Some rules I follow and some I don't

I like rules and the rules guiding investing are no exception. I follow a lot of them. But, I must confess, I break almost as many as I follow.

One rule I follow rigidly is the diversification rule. A portfolio should have no fewer than 20 investments and no more than 30. Too few and risk begins to rise. Too many and one might as well buy an index ETF. This is not to knock index ETFs but I am retired. I need income. I can buy two dozen dividend-paying stocks and get more income than I could from most index ETFs. Think ENB, TCP, T, TD, BMO, PPL, BCE, FTS, EMA and the list goes on.

One rule I do not follow is the fixed income vs. equity split that, according to the rule, one should have in one's portfolio. The traditional rule says subtract your age from 100 and allocate that percentage to equities. An updated version says subtracts your age from 120. I do neither. I simply invest in equities. Period. No fixed income investments other than cash and that cash is there to meet emergency expenses or to buy more equities when a bargain arises. Since cash today is yielding 4.55%, I do O.K.

I have too much home bias in my portfolio. Why? I have a dividend-weighted portfolio and dividends from Canadian companies carry benefits denied those dividends from foreign companies. But even I cannot completely ignore other markets, especially the United States. I have about 10% of my portfolio invested in XUS. If the American market pops, I benefit. If I were younger and did not need the dividends to live, I would own more but I am not and I don't. If the price declines in the future, I am planning on adding to my non-home investments by buying a little VIDY (Vanguard FTSE Developed ex North America High Dividend Yield Index ETF). Its yield today is 3.9%. VIDY delivers diversity, maintains dividend income and lowers one's home bias. Love it!

I like to buy and hold and hold and hold. I have held my BMO stock so long it is close to doubling in value. My BMO investment is yielding about 9.75% a year in dividend income calculated on the original investment value.

But, I am learning there is a time to sell. When a stock price gets inflated, dump it. Move on. When the price comes down, consider buying back in. I sold some Nutrien when it was in the $145 range but for the most part, I held on while the stock slipped all the way to $76. By the time I sold, NTR may have hit bottom and it might have been a better time for buying than selling. If NTR gets low enough to raise the dividend yield to 4%, I will buy a little for diversity while maintaining income.

And those are my thoughts for the day. Oh, and have a very merry Christmas. Cheers!

Diversification in a retirement portfolio

I believed in diversification long before I had even heard the term. Owning more than just one or two stocks just intuitively seemed right, to me. And despite what you may have heard or read, building a diversified portfolio of about 25 individual investments is not difficult. In fact, capping your portfolio at no more than 25 investments can be difficult. 

Owning more than one or two stocks, spreads out risk. Owning more than 30 stocks risks diluting your portfolio with second string investments. It is easier to build a solid, successful 20 stock portfolio than one crammed with 40 investments. Less is more when it comes to portfolio building. 

 

There are three risks that immediately spring to mind when one is investing in the stock market: market risk, firm-specific risk, sector risk. Market risk cannot be avoided. The market goes up and the market comes down but, it goes up twice as often as it falls. Market risk fades with the passing of time. Given enough time the market will always graph as an uphill slope.

Firm-specific risk refers to the uncertainty of making money on any given stock. Try as you might, firm-specific risk is always with you. Think of Nortel. You do recall Nortel, don't you? It was said to be "too big to fail." It failed.

Lastly, sector risk applies to all the stocks trading in one sector. For instance, AltaGas, Enbridge, Pembina, and TC Energy are all pipelines. If sentiment turns against pipelines, it turns against all the companies in the sector. Recently, telecoms ran into a rough patch that affected all the players in that sector. BCE, Cogeco, Quebecor, Rogers and Telus all dropped in value. Some dropped more than others but they were all affected.

Increase the number of stocks in a portfolio, increase the number of sectors in which one is invested, even throw in an ETF or two or three into the mix, and one has cut both firm-specific risk and sector risk. If you are Canadian with most investment in the TSX, buy an ETF based on the U.S. market, like XUS, and you have reduced market risk as well.

How many individual investments should you own? Well, it depends a lot on who one asks. Some claim  as many as 30 stocks are required for proper diversification. Others say owning 12 to 18 stocks in adequate.

I believe a good rule of thumb is to own at least 20 individual investments, up to a maximum of 25, with no more than five percent of a portfolio dedicated to any one stock. Note, I said stock. ETFs are different. It is easy to have 15% of a portfolio in an Index ETF based on the U.S. S&P 500 like XUS. Buy XUS and you immediately have a well diversified investment made up of 500 U.S. large cap companies. ETFs by their very nature are risk-diluting through diversification.

