TDB8150: my favourite spot for parking cash

If you run a self-directed investment account, someday you will face the problem of what to do with the cash in your account. Cash can accumulate for any number of reasons in a self-directed account but what to do with that money is always the same: stash it where it continues to work while, at the same time, being readily available for investing. My favourite spot for parking cash is TDB8150, an investment savings account mutual fund. (I once thought of it as a money market fund but I was wrong.)

TDB8150 is an investment savings account mutual fund with absolutely zero fees. It currently is pays 2.30% with no MER. It has a fixed unit price of $10 but the initial investment must be $100 or more. There are no buying and selling fees. And it is CDIC insured up to total investment of $100,000 per account. Deposits to TDB8150 are limited to $5 million (Canadian).

TDB8150 has its interest calculated daily and credited to your account once a month. If you sell units in mid-month you will still receive the interest accrued up to the sale date. This interest will be paid on your next interest distribution date.

If anyone has a better suggestion, I would like to hear it. I also did a post: Cash: good stuff to have around. This present  post is an update to that original post.

Enbridge: My top pick among the pipelines.

I am putting together a wish list for my ideal retirement portfolio. I am guessing the Canadian economy will slow before the end of year and give me a nice buying opportunity. I want to be ready.

Pipelines are high on my list of must-have investments. About four years ago Morningstar had an article by Michael O'Brien, vice-president and director at TD Asset Management Inc. He said Canadian pipeline stocks offer good, solid earnings growth, minimal volatility and healthy dividend increases. It would be hard to find anyone to disagree.

I have a good feeling about Enbridge (ENB). I own it. I also own some TC Energy (TRP), some Pembina (PPL) and some South Bow (SOBO). O'Brian called Enbridge the "poster child" for the pipeline industry in Canada. One measure of its desirability is its low DCF -- distributable cash flow.

What is DCF, you ask. The Law Insider says distributable cash flow is the cash flow available for distribution to shareholders as dividends. There's more to it, of course, but this is all you need to know for now.

Most of us are familiar with the payout ration. It is easy to find and often used to assess whether of not a dividend is secure. The payout ratio is the percentage of a company's earnings distributed to shareholders as dividends. On the surface, both the payout ratio and the distributable cash flow seem similar and they are but the DCF is used when assessing pipelines and utilities. For more on this, see my post: When Dividend Investing, the Payout Ratio Does Not Tell the Whole Story.

Pembina has a DCF of about 74%. This is still within a reasonable range for the industry. TC Energy has a DCF of almost a 100%. TC Energy is a well respected pipeline company. It is hard to be worried when investing in TC Energy. Yet, a payout above 80% does raise a red flag.

One should not ignore TRP; it is a successful, long-term player. Still, I am making Enbridge my biggest investment in the pipeline sector. The number two spot goes to TRP. All in all, I have decided to invest 15% of my retirement portfolio in pipelines with 5.25% going to Enbridge, 3.75% to TC Energy, 2.25% going to both Pembina and Keyera and 1.5% going to South Bow. Over time I may invest more in SOBO, but at the moment, it is too new to be a dominant player in  a retirement portfolio.

Fortis (FTS): a core utility holding

Years ago a chap I admire told me his favourite retirement investment was Fortis (FTS). Fortis didn't pay the largest dividend, nor did it deliver a lot of capital gain. So, why did he rate it so highly? That's easy, because he is retired and needs an income he can trust. The Fortis dividend is dependable, if it is anything.

Fortis pays a yield of about 3.7% today. This is a little low but we are concerned here with dependability. Fortis has racked up a 51 year history of paying a dividend which, as a bonus, has increased annually, perfect for the buy and hold investor.

For further confirmation that the dividend is sustainable, check the payout ratio. This indicates how much of a company's earnings are distributed to investors as dividends. Fortis has a payout ratio of 73%. This is somewhat high but it is nowhere near worrisome. As a utility, a regulated utility boasting monopoly coverage in most of the regions it powers, Fortis has a very stable cash flow.

Another plus for Fortis is its strong management. It was ranked number one by The Globe and Mail for corporate governance in 2024.

According to Baystreet.ca., "The long-term appeal of Fortis lies in its consistent dividend growth and low-risk profile. Its regulated business model generates stable earnings, with last year’s total reaching $1.6 billion—up from $1.5 billion the year prior—and profit margins typically in the 13% to 14% range."

I follow The Stingy Investor. Fortis is a repeat investment in the very selective Stable Dividend Portfolio created by Norman Rothery. It is one of the Rothery portfolios featured by TD WebBroker in the Reports/News section at the first of every month. Click the link for an explanation.

I fully agree with Baystreet.ca when it comes to their closing paragraph:

For retirees and income-oriented investors seeking dependable returns with minimal volatility, Fortis remains a compelling long-term holding. 

My thoughts on BIP.UN

Will the Canadian economy begin slowing in the coming months? My bet is yes but I have a history of being wrong when it comes to telling the future. So, take the following with reservations.

