Today I read a report from Morningstar. It was rather positive. I decided the market over-reacted, not uncommon, I picked up 200 shares at what felt like an almost bargain basement price. With an annual dividend of $3.72, my income jumped $744 a year with the purchase.
I paid the down-payment on my first home with money raised by selling Bell stock. Years later I sold my shares in Apple computer and Britoil to meet financial demands.
Owning stock has been a good to me.
When I took an early retirement, I took all the money I was given and put it into the stock market. I didn't just pick a stock or two, cross my fingers and invest. I followed the rules. For instance, one rule insists one must be diversified. Never put all of one's eggs into one basket, so to speak.
Why is diversification so important? Because one cannot see the future. No one has a crystal ball. If you don't believe me, check out the stock-picking histories of some major players in the stock analyst game. Very few get close to 70% right. Some analysts manage to get into the 60s but many more are in the 50s. At this point, one can do as well flipping a coin.
Diversification works but it should not be asked to work alone. Team it with other rules such as "buy quality." Stock prices do not just climb. Stocks also suffer price collapses. Buying quality helps to lessen the chance a portfolio will go down for the count. Quality rebounds.
One diversifies by investing in a mix of stocks and investments. I like to aim for about 25 to 30 different investments. These are mostly individual stocks but I also add a few ETFs to the mix. For instance, picking an individual REIT is exceedingly difficult. Buying an ETF like RIF or ZRE solves the problem.
Adding U.S. and international stocks to one's portfolio is another way of adding diversity. I like XUS, the iShares S&P 500 Index ETF. With XUS you gain exposure to the 500 largest publicly traded U.S. companies. For international exposure, I like VIDY, the Vanguard FTSE Developed ex North America High Dividend Yield Index ETF. This gives one exposure to a raft of international companies that all share one characteristic: all offer high dividend yields.
Of course, one should not invest too much in just one or two sectors. As I said earlier, I invest in banks, utilities, real estate, energy companies, telcoms, U.S. and international stocks and more. A chunk of my portfolio is always invested in cash. I keep the cash in a money market fund, TDB8150, which pays 4.55% today.
Another good rule is do not try to time the market. You may find this difficult, if not impossible, but it means if you believe a stock is a great buy then buy it. If you put off the purchase while waiting for the stock price to drop, you may miss the buying opportunity completely. This has happened to me more times that I care to admit.
Do not put too much into one investment, especially into one stock. Many believe five to ten percent should be one's outside limit. Why? Think of Nortel. If this name does not set off alarms, click the link: Nortel. I worked with a fellow who shortly before retiring got caught in the Nortel crash. He tried to average down as the Nortel stock tanked. Nortel stock never recovered and it took a great deal of my friend's savings with it. All too sad.
Don't use money to invest that you cannot afford to either lose or to tie up for an indefinite period. If you bought quality, if your investment pays a good dividend, you will be paid to hold and hold and hold. I have often held stocks for very long periods while the stock slowly recovered in value.
Right now, today, Algonquin Power is in this category. I believe the financial blood bath has stopped, AQN dropped in value by more than half. Ouch! Today it is well off its historic lows and will slowly recover in value. AQN pays more than 5.25%. If the yield is calculated on my original investment, I am still enjoying an almost 4% yield. Yes, I can afford to be patient.
My last thoughts on this topic are that you should make sure your portfolio, your investment mix, is in tune with your temperament. One must sleep at night. Whatever you do, make sure you are comfortable with your investment decisions, that you can live, and live comfortably, with whatever you decide.
For instance, I have about four percent of my retirement income portfolio in TC Energy (TRP). TRP is out of favour with investors today. It is threatening to split into two companies and the market is not happy with the decision. I don't see a Nortel-like demise in TC Energy's future. But no matter, I am not overly concerned as I am not overly exposed.
If you own TC Energy, I do, today was not a good day. TC Energy (TRP) announced it was splitting into two companies by spinning off its liquids pipelines business. When the market opened, the stock took a dive. Markets do not like surprises and this was a surprise, a big surprise.
BNN reports, "Under the proposed transaction, TC Energy shareholders will retain their current ownership in TC Energy’s common shares and receive a pro-rata allocation of common shares in the new liquids pipelines company. The number of common shares in the new company to be distributed to TC Energy shareholders will be determined prior to the closing of the split."
