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
||1 Year Return
||Long Run Exploration
||Cdn Apartment REIT
||Alaris Royalty Corp
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.
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 firstname.lastname@example.org.