I am building a wish list of investments I would like to add to my retirement portfolio if there is a correction in the near future or even better, a bear market. One stock on my list is Brookfield Infrastructure Partners LP (BIP.UN on the TSX).

My overall impression? BIP.IN appears to be a buy for long-term investors with a focus on income. Hey, that's me! I knew I liked BIP.UN and there is a lot to like.

As an income investor, I like the generous 5.1% yield that has increased annually for 15 consecutive years. The annual growth rate has been between 6-8%. With a payout ratio of about 67% of Funds from Operations (FFO) in 2024, the dividend look sustainable.

The PEG Ratio of 54.5 may signal overvaluation relative to growth prospects but with a solid correction, or bear market, this overvaluation may lessen or even disappear.

All the above and more says "buy" but there are some clouds on the horizon. For instance, with a debt load of about 80 Billion U.S., BIP.UN could suffer in a rising interest rate environment.

If you follow analysts, the consensus is that BIP.UN is a strong buy. I find analysts are often wrong but still worth a look. Me? I see BIP.UN as a hold if you are already in the game and a buy if the market softens.

Is there a correction in the near future?

The simple answer is "No one knows."

That said, the market is on a bit of a tear. It has been in bull market mode beginning back in October 2022. It gained more than 17% in 2024 alone and there is still a month and a half left before the new year.

Considering that the average TSX bull market lasts about five years and nine months, there is reason to hope that the run will continue. On the other hand, a three year bull run would not raise eyebrows. It happens.

The last correction, a pullback greater than 10%, was in 2022 when the TSX declined about 17%, starting in April of 2022 and ending with the start of the present bull market. We never did see the bear. I, and many others, define a bear market as a decline of 20% or more.

Among the analysts that I follow, the present gains are forecast to continue, but I would not bank on this. Analysts are often wrong. I am concerned. Donald Trump may be good the the American market but I fear his presidency might be a disaster for Canada and the Canadian market.

For this reason, I have been hedging my bets. I now have about 14% of my retirement portfolio in a money market fund paying 3.3% interest. I expect this yield to fall when the Bank of Canada announces the next rate reduction.

Diversity is the name of the game here. I do not want to miss the gains of the bull market but I do not want to be caught without cash to buy the bargains if there is a correction. Stocks that are up so much that their dividend yield in now well below four percent are on my stocks-to-sell short list. I will take some of my profits off the table while retaining a very good, but not great, positive cash flow. I can survive nicely on the remaining dividend and interest payments.

When Dividend Investing, the Payout Ratio Does Not Tell the Whole Story

For the most part, I am a dividend investor. Oh, I hold some ETFs for diversity but mainly I hold dividend-paying Canadian stocks. I've written about dividend paying stocks in the past. I have always told my readers to pay attention to the Payout Ratio when buying a stock for the dividend. Too high a payout ratio indicates the dividend may not be secure.

I have come to think this "rule" is not a rule at all. Lots of good, secure dividends are paid by company's with payout ratios above 100%. If the payout ratio is the percentage of a company's earnings going to meet its dividend demands, how is it possible to pay out more than 100%? I will try and give you an answer but if you'd like an explanation from a more knowledgeable source try Morningstar. (Click the link.)

Take Enbridge Inc. (ENB). It has a payout ratio of 123.64%. Yet, ENB has consistently paid its dividend, without missing a payment or reducing it, for the past 29 years. What is going on? I turned to Perplexity for an answer.

"Pipeline companies like Enbridge often base their dividend payout ratios on Distributable Cash Flow (DCF) due to the financial characteristics of their operations. Here’s a detailed explanation:

 

Capital Expenditure Demands

1. High Capital Expenditures: Pipeline companies typically face significant capital expenditure (capex) requirements to maintain and expand their infrastructure. These expenditures can include costs for building new pipelines, upgrading existing ones, and ensuring regulatory compliance.
2. Impact on Earnings: High capex leads to substantial depreciation charges, which can reduce reported earnings. Since these accounting entries do not reflect actual cash flow, relying solely on net income can present a misleading picture of a company's financial health.

Cash Flow Characteristics

1. Stable Cash Flow Generation: Pipeline companies benefit from relatively stable cash flows due to long-term contracts and regulated rates, which provide predictable revenue streams regardless of fluctuations in commodity prices.
2. Distributable Cash Flow as a Metric: DCF represents the cash available for distribution to shareholders after accounting for necessary capital expenditures. By focusing on DCF, companies can provide a more accurate reflection of their ability to sustain and grow dividends.

Enbridge's Payout Ratio Strategy

1. Target Payout Ratio: Enbridge has established a target payout ratio of 60% to 70% of DCF. This range allows the company to balance returning cash to shareholders while retaining sufficient funds for ongoing capital projects and operational needs. (I calculated the ENB DCF at 70.4% today by multiplying the annual dividend by 100 and dividing this by the Cash Flow. Using WebBroker, both figures are found under Fundamentals)
2. Financial Stability: By maintaining this payout ratio, Enbridge aims to ensure that its dividend payments do not jeopardize its financial stability, allowing it to continue investing in growth opportunities while rewarding shareholders consistently."

