Tuesday, January 31, 2012

Some bad numbers causing some stocks to dip

The U.S. economy may grow this year but nothing close to what one would expect after the depth of the retreat. There may be a turn around occurring, we may be facing uphill rather than down, but we are not climbing out of the economic hole anywhere near fast enough. (The Canadian outlook is a little better but we are so tied to the States. I pay a lot of attention to what the elephant in the room is doing.)

Most of my portfolio is treading water or dipping slightly. Two investments that I am watching are Progress Energy (PRQ) and the Bank of Montreal's utilities ETF ZUT. If PRQ approaches $10 again, I'm in. ZUT has a ways to fall to get back to the point where I originally bought in, but it might. If it does, I'm buying a lot. (I paid about $14.88 for ZUT and it is now at $15.71 and dropping.)

Some folk believe that natural gas has set its new low and is now feeling its way back. Some producers have capped wells and others are threatening to follow suite. When capping starts, a low may have been reached. Whatever, I don't think they are going to give the stuff away and that's what will happen if NG drops much lower. If I am going to increase my holdings, I should buy more soon.

ZUT is a mixed bag of holdings and I'm sure of everything that is in the mix. I like ZUT if it can be had for a low enough price. Some of the poorer holdings make me worry that ZUT is not as stable in a crashing environment as one might hope. I buy utilities for both the yield and the resistance they offer to a crashing market. I think some of the ZUT holding could, if put under enough pressure, just roll over and play dead.

Oh well, I'm still up for the year, barely. And the dividends are coming in according to plan. The world still looks good if uncertain in some ways.

Saturday, January 28, 2012

I talk the walk, but talk is cheap.

I say that I hate mutual funds but I still own two: CIB512 and TDB622.

I like to say that I love ETFs. I do. I like to say I hate mutual funds. I do. I like to say I fear the risk of holding individual stocks. I do. I like to promote "couch potato" investing. But, I don't have nearly enough of my portfolio in ETFs. I have a big portion of my portfolio invested in two mutual funds and I've got a big slice of my portfolio pie filled with individual stocks.

Oh, did I say I like to stay clear of investing too heavily in one sector of the economy for fear of taking a big hit if that sector should fail? Well, that is my stated concern but you wouldn't know it from my portfolio.

My portfolio allocation is a financial road map to be followed during retirement but that doesn't mean I'm not willing to get off the marked route to take a scenic route for awhile or slip onto the freeway to cover some financial ground quickly.

Some time ago I dumped all my mutual funds but two. Not only did many of those funds fail to deliver the growth I was looking for, they paid very poor dividends. This was an unsustainable mix. My investments make up about 40 percent of my income in retirement. Clearly I had to make some hard choices. I did.

So, what are the two mutual funds that I kept? Both are monthly income funds and the one is the TD's offering and the other is the CIBC's. They are similar but different. I like 'em both. I have a huge chunk of my portfolio allocated to these two funds. In 2008 CIB512 lost all of 17.15 percent. Not bad considering the economy at the time. TDB622 lost more; It lost 23.4 percent. That loss, and the reason for it, was the cause of my temporary loss of confidence. I wasn't the only one damning the TD fund at the time but the fund managers made some important changes and are now back on track.

Today, CIB512 yields 5.63 percent and TD622 yields 2.92 percent. I have my mutual fund allocation split evenly between these two. Therefore, my mutual fund investments are yielding 4.275 percent in cash to fund my retirement.

The CIB fund pays out much more in dividends but does not show the same strong growth as the TD fund. I take the CIB money each money, no DRIP in place here. The CIB fund is down, at the moment, 1.72 percent for the year.

The TD fund, on the other hand, may not deliver the monthly payments but it has grown 3.57 percent year to date. I let the TD fund accumulate it's dividends and if I need the money, I cash some units in December. I try and keep the value of both investments close to equal.

When it comes to stock, I've got way more that I feel comfortable owning and my stock investments are way too concentrated when it comes to sectors. The Canadian financial sector and the Canadian energy sector are my big interests. I bought a lot during the crash of 2008 and have even added to my holdings since then. I did dump a little, it seemed wise, but the little I dumped would have paid me huge rewards if I had held on a little longer.