A spreadsheet is an excellent way to track one's portfolio. I know TD WebBroker will allow one to download a spreadsheet of one's investments. I imagine most other brokerage houses have similar software available to those with self-directed accounts.

A downloaded spreadsheet is incredibly malleable. One can easily track the percentage of a portfolio that is invested in each individual stock. And one can group stocks together and calculate how much of a portfolio in invested in each sector.

If you have more than one portfolio, download each and then link all to one master spreadsheet.

A well diversified portfolio should deliver good returns with less risk. A good spreadsheet will tell you how closely you are adhering to your diversification plan.

Telus has been a winner for me

I like Telus. It has been good to me. I held Telus when it split and took that as an opportunity to sell half my Telus holdings.

Recently, Telus has peaked my interest as it, and the rest of the Canadian telecoms, have been emerging from a long downward spiral. 

For instance, Telus dipped to a low of $21.60 in the past year. Sadly, I didn't add to my Telus holdings at the time.

Recently, I noticed it had recovered to $23.90. I took the bait and added almost two thousand shares to my Telus holdings. It has continued to climb since my purchase and today it is at $25.795. I am up $3600.50 on that buy.

Tomorrow is the ex-date for Telus and Monday is the date of record. Will I be reducing my Telus holdings? Yes but not immediately. Morningstar is rating Telus a 5-Star stock and that means it has more room to run. I will hold until Telus has lost at least one star and possibly two.

But, at some point, I will be reducing my holdings. I do not feel comfortable holding more than four or five percent of my retirement portfolio in any one telecom. Four percent is the goal. One must have goals.

Dividend Capturing: a first look at this strategy

Let's start by immediately admitting that the dividend capture strategy when strictly applied does not work. Period. If it did, everyone would be doing it constantly. It doesn't and everyone isn't. With that out of the way, let's see how my kick-at-the-dividend-capture-can played out.

I decided to buy a solid dividend-paying stock a few days prior to the ex-dividend date. Sticking strictly to the rules of the strategy, one buys the stock in question on the day before the stock's ex-date. I prefer buying two days, or a little more, prior to the ex-date.

The goal is to be a shareholder on the ex-date. This guarantees one is a shareholder of record on the record date, which is often the day after the ex-date. At this point, as a shareholder of record, you have captured the dividend. The dividend is yours. Period.

Key terms to understand:

Declaration Date

This is the date a company announces it is paying a dividend. The declaration statement includes details such as the value of dividend, the record date and the payment date.

Ex-Dividend Date (or Ex-Date)

In order to receive the next scheduled dividend, you must own the stock before this date. If the stock is purchased on or after the ex-dividend date, the buyer will NOT receive the upcoming dividend. The day before the ex-date is said to be the last day one can buy a stock and still be eligible for the coming dividend. I have been told buying the stock in question two days before the ex-date adds a margin of safety.

Record Date (or Date of Record)

By the end of the business day on the record date, you must be on the company's books as a shareholder of record to receive the dividend. The record date is usually the first business day after the ex-dividend date.

Payment Date

This is the scheduled date on which a company will pay a declared dividend to shareholders of record.

Recently, I tried this strategy with Telus (T). Why Telus? Well, today Telus is boasting a five star rating from Morningstar. Other sources rate Telus a "Strong Buy". If I cannot sell the Telus stock quickly for a fast profit, I can hold it and not lose sleep. One could do a lot worse than holding Telus. In fact, I am already a holder of Telus.

How I played the dividend capture strategy with my recent Telus purchase:

• Thursday, November 30: I bought 1900 shares of Telus at $23.90 for a total of $45,419.99.
• Friday, December 8, 2023: ex-dividend date. I was a shareholder.
  
• Monday, December 11, 2023: I was a shareholder of record date. Shares were selling for $24.87.
  
• Tuesday, December 12, 2023: Shares selling for $24.65. I could sell for $46,825.01. I'm holding.
• Wed, December 13, 2023: I could have sold 1900 shares of Telus at $24.94 for a total of $47,376.01 and $1956.02 profit thus far.
  
• Tuesday, January 2, 2023: I will collect a $714.40 dividend payment
  

Total profit for this play could have been $2,670.42. The way this really played out is much different. I figured Telus would continue to climb in price. It didn't. I held and Telus dropped below the price I had originally paid. By December 15th, I was in the red. I should have stuck with the original dividend capture strategy. Oh well . . . I will collect a very nice 6% plus dividend while I wait for the stock to recover and it will.

The table below shows the key dates:

Type	Declaration Date	Ex-Dividend Date	Record Date	Payment Date
Date	November 3	December 8 (Friday)	December 11 (Monday)	January 2, 2024
Note	A dividend of .3761 is announced.	One must own Telus shares before this date to be entitled to the dividend.	At the close of business on this date, one must be on the Telus books as a shareholder in order to receive the dividend.	The date the dividend is paid to shareholders.