This brings me to company like Telus (T). When I tried to check the Telus earnings, cash flow, and payout ratio, I discovered that all fields were blank. No earnings, no cash flow and therefore no ratios. Yet, Telus pays a 7.33% dividend -- $1.61 annually. Again, I ask, what is going on? This time I used Google Gemini to get the answer:

"Telus (T) is able to pay a dividend while reporting neither cash flow nor earnings thanks to to several factors:

1. Cash Flow Generation: While specific cash flow numbers may not be publicly disclosed, Telus is a mature telecommunications company with a stable cash flow generation. This cash flow can come from various sources, including subscription fees, equipment sales, and network infrastructure investments.

2. Dividend Policy: Telus has a well-established dividend policy, with a focus on maintaining and growing its dividend over time. This commitment to shareholders is a key consideration for the company.

3. Financial Planning: Telus likely has a robust financial planning process that takes into account future cash flow expectations and dividend obligations. This allows them to assess their ability to maintain the dividend even in the absence of immediate earnings or cash flow reports.

4. Debt Management: The company's debt levels and interest expenses play a significant role in its ability to pay dividends. A strong balance sheet and disciplined debt management practices can help ensure sufficient funds for dividend payments.

5. Regulatory Environment: The regulatory environment in Canada, particularly for telecommunications companies, can provide stability and predictability in revenue streams. This can contribute to a consistent cash flow and support dividend payments.

It's important to note that while Telus may not have explicitly reported cash flow or earnings numbers, they likely have internal financial metrics and projections that guide their dividend decisions. "

Lastly, I checked the Telus Dividend Investment page on the company website to see if I could find some published numbers. I discovered that Telus has an expressed goal of making semi-annual dividend increases ranging from 7% to 10% annually through to the end of 2025. The declared payout ratio is 60% to 75% of free cash flow based on prospective basis. But, read the small print: "There can be no assurance that we will maintain a dividend growth program through 2025."

Did you notice that the free cash flow is based on "prospective basis". This is a key point. It indicates  the company is looking forward and making an estimate of its future cash flow. Actual free cash flow is a more accurate measure of a company's ability to pay its dividends.

 

TD Cowen is maintaining its BUY rating. Morningstar has Telus on both its Canadian Core Pick List and its Canadian Income Pick List. Plus, Morningstar rates Telus as a five star stock; it is severely undervalued in the eyes of the Morningstar analysts.

Is the Telus dividend secure? It appears to be at the moment but . . .

 

For more information on Dividend Investing go here: https://www.td.com/ca/en/investing/direct-investing/articles/dividend-stocks 

Cash: good stuff to have around

The market is up, way up. For me that is a sign to take a little off the table. Having nice wad of cash feels good. It is reassuring to have a little cash on hand but take care not to cash out too much. Diversification is as important here as elsewhere. Cash is but one investment in a well diversified portfolio.

Today, my money market fund (TDB8150) is paying 2.3%. Sounds good but keep in mind that inflation is running around 1.7%. The spread, .6%, may not sound like much but it is still much better than parking your money and watching it lose buying power thanks to inflation.

Let's compare cash to the TSX. The last decade has been a bit of a dog. The Canadian market has not performed nearly was well as the U.S. one. Still, it managed to return approximately 3.0% annually for the ten years in question.

This 3% annual growth in the index value does not include dividends. Include dividends and the total return—which combines both price appreciation and dividend income—brings the total return closer to 6.0% or a little more.

Converting some of your equity winnings into cash has the following rewards:

• A major expense such as a roof does not pose a threat to your financial well-being. You have the cash to cover it. You will not be forced to sell equities into a falling market.
  
• Cash left as cash often pays next to nothing -- maybe even nothing. Moving one's cash to TDB8150, often protects your cash from inflation while leaving a little extra in the mix for you.
• Having a nice cash cushion enables you to pick up the stock market bargains appearing during a bear market. Buy low is only a six letters mantra unless you have the cash to fulfill  your "buy low" goal. Warren Buffet likes to hold a fair amount of cash for just this reason: to be able to buy low when the opportunity arises.
• A portfolio is more diversified when a meaningful amount is kept in cash.
  

What kind of investor are you?

What kind of investor are you? This is a very important question and it important for you to have an answer. Generally, investors fall into two main categories: buy-and-hold or short-term trader. Each category has its own characteristics.

What am I? I'm in a sub-category of the buy-and-hold group. I buy-and-hold but, for the most part, only dividend paying stocks. I firmly believe the value of my investments will appreciate with time but it is the dividend that I need in retirement. A rule of thumb says stocks will appreciate two thirds of the times and loose value one third of the time. I ride out market corrections and even bear markets confident that the rule of thumb will hold. Buying on the dips is nice but I don't worry about hitting the ultimate low. Market timing is out.

Short-term traders are different. They buy and immediately begin thinking of selling. They want capital gains. Dividend paying stocks and non-dividend paying stock are treated almost identically. Market timing may play a big role with short-term traders who try to predict the best time to enter or exit stock positions.

