Friday, December 26, 2014

In the end, it's your decision, your gain or your loss

Some time ago, I bought a few hundred shares of Norbord. I was betting on a recovery in the U.S. housing market driving the shares of the large OSB maker higher. The monster dividend was nice but I had doubts that it was sustainable. I expected to see a cut in the dividend in 2015.

After purchase, the stock popped briefly and then settled into a decline that dragged my losses into the four digit numbers before finding a floor. Norbord, once a market darling, lost its luster and many analysts downgraded the shares.

In October Raymond James cut their price target by two dollars to $22. That same month, RBC Capital dropped its target also to $22. As I recall, even a Norbord booster like ScotiaBank dropped its target price a little. And what happened? The Norbord stock price started on the road to recovery. Today, not two months later, my holdings are again in the black. The dividend is being cut in the new year but I got two good payments before the announcement. Some analysts are even raising the target price on the stock. I'm happy.

The lesson? Others have opinions but there is only one that really matters: Yours. Do your homework. Don't just buy on the advise of others. Have some rules and stick to them. For instance, I have a rule against buying companies that are unprofitable. Almost every time I have ignored this rule, it has cost me money.

And there is another lesson. If you buy stock in a good company and the price drops, don't panic. Sell if the story surrounding the stock has changed for the worse but if the stuff that attracted you is still intact don't be overly concerned with a small fall in share value. Stock prices go up and down. This is just life. No reason in itself for great concern.

I invest for the long term. If a stock is paying a dividend of four percent or better based on its present price, I feel it is paying its way. I hold and I don't lose sleep. Companies like Precision Drilling fall into this category. Until oil prices rebound, I will hold onto stocks like my Crescent Point and take solace from the dividend. In some cases my dividend has shrunk but my faith in these companies has not. There may still be a sports car in my future.

Monday, December 15, 2014

Interesting fact without comment: Household Debt in Canada at all-time high

In the third quarter which just ended, the household debt-to-income ratio of Canadians hit an all-time high. According to Stats Can the ratio hit 162.6 percent up from 161.5 percent in the previous quarter.
The Bank of Canada has expressed concern Canadians may be taking on too much debt. The Bank is monitoring the ratio and watching for signs consumers being overextended. Bank of Canada Governor Stephen Poloz forecasts household imbalances, caused by high levels of debt and a hot housing market, should fall gradually as the economy strengthens.

Despite the record high debt-to-income ration, the ability of Canadians to service their debt has improved thanks to interest rates remaining low. The interest paid as a proportion of disposable income fell to a record low 6.8 percent in the past quarter.

Personally, I hate debt. I take it on when I must but I attempt to pay it down as quickly as possible or, at least, keep the payments low and non-threatening. I track all my expenses by charging the vast majority of purchases and paying the entire bill monthly. I have a budget and my monthly MasterCard bill tells me whether of not I am keeping to my budget.

Right now I am preparing my budget for 2015. I have cut my spending and trimmed my savings plan due to the fall in oil prices. My dividends are threatened. My income may suffer but I will be just fine. I'm prepared -- I hope.

Sunday, December 14, 2014

Holding D.UN in a declining market

D.UN was a stock-picker's darling just a few short months ago. I bought 500 shares for a tax free savings account. D.UN didn't go up much but it did add a few dollars thanks to its generous dividend. Once a month the account benefited from the deposit of $93.33.

Then all began to change. D.UN lost its sheen and fell to a buy and then quickly moved to hold status on many lists. As the price of oil tumbled, the value of the D.UN stock fell off a cliff. The REIT has a lot of Western Canada exposure. I checked a chart and D.UN is still in free fall. Where it will go after market opening Monday is anyone's guess. It may well continue to lose value.

Am I worried? Yes. Am I selling? No. I wanted a dividend and I got an dividend. At the moment that TFSA is earning an annual yield of 7.7% calculated on the original investments. Ignore the loss for the moment. I believe the loss is temporary but it the downturn may linger longer than one would like. Eventually its grip will weaken and the stock will begin to rebound.

My wife and I need to see at least 4% from our investments to balance our books in retirement. D.UN can cut its dividend dramatically and the dividend income for this TFSA will still be 4% or better.

This REIT is about 20 years old. It is a respected name. I don't worry about it being here in the future. It will do just fine over time. It is me that I worry about. With my heart, I am a much poorer bet when it comes to the future than D.UN. Send a dividend and my wife and I will live worry free.

If D.UN drops farther or stays down as I think it might, I will add another 100 shares. At that point, I  will have made my maximum commitment to D.UN.

Friday, December 12, 2014

Reader Right: TD Dividend Growth is a winner

Question: Have you ever researched TD Dividend Growth fund? I met a TD rep today and he couldn't stop talking about it. Its 10 year record is better than TD Monthly Income, which surprised me.

