Monday, August 25, 2014

Markets on a roll

The markets are still on a roll and to a certain extent I have missed some of the action. Am I sorry? Not really. Having a good chunk of my money sitting on the sidelines earning a little interest means that if there is a correction, I am ready.

Having the majority of my money invested in the market means I am enjoying some nice returns. My Aston Hill Financial is up more than 12.4 percent since I bought it just weeks ago. My Bank of Nova Scotia which I bought years ago is up 158 percent this morning. My Chartwell Retirement Residences is only up about eight and a half percent but it does pay a nice dividend and so I am quite content with my investment in this Canadian REIT.

One big shadow is Norbord. It is still down about ten percent since I bought in. Today some U.S. housing numbers are to be released. If they are positive, I might see NBD climb back up to where I bought in. I've decided to be patient with NBD. At some point, it will take off and I want to be there for the ride. In the meantime, it pays a nice dividend as a reward for waiting.

I hold all my NBD stock in my tax free savings plan. I only started my account about two years ago. The plan as a whole is up 24.375 percent. When I view my NBD investment in the context of the entire TFSP package, it does not seem a big problem. If one is going to invest in the market, one has to keep the big picture in view and not get too hung-up on this investment and or that one.

The only other acquisition I have made in the past year and still have on my books is Dream Office REIT (D.UN). Like Chartwell, it has climbed a little but the gains have come mostly in the form of the monthly dividend. D.UN is a classic dividend paying investment. Someday, when my RSPs have been weakened by withdrawals demanded by government regulations, D.UN will form a core holding in my income generating portfolio of stocks and fixed investments.

Am I looking to buy something soon? I'm always looking but I would not be surprised if I sit tight and enjoy my present holdings while waiting for the inevitable correction.

Wednesday, August 20, 2014

Attempting to lower risk of suffering a large loss

About a year ago my wife opened a tax free savings plan with $15,000 in seed money from the sale of my antique British roadster: A Morgan Plus Four. I divided the sum to invest by the going share price of Dundas Reit shares and bought 500 and kept the remainder in cash.

In total, she has made 8.93 percent on her initial investment and today cash makes up almost 11 percent of her total plan. She is enjoying a cash return of 7.63 percent based on her original contribution. I consider anything above seven percent a good return. Both my wife and I are satisfied. We are in no rush to invest the balance.

By the way, the cash is sitting in the TDB8150 investment savings account fund. There are no hidden charges and the account is paying 1.25 percent currently. This is not great but it helps to keep the cash from withering under the constant attack of inflation.

At some point, I will move the cash from TDB8150 to a bond fund - possibly one of the iShares offerings. But before than happens, I want to see interest rates climb somewhat.

The nice things about all of this is that this tax free savings plan is slowing evolving into a nicely balanced investment. At the moment the mix is 89 percent equity (risky) and 11 percent cash (safe).

At some point in the future, my wife will need to draw on this account to live. We need thousands every month to keep our books in the black. It is not hard to imagine this one account, with no more than its original $15,000 deposit, kicking out enough money annually to enable my wife to balance the books for one whole month. And she will be able to do all this without ever touching the principal which will be growing with inflation.

The really nice part here is that the money is tax free, it goes much farther, and the plan does not factor into the old age security clawback calculations.

Friday, August 1, 2014

My investments allow me to live

My portfolio is down today. I don't care. Stocks, ETFs and mutual funds are volatile places to put one's money. If you can't take the ride don't get on a financial roller coaster.

I know some really bright people who stay completely clear of the market. If they got up today, as I did, and found they had lost more than five thousand dollars in the market overnight, they would freak.

I can't say I don't pay any attention to the ups and downs of the market but I can say I pay more attention to my dividend earnings. For instance, last month my largest portfolio returned $1566.59 in cash. I haven't checked my other accounts but I assume they performed similarly.

I'm retired and so is my wife. We need money to live. Unfortunately, we both retired early and we took a financial bath because of that fact. My company pension was cut and it wasn't all the good to begin with. Both our CPP payouts took big hits. Without substantial RSP income, we would be in deep trouble.

If I didn't have the dividend income to balance our books, I would not sleep at night. Heck, I'd have a hard time affording the bed and the roof over our head would most certainly change. But, I do have the dividend income. When the market goes down, my wealth diminishes but my income stays essentially the same.

As my dividends pile up, and as I sell under performing investments, I reinvest in more stocks and ETFs that I feel stand a good chance of appreciating over time and will pay me a nice dividend while I wait.

I try not to but too many eggs in one basket; I don't put too much of my retirement funds in any one investment. I can't tell the future. Good companies today can become the bad companies of tomorrow. Never forget the lesson of Nortel.