Time is the secret to successful investing

The Toronto market is down today. It's not as far down as it has been in recent months but it is down. I am not concerned. A lot of the stock that I own today was purchased some two decades ago. Some of these old holds have to be off their highs by 50% or more before I begin to see red.

The gain at the top of the column on the left represents one of these old holds. It has delivered a steady stream of dividends for decades. I have taken out more money in annual dividend payments than I invested in the stock originally. And, as it has gained in value with the passing years, I have more money in it today than I did at its purchase. Stocks like this form a bulwark against an old, seasoned portfolio falling into the red.

The two stocks at the bottom are recent additions to my portfolio. The second from the bottom was added when the stock, a pipeline, got so cheap I could not resist buying it. With a dividend greater than seven percent, this stock is a gem.

The bottom stock is one that I bought just days ago. I am playing with the dividend capture strategy for an upcoming post. My gut feeling is that this strategy doesn't work. If it did, everyone would be doing it and everyone isn't.

The ex-date for this stock is this Friday and last Friday it looked to be a stock on the upswing. And not only was it gaining value but its entire group, in this case telecoms, was in recovery mode. With all the relevant boxes checked, I bought a few hundred shares.

What lessons do I take from the above? Lots of time spent holding a stock that is slowly climbing in value is time well spent. And although it is next to impossible to time the market, being lucky and buying a stock at the right time is a huge bonus. When you manage to time the market, admittedly after the fact, smile and go with the flow. You may have a gem worth holding for years.

Never forget: compounding is your friend. And time is the friend of compounding.

$1 Million Retirement Portfolio Demo as of Dec. 1, 2023

It is December and my crack at designing a retirement portfolio for a retiree with a million dollars in savings has climbed above the million dollar mark. In other words, the portfolio, opened in late June, is now back to the value it had when opened. 

On the bright side, starting in August, I am withdrawing $3,333.33 at the first of each month. December's withdrawal brings the total withdrawn to $16,666.65. No matter the value of the portfolio, I am deducting the full $3,333.33 each month as this amount is covered by dividend income.

Today, the cash balance in the portfolio is $2,355.74. Clearly, I  am in good shape to start the new year. I only need to collect a little less than a thousand dollars in dividends in the coming month to make my January payment. I will check the official inflation rate for 2023 and I will increase the monthly payment by that percentage.

I will also be opening a TFSA to receive the in-kind stock withdrawal I must make come January. My imaginary retiree is 65 and so is his wife. I will be withdrawing in-kind the mandatory 4% of the opening value of the RIF and transferring that stock to the TFSA. To meet my monthly withdrawal demands, I may have to withdraw funds from both the RIF and the TFSA. We will see.

Retirement Porfolio Portfolio At $997,693.50

In late June I posted a retirement portfolio for a Canadian retiree with $1 million to invest. I put all the retirement savings into stock and it immediately took off. I soon had more than $50,000 in unrealized gains. Then the market went into a tailspin. My imaginary portfolio dropped to less than $970,000. Ouch!

Even though the portfolio was losing money, it continued pumping out dividend income. I was able to withdraw $3,333.33 at the first of each month starting in August. At this point I have withdrawn a total of $13,333.32 and the portfolio itself has almost recovered all the value it had lost. 

My retirement portfolio now has a value of $997,693.60. If you want to see the portfolio I posted, please click the following link: My latest crack at a retirement portfolio.

Stay tuned. This portfolio and its management will get interesting come income tax time. There is an interesting wrinkle on the horizon. Hint: I meet the government minimum withdrawal demands with in-kind withdrawals rather than cash.

Retirement Porfolio Has Shrunk to $970,985.

Look above the date at the top left of each of my money blog posts and you will see this link: My latest crack at a "Retirement Portfolio". Click on the link to see a retirement portfolio created at the end of June in 2023. If this were a real, functioning, million dollar retirement portfolio, a total of  $13,333.32 would have already been removed to provide the mythological retiree with a monthly income of $3,333.33. The first payment was made in early August and will be increased annually to meet RIF withdrawal rules.

Note, 30% of each withdrawal is withheld to meet future tax demands. The retiree only sees 70% of the withdrawal for meeting living expenses. Although, one could argue that 100% of the withdrawal goes to living expenses as taxes are certainly a living expense.

Today the million dollar retirement portfolio is worth only $970,985.98. The market is in decline at the moment but the dividend income will continues undiminished. I imagine it will grow a little in 2024. Dividends often increase but cuts are not unknown.

