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My latest crack at a "Retirement Portfolio"

Wednesday, March 6, 2024

Bell, the telecom giant, is BCE: a buy

BCE is one of my core holdings but it has been on a race to the bottom, as of late. In fact, all the telecoms are dropping like proverbial stones. When BCE dipped below $49 recently, I should have added to my holding and averaged down. Maybe I will do it tomorrow as it closed today at $49.13. The Morningstar Analyst Report gives the stock a four star rating and yet many analysts I checked feel BMO is a hold. It is possible BCE is going to linger at the bottom for awhile longer. Many analysts seem to think so.

The yield today is 8.12% with a payout ratio hitting 117.19%. This payout ratio, found using WebBroker, is quite high but the number posted by Digrin is even higher -- an unbelievable 175%. Something is wrong here. These numbers are taking us into "Do you feel lucky, punk?" territory.

BMO hasn't reduced a dividend payment in years but past performance yah-da, yah-da, yah-da means don't believe such a move is off the table. DRG (dividend growth rate) is O.K. but not exciting. To put a dividend you believe you can trust into a retirement portfolio, a dividend yielding 8.12%, I am tempted to act and buy a little. BCE seems to present a buying opportunity, a too-good-to-be-true buying opportunity. So, do you, do we, feel lucky?

Bank of Montreal (BMO): Buy

In the interest of full disclosure, I own Bank of Montreal and have for many years. A damn fine stock. When it dipped well below $120 recently, I added to my holdings. It has regained some of its value but it is still a buy today. The Morningstar Analyst Report gives the stock a four star rating and most analysts I checked agree BMO is a buy.

The yield today is 4.84% with a payout ratio of only 83.31%. This payout ratio is quite high for a Canadian bank. A number closer to 45% is what I expected.  For instance, the Royal Bank (RY) is 50%.

BMO hasn't missed a dividend payment in more than 30 years. Its DRG (dividend growth rate) for the past three years is 10.71% and for the past twenty years 11.85%. With numbers like this, I see a core holding for a retiree: a dividend you can trust and it increases regularly.

If I didn't hold any BMO, I'd buy a little at this price but I'd keep some powder dry for other opportunities. With patience one can add to the BMO position when the stock is rated a very strong buy. You must stay alert though, it does not stay in the basement for long and that is a good quality in a stock one plans on owning for a very long time.

Algoma Central Corporation (ALC): Buy

I do not own Algoma Central Corp. (ALC) but at some point in the future I will. Why? Good company, well run with an excellent history when it comes to paying dividends. Today the yield is 5.1% with a payout ratio of only 32.71%. ALC has chalked up 28 dividend paying years and its DRG for the past three years is 30%

Also, ALC has a good moat. It is the only stock in the TSX Marine Shipping sector. If you like diversity, adding a little ALC today looks like a good move.

Why am I holding back? The stock is fairly valued today. I like a bargain. I can afford to wait for a more appealing entry point. When it appears, I'm in.

Wednesday, February 28, 2024

More advice for a retiring friend and nephew

One has to build a solid, dividend-paying portfolio if one is to have a good trusted flow of income in retirement. A stock to consider is Emera (EMA).

First, it is selling in bear market territory. It could go lower and it might but it is well off its recent highs with a drop of more than 20%. 



 

 

At a price of $46.93, EMA is yielding 6.12%. Impressive. Morningstar has Emera on its Canadian Income Pick List for good reason and recently put Emera on the Morningstar Canadian Core List as well.

All retirement portfolios should have some exposure to the utilities sector. Emera is an excellent utility. If one did not have any cash in utilities, EMA today presents an investment opportunity.

The utilities sector is considered a defensive play as people need electricity regardless of economic conditions. With stable earnings and consistent dividends, utilities are less sensitive to market fluctuations. During recessions, defensive sectors like utilities tend to outperform the broader market. But, this does not mean the sector will not lose money in a downturn. Utilities can, and do, take a dive like any other investment.

An investor might allocate 4% of their retirement portfolio to Emera, investing half of that amount today and, if the price retreats, investing the other half.

Another good utility is Fortis (FTS). Fortis is down today but nowhere near as much as Emera. Fortis is correcting. It is off its recent high by about 15%. Selling at $52.49, it is yielding 4.5% today. Again, buying 2% today and 2% later seems like a fair approach.

Utilities are known to increase their dividends regularly. The dividend growth rate (DGR) for Emera is 11.66% over the past three years and 9.38% over the past decade. According to Investopedia, the DGR is the annualized percentage rate of growth of a dividend over a set number of years.

Aiming to invest 10% of a retirement portfolio in utilities is not unreasonable. A portfolio of $400,000 would have $40,000 distributed among a number of Canadian utilities. For instance, if one invested in Canadian Utilities, Emera and Fortis, (2-4-4%), this would generate about $2175 annually.

In the interest of full discloser, I have 3.45% of my portfolio in Emera. I am looking to add another 200 shares if and when the stock price falls a bit more. I also own Fortis and I do not own Canadian Utilities at this time. I do own Altagas (ALA). A stock many include in the utilities sector.

Tuesday, February 27, 2024

Advice for a retiring friend and nephew

My job had a very poor pension plan. If I relied on my company pension in retirement, I couldn't pay my bills. But my wife and I live well. How? Dividend investing. Each year we earn as much or more from our stock portfolio than we do from my company pension plus our CPP and OAS payments combined. For this reason, I am a big booster of investing in stocks in retirement.