Short-term traders are far more likely to use technical analysis with its emphasis on short-term price movements. A belief that historical price movements give an investor a window into today's action is essential. Stuff like Moving Average Convergence Divergence (MACD) is used to identify trends and reveal upcoming reversals.

As a buy-and-hold investor with a focus on dividends, I enjoy the following benefits:

• Dividends: Dividend-paying stocks like Enbridge (ENB) or CIBC deliver a solid income stream which, in my case, can be drawn upon in retirement. How solid is the ENB dividend? ENB has paid dividends for over 69 years without missing a payment. Over the past 29 years, the ENB dividend has grown at an average compound annual growth rate of 10%. As a retiree, this growth is greatly appreciated.

• Simplicity: The buy-and-hold strategy minimizes the need for constant monitoring of market fluctuations and eliminates the stress of being forced to make frequent trading decisions. Short-term volatility is not a concern.

• Lower Trading Fees: Buy-and-hold investors trade less frequently. Far fewer trades means smaller trading fees.

• Tax Efficiency: Buy-and-hold investors face capital gains tax only when they sell. Holding stocks for the long term amounts to a tax deferral until the sale. Although the tax on dividends must be paid annually, dividends are often taxed at favourable rate compared to regular income.

A long term investor is drawn to companies with strong fundamentals and a long history of profitability. When the market dives, a portfolio packed with quality stocks continues pumping out the dividends. A retiree can continue to pay the bills despite the reduced  portfolio value.

Utilities worth considering

If you want to read the conclusion and skip all the bumph, scroll to the bottom of the post to see my updated goals for the utilities holdings in my very diversified portfolio.

____________________________________________________________________________

I have owned Emera since a close friend told me it was a core holding of his portfolio. He was also a big believer in Fortis, another utility. Following his trusted advice, I have owned both for years. But now I have begun to wonder are there better utilities for the retired investor.

Utilities are often called defensive stocks, but they are not immune to market volatility. Utility stocks can still experience declines in value in bear markets. If interest rates rise, investor sentiment in dividend-paying stocks may wane and the stock price may fall.

Speak of volatility and Algonquin Power and Utilites immediately comes to mind. Algonquin, once a stock market darling, is now on the outs and with good reason. Its stock is down from its highs by more than half and its dividend has taken one serious cut and another dividend reduction may well be in the cards. Not a good stock for a retiree's portfolio.

I have to confess, I bought some AQN. I didn't buy it at its peak but it did cost me considerably more than is value today and today it is flirting with becoming a six dollar stock. The dividend, 36 cents (Cdn) annually, pays me to keep it in my portfolio but the future does not look all that promising. It is certainly not a buy today.

Another stock that did not make the cut was Northland Power. It's not for me. A 311.21% payout ratio is too high, as is its Price/Earnings ration at 86.5%. Numbers like this make me very uncomfortable. I don't need the worry when there are so many other, and possibly better, choices in the utilities sector. But, I must admit that many very respected analysts recommend Northland. Its dividend is 5.54% today and its price to book is reasonable and many are very positive about its future direction.

Another stock I own is AltaGas but unlike Algonquin Power it has treated me very well. It is up almost 300% since I bought it many years ago. So, why am I not recommding ALA? Because I am looking to sell. The yield had dropped to 3.464% because to the nice run up in price. When the price dips and the yield climbs above 4% I may buy back in but not now.

So, what utilities did make the cut? Well, Capital Power looks good. With a payout ratio of less than 50%, the dividend looks solid. The Sharpe ratio for CPX indicates that from a risk-adjusted perspective CPX is better than even Emera. CPX is on my list of stocks to buy in bear market.

• Dividend: 5.19% today
• Payout ratio: 49.19%.
• Price/book ratio: 1.7X
• Price/earnings ratio: 9.9X
• Quick ratio: 0.7X

In comparison, Emera has a payout ratio of 109.50%. The fact that Emera has racked up something approaching two decades of consecutive dividend growth, keeps Emera in my portfolio but I am not adding to my position.

• Dividend: 5.67% today
• Payout ratio: 109.50%.
• Price/book ratio: 1.3X
• Price/earnings ratio: 19.2X
• Quick ratio: 0.6X

Fortis looks good from almost any angle. The payout ratio is a little high but not a worry. Fortis has paid an annual dividend for the past 49 years. Impressive. I will continue holding Fortis. If the dividend was higher I might even add to my holdings.

• Dividend: 4.15% today
• Payout ratio: 73.16%.
• Price/book ratio: 1.4X
• Price/earnings ratio: 18.6X
• Quick ratio: 0.6X

Canadian Utilities With a solid dividend run of 51 years, CU looks like another contender. Still a payout ratio of 105.40% it a little high and with a price/earnings ratio of 17.9X, I will be waiting for a correction.

• Dividend: 5.10% today
• Payout ratio: 105.40%.
• Price/book ratio: 1.8X
• Price/earnings ratio: 17.9X
• Quick ratio: 1.2X

Brookfield Renewable Partners L is my second last choice. But BEP.UN comes with a number of caveats. The payout ratio was difficult to find. Why? Because the company is not profitable making it impossible to calculate a payout ratio. Like wise the P/B and P/E are not to be found.