At the age of 65 the government mandates 4% of the a RIF or LIF portfolio must be withdrawn. This mandated percentage jumps to 4.17% in the year one turns 66. It continues to jump each year until one reaches the age of 95. At 95 the withdrawal rate hits 20% and remains there. The goal of the government is clearly to bleed the retirement portfolio dry. For more info on the withdrawal rules, click this link.

If you come back in the new year, you will find that I make my mandated withdrawals in-kind. This is the way I operate in reality and I am going do the same online with this test account. I will transfer stock from my imaginary RIF to an imaginary TFSA. 

The cumulative maximum contribution space in a new 2024 TFSA is $95,000. This means all the dividend income from this year's withdrawal can be protected and not only for this year. Dividends earned in a TFSA are sheltered from the ravages of income tax. It is called a tax free savings account, after all.

Although I will not have to pay tax immediately on the transferred amount, I will have to pay the tax next year. To avoid the future shock of a spring income tax bill, I will withhold 30% from each monthly payment to cover future tax costs.

I often catch the falling knife.

I have often caught the falling knife. The falling knife is a stock which is falling in price and one makes the mistake of buying long before it has hit bottom. Why does someone buy such a stock? The answer is easy: it looked like a great deal when compared to its recent highs.

For instance, a little over a year ago Bank of Montreal was selling for about $155. Then, it started falling. When it got down to about $117, I bought a couple of hundred shares. Recently, it sold for as little as $102.67. Yesterday it closed at $104.53. I am down about $2500 on my recent buy.

Guided by history, I believe BMO stock will revisit its old highs within three years and most likely in far less time than that. I may well be up $8000 in three years and I will have collect approximately $900 in dividends in those three years. I may make approximately 12.9% annually despite having caught a "falling knife."

For another example, let's look at my recent purchase of TC Energy (TRP). I paid $45.89 for my shares. I pulled the trigger early but the stock recovered quickly. The price is now at $47.24. I am up $270. The icing on the cake is the dividend. I have already collected $186.

The lesson I am trying to impart here is buy good companies at good prices and you will do just fine. Don't worry about calling the bottom. That is something that is almost impossible to do.  Don't berate yourself when you buy early. It happens. In the scheme of things, it is not important. If the spread grows grossly large, you can always average down if you still have confidence in the stock.

______________________________________________________________________

By market close Friday, TRP was at $49.92. I was now up $806 in unrealized gains plus $186 in dividends. 

Sometimes, "catching the falling knife" is not the right metaphor. Sometimes, one "dodges the bullet."

Ryan Bushell: a fine financial expert on BNN

Ryan Bushell is the President and Portfolio Manager at Newhaven Asset Management Inc. I have followed Bushell for more than a decade and he has impressed me. He is one of the few financial experts appearing on BNN whose views I find worthwhile.

In doing the research for this post I came across a post by Michael O'Reilly. O'Reilly calls Bushell one of the best performing experts that he follows. I concur.

In the past three months, Bushell has rated the following stocks buys: Algonquin Power (AQN), CIBC (CM), Fortis (FTS), Pembina Pipeline (PPL), Telus (T), TC Energy (TRP). I mention these stocks as I have encouraged friends and relatives to buy them on recent dips. I firmly believe all these are excellent, conservative calls. One could not go too far wrong having a little of each in his/her portfolio.

BNN Bloomberg reports that Bushell believes the recent fall in AQN share price is overdone. This company is nearly two-thirds regulated utilities, including water utilities. The business is not that different from where it was in the past. Whether it sells the renewable energy business or not is of no consequence. 

Bushell see the core business having more value than the share price indicates. Even though there may be one more dividend cut, Bushell believes this is still a good time to buy. Bushell may be a bull on AQN but the bears have a fine, and very defensible, position.

Algonquin's financial performance has been underwhelming recently. It reported a loss of US$253.2 million in the quarter ended June 30, 2023. The loss was attributed to unfavourable weather conditions reducing customer demand and resulting in less energy produced at its wind facilities. And the company's earnings per share (EPS) for the trailing twelve months (TTM) was -$0.38.

I am overexposed when it comes to AQN. I am not going to add to that exposure in the near term but I may add to my holdings in the future.

The TD Bank is a buy

The TD Bank is at $79.80 right now with a resulting yield of 4.8%. A little over a year ago, BMO stock was selling in the range of $109. 

Technically, the bank is only suffering a correction but it feels like its in bear market territory nevertheless.

Banks are not the investment of choice right now but they will be back in vogue someday and prices will recover. Meanwhile, I'd like to point out that the TD Bank has gone almost almost as long as the Bank of Montreal without once cutting its dividend. I cannot forecast a bottom but it is clear that the TD Bank is a fine buy right now and as you hold it you will be paid for your patience.