Thank you.

The bank rep is right. Over a ten year period, the TD Dividend Growth Fund is in the lead when pitted against the TD Monthly Income Fund. As the above graph shows, a $10,000 investment gained $1472.63 more in the TD Dividend Growth Fund as opposed to the Monthly Income offering.

This year may be an anomaly. The Year To Date (YTD) figures show the TD Monthly Income is up 6.49% while the TD Dividend Growth Fund has gained only 6.23%. (I don't know if the dividends are contained in these figures but I doubt it. If the dividends are not included, the use of the DRIP would extend the Monthly Income lead.)

Still, it is clear that the TD Dividend Growth Fund has found its footing, this year excepted. When one checks its quartile ranking position, it doesn't drop from the first to the second quartile until one goes back five years. Go back ten years and one finds it was holding a position in the second quartile even back then. Impressive.

The TD Monthly Income fund supposedly presents a little less risk, it is a balanced fund with lots of bonds among its holdings, but when one looks at the numbers the dividend growth fund doesn't look all that risky.

At 2.03%, the MER is a little high with the Dividend Growth fund. But if you agree that all that matters at the end is how much money is being delivered, you will turn a blind eye to the MER and instead focus on the amazing, steady growth in the value of fund units.

I will leave you with this: a chart comparing the TD Can. Index e-Fund with the TD Monthly Income Fund. I picked five years because that is close to the length of time that I have been retired. Note that the Monthly Income find is well ahead of the index-based fund. A low MER did not push the index fund into the lead.

And, if one checks, one will discover the TD Dividend Growth Fund performed even better than the two funds above.

I started this blog in the hopes of connecting with others interested in building a great portfolio, possibly with retirement in mind. When I get questions like this one, I learn and that was my original goal. I wanted to hear from people who could push me in directions that previously I had never considered.

One thing must be said: all this talk about how good the TD Dividend Growth Fund has been is all history. The old maxim that past performance does not guarantee future results still carries weight. That said, it is not just the TD Dividend Growth Fund that must constantly prove itself. Index funds and ETFs also must constantly prove they are the best game in town.

Thursday, December 11, 2014

Index portfolios have done well this year


Read on your blog on some experiments with ETFs. Was looking for your thoughts on TD Canadian Index fund (e-Series) with a MER of 0.33%. Have you ever tried this?


The TD e-Funds are excellent. The MER for the TD Canadian Index Fund-e (TDB900) is not unreasonable, a little higher than some ETFs but on the plus side there are no trading fees. If you are adding to your portfolio regularly, this can add up to a big savings.

One warning, I believe there is an early redemption fee of 2% if an e-fund is redeemed within 90 days of purchase. Also, one must have a TD Waterhouse account to be able to buy TD e-Funds.

At the beginning of this year I set up a number of test portfolios using software offered by TD Waterhouse. My test e-fund portfolio was up about 6.5% today. I used approximately the following mix:
  • 40% TD Canadian Bond Index e-Fund
  • 32.5% TD Canadian Index e-Fund
  • 7.5% TD International Idx Currency Neutral e-Fund
  • 15% TD US Index Currency Neutral e-Fund
  •  5.0% TD Investment Savings Account (TDB8150)
A second portfolio composed of about 15% TD US Index Currency Neutral e-Fund combined with the TD Monthly Income Fund performed even better than the above. Adding the U.S. exposure kicked up growth by a full two percent. No surprise here considering how well the U.S. market has performed this year.

Out of ten test portfolios, the best performer for the year thus far was the Compete Couch Potato portfolio. It pumped up the returns by almost another half a percent over the twin mix above. I must hang my head in shame. This couch potato portfolio demolished me. I own far too much oil and have too much exposure to financials. My portfolio got kicked to the curb this year. I strayed from my plan allocation at my peril.

On the plus side I've got room to spare when it comes to those much needed dividends. As a retired fellow, I need income and my portfolio delivers it in spades. Even a fair shrinkage in my dividend stream will not endanger my retirement lifestyle. I am not going to be forced to sell at fire-sale prices in order to get through 2015. In fact, I see the present softness in the Canadian market as a future buying opportunity. Buy low and all that, you know.

My advice: check out the Canadian Couch Potato blog. Another good blog to check out, especially if you are interested in index investing is My Own Advisor.

Oh well, next year may be better. When oil finds a floor, my portfolio will have a chance to start its recovery. I've learned when oil takes a dive, it takes a lot of other stuff down with it. For instance, REITs with a lot of property in Calgary and Edmonton are being hit. The Canadian banks with lots of loans to Albertans and lots money tied up in the oil patch are also dropping.

This is the year I should have gone the index route.