How did an unprofitable company make the cut? The Brookfield name. Brookfield is a name I trust. But trust only goes so far. In the past, I have lost money  following the confident predictions of analysts. I wouldn't invest more than one and a half percent in BEP.UN. I'm conservative.

How is it possible for a money-losing company to pay a dividend and a generous one at that: 5.32%? I believe Brookfield Asset Management, the parent company, manages BEP.UN's finances to ensure liquidity and operational efficiency. This management approach can involve prioritizing cash distributions over immediate profitability. Does it? I don't know, but it looks possible.

Some analysts believe Brookfield Infrastructure Partners LP, with a dividend of 4.71%, can complement BEP.UN in a portfolio. Be aware utilities are not the main focus of BIP.UN. Still, I am going to put both Brookfield companies in my portfolio.

And now to reveal my updated goals for the utilities holdings in my very diversified portfolio:

• (1.2% in AQN)
• 1.5% in BEP.UN 
• 1.5% in BIP.UN
• 3.0% in CPX
• 3.0% in CU
• 3.0% in EMA
• 3.0% in FTS

The above represents 15% of a $165,000 retirement portfolio. The above does not include AQN which is on the chopping block.

A $25,000 investment in utilities divided equally between CPX, CU, EMA, FTS and the Brookfield pair would deliver an annual income of $1,256.25 or 5.025%. (The AQN is included here but only because I am stuck with it. Maybe I should take the loss.)

Minimizing Risk -- setting limits

I'm updating my portfolio. I'm reconsidering what I own and how much. And how much is too much when it comes to stock ownership? This a core question that must be asked by all investors. Ignore it at your peril.

In an income-weighted retirement portfolio the rule of thumb is to put no more than 5% to 10% of the total portfolio value in any one stock. Following this rule lessens risk and encourages diversification.

Risk Management: As an investment in any one stock grows, one's exposure to company-specific risks grows. Think of Nortel. If you don't understand, Google Nortel or click the link.

Diversification: A well-diversified portfolio holds a variety of stocks spread over a good mix of sectors and asset classes. For instance, if it has been determined that the investment goal is to have 12% of the portfolio value invested in the telecom sector, this investment would encompass a number of telecoms and not just one. 

An equal weighting of 3% each of BCE, Cogeco, Quebecor and Telus would result in a 12% total investment in telecoms. Of course, equal weighting is not demanded. Personally, I would underweight BCE and overweight Telus and favour Quebecor slightly over Cogeco with the remaining funds.

Income Generation: Always be aware of the income potential of any investment. But a warning, do not let the need for income overly influence your investment decisions. A very large dividend can be a warning and not a carrot. Don't take the bait. 

BCE is yielding 8.5% today. That is a warning. I suggest underweighting BCE in your portfolio and overweighting your investment in better positioned telecoms is the right approach. I have done much better with Cogeco and Quebecor than I have with BCE. The jury is still out when it comes to Telus.

Portfolio Adjustments: As a retiree grows older, the usual recommendation is to reduce the exposure to equities and increase the fixed-income investments. This can be tougher than it sounds. Move funds from equities into bond ETFs and money can still be lost. Put the funds in GICs and if inflation outpaces the interest paid, one suffers a loss in buying power. Losing, like winning, is simply part of life. Just try to win more than you lose.

I swim against the tide here. I like to have massive dividend income generated by trusted companies. When expenses are as expected, there is money left to reinvest in the market. When unexpected costs arise, the flow of cash is used to meet or at least reduce the unexpected cost. So far, this approach has worked well for me. I usually have no more than 2% of my funds in cash but I am flexible.

Conclusion: I cannot state this too strongly. Never allocate more than 10% to any one stock. This is the one rule that I have that is carved in stone. Some analysts will advise putting more into a stock and they will call this an aggressive income strategy. Don't do it! Think Nortel.

By the way, the art shows a small piece of my actual retirement portfolio spreadsheet.

Using Ai to Evaluate Investments

Update (June 23, 2025):

Since writing this, I have has some very poor experiences with AI. Both Perplexity and Chat GPT have let me down big time. When I get a chance, I am going to check the facts in the following blog post. 

My advice: check every claim an AI programme makes and try and find sources that are unimpeachable. AI gets its answers from the Internet. If you are not very careful, you might find the erroneous information and make the same mistakes that the AI program made.

If you are curious as to why I have changed my tune so drastically, please read For financial advice, don't rely on AI.

 ________________________________________________________________

Lately, I've been experimenting with an Ai program, Perplexity. It is proving amazing. Yesterday I asked Perplexity to play Canuckle, a word guessing game. It discovered the word in four guesses.

Today, I thought of asking Perplexity to compare Atco and Canadian Utilities and I wondered if there was any reason to hold each in one's portfolio as ATCO is the principal owner of Canadian Utilities Limited with a 52.7% stake. I loved its answer. 