Bank of Montreal looking like a buy

The Bank of Montreal is at $109.26 and yielding more than five percent today. A little over a year ago, BMO stock was selling for more than $150. I cannot forecast a bottom but I can say, with some confidence, that BMO is a damn fine buy right now. And I'd like to point out that the Bank of Montreal has gone almost 200 years without once cutting its dividend.

Enbridge looks like a buy, at least to me.

My Enbridge dance card is full. I like putting a ceiling on how much I own of any one stock. I think of this as risk management through diversification. But, if you don't have a lot of Enbridge eggs in your basket, today might be a good time to consider some increased exposure to the Canadian pipeline operator.

Enbridge was in the news last month when it announced the proposed purchase of three utilities from Dominion Energy (D.N) for $14 billion including debt, creating North America's largest natural gas provider and doubling its gas distribution business.

The deal is for East Ohio Gas, Questar Gas, and Public Service Co of North Carolina and will consist of $9.4 billion in cash and $4.6 billion of assumed debt.

Enbridge is branching out. It is no longer simply a pipeline provider. Previously it was in the news for the windmill farms it is constructing in the Atlantic Ocean off the coast of France. Clearly, Enbridge wants to be a company with a future and it is ensuring that future today.

At $43.34, the stock price at this moment shouts "Buy me!" and folk acquiring the stock will enjoy a dividend of 8.233% as they wait for the capital appreciation to kick-in.

If I didn't own as much as I do, I would be a buyer. Who knows, I may yet yield to temptation and add just a little to my holdings. It is hard to resist.

If analysts are right, the future is bright. A big "if".

I am surprised by my losses. Oh, I saw some of the losses coming but I was blind-sided by others such as Telus. I had great faith in Telus. Very foolish. Never put too much faith in any stock. Stocks are fickle. Stocks are famous for constantly going up and then down and surprising us with both moves. It is the reason why many folk steer clear of the stock market. 

If you are like me and have recently suffered massive paper losses and are realizing that these losses could double before the market turns around, you need some cheering up. I found a bright light shining in the dark shadow of the falling market - the analysts featured on TD WebBroker.

Take Quebecor. Its high for the past year was $35.61. Today it is at $28.25. If you check the Analysts page for the stock, you will find the analysts see an upside price of $39.33. There is one fly in the ointment; analysts are known to be wrong a lot of the time. Few are right even 70% of the time. Flipping a coin is often as good an indicator of future stock prices as the musings of a professional analyst. Sadly, three of the seven analysts were not even able to best a flipped coin.

But, hope burns eternal. My portfolio doesn't need the 38% upside the TD WebBroker-picked analysts see for Quebecor, nor does my portfolio need the 37% forecast for Telus. A 15% gain will be more than adequate. Such a modest dream may well be fulfilled.

One final caveat when it comes to analysts. As a group, their forecasts are as volatile as the stocks they follow. One day a stock will be forecast to hit $60 but a month later the same analyst may see the stock only reaching $50. To err is to be an analyst.

I'm told that this is not a bear market; oh?

The Canada Stock Market Index (TSX) reached an all time high of 22,213.07 in April of 2022. Right now, as I write, the TSX is at 18986.60. It is off it high by 3226.47 or 14.5%. This is a correction. It must suffer a dip of 20% or more before a bear market is declared. It is not unreasonable to imagine the TSX dropping to 17770 or even less. But even if it doesn't, this is a nasty pullback.

My portfolio is down a little more than the market. I'm down about 15% and it hurts. Downturns like this are not unexpected but that fact does not soothe the financial pain. The losses may be paper losses but the accent is on losses and not paper.

The worst part of this moment is that I did not see it coming. I thought the market had bottomed and was turning around. I bought some Telus, some TC Energy, some TD Bank and Bank of Montreal. All these recent purchases have lost money. Now, I must guard my remaining cash and dole it out carefully.

On the bright side, thanks to the crashing stock values, the yield on my RIF has grown to 5.85%. With RIFs the government sets the annual mandated withdrawal rate. This is a rate increases with each passing year. For instance, at retirement at 65 the withdrawal rate is 4%. Ten years later, at 75, the rate is 5.82%. My rather high dividend income means I will not have to sell any stock at fire-sale prices to meet the government withdrawal demands. See the withdrawal rate table here: RRIF Minimum Withdrawal.

The value of my stock holdings may be down but I feel confident that my dividend income will not shrink to anywhere near the same extent. For instance, income from the big Canadian banks should be safe. The Bank of Montreal has an impeccable dividend history. It has gone almost two hundred years with nary a dividend reduction. The TD Bank can make almost as remarkable a claim.

