Friday, October 31, 2014

Beating the TSX and the Index Funds



















My wife and have our self-directed plans at a couple of financial institutions. One, TD Canada Trust, has a new feature: Performance.

I checked our accounts held with the TD. Each of our plans beat the S&P/TSX Composite Index in the past month and therefore we also beat the index funds tracking the Toronto exchange. When I looked at the graph for the past 12-months, the plan used for the illustrations, the green line, ended the period a notch above the TSX blue line. I beat the index funds again. And, more importantly, I was well ahead of my own, personal financial goals for the period.

My portfolio, the green line, ends the past 12-months above the blue TSX line.

When the past 12-months are examined, the Yanks are ahead; no surprise there. Since I created some purely, online portfolios based on some well-known lazy-investor approaches, I am not surprised that I have beaten the index funds based on Canadian investments. Not one of the index-based portfolios I created has outperformed my real investments examined in their entirety. (Note the amazing lack of volatility in my featured portfolio.)

Still, the Yanks are beating me and that shouldn't be. I should have more exposure to the American market. I can do, and I will, do better.

When I checked some of my other accounts and created a chart going back to end of 2010/beginning of 2011, I found the spread between my investments and the TSX really grew with my investment mix well ahead. The missing US investment really hurt.

Note consistency of high yielding portfolio (green) compared to TSX (blue).

Still, the best thing about my approach, in my opinion, is the constant dividend income. I need dividend income in order to live in retirement. My dividend income is far greater than the dividends delivered by an index fund tied to the TSX.

Come January, this blog may post a portfolio of  high-dividend picks. All must be solid companies with no obvious financial storm clouds on the horizon.

Tuesday, October 28, 2014

Whitecap Resources lookin' good

Whitecap Resources (WCP) looks good -- but, don't take my word for it. Do your own due diligence. I've been wrong in the past and I'll be wrong again.

That said, TD put WCP on their Action List when the stock was going for $16.03. And the ScotiaBank has WCP rated as Sector Outperform. I've noticed that these investment 'tips' are not always right but they do point one in a direction-of-interest. In the end, the decision to invest rests with the investor.

I picked up 1000 shares at $14.76. But first, I checked out the Fundamentals. I paid particular attention to the Financial Statements. WCP looked like a keeper to me. Like I said, do your own research and see what you think.

With this purchase, my annual income just jumped by $750. With a payout ratio of only 59.65 percent the dividend looks safe. With a safe dividend, a drop in share value can be endured. If the share cost drops enough, and I hope it doesn't, I still have enough cash on the sidelines to buy another batch of shares if the price is right.

If a retreat should occur, I'd love to pick up some of this on a dip for my Tax Free Savings Plan.
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Caught a fellow on BNN. He said he believed oil prices still had lots of room to fall. He said he had worked on the exchange floor for years and he sees $80 oil as expensive oil. Furthermore, Enbridge released a statement today warning oil may remain at the present level for the next two years. All this says take care with oil patch purchases. A good, solid, black bottom line may be more important today than ever.

I still feel good about WCP as an investment to hold.

Norbord share price fails to hold recent gains

The share price of Norbord (NBD), the giant, multi-national manufacturer of OSB (oriented strand board) and MDF (medium-density fiberboard), dropped at the opening today by more than six percent. I believe Credit Suisse announced it believes NBD will likely cut its dividend after its next 60-cent payout. This talk preceded this morning's price drop.

This came as no surprise. According to the info found on TD WebBroker, the NBD dividend hits a payout ratio of 123.4 percent . Whenever I see this ratio climb above a hundred percent, I fear there is a danger of it being cut. Wait and see.

Norbord has been paying an annual dividend of $2.40 or 60-cents a quarter for a rate of 10.17 percent. Anytime a company pays a dividend in the double digits, I have doubts about the long-term future of the payout. But, doubts or not, I own Norbord. I paid more than I should have -- $26.24 -- but I'm not in too deeply. The loss is quite manageable. And by the time the dividend is cut, if it is, I will have recouped $480 of my investment.  (If the dividend is only halved, I'll be happy.)

