Wednesday, September 29, 2010

An open letter to a retired friend . . .

My ScotiaBank stock is up 90.76%.

This info was added Dec. 28, 2011. As of today it appears that DRW will miss paying its fourth quarter dividend. Ouch! The overall dividend yield for the year was more than 10 percent but still I was expecting about $400 come the end of December.

What happened? I found this explanation on the Net:

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

I'm holding my position. I'm not overexposed and feel little concern. We'll wait to see what the yield is delivered at the end of the first quarter of 2012 and we'll hope the value of this ETF doesn't continue to lose ground. This missed dividend payment does add a whole new wrinkle to owning DRW.

Dear Old Friend:

It was nice chatting with you. I always enjoy hearing about your latest investments. My portfolio is doing well but mostly because of good luck and good gut instincts. I think good luck is the big driver.

My Bank of Nova Scotia stock, for instance, is up 90.76%. I bought at the depths of the recent crash. I was lucky.

I worry about investing in any one particular company, even a Canadian bank. The ScotiaBank is getting deeper into Latin America. This could be good but this could also backfire.

BNS pays a dividend of 3.59% but the CIBC Monthly Income Fund pays 5.44%. For this reason, if and when BNS approaches its target value, I will dump most,or even all, to buy CIBC Monthly Income and TD Monthly Income.

The CIBC fund has 5.2% in Royal Bank shares, 4.9% in TD shares and 2.3% in my old favorite Crescent Point. The TD fund has 4.4% in the Bank of Montreal and 4.3% in the ScotiaBank and of course both have significant exposure to other Canadian banks, insurance companies and dividend paying oil plays. Selling my individual shares still keeps me deep into Canadian financials but spreads my investment dollar throughout the sector.

My goal at the moment is to hold onto my stock positions until they approach target values, then sell and reinvest following my Retirement Portfolio Allocation. In retirement, I want 14% of my money in the CIBC Monthly Income, about 11% in the TD Monthly Income. (I break these and count them towards my Cdn. equity and my Cdn. bond investments.) The only other mutual fund that I plan on owning when all is rebalanced will be Mawer World. It has just done so well and it paid 1.88% last year as a dividend. Mawer has earned a spot in my portfolio.

On the phone, we discussed ETFs. Here is the list of ETFs on my love-to-buy list:

DEM - WisdomTree Emerging Markets Equity Income - a 5 star fund with low risk and high yield according to Morningstar, I believe. A 3.41% yield when last I checked.

DNL - WisdomTree World ex U.S. Growth Fund - a 5 star fund with low risk and high yield. 3.7% yield at last checked.

GII - SPDR FTSE/Macquaire Global Infrastructure - a 4 star fund with low risk and average yield. The average yield costs it a star. Yield presently running at 3.9%.

PUI - Powershares Dynamic Utilities Portfolio - a 4 star fund with low risk and higher than average yield. Presently yielding at 4.06%.

REZ - iShares FTSE NAREIT Residential Plus Capped Index - a 5 Star fund with low risk and high yield. Presently returning 3.18%.

I bought DRW recently and watched the yield drop to 3% but the share price has appreciated and so I am cool. I also bought SDY (3.52% yield) about a year ago and I am still smiling. I took a risk buying PEY and watched the dividends wilt. Now, the dividends are slowly, very slowly, climbing back but this ETF pays monthly and and the yield is 4.04% calculated annually on today's unit value. As PEY regains value over the coming years, the dividend will also grow. All that said, I am not pushing others to invest in either DRW or PEY.

I have 6% of my money in XRE. There are better ways to invest in Cdn Reits but I like the simplicity of XRE --- and I'm lazy. I've owned it for years, it is up 5.53% and pays a 6.32% yield. Originally I was looking at investing 20% of my money in various Reits but even though many pension managers do something similar to this I couldn't muster the guts.

My big goal is to reach 65 without moving out of my investments. I'll try and live on just my retirement income plus the dividends from my RSPs. Then, when both Judy and I are 65, I'm going to put anywhere from 33% to 50% of our retirement money into 25 year guaranteed annuities. We should be able to sleep at night and with luck leave a nice chunk to the kids.

Just for your information, here are some other ETFs that I presently own.
CPD (Canada) - 5 star, low risk and high yield
EWH (Hong Kong)
EWS (Singapore)
DTN - U.S. Dividend ETF but ex-financials. I like this ETF portfolio addition because of the ex-fin.
FDL (U.S.) 
PGJ (China)
PID (International)
VIP (Canada) --- I ended up with this when BTH.UN was sold by Barclay's. I continue to hold a little.
VNQ - I like this, it's from Vanguard, it ups my exposure to Reits without being more of the same Cdn Reits.
XIC (Canada)
XMD (Canada)


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