Hugo Ste-Marie, a strategist at Scotia Capital, wrote in a report published last Wednesday: "Despite a challenging environment, keep in mind that over the long run, dividends matter a lot, accounting for the lion’s share of equity returns."

To underline that point, the Scotia Capital report broke down the growth of a $100 investment in the Toronto Stock Exchange benchmark from 1956 to today. With dividends, it would have grown to $29,000. Without dividends, it would be only $3,600.

Dividends contributed nearly 90 per cent of total returns over the past seven decades. In other words, it pays to stay invested. Buy and hold pays over time.

Few investors know when a correction or a bear market will appear but both tend to only stay for a short, but painful, visit. The average bear market in Canada lasts just under a year. That said, a two year bear market is not unheard of. Bear markets are difficult to call and far more frequent that most investors believe.

But bear markets tend to be shorter than bull markets and not as frequent as corrections. The average bull market roars along for more than five years and can last much, much longer. A rule of thumb, based on the U.S. market, says a third of time the bear rules and two thirds of the time the bull runs free. Ride out the bear and ride the bull.

For a good take on bear markets, read the linked article from The Motley Fool: What is a Bear Market? In writing this piece, I found the following post very interesting and worth a read: Statistics and facts about the stock market in 2023.

Quebecor (QBR.B) may be a buy

I picked up a little Quebecor (QBR.B) some months ago. It immediately climbed into the black and never looked back until now. Late last week, my QBR.B holdings dropped into the red. By Friday close my Quebecor shares were back in the black but the Quebec-based telecom had my attention.

In an ideal world, I would own a bit more Quebecor than I do. My telecom investments are not as diversified as I would like. For instance, I have more Telus than I am comfortable owning. The excess shares will be sold when the Telus share price recovers. I look forward to the sale. I may invest for dividends but everyone benefits from pocketing some capital gains now and then.

My ideal portfolio has about 350 additional Quebecor shares. At $29.11 I can afford the purchase. The price is good but it could be better. The Morningstar Analyst Report rates QBR.B a four star stock. This means Morningstar believes appreciation beyond a fair risk-ad-
justed return is likely.

And speaking of Morningstar, the respected investment authority believes one should consider holding Quebecor as a core holding in a portfolio based on Canadian stocks. It isn't among the first tier "consider buying recommendations" but it is still listed as a stock worth holding.

The dividend yield of 4.12% is not great but it is adequate. With a payout ratio of 45.14% the dividend should be solid with very little chance of being cut in the near future. The quick ratio of 0.6X also adds to one's confidence in the company.

So, what is holding me back? QBR.B recorded a low of $23.845 in the past year. I worry that QBR.B could drop if the market were to continue to weaken. Am I being greedy? Maybe. (Oh, just to be clear, this post refers to QBR,B. Note the B. It is important.)

Retirement Income Portfolio at end of September

Three months ago, at the end of June, I posted a quickly assembled million dollar retirement portfolio with the goal of realizing an income of $40,000 annually at the outset. 

It was quite a success in its first few weeks but lately it has been losing money at a very fast rate. It is ending the month of Sept. down $32,244.54.

Am I panicked? No. The market is volatile. There are no surprises here. Heck, in a correcting market one would expect to see a loss of $100,000 or more. And if a bear market were to appear, a loss of double that would be reasonable: $200,000.

As I have no reason to sell, the losses are all on paper. On the other hand, the dividend income is real and on October first I will be withdrawing $3,333.33 just as a retired senior would. This will leave more than $2300 towards the November payment.

You might not agree but in my estimation this portfolio is a success. To see the complete portfolio, click this LINK.

Why do I invest in the market?

With the market looking as if it could lose another one percent in value today, it is a good time to examine why I invest. It is not complicated. One, I need income to live in retirement and two I would like my personal worth to increase in value over time.

To illustrate what happens to a retirement portfolio over time, I created and posted a portfolio based on my investment beliefs. In the few months it has existed, it has lost almost $22,500. Ouch!

That my seem like a lot, and it is, the loss is not the whole story. At one time, this portfolio was up a little more than $50,000. That means one could argue that this portfolio is down about $75,000 from its recent highs. Looked at like this, it kinda takes your breath away, right?

On the other hand, we are taking a full four percent out of this fund annually in twelve monthly payments of $3,333.33. So, even though the portfolio may be shrinking in value, it is still able to meet the demands for monthly cash payments. In the real world a portfolio like the one posted would have only lost value on paper. Paper losses have a way of disappearing over time.

So, the example of a retirement portfolio posted in late June is meeting one of my two goals. It is delivering monthly income. As for delivering capital gain, the voting is still out. As the market tends to grow more than it shrinks, it grows approximately 65-70% of the time, if we continue to hold, eventually we should come out on top. This period of racking up loses should come to an end shortly.

