Monday, December 15, 2014

Interesting fact without comment: Household Debt in Canada at all-time high

In the third quarter which just ended, the household debt-to-income ratio of Canadians hit an all-time high. According to Stats Can the ratio hit 162.6 percent up from 161.5 percent in the previous quarter.
The Bank of Canada has expressed concern Canadians may be taking on too much debt. The Bank is monitoring the ratio and watching for signs consumers being overextended. Bank of Canada Governor Stephen Poloz forecasts household imbalances, caused by high levels of debt and a hot housing market, should fall gradually as the economy strengthens.

Despite the record high debt-to-income ration, the ability of Canadians to service their debt has improved thanks to interest rates remaining low. The interest paid as a proportion of disposable income fell to a record low 6.8 percent in the past quarter.

Personally, I hate debt. I take it on when I must but I attempt to pay it down as quickly as possible or, at least, keep the payments low and non-threatening. I track all my expenses by charging the vast majority of purchases and paying the entire bill monthly. I have a budget and my monthly MasterCard bill tells me whether of not I am keeping to my budget.

Right now I am preparing my budget for 2015. I have cut my spending and trimmed my savings plan due to the fall in oil prices. My dividends are threatened. My income may suffer but I will be just fine. I'm prepared -- I hope.

Sunday, December 14, 2014

Holding D.UN in a declining market

D.UN was a stock-picker's darling just a few short months ago. I bought 500 shares for a tax free savings account. D.UN didn't go up much but it did add a few dollars thanks to its generous dividend. Once a month the account benefited from the deposit of $93.33.

Then all began to change. D.UN lost its sheen and fell to a buy and then quickly moved to hold status on many lists. As the price of oil tumbled, the value of the D.UN stock fell off a cliff. The REIT has a lot of Western Canada exposure. I checked a chart and D.UN is still in free fall. Where it will go after market opening Monday is anyone's guess. It may well continue to lose value.

Am I worried? Yes. Am I selling? No. I wanted a dividend and I got an dividend. At the moment that TFSA is earning an annual yield of 7.7% calculated on the original investments. Ignore the loss for the moment. I believe the loss is temporary but it the downturn may linger longer than one would like. Eventually its grip will weaken and the stock will begin to rebound.

My wife and I need to see at least 4% from our investments to balance our books in retirement. D.UN can cut its dividend dramatically and the dividend income for this TFSA will still be 4% or better.

This REIT is about 20 years old. It is a respected name. I don't worry about it being here in the future. It will do just fine over time. It is me that I worry about. With my heart, I am a much poorer bet when it comes to the future than D.UN. Send a dividend and my wife and I will live worry free.

If D.UN drops farther or stays down as I think it might, I will add another 100 shares. At that point, I  will have made my maximum commitment to D.UN.

Friday, December 12, 2014

Reader Right: TD Dividend Growth is a winner

Question: Have you ever researched TD Dividend Growth fund? I met a TD rep today and he couldn't stop talking about it. Its 10 year record is better than TD Monthly Income, which surprised me.

Thank you.

The bank rep is right. Over a ten year period, the TD Dividend Growth Fund is in the lead when pitted against the TD Monthly Income Fund. As the above graph shows, a $10,000 investment gained $1472.63 more in the TD Dividend Growth Fund as opposed to the Monthly Income offering.

This year may be an anomaly. The Year To Date (YTD) figures show the TD Monthly Income is up 6.49% while the TD Dividend Growth Fund has gained only 6.23%. (I don't know if the dividends are contained in these figures but I doubt it. If the dividends are not included, the use of the DRIP would extend the Monthly Income lead.)

Still, it is clear that the TD Dividend Growth Fund has found its footing, this year excepted. When one checks its quartile ranking position, it doesn't drop from the first to the second quartile until one goes back five years. Go back ten years and one finds it was holding a position in the second quartile even back then. Impressive.