Norbord has a checkered history when it comes to paying dividends. If dividends are all that are attracting one to NBD, walk away. Nothing to see here. Nothing but a profitable company, as far as I can see from a quick reading of the net income numbers.

Norbord is a bet on the recovery of the housing market in the States and Europe. For me, the question isn't will the housing market recover, the question is when. When it does, Norbord will be there to profit and I will there for the ride. (Some see NBD eventually hitting $31 or more.)

And if a chap interviewed on BNN is right, the U.S. housing recovery may arrive in 2015. He sees a lot of pent-up demand supported by a steadily improving economy in the States. If he is right, the wait for an NBD recovery may not be all that long.

Here is a link to an article running in Seeking Alpha: Norbord Can Be A Value Play on the US Housing Market.  Note that the writer has a declared entry point: At under $22 he would add to his position.

Tuesday, October 21, 2014

Taking a breather from the corrrection

If that was a bear, it has gone back into hibernation. My retirement portfolio has gained thousands in the past few trading days. It looks quite likely that despite having to remove dividend money to live, my retirement portfolio will end the year with a nice gain.

I like my portfolio to make enough, at the very minimum, to end the year with the same amount it started plus enough to neutralize the effects of inflation. This, of course, is after I have removed some money to cover living expenses in retirement.

The rule-of-thumb governing withdrawals is: Only remove four percent per year if you want your portfolio to last. Good rule but almost impossible to follow. When my wife turns 71 we will both be forced to convert our RSPs into RIFs and remove a legislated amount each year. The very first year we must remove 7.38 percent this withdrawal rate will climb higher with every passing year. The government does not want RIFs to be going strong when folks are hitting 90. The government forces seniors to bleed retirement accounts until they wither away.

I'm trying to move as much money as possible into my wife's and my Tax Free Savings Plans. The money that one removes from either an RSP or a RIF counts as income and can trigger the old age security claw back if one has almost any company pension at all. Earn more than about $70,000 in retirement and you are in claw back territory. For many this is easier than you may think.

The Guaranteed Income Supplement (GIS) is paid to low-income Canadians age 65 or older. Like OAS, GIS may also be reduced, or even totally eliminated, by income generated by removal of funds from either an RSP or RIF.

For some people, paying income tax up front and sticking their retirement savings in a Tax Free Savings Plan rather than an RSP is a better way to save for retirement. I wish these had existed when I was saving for retirement.

As I said earlier, it is not too late to start building a TFSP. My wife's plan, is up more than 12 percent in just more than a year despite the recent pullback. It is a small plan and all the money is invested in one stock: D.UN. As the dividends come in, I immediately move the funds into a TD Investment Savings Account (TDB8150). Fully 12% of the plan is now in cash earning 1.25 percent. As the cash pours in the volatility of the plan drops, as well as the yield. Today the total plan is delivering more than seven percent. Nice.

Soon I will move the cash into the highest paying GIC I can find. This will kick the yield up a small notch. And folk say you can't get a good yield today. I'm happy. With time, this plan will get less and less volatile as the cash component grows with monthly dividend income.

Just a side note. Some are calling for D.UN to hit $35. It is at $28.48 as I write this. I'm in no hurry to sell. I can wait for this stock to gain in value. When it does, my wife will make out like the proverbial bandit.

Saturday, October 18, 2014

Do you feel lucky, punk?

It is not quite the quote from Dirty Harry but it does capture the feel. And sometimes, I feel that this somewhat addled version of Harry Callahan's question can be applied quite nicely to investing in the stock market.

A friend, who I can only describe as wise, told me he didn't see this recent market correction coming. He was blind-sided. I have nothing to add other than I didn't see Thursday's and Friday's pop in my portfolio value coming either. I may yet end the year in the black, even after my withdrawals to supplement my retirement income.

Which brings me to the subject of today's post: Barbell portfolios.

A barbell approach to investing puts a whack of one's money in something risky and balances that risk with a whack of money in something with a more solid financial footing. At the start of the year I devised what I felt might very well prove to be a great portfolio for 2014. My imaginary portfolio looked like this:

  • 10% MORL
  • 20% REM
  • 40% XMI
  • 10% XSB
  • 10% VSX
  • 5% XRB 
  • 5% cash placed in TDB8150 earning 1.25%

My imaginary portfolio opened the year with $800,000. Today this has grown to $896,507.30. Very nice and this is after the recent correction put many of my other imaginary portfolios into the red. Many of those others were index-based portfolios using ETFs and came highly recommended by financial bloggers.