Stay tuned to see how this unfolds.

Retirement Portfolio Dips Into Red

How easy is it to generate a steady income from a fully-investment retirement portfolio? Well, if you follow this blog, soon we will both know as I have posted my own take at creating such a portfolio.

It has been a bumpy ride. I was up more than $50,000 at one point but I have an updated balance this week which is slightly in the red. Ouch! But, it is not as bad as it looks. I believe I will be able to withdraw a full $3,333.33 at the beginning of this and every month, emulating the withdrawals that must be made in retirement.

So, how much am I down? Approximately $10,000 or one percent. This is hardly worth concern. Come back in a week to get updated. The portfolio might be in the black by then. One can only hope. Cheers!

My retirement portfolio is holding in there

It is halfway through September and the portfolio I posted showing how easy it is to design a successful retirement portfolio was up $17,889.73 at the close.

I should note that I removed $3,333.33 at the first of September. If this were an actual income portfolio in its first year, it would have had to stand up to the stress of having four percent of its value deducted spread out over 12 monthly withdrawals.

Click on My latest crack at a "Retirement Portfolio" to see the entire portfolio. Come back at the end of the month for an update.

A Retirement Portfolio Designed for Dividends

How hard can it be to design a good stock portfolio capable of pumping out four percent in dividend income annually? Back in late June, June 25th to be exact, I did jut that. I designed what I hoped would be a portfolio up to the task and I posted it for all to see. Now, to sit back and see it praised or criticized depending on its performance.

I started my portfolio with an initial one million dollars. From personal experience, I believe this is a reasonable starting value. I will do more work on this in the coming months. If I have to lower the initial value of my example portfolio, I will.

I am withdrawing four percent in the first year: $40,000 annually or $3,333.33 at the start of every month. I made my first withdrawal in August. I let the first month, July, slip by as I wanted to build up a little cash before entering the withdraw stage. I filled the portfolio in June, I did not try to time the market, and so dividends began accumulating immediately.

Today, September 5, 2023, the retirement income portfolio is worth $1,008,083.36 after the withdrawal of $6,666.66 in two months (August and September). At this rate, at the end of 12 months, I will have withdrawn a full four percent in cash and the portfolio will have enjoyed a capital gain of 4.85%. Nice. Will this really come to pass. We will see.

To see the portfolio in its entirety, please click:

My latest crack at a "Retirement Portfolio"

Retirement portfolio monthly payment coming Tuesday

One can find literally dozens of investment suggestions on the Internet. Many of these are from very fine sources. Many of these I have followed. I found that many of these posts shared a lot when it came to the investment advice offered. I decided I might be able to do as well as the legion of online experts I was following.

I designed a million dollar portfolio for a retiring senior and immediately put my ideas into action. Why immediately? Because one should not try to time the market, right?

Come back this Tuesday and I will reveal how my imaginary portfolio is performing. I have withdrawn one monthly payment of $3333 already and come Tuesday I will remove a second monthly payment of $3333.

See you Tuesday. Have a good holiday weekend. Cheers!

Another reason for investing in dividend-paying stocks

TD WebBroker has a page called Market News. I like to check it every morning. Today, I found the following:

"Dividend stocks are a better investment than income properties": BMO economist

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Continuing a theme from earlier this month, BMO senior economist Robert Kavcic compares the yield from fixed income and dividend stocks to an income property,

“The economics of real estate investment get tough on a relative basis given that investors can secure a better yield in dividend stocks, or sit tight in risk-free cash/government bonds. The comparison to dividend stocks is an especially interesting one because both offer long-term capital appreciation potential, and both will see their payouts grow over time at least in-line with inflation. But, dividend investors also benefit from a much lower tax burden; they have access to instant and partial liquidity; and face minimal transaction costs. At the same time, payout risk is generally low compared to rental laws that are tilted heavily in favour of the tenant, along with inefficient backlogs at the Landlord and Tenant Board. Real estate investment should command a risk premium (which it historically has), but current pricing does not offer one” "

I am reposted the above because I am a dividend investor. Many folk see problems with dividend investing and in some cases I agree with them and their criticisms. But I am an older, retired gentleman. In my position, dividends are far more important than they were some decades ago. The steady and increasing income flow keeps the financial wolf from my door. 

I feel somewhat vindicated after reading the Scott Barlow post.

How much is the market down? Is it correcting?

Lately, under the belief that the market is well off it highs, I have been a buyer. It has not been working out well for me. Each of my picks has declined in value and my losses are mounting. Right now the TSX is at 19,868.79. My gut tells me this is a fair drop but when I check the posted high of the past year, 20,843.21, I find the TSX is only off its high of the past year by about 4.7%. Clearly, the TSX today has a lot of room to drop.