The TD Monthly Income fund supposedly presents a little less risk, it is a balanced fund with lots of bonds among its holdings, but when one looks at the numbers the dividend growth fund doesn't look all that risky.

At 2.03%, the MER is a little high with the Dividend Growth fund. But if you agree that all that matters at the end is how much money is being delivered, you will turn a blind eye to the MER and instead focus on the amazing, steady growth in the value of fund units.

I will leave you with this: a chart comparing the TD Can. Index e-Fund with the TD Monthly Income Fund. I picked five years because that is close to the length of time that I have been retired. Note that the Monthly Income find is well ahead of the index-based fund. A low MER did not push the index fund into the lead.

And, if one checks, one will discover the TD Dividend Growth Fund performed even better than the two funds above.

I started this blog in the hopes of connecting with others interested in building a great portfolio, possibly with retirement in mind. When I get questions like this one, I learn and that was my original goal. I wanted to hear from people who could push me in directions that previously I had never considered.

One thing must be said: all this talk about how good the TD Dividend Growth Fund has been is all history. The old maxim that past performance does not guarantee future results still carries weight. That said, it is not just the TD Dividend Growth Fund that must constantly prove itself. Index funds and ETFs also must constantly prove they are the best game in town.

Thursday, December 11, 2014

Index portfolios have done well this year


Read on your blog on some experiments with ETFs. Was looking for your thoughts on TD Canadian Index fund (e-Series) with a MER of 0.33%. Have you ever tried this?


The TD e-Funds are excellent. The MER for the TD Canadian Index Fund-e (TDB900) is not unreasonable, a little higher than some ETFs but on the plus side there are no trading fees. If you are adding to your portfolio regularly, this can add up to a big savings.

One warning, I believe there is an early redemption fee of 2% if an e-fund is redeemed within 90 days of purchase. Also, one must have a TD Waterhouse account to be able to buy TD e-Funds.

At the beginning of this year I set up a number of test portfolios using software offered by TD Waterhouse. My test e-fund portfolio was up about 6.5% today. I used approximately the following mix:
  • 40% TD Canadian Bond Index e-Fund
  • 32.5% TD Canadian Index e-Fund
  • 7.5% TD International Idx Currency Neutral e-Fund
  • 15% TD US Index Currency Neutral e-Fund
  •  5.0% TD Investment Savings Account (TDB8150)
A second portfolio composed of about 15% TD US Index Currency Neutral e-Fund combined with the TD Monthly Income Fund performed even better than the above. Adding the U.S. exposure kicked up growth by a full two percent. No surprise here considering how well the U.S. market has performed this year.

Out of ten test portfolios, the best performer for the year thus far was the Compete Couch Potato portfolio. It pumped up the returns by almost another half a percent over the twin mix above. I must hang my head in shame. This couch potato portfolio demolished me. I own far too much oil and have too much exposure to financials. My portfolio got kicked to the curb this year. I strayed from my plan allocation at my peril.

On the plus side I've got room to spare when it comes to those much needed dividends. As a retired fellow, I need income and my portfolio delivers it in spades. Even a fair shrinkage in my dividend stream will not endanger my retirement lifestyle. I am not going to be forced to sell at fire-sale prices in order to get through 2015. In fact, I see the present softness in the Canadian market as a future buying opportunity. Buy low and all that, you know.

My advice: check out the Canadian Couch Potato blog. Another good blog to check out, especially if you are interested in index investing is My Own Advisor.

Oh well, next year may be better. When oil finds a floor, my portfolio will have a chance to start its recovery. I've learned when oil takes a dive, it takes a lot of other stuff down with it. For instance, REITs with a lot of property in Calgary and Edmonton are being hit. The Canadian banks with lots of loans to Albertans and lots money tied up in the oil patch are also dropping.

This is the year I should have gone the index route.

Monday, November 24, 2014

TD Monthly Income_Answers to e-mail questions

Hi Sir,

Love your blog on investments.

Have a few quick questions on TD Monthly Income, for which you have a soft corner. I was hoping if you could clarify them for me.