The company had pledged to sell C$5 billion of assets. A goal that was achieved earlier this week with the agreement to sell a 40% stake in two US natural gas pipeline networks for C$5.2 billion in cash. This sounds good but it may fall short of what TC Energy paid for the Columbia systems just seven years ago in 2016.
The Globe and Mail reports, "The good news for TC Energy is that more than 90 per cent of its cash flows come from regulated assets and long-term contracts, so it has reliable revenues ahead." The bad news is that TC Energy can no longer be said to be a buy. TRP is now a hold -- solid hold.
It will be interesting to see how Morningstar reacts as TC Energy has just recently been upgraded to a core holding in a number of Morningstar-designed portfolios. Mere weeks ago the Core Pick List reported, "For July’s Pick list, our model recommended the addition of TC Energy TRP . . . " The Canadian Income Pick List called TC Energy (TRP) a top performer with total returns of 3.1%.
Stay tuned. TC Energy has flipped into the Hold category: a surprise.
I have lost more than 8% of my investment, at least that is my paper loss. I feel a little guilty. I told folk that TRP was a buy -- and it was. But it does not feel like it was such a great buy at this moment. Ouch!
I can handle the loss. I'd rather not but investing is not without danger. One cannot time the market, as they say. Still, it is impossible not to want to try. I was trying when I bought at $52.50 and I was wrong.
I worry that a close relative, who bought some TRP, will not have the stomach for this loss and will bail out. I hope not. TRP will recover. It may not hit its target in the near future but it will certainly recover its recent 8% or so loss. My spreadsheet calculates that TRP is deep into bear market territory. It is 33.76% off its high of the past year.
But, if the TRP price should continue to collapse, I'd be a buyer at $45. With a dividend pushing 8%, TRP is a core holding in my retirement income portfolio. TRP is going to reward patience. Buy and hold is the correct move here, even though holding may prove more difficult that most non investor would think.
I figure the old advice of holding as much as 20% of one's retirement portfolio in REITs may be on the generous side. But holding nothing in REITs may be a little extreme in the other direction. My goal today is to have 10% in REITs in the form of a couple of ETFs. At the moment I am falling a little short of my goal but not by all that much. Always keep in mind that office REITs make up only a faction of the ETF holdings. Apartment REITs are a big component, as well.
The main REIT ETFs in Canada are all quite similar. That said, I like RIT as my main holding. Unlike the other three REIT ETFs I am going to mention, RIT has some exposure to the U.S. REIT market. This adds a little extra diversity to the RIT holdings.
ZRE and XRE are my next picks after RIT with ZRE getting a the nod. I hold both RIT and ZRE. At the bottom of my list but not that far off the pace is VRE. Why is it at the bottom. Its yield is at the bottom and that fact alone drags it down in my book.
I checked the Morningstar ratings for the four ETFs mentioned and RIT got four stars, ZRE and XRE got three stars and VRE got only two stars. It is always nice when the financial experts at Morningstar appear to agree.
Click the link and read what Ryan Bushell said about TC Energy (TRP) and Emera (EMA) when he appeared on BNN recently. I rate these two stocks very highly. I have both in my retirement income portfolio. TRP has an amazing dividend and it looks solid while EMA is one of the largest utilities in Canada. It offers a very good dividend along with a very low Beta. Both are fine holdings.
I based my imaginary retirement portfolio on the lessons that I have learned since retiring some 14 years ago. As I don't get a lot of hits, I will leave you to click the link and check out my posted portfolio. If I get a few comments and questions, I will return and complete this post. I will, of course, answer your questions, if any. Until then, have a good day and wishing you good luck with your investing.
This add was made on December 24th. My imaginary retirement portfolio fell on tough times shortly after it hit $50 thousand plus in gains. It fell tens of thousands in the red. Today, in December, it is up a bit more than $30,000 while it has pumped out $3,333.33 per month in dividend cash to cover living expenses.
Look for an early January post bringing my readers completely up-to-date on how this portfolio is performing. The link below will take you to the original post creating the retirement portfolio.
When stock prices fall and investing looks bleak, that is often the time to buy. Telus was well down from its high of the past year and all the telecoms as a group were out of favour with investors; I saw an opportunity and bought.
