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.