It said, "When considering whether to invest in Atco Ltd. (ACO.X) or Canadian Utilities (CU), or both, it's important to analyze several factors such as dividend yields, growth potential, and overall business strategies. The following is also from its answer.

Dividend Comparison

• ATCO Ltd. (ACO.X):

  • Dividend yield is approximately 4.062%.

  • Recent quarterly dividend is $0.4898 Can. per share, reflecting a commitment to increasing dividends over time.

• Canadian Utilities:

  • Higher dividend yield at about 4.983%.

  • Quarterly dividend is $0.453 Can. per share, with a remarkable track record of increasing dividends for 52 consecutive years. It must be acknowledged that CU also has a history of increasing dividends over time.
    

Financial Performance and Growth

• ATCO Ltd.:

  • Reported adjusted earnings of CA$655 million.

  • Focuses on essential services with a diversified portfolio, including energy infrastructure and logistics, which positions it well for future growth.

• Canadian Utilities:

  • Adjusted earnings of CA$596 million, with a strong emphasis on regulated utility operations.

  • Plans to invest CA$4.6 to CA$5 billion in regulated utilities from 2024 to 2026, aiming for sustained earnings growth linked to infrastructure development.
    

Payout Ratio

• ATCO Ltd.:

  • Payout ratio: 56.5%. (Morningstar)

• Canadian Utilities:

  • Payout ratio: 91.1%, (Morningstar)

Strategic Focus

• ATCO Ltd.:

  • Diversified across energy, logistics, and structures.

  • Emphasizes sustainability and innovation in energy solutions.

• Canadian Utilities:

  • Strong focus on regulated utility businesses and energy transition initiatives.

  • Aims for long-term resilience through strategic investments in infrastructure and technology.

Credit Ratings Overview

• ATCO Ltd. has received a Baa2 rating from Moody's, which is considered to be the fourth highest level on their scale. This rating suggests that ATCO has adequate capacity to meet its financial commitments, but it is subject to some risk during adverse economic conditions.
• In contrast, Canadian Utilities Limited holds a higher rating of A3 from Moody's. This rating implies a stronger credit profile, indicating that Canadian Utilities has a solid capacity to meet its financial obligations and is less susceptible to economic fluctuations compared to ATCO
• Both ATCO Ltd. and Canadian Utilities Limited got similar ratings from S&P (A- with a stable outlook).

Conclusion: Which is the Better Investment?

As can be seen from the information supplied by Perplexity, ultimately the decision must align with one's investment strategy, risk tolerance, and income needs. My investment strategy revolves around dividends. I am retired, I need dividends to live, to make ends meet. 

My risk tolerance is high enough to allow me to own equities rather than GICs and the like. I can accept volatility. That said, stocks can go down but after that they must recover. I do not want a Nortel in my future -- a permanent loss. As this cannot be completely ruled out, I have set limits on how much I will risk by investing in any one stock. I never want to invest as much as 10% of my portfolio in one stock. Five or six percent is a much better ceiling and very few stocks should approach this maximum investment.

As Canadian Utilities yields almost a full percentage more than Atco, I find myself leaning towards making only one investment -- Canadian Utilities. I need the income. Moody's may see both as investment grade but it rates CU a little higher. That is another plus for CU over ACO-X.

To put all the above in perspective, those solid standbys in the utilities sector, Emera and Fortis, do not have ratings as high as either Canadian Utilities or Atco plus Fortis does not meet the four percent yield rule. 

I'm thinking of investing three percent of my retirement money in CU and a further one percent in Atco. Fortis will get the nod for two percent based on its narrow economic moat determined by Morningstar. Emera gets the nod for a three and a half percent investment as it yields the most and can be found in almost all published retirement portfolios.

There is one more utility that I would like to see in my retirement portfolio: AltaGas. Why? I have owned it for years and I have enjoyed a very nice capital gain along with a reliable dividend with sustainable increases. AltaGas gets one and a half percent of my portfolio.

My total investment in the utilities sector is eleven percent with no stock accounting for more three percent of my portfolio. Good income is assured and there is no possibility of a Nortel-like disaster. I can sleep at night. If Hydro One were to drop in value, thus raising its percentage yield, I would consider adding one or two percent of Hydro One to my portfolio but today the yield is simply too low.

Should I be looking at low beta stocks?

Beta is a measure of a stock's volatility in relation to an index like the S&P 500 or the S&P/TSX Composite Index. A beta of:

• 1.0 indicates that the stock moves in tandem with the index both up and down.
  

• Less than 1.0 indicates the stock is less volatile than the index. It tends to suffer smaller price fluctuations, suffering lower losses during market downturns and benefiting from smaller gains during bull market periods.
  

• Greater than 1.0 indicates higher volatility. Price moves are more extreme than those of most stocks. Gains can be exhilarating but when the inevitable losses occur, taking the hit can be tough.

Can retirees benefit from owning low beta stocks? I believe they can. Low beta stocks tend to have smaller losses during market corrections or bear markets. On the other hand, and this is surprising, studies have shown that low beta stocks can outperform the market over the long term despite their lower volatility. 

