 consecutive quarterly dividend increases. That is 10 increases in the last 2.5 years. The increases are small, totaling around 14% in that period of time. I like this company – good value, good dividend and steady dividend increases – and it’s on sale, down about 15% from its 52 week high.

Canadian Apartment REIT is a solid real estate company that is definitely a buy. It trades at a P/FFO of 15 with an 11% increase in FFO year over year – excellent growth for a REIT. They aren’t a dividend achiever, but this is the 11th dividend increase since the company went public in 1997.

Newalta Corporation is an oilfield services company. It’s very expensive, but it’s on my radar because of its 4th consecutive annual dividend increase. They may be a True Dividend Achiever as of next year. I used $0.90 in adjusted earnings to calculate the P/E. NAL.TO would be a buy if it was still trading at its year ago price, but not now.

Finally, Alaris Royalty Corporation announced its first dividend increase in over a year. I used to own shares in them (I just about doubled my money in about a year), but sold when they started getting expensive. I like the company’s model, and would definitely buy back in again if the price was right. The yield would have to be well above 6% though – dividend growth will be slow in Alaris from now on.

Conclusions

Have a good investing week. I’m only going to have a few more weeks before I take a month-long summer pause, as I’m conducting an inter-provincial move this summer which will disrupt blogging.

If you have any questions, feel free to comment or send an email to inbox@dividendblogger.com.