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.

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.

Building a retirement portfolio is easy

When I retired I put my savings into the stock market. I discovered putting together a retirement portfolio in neither difficult nor all that risky. This is a classic buy and hold portfolio that rides out bear markets with grace.

The first stocks I purchased were bank stocks. The Royal is Canada's largest bank. Today it is paying  dividend of $5.28 for a yield of 4%. TD and the Bank of Montreal are two other must-haves when it comes to Canadian banks. TD pays a dividend of $3.84 for a dividend yield of 4.4%. BMO is paying $5.72 for a yield of 4.5%.

• BMO - 4.5% dividend yield
• CM - 6% dividend yield
• RY - 4% dividend yield
• TD - 4.4% dividend yield

One Canadian bank down on its luck is CIBC. Its depressed share price translates into a 6% dividend yield from a dividend of $3.40. Hold these four banks and you have checked off the financial holdings in your portfolio. Note: These Canadian banks are famous for not cutting their dividends. Invest $60,000 divided equally among these four bank stocks and you can count on about $2835 annually in dividend income.

Next, I would turn to the utilities sector and put about 15% of my retirement savings in a mix of Emera, Fortis, Hydro and possibly a little in Alta Gas. I think of Alta Gas as more of a utility than a pipeline.

• Emera - 5.3% dividend yield
  
• Fortis - 4.1% dividend yield
  
• Hydro - 3% dividend yield
• Alta Gas - 6% dividend yield

Put $30,000 into these four utility stocks, 4% in all but Hydro, which get 3%, and you can count on about $1410 annually in dividend income.

Pipelines are another solid investment paying fine dividends. All retirees have money invested in pipelines even if they do not know it. The Canadian Pension Fund, CPP, has a large exposure to pipelines. Buy Enbridge (ENB), TC Energy (TRP) and Pembina (PPL) and you have three good, solid companies. Note the generous dividends. There is a good reason the CPP likes pipelines: the dividends.

• Enbridge - 6.5% dividend yield
• Pembina - 5.7% dividend yield
• TC Energy - 6.6% dividend yield

Put $30,000 divided equally among these three pipeline stocks and you can count on about $1880 annually in dividend income.

This brings us to telecoms. One simply must have exposure to this segment of the market and there are lots of good companies in which to park some retirement money. Think Bell, Cogeco, Quebecor and Telus. 

• Bell - 6% dividend yield
• Cogeco - 4.4% dividend yield
• Quebecor - 3.8% dividend yield
• Telus - 5.2% dividend yield

Divide $40,000 equally among these four telecom stocks and you can count on about $1940 annually in dividend income.

With only a $160,000 invested, our retirement income portfolio is already generating more than $8000 a year. It is a rare retired couple who have not saved at least $160,000 toward their retirement. The present portfolio contains fifteen different companies. This is approaching what many claim is the ideal number of investments for a small portfolio. 

If our retirees have a bit more to invest, it is time to consider putting a little into the American market. It is, after all, the biggest game in the world. A couple of American-based ETFs does not seem unreasonable. I'd put $40,000 into the States with 66% in ZWA, the BMO Covered Call Dow Jones Industrial Average Hedged to Cdn. Funds ETF, and 34% in XUS, the iShares Core S&P 500 Index ETF. (The ZWA is here for the dividend. Seniors need income. If you do not need the income, put more into XUS.)

• XUS - 1.4% dividend yield 
• ZWA - 6% dividend yield

Invest $40,000 divided as detailed in these two ETFs and it should generate about $1775.

Not having anything invested outside North America would be seen by some as a basic error in building a properly diversified portfolio. I am not one of these folk but if you are I would think of adding an ETF like VIDY to the mix. A Vanguard ETF, VIDY has a very low MER and pays a nice dividend of 4.35%.

If I had $25,000 I'd add some VIDY and increase my income by $1085 annually.

• VIDY - 4.35% dividend yield

At this point, I just might call it quits. I could add some health care but the stuff I would buy does not deliver the dividend income I need in retirement. And what do I like in health care? Think TDOC and XHC.

Every portfolio I have ever had contained something that was there just for fun, to provide some excitement. I wouldn't add a lot of the following but I would be comfortable putting $25,000 in my portfolio split evenly between BN, Brookfield Corporation, and BAM, Brookfield Asset Management.

• BAM - 3% (estimated) dividend yield
• BN - 1.4% dividend yield

Brookfield is a fine holding in any portfolio. BAM, a recent spin-off, promises to pay a good, if not great, dividend. BN has a posted dividend yield of 1.4%. My hope is that the Brookfield investment will deliver excellent capital gains along with a fair dividend to pay one for holding the stocks.

There, we are done. A quarter of a million invested and an income of approximately $11,400. That's close to a thousand dollars a month. This portfolio delivers the almost mythical four percent without breaking a sweat. 

If one does not already have a TFSA, tax free savings account, I'd get one. Putting as much of this investment as possible into a TFSA makes a lot of sense. Avoiding some taxes makes a dividend income in retirement go farther.