That said, almost all my investments go up and down. Down times are expected even when they are unexpected. Which brings me to Norbord. NBD is on a downward spiral. Where it will stop I haven't a clue. But, if it drops below $20, I'll buy a little more. Not a lot but a little. I'm not fully invested in NBD at the moment. I thought it was a little expensive and I was concerned about the its recent continuing loss of share value.

On the other hand NBD pays a handsome dividend today and promises to keep it at its present level for the rest of the year. Unlike some other investors, I like the fact that Norbord is willing to cut its dividend if the payout ratio gets too high. I want a healthy company and I see dividends that are set too high as unhealthy.

Norbord shares have lost money but they have not lost their place in my portfolio.

Monday, July 28, 2014

Boldness plus diversity makes my portfolio successful

I own REM, the iShares Mortgage Real Estate Capped ETF. It has been a solid investment. My present holdings are up 11.91% and I'm enjoying a 13.38% dividend. Yet, I have never spoke with a financial adviser who knew anything about REM. When told it was a play on American mREITS, all immediately advised me not to have anything to do with REM.

My own personal digging convinced me that REM was an ETF on which I was willing to gamble despite having only a one star rating. I've now owned REM off and on for years. Each time I have sold, I have got out with a small profit. I figure, between dividends and the profitable sale of units, I have gotten more than 60 percent of my original investment back.

I don't have too much money in REM. A little more than one percent of my portfolio sits in the little ETF. It was a small gamble that has paid off handsomely. More than three percent of my dividend income comes from REM.

I have far more of my portfolio in conservative investments like the Canadian banks for example. My Royal Bank stock and Bank of Nova Scotia shares have performed very nicely and are paying dividends that one can bank on. I'd say about twenty percent of my dividend income comes from Canadian Banks.

Then there's the oil patch. Sunoco, Crescent Point and other companies involved in gas and oil extraction and transport. More than ten percent of my dividend income from this group of companies.

I also have a couple of mutual funds. One from TD and one from CIBC and both are monthly income funds. Almost a full thirty percent of my dividend income is supplied by these two funds alone. I hate paying the MERs  but they are relatively light hits for Canadian mutual funds. Another nice feature of these two funds is that they don't tend to dip all that much during periods of severe market correction.

And then there are REITs. I read a piece by a very well known and very well respected retirement fund manager who said own REITs -- lots of REITs. Retirement funds need income and REITs are cash cows. Another big chunk of my dividend income comes from Canadian REITSs.

If the above doesn't look all that well diversified, you are right. Oh, I have some utilities and some insurance companies and ETFs that invest in foreign markets but I really need more diversity. For that reason I have bought some Norbord. The dividend is too high for my liking but even if cut it will be a nice addition to my dividend income.

Since buying Norbord, it has wilted. I have lost oodles on this one. It happens. All investments don't immediately head for the stars. Am I going to sell? No, I don't think so. I have a very small investment in NBD. I would be comfortable with even more money sitting in the OSB producer. If it drops a full twenty precent from my entry point, I'll consider buying more.

I didn't just buy NBD. I bought diversity. I believe it is an investment that will eventually reward my patience. In the meantime, Norbord will pay me a nice dividend in return for my willingness to wait.

Monday, July 21, 2014

Overall portfolio holding: recent buys falling

I'm holding onto my older holdings and smiling. At least my older holdings are not collapsing in value. My most recent investments are either treading water or falling dramatically.

I bought some D.UN for both my wife's portfolio and for mine. Hers has done well. Thanks to the monthly dividend, she is up very nicely. She is well positioned to handle a correction with aplomb. I'm down. I've been down almost from the day I bought my D.UN position. The dividend is nice but a little appreciation in stock price would be nice.

My Chartwell Retirement Residences is hanging in there but it certainly hasn't taken flight. Love the dividend but at this rate it will take some months to build up a comfortable cushion to protect my CSH.UN against a correction.

Both my Aston Hill Financial stock and my wife's are in the red, just slightly, but still in the red. I'd say it is in a holding pattern at the moment. I'm rooting for it but I'm not sure when AHF will find its footing.

Which brings me to my bet on a recovery in the housing market: Norbord Inc. (NBD). If one counts the pop I briefly enjoyed immediately after investing in NBD, I am already in correction territory with this stock. Norbord is down more than 12 percent from its recent high. If an overall market correction hits and NBD continues with its downward spiral, I'll have to re-evaluate Norbord.

I see the dividend as threatened in the coming months and that may briefly kick some more of the stuffing out of NBD. Norbord has a checkered history. I'll be watching this investment carefully for signs of recovery. I have my fingers crossed.