This casts doubt on the widely held belief that higher risk is necessary to enjoy higher returns. A back-test of a low-volatility portfolio, rebalanced annually with a maximum of 15 stocks, found that the low-volatility investment strategy followed from February 2007 to February 2018 produced an annualized total return of 12.7%. The S&P/TSX Composite total return index advanced only 4.9% over the same period. 

Clearly, these low beta stocks outperformed their high beta counterparts even though they must have endured both bull and bear markets together. A lot happens in the market over a course of 11 years. Some of the low beta stocks included in the study are the same low beta stocks often found in the portfolios of retirees.

• BCE
• Brookfield Renewable Partners
• Canadian National Railway
  
• Canadian Tire Corporation
  
• Emera
• Fortis
• Great-West Lifeco
  
• Hydro
• Loblaw Companies
  
• Pembina Pipeline

It appears low beta stocks, contrary to accepted dogma, may very well outperform high beta stocks over time and through varying market conditions. And many low beta stocks are issued by long established companies paying very nice dividends. The result is steady income thanks to the dividends plus out-performance and managed risk -- all qualities that are much appreciated in retirement, or anytime if one stops to think about it.

I knew there was a reason I liked Emera. (Just moments after posting this, I read the following on the TSX Internet site: "Emera Announces Increase in Common Dividend, Marking 18 Consecutive Years of Growth."

I'm wrong but I'm comfortable with my errors

There are a number of common myths surrounding investing. Most serious investors have seen and heard these myths and most of us ignore one of more of them at times. These may be myths but they do seem to fly in the face of common sense.

Just the other day I said I was taking money off the table and increasing my cash holdings. The market is booming and I am reducing my exposure to the market. Why am I doing this? I fear a correction or worse -- a bear market. This is called moving to the sidelines in anticipation of a market downturn and it is a myth-driven action according to the National Bank and others.

According to the National Bank: If you're anticipating a stock market pullback, you're probably right, as declines of at least 5% occur virtually every year; corrections of 10% occur in six out of ten years and corrections of around 15% occur in four years out of ten.

Nevertheless, history shows that investors willing to stay invested through these fluctuations are well advised, as even the average return in years marked by a correction of 10% or more is positive.

Investors whose investment horizon allows for patience are probably better off accepting rather than fearing the inevitable market pullbacks.

The above is a lot like the much discredited market timing belief. Timing your stock purchases to  the market highs and lows is much harder than it sounds and if you could do it you would not be rewarded with a greatly improved income. 

In the example given by the National Bank, invest when the market is at its low point for the year each year for more than three decades and you might see an annual return of 9.1%. If you had ignored market timing and simply invested at the start of each month, you would have had an annual return of 8.6%. But, do you really think you could nail the low for each year steadily for some three decades or more? I assure you; you can't. You would be lucky to see an annual return of 8.6%.

At least taking some money off the table when a downturn is anticipated protects some of one's investment -- or does it? Sadly, it is difficult to time the rebounds. If you stay in, you benefit fully from the rebounds. If you are out of the market, you may miss some or all of the rebound. Miss the rebound and you may finish out of the money.

Investing in the market is not gambling. With gambling, in the long run the house always wins. With investing, in the long run the investor wins. Look at any graph of the TSX. Over a long time period, the market always goes up. Buy, hold and win.

And while biding your time, patiently holding those stocks that have briefly tanked, cash you dividends and smile. According to the National Bank, dividends account for 70% of the total stock market gains since 1980.

Hold the right stocks and the dividend will be awfully secure. The Bank of Montreal has maintained its dividend without cutting or reducing it for over 190 years. The Bank of Montreal is not alone. Enbridge has paid its dividend without cutting or reducing it for over 69 years and Fortis Inc. has not disappointed for over 49 years and the telecom Telus has racked up an impressive 20 year winning streak.

Buy, hold and enjoy the dividends.

Taking some cash off the table

The Fortis price has surpassed its old high for the year ($61.46). A check of its target price shows Fortis to have also surpassed that goal as well. At the present price ($61.84) the Fortis dividend yield has slipped to only 3.847%. This is less than the 4% I look for in a stock holding. I can earn almost as much from a money market fund: 3.8%. I am lightening my exposure to Fortis.

When CIBC split and tumbled in price, both action occured at approximately the same time, I picked up some shares of CIBC with the goal of making a little money come the inevitable turnaround. It has turned around and I have now sold 300 of those shares. 

TransCanada Pipeline (TRP) has been on a roll for some months. It has surpassed its high for the year but it is still down considerably from the height attained by it historic highs more than a year ago. It may regain its old highs but I was happy to part with a few hundred shares at the present price. 

The iShares ETF XUS split a few weeks ago. It had doubled in price since my purchase, and now, at the new price thanks to the split, I feel comfortable dumping a few hundred shares. On the next dip, I will buy more of this ETF than I just sold. One does not want to be underexposed to the American market for too long. I am hoping a correction is coming --- and soon.

The markets have been on quite the roll and despite my lighting my equity load, I am still more exposed to the market than at almost any other time in my life. If the market continues to climb, I will rewarded. If the market pulls back, I have some cash to take advantage of the correction.