So I own some Royal Bank (and added to it when it hit about $45 some weeks ago), some Bank of Nova Scotia, some Crescent Point, some Penn West (and added to it when it dipped below $18 and wish I had had the funds to buy even more when it got below $14 recently.) I still have some Inter Pipeline but I lightened up when it climbed above $15. I had bought in at about half that and it seemed an opportune time to bring my allocation more in line with my stated goals.

I have a little Suncor (SU) but I am dumping it all when I get the chance. I got into Suncor through Petro Canada and I have never made money on that investment. It has been a loser since the get-go. There are better places for me to put my money in my retirement.

The rest of my portfolio is in ETFs and not one is a bond fund. I don't like bonds right now. They are not paying the yield that I need. When interest rates recover, I know that may take a few years but recover they will, the value of bond funds will go down as fast as interest rates go up. Bonds? No thanks.

That said, remember that both my mutual funds invest heavily in bonds. And one of my ETFs, Claymore S&P/TSX Preferred Share ETF (CPD), acts in a manner somewhat similar to bonds. CPD is yielding 4.75 percent at the moment as paying a monthly dividend. It is classed as a low risk investment on WebBroker.

I struggle to give my portfolio a bit of a mix. Not wise to have all of one's financial eggs in one basket. Think Nortel or income trusts or American financials. To this end I have bought ZUT, XRE, REM, XIC, XMD, SDY and a host of other ETFs.

I am up about one and a half percent for the year. I have been up more during the month but the last few days have seen some corrections in my holdings.

I worry about my portfolio but I also worry that in today's financial environment there are no easy answers. I worry that the famous "couch potato" portfolio, and others like it, wouldn't deliver the yield I so desperately need, and might be as prone to crashing during a financial disaster as my present mix. And so, I hold onto my investments, live on the yield and keep my fingers crossed.

One of my investments that bares careful watching is DRW. It may be on the mend.

Monday, January 23, 2012

Following old friends

I like to think that I make my investments only after giving the whole matter some careful thought. Once something is part of my portfolio, its very presence gives it a certain glow of value in my mind. This is not always earned, I make mistakes, but it does seem to be a good approach that works for me.

This year is unfolding very nicely so far. Oh, I think there will be a correction, there's always a correction in the future. But, the gains made today will give my portfolio room to crash without suffering too much damage in the fall.

Not being good at timing the market, unless I see one of my buddies falter, offering an impossible to resist buying opportunity, I am holding pat. I'm just going to sit and let the dividends accumulate.

Stuff in my portfolio that I'm watching:

  • EWH (iShares MSCI Hong Kong Index) - This has taken a kicking lately and is now clawing its way back. It is still down 6.23 percent from when I bought in. Yield is 2.43%.
  • PWT (Penn West Petroleum) -  This is down big time from when I bought it years ago as an Income Trust. Ouch! But it is up nicely when compared to my most recent entry points. Many analysts see PWT heading higher, reaching prices that will offer me an opportunity to get out with all my money. While I wait, PWT pays a nice dividend that looks safe. Yield is 5.0%.
  • PEY (Powershares ETF High Yield Equity Dividend Archievers Portfolio) - This one is the only one of my personal investments in the U.S. market that is still recovering from the big crash of 2008/2009. It is still down today 17.58 percent. Other U.S. investments, like SDY, are up. For instance SDY is up 2 percent. While I wait, PEY pays a monthly dividend. Yield is 3.7%.
  • PRQ (Progress Energy) - This would be a big drag on my portfolio performance if it were not for the fact that I have less than two percent of my money invested in this natural gas producer. As the prices have come down, I have averaged down, and I believe an exit point will open up near the end of this year or sometime next year. I may be down thousands but I'm not worried over the long term and it pays enough of a dividend to ease the pain while I wait. If it declines in value anymore, I may buy a few hundred more shares. Yield is 3.6%.
  • DRW (WisdomTree Trust Global Ex U.S. Real Estate Fund - I bought this for the dividend and I hold it because I own it. At this time, the dividend, as far as I am concerned, is only about six percent. DRW missed paying its December dividend. This has resulted in the expected yield being cut by about 50 percent. Unfortunately, this ETF is down too far to make me feel comfortable dumping it while it still is kicking out a six percent yield. Yet, I am no longer enamored with DRW. It is living on borrowed time in my portfolio unless it is able to deliver all four dividends this years. If it does, I will rethink my feelings about DRW.