Tuesday, July 15, 2014

The power of dividends

When I sold my heritage English roadster, I put a chunk of the money into a tax free savings plan for my wife. That was less than a year ago.

It wasn't all that much money so I simply stuck the funds into two investments: some stock in Dream Office Reit (D.UN) and cash. Today that stock has appreciated in value but not by much. Yet, the total investment is up more than double the stock gain. Why? The D.UN monthly dividend.

As of today my wife's TFSP is up 8.1 percent. In a few more months her mix of cash and stock will be able to absorb a correction of ten percent and not dip into the red. Despite a double digit correction, she will retain more money in her TFSP than was originally invested.

And the cash portion of her TFSP is also generating a little income. Parked in TDB8150, an investment savings account, the cash is earning 1.25% while sitting on the sidelines. A little more than ten percent of my wife's TFSP savings is now in cash. It will soon be time to move it into a GIC paying about double the interest. (In today's low interest environment, some GICs are paying as well as bonds.)

With this mix of stock and cash, today my wife is enjoying an income of just more than seven percent. As the stock climbs in value and the cash dividends accumulate, the risk to the original investment is decreasing. By the time she is forced to begin withdrawing funds to live, this plan will have a solid mix.

I foresee the day when her TFSP pumps out enough money to balance her books in retirement for two full months. 16.7 percent of the year will be no longer require the financial support now supplied by RSPs. And funds taken from a TFSP do not enter into the equation for calculating the old age security clawback. An appreciated benefit.

Friday, July 4, 2014

Norbord: My latest investment

Norbord Inc. is one of the world's largest producers of oriented strand board (OSB). This is the board now commonly used in construction to replace plywood. OSB is an upgrade from the older chip board with its random arrangement of small slivers of wood.

Norbord has an annual capacity of 5.1 billion square feet (3/8" basis). It is a big number. The company has 11 OSB mills, a medium-density fibreboard (MDF) mill and two particleboard
mills plus a furniture plant, in Europe I believe. MDF is another staple in home construction today. Painted trim in new homes is often MDF as well as painted kitchen cupboards. I believe MDF can also be used as the core of wood veneer covered sheets.

With 47% of its assets in the United States, Norbord should benefit from a turn around in the American housing market. Another 40% of company assets are in Europe and a final 13% sitting in Canada, as the global economy gains strength Norbord should profit very nicely.

With a dividend of 9.2% calculated on yesterday's stock price, I decided it was as good a time as any to put some retirement money into Norbord. I sold my gold stock, BTO, and my drilling company exposure, CET, and moved the funds into NBD. I bought it yesterday at $26.24 and today it has climbed to $27.10. I have already enjoyed a 3.18% pop in the stock price. Neither BTO or CET are selling today at the prices at which I sold them yesterday. I'm smiling. (A few days after writing this, the Norbord share price dropped dramatically and my win turned to a small loss. Oh well . . . )

Am I confident that NBD will continue to climb. No. Heck, it might even retreat. (It did.) But the dividend plus the position of the company in the economy gives me confidence that this will play out well over the long term.

Is the dividend safe? Personally, I am not counting on it retaining its inflated value through 2015 but it should continue through the remainder of this year without being trimmed. Depending on the size of the dividend, I may make NBD an investment to hold and enjoy indefinitely. (If you do some research, you will discover that Norbord halted its dividend at the depths of the still all-too-recent recession. It has only been relatively recently reinstated.)

I have some funds still sitting uninvested. Unless there are some big changes made at CET, I won't be buying that stock again. But BTO is another matter. If it drops in price, I would consider investing in the little gold producer again. 2015 and beyond have the potential to be very good years for BTO. I'll keep an eye on the little Vancouver-based mining company.

My other recent investments, both REITS -- Chartwell Retirement Residences and Dream Office Real Estate -- have been been a mixed bag. My Chartwell is up more than $500 and pays a nice five percent dividend. The Dream Office I bought for my wife's portfolio is now up $660 but because of the very nice dividend her portfolio has enjoyed growth of more than $1200.

On the downside, the Dream Office (D.UN) that I bought for myself, I paid more for my stock than I paid for my wife's, has been in the red almost from the day I bought it. If I count the dividend, I am in the black but I think it is clear that I paid too much -- at least in the short term. When my D.UN climbs into the black, I may sell and try to find another investment. This will give me a more diverse portfolio and this is one of my core aims.

Addendum: Just about a year ago The Canadian Dividend Blogger posted a take on Norbord. It was a good piece. The CDB is an excellent blog to follow. Here is a link: Turnaround Story.