The MER is 1.48%, but are there are any hidden costs that we are not aware of?
Also the return it shows of 8-9%, is that after deducting the MER?
The average return of 8 - 9 % of TD Monthly Income, is this coming from the TD website? Is there any chance that you have independently calculated the returns from your own investments in TD Monthly Income and do they match the return posted by TD?

I also like TD Monthly Income but want to verify the returns independently from you.

Would appreciate your input.


Dear Sam:
First, let me make it clear that I am NOT a financial adviser. I am a retired newspaper photographer. I am sharing my feelings about investing and hoping to hear from others who are attempting to run their own self-directed portfolios.

Fund Facts posted by TD contains a lot of the answers to your questions. Follow the link. Or follow this link: TD Helps.

To summarize what you will find:
  • This is a no load fund. There is no charge to buy or sell. But, read on. Note the following:
  • If you cash the fund within 30 days of purchase, you may pay up a 2% early redemption fee. Similarly, there may be a 2% fund switch fee if you switch out of TDB622 too quickly.
  • The MER (Management Expense Ratio) is 1.48%.
  • There is also a TER (Trading Expense Ratio) of .01%.
  • There is an ongoing trailing commission but this is folded into the MER. It is essentially invisible to the investor.
I believed the posted YTD return did NOT include the monthly dividend. A TD rep confirmed this. Here is a link: TD Help. In backing testing this fund I found most years it is best to make use of the offered DRIP, Dividend ReInvestment Plan. Let the dividends accumulate and compound. If you must make a withdrawal, do so at the end of the year.

You may have noticed that the dividend is a little low compared to those paid by other monthly income funds. The reason is that TDB622 has no Return of Capital component hidden within its monthly payouts. I see this as a plus. Follow these links to learn more:
And yes, my calculations based on my investment in TDB622 agree nicely with the numbers provided by the bank.

As a retired fellow, I find this fund very attractive. YTD it has returned about 10.7%. The distribution yield is 1.87%. It is a nicely balanced fund with some 53% invested in Canadian common equities and 37% invested in bonds, mostly Canadian bonds in a mix of government and private issues. The fund has something in the order of 371 investments. Another big plus is the low annual portfolio turnover of only 10.72%. Buy this one fund and buy a great mix of investments at a low cost.

I have found that this fund often outperforms many highly praised index-based ETF portfolios.

Tuesday, November 11, 2014

Patience is a virtue, sometimes.

Patience, it is said, is a virtue. When investing in the stock market this can be a double edged sword. Sell good stocks that are suffering a temporary setback and one locks in one's losses. Be patient and a good stock eventually recovers and one can move on financially intact.

But patiently waiting for a dying stock to reverse course and head for the stars is a fool's game. More and more good money disappears with each passing day. Nortel immediately comes to mind or Yellow Pages or Bre-X Minerals. Even ETF buyers got burned by the Nortel meltdown. Some TSX index funds in reflecting the make-up of the exchange held a lot of Nortel. When it totally disintegrated, these index funds took a huge hit. Nortel is the reason I prefer XIC over XIU. I like the cap limiting holdings, hence the 'C' in XIC.

So, today I sit licking my wounds. I've had a good run. Since getting back into the market some years ago, I've done quite nicely. But this year I lost my footing. I've made some small mistakes, like buying Labrador Iron Mines (LIM), and some big ones, like holding onto PennWest (PWT) and even adding to my position. LIM was a small mistake. I didn't invest much. PWT was a big mistake. I should have sold when I was originally dragged kicking and screaming into the PWT fold of investors.

Years ago I bought junior oil company Canetic Resources. PennWest then bought Canetic in a $3.6 billion deal. I could have sold my Canetic at a profit and moved on. I didn't like PWT. It seemed too eager to grow by acquisition. This can make for a messy financial sheet. If you can't understand it, don't own it. I should have immediately jumped the PWT ship.