The present market enters bear territory when it drops to 16,674.57 for a loss of 20%. A correction begins when the market drops 10% or drops to 18,758.89.

Why did my gut tell me the market was nearing correction territory? Well, the market peaked less that a year and a half ago at 22,087.20, on March 29, 2022, to be exact. Today the market is down about 10% from that historic high but that is not the high used to calculate the present market loss.

I can live on my dividend income. I think I will try and resist the urge to buy more. I am going to try and hold out for some real bargains. If the bargains never materialize, no problem. TDB8150 is paying 4.55% interest on cash deposits.

Catching the falling knife

When the Bank of Montreal got down into the $118 range late last week, I saw a buying opportunity. But, I didn't buy. I held out in the hope that I could buy at a price low enough to give a yield of at least five percent.

Monday the price of Bank of Montreal stock wobbled about but, in the end, it was a down day and I bought in at $117.60. My yield was five percent right on the nose.

The Bank of Montreal is one of the Canada's largest banks. It has been paying dividends for going on two hundred years. It has gone almost two complete centuries without cutting its dividend. Buying Bank of Montreal stock for its dividend seems a very safe purchase. The dividend is almost guaranteed. Sadly, the stock price is not.

I only bought a hundred shares as I already had a nice amount of BMO shares in my portfolio. My income jumped $588 annually but I have also lost about $177 on paper thanks to the loss in value of the stock and the loss may well grow. The amount of the drop was not unexpected but the speed was.

I would not be surprised to see Bank of Montreal drop even more. It may even set a new low for the past year. If it does, I am buying another one hundred shares. Until then, I am going to sit quietly, watch from the sidelines and lick my stock-purchase wounds. The five percent yield will help me recover.

Passing time can hide true magnitude of a stock loss

Using a spreadsheet to track my investments has made me aware of what I see as an interesting blip in the math used to calculate a bear market. A stock enters bear market territory when it is off its recent high by 20% or more. The important word in that definition is "recent".

Take Bank of Montreal (BMO) stock. Today it is selling for $118.87 (mid-day) and is off its high of the past year by 13.6%. BMO is in correction territory. It is not now in bear market territory but it was and not all that long ago. Passing time and not a big pop in price pulled BMO stock out of the bear's grasp.

On March 22 of 2022 BMO hit a high of $154.47. Today BMO is trading at $118.87. It is off that historic high by $35.60 or 23.0%. But that high was about 17 month ago. It dropped off the financial radar when it passed the 12 month mark as it is the high of the past past year, $137.64, that is used to calculate corrections and bear market prices. Today BMO is only down 13.6% when calculated using its high of the past year. BMO is said to be barely in correction territory.

Investors who bought a hundred shares of BMO some17 months ago have lost $3560. The present target price of BMO shares is around $135. This means that even at its target price for the coming year, an investor who bought the stock at its historic high would still be down about $1947. It could be two or three years before such an investor is in the black on this investment.

What can we learn from this story of investor loss? My big take away it that investors must pay attention to not only the loss calculated using the high of the past year but must look back even further to the highs of recent years.

My spreadsheet indicates that the recent market losses may be worse than folks realize. For instance, BMO was off a recent high by about 27.5% at one point. It can easily take more than two years to recover from such a large drop. The fact that BMO stock has not yet fully is not surprising.

It also seems clear to me that the above is a clear argument for averaging down. An investor who bought 100 shares of BMO at its historic high invested $1,548. When the stock was clearly in bear territory, say selling for 22% less, it would have been understandable if the the investor averaged down at that point and bought another 100 shares at $120.49. 

With BMO shares trading today at only $118.87, BMO is a clear buy for our investor who got badly burned buying at the historic high. Averaging down today would drop his average price for BMO to $136.67 and give him a nice dividend to enjoy while waiting for the BMO price recovery.

If BMO shares should take another dip, I believe I might well be a buyer. (Note: BMO hit $17.60 on the next trading day. I bought 100 shares yielding 5%.)

For a good article on bear market recoveries, read: Bear Market Fears: Here's When Stocks Usually Bounce Back After a Downturn.

Telus: I am not alone seeing a buy

Today it is being reported that . . .

Yesterday, Telus dropped below $23. I got a few shares for $22.88. Telus is the second largest telecom in Canada. I agree with those who see today's messy Telus story as temporary. With a 6.3% dividend, Telus pays an investor to buy and be patient.

I consider Telus a core holding in my retirement portfolio. It doesn't just pay me to hold and be patient. It helps pay my expenses in retirement. 

Here is a link to one of my previous posts looking at Telus: Telus: still a buy today.