Almost immediately bad news concerning Telus made big news. Telus took an immediate hit. Within a day or two, the Telus stock price had stabilized and was showing signs of recovery. It was time to buy more.
Today my Telus holdings are in the plus column and my dividend income is up in a four digit amount.
When I buy a stock, I buy it because I firmly believe it will go up in value. I am always surprised when a purchase falls in value but this is not uncommon. It is impossible to time the market and buy at the ultimate low stock price.
Averaging down: That said, a good idea is to add to one's holdings when a stock you have complete faith in tumbles after being purchased. For instance, I bought some TD bank in the high $80s. It then fell to the low $80s. I bought more. Then it fell to the mid $70s. I should have bought more again. I didn't. It is now off its lows by more than $9. If I had bought another few hundred shares, I could sell today and realize a gain of thousands. That said, nothing is a sure thing and some caution is never all that bad. As it is, I am up a few thousand.
As a buy and hold senior, realizing capital gains is tough but growing one's core investment funds it a big plus. Right now I hold more CIBC, more TD and more Telus than my allocation plan requires. When these stocks are all well into the plus column, I will sell off the extra and put that cash aside for future purchases. In this way I can boost my dividend income.
I'm old and retired but my days of investing for the long term are not over. To a great extent, my wife and I live on the dividends from our investments. We like companies with long histories of honouring dividend commitments. The big five Canadian banks all meet this criteria. And the big utilities, like Fortis and Emera, are also in this league.
My wife and I treat our retirement portfolio like a vegetable garden except our financial garden produces money. Take Fortis, the giant Canadian utility, it has not missed a dividend payment in almost 50 years. In fact, Fortis has raised its dividend in each of the past 49 years.
Does that mean an investor could not lose money investing in Fortis? No! Recently, Fortis hit $62. Now, one can pick up a share for less than $57. Clearly, there are investors who have lost a good chunk of their recent investment in Fortis and if they sell today they will realize that loss. But, if they don't sell they can enjoy the growing dividend and at some point they will realize a capital gain with the recovery of the share price. And it will recover. Of that, there is absolutely no doubt.
Which brings me to two recent stocks that attracted my attention and I acted on that attraction: Telus and TC Energy. Both dropped in value soon after I increased my exposure. I had owned some shares of both. I even wrote posts proclaiming that these stocks were buys; a relative acted on the advice and bought. He and his wife have lost a lot and I worry they might lose faith and sell. Gosh, I hope they can hold on. I still believe both stocks will prove to be good, long-term buys.
The 6% dividend not only looks secure, many believe it will increase in the coming year. With a target of more than $29, I happy to own Telus.
Now, look at TC Energy. TRP is almost 30% off its high of the past year. That puts the stock firmly in bear market territory and yet Morningstar only rates TRP a 4**** (four star) stock. Bottom feeders may want to wait but I am happy buying today. Why? Well, for one thing, I immediately begin enjoying the TRP 7.3% dividend. That is the kind of safe dividend that every retiree covets.
Thanks to dividend paying stocks like Telus and TC Energy, plus the Canadian banks, the large Canadian utilities and a big, smattering of North American REITs, my wife and I withdraw more four percent or more annually from out retirement portfolio without worry. Do we worry about running out of money? Maybe we should but we don't as our portfolio is about twice as large today as it was when I retired some fourteen years ago.
The target price for Telus has dropped a little but the anticipated gain for the coming year is still excellent and investors are being rewarded for their patience with a dividend of approximately 5.8%. The dividend growth rate of about 7% still seems reasonable.
If the market panics and the Telus price continues to weaken, I see myself as a buyer and not a seller.
I saw Telus as a buy a few days ago. I added to my position. This morning, watching BNN, I noticed Telus (T) was down even more today than it was yesterday. And yesterday it was awfully attractive.
I immediately booted up my computer and logged onto TD WebBroker. I picked up another few hundred shares of Telus at a truly fine price. Telus is now yielding 5.77%. This stock is a keeper in the short term and a core holding in the long term. I am one happy retired investor.
I can see a very nice profit at the end of the Telus rainbow.
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Telus has gone up nicely since I made my last purchase. It appears that lots of other investors agree with me, Telus is worth trading today. Its trading volume is well up for the day.