At one time PennWest was a $30 plus stock. Today it is struggling to climb back to $5. I calculate that I paid more than $17 a share for the stock I own. I don't see much chance of it ever getting back to that number. That said, if the present reorganization is successful the stock may hit $6 or $7 sometime in the new year. That would give me a 20 to 40 percent gain. All this assumes PWT doesn't find it necessary to cut its dividend again. That would drive the price down even lower.

Thanks to the present low stock price, the dividend is now yielding better than 10 percent. This has analysts worried. David Dyck, the company's chief financial officer,  has tried to calm investor fears by stating that the company "remains confident in its ability to fund its capital expenditure programs and continue to pay a dividend." Is "a dividend" different that "the dividend"?

Should I dump PWT and move on or hold and hope. I'm voting for holding, hoping and re-evaluating. PWT now has decent management. A good broom was taken to the former management. I'd like to see PWT recover to ten dollars or maybe even $12. Good management teamed with a return to $90 or better oil and all my dreams for PennWest may become reality.

Some of my other duds, yes there are still more lead weights dragging down my portfolio, are stocks like Norbord. Norbord is a successful company in a cyclical business. It will come back. I have no doubt. Norbord is a success story just waiting to be told. I just got onboard Norbord too early.

It is looking as if I will end the year easily in the black, even after all my withdrawals. And it looks, to the ever optimistic me, like I have some stocks well positioned to make some nice gains in either 2015 or 2016. I may yet beat the index funds again.

But, I must be patient.

Latest portfolio showing promise

It is too early to tell, but my most recent foray into the world of imaginary portfolios appears to be  a winning allocation but one that may benefit from a little tweaking.

Only opened at the start of the month, two stocks have already been dropped. Both brought in a small profit but both seemed poor choices for a retirement portfolio. One, Norbord, has too many questions swirling about it. Will it cut its dividend? Will the price drop with such a cut? Will housing rebound in the States in 2015. The other, Tech Resources, is a mining operation which is now enduring a strike at a South American mine.

I have added one company to my portfolio with some of the free cash: Precision Drilling. The dividend yield is a little low at 3.1 percent, but the payout ratio is also low. I get worried when the payout ratio climbs above 100 percent. No concern here.

A solid company, in my estimation, it has been on my radar for a long time. The price now is depressed compared to historic values. It may drop farther but it still seemed like a fair time to add a little exposure. I've done well with drillers in the past and this one looks better than some of those others that I owned.

Read more about this latest portfolio and its allocation: Stepping Up to the Imaginary Plate.

Keeping up with the TSX but with less volatility. I'll keep fine tuning.
The present portfolio mix is as follows:

Stocks (about 1.8 or 1.9 percent in each):

  • Ag Growth International Inc (AFN)
  • Baytex Energy Corp (BTE)
  • Dream Office REIT (D.UN)
  • Glentel Inc (GLN)
  • Mullen Group Ltd (MTL)
  • Northland Power Inc (NPI)
  • PHX Energy Services Corporation (PHX)
  • Precision Drilling (PD)
  • Rogers Sugar Inc (RSI)
  • Savanna Energy Services Corp (SVY)
  • Whitecap Resources Inc (WCP)
  • iShares International Select Dividend ETF (IDV) -- 7.5 percent
  • First Trust Morningstar Dividend Leaders Index Fund (FDL) -- 7.5 percent
  • iShares Select Dividend ETF (DVY) -- 7.5 percent
  • iShares Mortgage Real Estate Capped ETF (REM) -- 1.8 percent
  • UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (MORL) [Actually, an Exchanged Traded Note: an ETN.] -- half a percent
Mutual Funds (balance divided between two funds for a four percent annual yield):
  • TD Monthly Income fund (TDB622)
  • CIBC Monthly Income fund (CIB512)
The cash balance is presently $2012.52. The goal is to have enough free cash in a year that one could safely make a withdrawal in retirement and not affect the actual investment holdings themselves.