I checked the Barbell portfolio figures and they are slightly in error. In reality such a portfolio would be worth a little bit more. The interest paid by the TD Investment Savings Account did not enter into the portfolio software calculations. 


Click on image to enlarge. Five percent cash would not fit on screen grab.

What make this portfolio interesting is that I attended a number of investing lunch-time seminars at the main TD Canada Trust branch in downtown London. Some of these seminars examined ETFs and how to determine which ones gave indications of being winners. 

I tried to question the speakers on REM and MORL, mostly focusing on REM. I've owned REM for years and it has rewarded me handsomely. Not one of the investment experts knew anything about REM or about MORL. I find it difficult to believe they knew nothing about mREITs. Heck, mREITs are discussed on the Business News Network (BNN). Both REM and MORL are based on mREITs. REM is an ETF amd MORL is an ETN. An ETN is an exchange-traded note. ETFs are exchange-traded funds.

Come January, I'm going to rejig this portfolio. It will be interesting to see how the 2015 portfolio performs. Being imaginary, I will take another bold approach. And, if REM every takes a dive, I may pick up some on the dip. REM is said to be a low risk ETF and slowly I am beginning to believe this just might be true despite the lack of a blessing from the financial high priesthood.

Friday, October 17, 2014

Correction? Bear Market? What to do?

I keep all my portfolio/investment records on an Excel spreadsheet. When I get to seeing the past with rose coloured glasses, I can quickly look back and see that all was not a smooth ride to the top. For instance, I had a year when I ended those 12 months with about 22 thousand less dollars than I had begun the year.

That year I had removed about thirty thousand to live. If I hadn't made that withdrawal, I would have ended the year in black like all the others. But I do have to live, maybe not as well as I did, but removing money from a retirement account in retirement is not just expected but demanded.

So far this year I have removed about 25 thousand from my portfolio in order to cover living expenses. Even with that big draw down, my portfolio is still up today by some eight thousand dollars. Yesterday alone it recovered about $1800 from its recent low.

Will I remove more from my RSP before year's end. I don't know. If such a move puts my portfolio in the red, I probably won't. I'll leave the money invested and possibly invest much of the available cash.

At times like this it is good to have some stocks on one's investment radar. I am following:

BEP.UN (Brookfield Renewable Energy Partners LP) Up 2.8% today, yielding 5.1%
BPY.UN (Brookfield Property Partners LP) Up two thirds of a percent today, yielding 4.6%
CPG (Crescent Point Energy Corp) Up 3.9% today, yielding 7.2%
EMA (Emera Inc.) Up half a percent today, yielding 4.4%
FTS (Fortis) Up half a percent today, yielding 3.7%
HR.UN (H&R REIT) Up a quarter of a percent today, yielding 6.3%
SJR.B (Shaw Communications Inc.) Down a quarter percent today, yielding 4.1%
XUT (iShares S&P/TSX Capped Utilities Index ETF) Up a quarter percent today, yielding 6.3%
WCP (Whitecap Resources Inc.) Up more than half a percent today, yielding 4.9%

If the market takes another big dip, I'll buy more good stock and enjoy the increased dividend payments in the coming years. If the market recovers, I'll remove more cash to cover living expenses and take my lovely wife out for dinner and a movie.

Wednesday, October 15, 2014

Is it about time to buy?

The Globe and Mail headlines said it all:
TSX suffers another harrowing day, takes triple-digit dive.

A related article sported the headline:
The (slow) rise and (gut-wrenching) fall of the TSX.

The headlines said it all but all was about the Canadian market. My portfolio actually gained today. I ended the day with almost a thousand more bucks than I started. I'm still in the black for the year. Maybe, just maybe, this bear will run out of steam before I run out of profits to feed the damn beast.

Is it about time to buy? Maybe. I think I'll pick up a little something conservative. But, I'm keeping what powder I have dry in anticipation of more and bigger bargains.