Highest yielding stocks for RRSPs

 I love dividends. In fact, I could not balance my books without them. Dividends keep my retirement world spinning comfortably. Today, I read a piece on the highest yielding stocks on the TSX. I was amazed at how many of these stocks many retired seniors have in their income portfolios. The following is a partial list:

• BCE Inc
• Telus Corp
• Enbridge Inc
• TC Energy Corp
• Bank of Nova Scotia
• Power Corp of Canada
• Cogeco Communications Inc
• Bank of Montreal
• Pembina Pipeline
• Brookfield Infrastructure PA
• Toronto Dominion Bank
• Algonquin Power & Utilities
• Nutrien
• Canadian Imperial Bank of Commerce
• Fortis Inc
• National Bank of Canada
• Altagas Ltd
• Royal Bank
• Brookfield Corp

I own, or have owned, almost all of the above at one time or another in my retirement portfolio. I lost a lot of my investment cash by owning any telecom, but especially BCE and Telus, but I have no doubt that the prices will recover. In the meantime, I will be collecting very nice dividends from each telecom in my portfolio.

Pipelines have been solid performers when it comes to dividends but they, like the telecoms, have gone through a very down period. Luckily, all my pipelines seem to be recovering nicely. If and when the pipelines retreat, I would buy if I did not have my investment goals already filled.

The Canadian banks have been long term favourites among retiree investors. Today the banks are on a roll. This means the yield is down today but if you bought low you are enjoying a good dividend plus a nice pop on your principal. For many of us, the banks have been a win-win proposition. 

Utilities are another investment favoured by Canadian retirees. I got into both Fortis and Emera at the urging of a retired friend. Algonquin Power was my own decision. I blew it. I bought too early. Today, two dividend reductions later, Algonquin is looking like a buy and hold. Watch for a price lower than $7 and then check why it is down and if it not a serious issue, buy and hold. Algonquin holds promise when held into the long term.

The market is well off its lows today. In fact, it is hitting new highs. I refuse to advise timing the market but my gut tells me if there was ever a time to time the market that time is now. I confess, I am growing my cash holdings in anticipation of a correction. I also confess that I have been wrong before.

Is it time to take some profits?

The market is up. It is off its highest highs but it is still up. Is it time to take some profits off the table?

For years I have simply practised buy-and-hold. Oh, I have been known to sell a little but not nearly enough. For instance, I held a lot of Nutrien when it was selling for about $145. I should have sold three quarters of my holdings but I didn't. By the time I sold, Nutrien was selling for $75. My tardiness cost me tens of thousands of dollars.

The money market fund I in which I park my cash, is no longer paying interest of four percent or more. Still, I am going to sell some of my portfolio and keep the cash in a money market fund (TDB8150). The hard decision here is what exactly do I sell?

I'm leaning to selling stock that yields less than the interest earned by cash in a money market fund. I am also considering parting with some of my stock that is selling for more than its target price.

If there is a downturn coming in the next 12 months, I will be ready to take advantage of any bargains being offered in the stock market.

Algoma Central Corporation Is Eye-catching

Algoma Central Corportation (ALC) is eye-catching, at least when it comes to my eyes. I became aware of ALC when I worked at a small newspaper in Sault Ste. Marie, Ontario. A lot of companies with Algoma in their name had their roots in the Sault. Algoma Central Corporation was one of them.

Algoma Central operates the largest fleet on the Great Lakes and it has interests in ocean shipping as well. To an outsider, like me, it seems well positioned within the marine transportation logistics sector.

One downside to ALC is the cyclical nature of the shipping business but to an investor with a positive outlook this volatility means this is a stock that can be bought low and sold high repeatedly. I'm a positive investor. I like volatility.

As my interest in ALC grew, I decided to see who exactly has money in this shipping company. I discovered the Jackman family of Toronto holds something like 27% of the business through their large interest in E-L Financial Corporation. 

But that is not the end of the Jackman family interest in ALC. The Jackmans, I believe, also own a controlling interest in Amogla Holdings and Amogla Holdings holds about 30% of the ALC stock. E-L Financial and Amogla Holdings together own something in the neighbourhood of 57% of the ALC stock.

The third biggest shareholder is Macquarie Investment Management Limited. This is an Australian company committed to sustainable investing with the aim of delivering excellent long-term results to its clients. Is it working? You better believe it. With a staff of more than 20,000 worldwide, Macquarie reported a net profit after tax of  $3.522 billion U.S., for the 55th consecutive year of profitability.

The more I looked into ALC the more I liked it. But, I am a dividend investor. Is ALC the right fit for my style of investing? It has a dividend yield of 5.33% today. Nice, and it is worth noting that the company has a history of increasing its quarterly dividend. A further bonus, ALC has paid a special dividend in three of the past five years. Since 2018 ALC has paid a special dividend of  $4.75 per share.

Algoma Central Corporation's low valuation with a focus on debt reduction, its growing dividend yield, and its strategic, global fleet expansion all say "buy" to me.