And there you have. Everything else in my portfolio is tickey-boo, thank you very much. I'm still loving:

  • IPL.UN - up 124.82 percent since I bought it and paying a wonderful dividend to boot. It's a hold. Yield is 5.8%
  • CPG -  up 102.09 percent and the dividends just keep rolling in. I won't part with this one. Yield is 5.9%.
  • BNS - up 89.71 percent and the dividend has been increased since I bought in. I'm smiling. Yield is 3.8%.

Those are my big wins but my also rans are up in value, nicely cushioned in preparation for the next big dip, and these also rans are all paying dividends that help pay the bills. I'm thinking of:

  • XRE with a yield of 4.69%.
  • ZUT with a yield of 5.26%.
  • RY with a yield of 3.9%.
  • and my two last mutual funds CIB512 and TDB622, two monthly income funds.

The rest of my portfolio is delivering but not doing anything that makes the stuff standout. Here I'm talking about stuff like XMD, XIC, CPD, SDY, AUSE, PGJ, REM and EWS. REM's yield of 10.76% is worth noting.

And good investing!

Friday, January 20, 2012

Why we place lots of bets

Earlier this month I placed a bet on Progress Energy (PRQ). I was certain it was destined to go up in the coming year, and if not this year then next year for sure. I bought some shares at $12.10. Since my purchase, PRQ has hit a new low for the past 12 months: $10.27. (See the graph.)

Everyday since I bought my shares, the price has been on a downward path. I'm going to watch the stock in the coming days. If it continues to tumble, I'm in for some more. I think its dividend is fairly safe and that dividend gives this stock some breathing room, in my estimation. If the price dips to $10 or lower, the yield will be four percent or a little higher. That is an adequate yield for my needs.

Anyway, I don't have all my investments in one stock. I own more than PRQ. (No surprise here.) Because I own a rich mix of stocks, I have benefited from the recent mild up tick in stock values. My portfolio is up about $10,000 since the first of the year. The gains have muted the losses suffered by PRQ.

If you've been following this blog, you'll know that I bought a little Royal Bank when it dropped to about $45. RY is up nicely. And a few months ago I bought an American ETF called REM. It pays a nice dividend. I'm enjoying having it in my portfolio and, best of all, it is up about two percent since its purchase.

Around the same time that I bought REM, I bought ZUT. It is up about seven percent since becoming part of my portfolio. My AUSE is down but not by a lot and it is paying a nice dividend which eases the pain. And the PWT that I bought is up almost 20 percent in the few weeks I've own it.

One investment that I loved, DRW, failed to deliver a dividend this past December. I don't care that the Scotia Bank group is reporting its yield as 12.8 percent. In my books I have it down as delivering about a six percent yield. That's still good but it isn't good enough for what I see as the risk. I'm holding but no longer interested in buying anymore --- not even a little.

So, as you can see, I can afford a temporary set back with PRQ. Gosh, I do hope it is temporary. Stay tuned, and sometime in the next 12 to 24 months we'll have the answer --- maybe.

This didn't pay me any 12.8% in past 12 months.

Wednesday, January 11, 2012

Have a goal; Have a target price

I like to have a target price for each of my holdings. If something blows by the target, I might lighten up a little. Dumping all can be a poor idea as target prices are not stationary. They are constantly on the move, both up and down. Don't sell everything on an unexpected gain. You can lose out on some nice profits.

So, today I noticed that according to Thomson Reuters, securities analysts revised their ratings and price targets on several Canadian companies, including Crescent Point Energy, 17 Canadian REITs and Penn West Petroleum. I own both Crescent Point and Penn West plus I own the XRE ETF.

News like this allows me to sleep well at night.

Oh, CPG now has the target of $50, PWT is now aiming for $23 and the REITs I checked have jumped from 50-cents to $3.00.

Winning as I lose: PRQ

This is the last add to this post, which I possibly should rename Losing as I win, or maybe Losing as I lose. Progress Energy has hit $10.55 today. Wow! Didn't see that coming. I am putting in a bid of $10 on some more of the stock. Why?
  • 1 - at $10 the yield is 4%. This is my minimal goal for yield. 
  • 2 - the yield seems stable at this time despite the crashing share price.
  • 3 -  I still believe in a price recovery. I'm betting it will come this year, but maybe next.
  • 4 - If I get more stock at $10, it will lower my future exit point. 
CIBC cuts Progress Energy Resources Corp price target today to C$14 from C$17.25. $14 is more than my purchase price for a lot of my holdings but, in the short term, it is looking very bad for natural gas. Perhaps, if others also cut their target price, the asking price for PRQ will drop some more. I may yet own a few more hundred shares.