With any luck, one will be retired for a long time. So, don't be cheap with your time. Put some time aside for research. To get you started, here are a couple of Webinars I believe a retiree should watch. Log-on to WebBroker and click on Learn -- Webinars -- Past Events. Watch: Five Stock Dividend Portfolio and Defensive Dividend Income for Retirement.

(After posting the above, I found Five Stock Dividend Portfolio on YouTube.)

One caveat: five stocks is a bare minimum. It can be done but why? Why buy one Canadian bank when you could buy two or three? Adding diversity while maintaining quality is always a good move.

Last June I decided to test my retirement theories. I created an imaginary retirement portfolio with an initial value of $1 million dollars. It can been seen here: Retirement Portfolio.

Today, that portfolio is worth $999,619.09. In January, I withdrew the minimum amount as an inkind withdrawal. In accordance with RRIF rules, these stocks were transferred to a newly opened TFSA now worth $42,397.06.

To sum up, my imaginary $1 million retirement portfolio is now worth $1,042,016.15. Later today, after making my monthly $3,470 withdrawal, I will have withdrawn a total of $27,076.65 to cover living expenses in retirement. I think I can claim success for my approach at the moment.

A retiree could choose to buy an annuity rather than buy stock. They could, I wouldn't and didn't, but it is done. On the plus side, an annuity locks in annual payments. On the minus side, the locked in annual payments stays the same for the life of the annuity. A locked in payment loses a lot of buying power over the years. I have an annuity-based pension paying $6273.72 annually. To deliver the same buying power today as it did when opened in 2009. it would have to be paying $8790.

How do insurance companies raise the money to make annuity payments? The insurance companies invest in stocks, bonds and cash funds for one thing. I like to think I simply cut out the middleman. Unlike my annuity payment, my portfolio payment has grown with the passing years and thus far my imaginary portfolio is doing the same.

Sunday, February 4, 2024

A good source for insights into Investing

TD WebBroker offers classes on investing. Before signing up for a class, you might benefit from having enough investment smarts to be able to ask knowledgeable questions. I have found a great source of investing info is Investopedia.

Recently, I bought a little B2 Gold Corp stock. I made my decision to buy based partially on stuff I had learned reading Investopedia. There are reasons why one stock is a buy and another is not. What are those reasons? Read Investopedia for the answer.

Click the following link: The 4 Basic Elements of Stock Value. After that, check out this one: 4 Ratios to Evaluate Dividend Stocks. Investopedia is amazingly complete. If you like video instruction, Investopedia has that as well.

Wednesday, January 31, 2024

I like B2 Gold Corp. (BTO)

Little bells start ringing when I decide a stock may be a buy. The first bell is the stock price. If it is off its high for the past year by 20% or more, it is in bear market territory. If it's alone in its descent, this is worrisome. But, if the entire market is down as well, we may well have a buying low moment.

Recently, B2 Gold Corp caught my attention. It was off its high for the year by 38%. Was B2 Gold in trouble or was the stock undervalued?

For an answer, check the P/B ratio. If it less than 1.0, the stock may be undervalued. B2 Gold had a P/B value of 0.9. A promising number.

As a dividend investor, before going farther, I check the dividend. I require a dividend of at least 4% and ideally with a payout ration below 80%. The lower the payout ratio the better. The payout ratio indicates the percentage of a company's earnings, or in some cases cash flow, that is being devoted to dividends. B2 Gold has a 6% dividend with a payout ratio of 68%. All good.

Keep in mind, bear markets drive yields higher. A two dollar dividend on a hundred dollar stock yields 2%. If the stock price falls by half to $50, the two dollar dividend now yields 4%. This is yet another reason to buy low.

Moving on, it is time to check the ROE or return on equity. The higher the ROE the better. To get a handle on what high actually means, check the ROEs of comparable companies in the same industry or sector. The ROE is more than just a measure of profitability, it is a measure of a company's efficiency at pumping out profits. According to TD WebBroker, the B2 Gold ROE leads the pack. Read what WebBroker had to say:

TD WebBroker has a section on Profitablility under Function. The BTO numbers look excellent. See for yourself, the numbers are reproduced below:


If a company isn't profitable you probably do not want to buy its stock but a profitable company may still have stock selling from the bargain bin. More and more this appears to be the case when it comes to B2 Gold. Let's continue our investigation.

The P/E Ratio (TTM), TTM being the trailing price-to-earnings ratio, is another indicator of whether a stock is expensive or cheap. A low P/E (TTM) ratio suggests the stock is undervalued. B2 Gold has P/E (TTM) of 10.8. This is low.

Another clue indicating a company is undervalued is the P/CF or price to cash flow ratio. This ratio compares a company's share price to its operating cash flow. It is calculated by dividing the market capitalization by the operating cash flow of the company or on a per-share basis by dividing the share price by the operating cash flow per share. The lower the P/CF ratio the better. A number below 10 indicates the stock may be undervalued. 

The P/CF ratio is seen as a better investment valuation indicator than the P/E ratio because it provides a less distorted picture of a company's value, especially for companies with large non-cash expenses. B2 Gold has a P/CF of 4.7, well below 10. Again, good!

B2 Gold is getting ready to open a new gold mine in Nunavut come 2025. That's good. At the present time B2 Gold has a large mine in Mali among others. The Russians are showing interest in Mali and its gold. That's bad. I decided to buy B2 Gold. I picked up some shares for about $3.60. The dice are thrown. Will I have a winner?