Wednesday, June 10, 2015

Park the stuff and get on with life

As a retired couple, my wife and I need income to live. My pension, CPP and OAS taken together are not going to keep us in our home. I took a cut of about 25% in both my pension and my CPP when I accepted an early retirement offer from my employer, Quebecor. My wife was forced to begin drawing her CPP early in order to balance our books. This meant she took a slightly larger cut in payments than I did. She is younger than I am.

Yet, my wife and I are still in our home some six years into my retirement. We have bought a new car, a VW Jetta TDI. We have taken one big vacation: six weeks in my vintage Morgan (since sold) to California. Life is good. How is this possible? Dividend paying stocks.

Take our investment in REITs. I buy them and hold them and live on the monthly dividends. Whether the value of these holdings goes up or down is not of big concern to me. I would not like to see a cut in the dividends, that I would notice faster than a fall in unit value, but even the unit value can fall without causing me to lose sleep.

I bought most of our REITs holdings when I retired. Some are up and one (D.UN) is down. Overall the REITs section of our portfolio is up by a few thousands. I see that as a cushion guarding my sleep. But, there is another cushion and that is the monthly income. We realize an income of about $450 a month from our REITs. This amount is enough to make up the shortfall in our income for a full three months.

REITs have been under great pressure lately. They have dropped in value and this has negatively affected the value of our overall portfolio. Am I worried? No. In fact, I may buy a few more if the price is right. When the market falls, I see a buying opportunity. I figure sooner or later there will be a correction of some size and I hope to have some cash on hand to take advantage of the sale prices.

In the meantime, while I wait, I will enjoy the monthly income, enjoy my grandchildren, enjoy my wife, enjoy my home.

Oh by the way, the Bank of Montreal utilities ETF, ZUT, dropped below $15. This is another nice income payer for those in retirement. I have a little ZUT. If it drops below $14.00, I may double my holdings. (I won't put too much in ZUT as I am not all that fond of some of the stuff held by this ETF. I love Emera and Fortis but have reservations about Just Energy.)

I'm watching XUT as the prices drop. If the prices drops low enough that the dividend yield climbs above 4% I may well buy some XUT. Personally, I prefer the mix in XUT to that in ZUT. The iShares ETF has a lot of exposure to the big, safe names in the utilities category. In fact, one could just buy the top five utilities and create your own pseudo ETF. That said, XUT offers a lazy person a nice mix with safey in the diversity. I'm old and lazy. I'll keep watching XUT for a entry point. (I'm also going to examine some of the other utilities offerings as it does seem that the time to buy may be coming.)

And lastly, I caught a chap talking about both REITs and utilities on BNN. He said his investment company had done an indepth review of how REITs and utilities react in a rising interest rate environment. REITs, as long as they aren't mortgage REITs, fare just fine, he said. He isn't selling off his clients REITs. But, utilities are another matter. These investments suffer. He is lightening up on utilities.

I can agree somewhat with what he is saying and go so far as to add some utilities exposure when the time is right.