This was added a couple of day after my original post. Progress Energy is testing new lows today. I'm watching with interest. I'm a bit of a contrarian. I'm even a contrarian when it comes to the word contrarian. What's contrary about trying to buy low and sell high. You can never buy low if you aren't swimming a bit against the tide.

I believe one can look back an entire decade and not find a time that natural gas was selling for less than today. The bottom has dropped out of this resource play. So why even consider Progress Energy?

The dividend is not great but it almost pulls its weight. Today that dividend represents a yield approaching three and a half percent. That dividend will help support me while I wait for a recovery in Progress Energy stock. I am certain that this stock will recover; It is just a question of when. I'm quite willing to wait a couple of years for a lift, but I'm hoping for a turnaround later this year.

Will I buy more at these prices? I might but probably not. I've got enough exposure. My average price is lower than my exit point. I'm content. But, if the price should drop to an unimaginable low, like $10, making the yield a full four percent, I'm in for more as I believe, at this time, that the dividend is secure.

After writing this post yesterday, I immediately tried to buy the 189 shares. I didn't. I have a small TD Waterhouse WebBroker account and it was with money in that account that I wanted to make my stock purchase. The brokerage fee: almost $30!

I called TD and they told me that they had a way of linking all the accounts held by a husband and wife. Under this approach, my brokerage fee would be based on our total household investment rather than just my one small account. This lowered the fee to just under $10. (Not the greatest, but not get-into-a-tizzy high.)

During the day the Progress Energy price dropped significantly. A check of the natural gas prices this morning shows that the NG price is down and my guess is that Progress Energy may drop a little more as the day goes on. I'll watch. (I got my 189 shares at $12.10 and paid a $9.99 fee. So I saved about $135 by waiting a day to buy and by getting my brokerage fees lowered.)

Now to hold on until the somewhat out-of-favour stock recovers a little. When it climbs above $16, I will begin to consider selling. In the end, I want to lower my exposure to energy stocks and as PRQ does not pay a dividend of at least four percent, it is off my financial radar.

My portfolio is almost back to its all-time high. Yet, some of my investments have done very poorly. Those investments are riding on the backs of my winners. Should I dump the laggards?

One of the disappointing investments is Progress Energy (PRQ). I bought PRQ back in the income trust days. It was a darling with Canadian investors at that time. It is no longer an income trust, the payout has diminished considerably and it is no longer a sparkling jewel in my portfolio.

Few folk are bullish on natural gas. Yesterday, as oil rose natural gas lost ground. Still, the Scotia McLeod Equity Research Daily Edge reports they expect PRQ to hit $20 before the end of the year. It is now around $12.18. (It was about 12.72 when I started writing this post.)

I own 811 shares. I have almost $4000 in dividend cash and could buy enough shares to give myself a nice, round number of shares --- 1000. The yield on PRQ is not as high as I like. It has a yield of about 3.3% today.

I've held PRQ a long time. The oldest shares are down; The newest shares are up. So, I know PRQ could tumble a little in value if it decides to revisit old lows. Yet, PRQ has proven to be amazingly resistant to the downward pull of the bear.

I've got the money to buy some PRQ. The yield is something that I can live with, at least for awhile. The stock offers the potential of offering an exit point that recoups all my investment and then some. It is time to look for some other views on Progress Energy.

Turning to TD Waterhouse WebBroker I learn:

British Columbia shales to boost Progress Energy
Output 5:55 pm ET on Monday Jan 09, 2012 by Thomson Reuters
Jan 9 (Reuters) - Canadian natural gas company Progress Energy Resources said it was targeting to exit the year with about 20 percent higher daily output, as its investment in unconventional shale rock formations in northeast British Columbia spurs production.

A little more digging reveals another target price for PRQ. This one is not quite as optimistic as the Scotia McLeod one. It is $17.32. I also discover that there are 10 analysts saying "buy" and 3 screaming "strong buy." There are 2 muttering "hold" and there are no "sells" or "underperforms" to be heard.

I'm convinced. I'll try and buy 189 shares today and be prepared to sell in the coming year if and when the stock hits $17.00.