Dividends can ease bear market pain.

I thought the Telus price would climb, and climb very quickly. It didn't. It wilted, and its price crashed very quickly. I am out thousands. Oops! I am in the green on my original Telus investment purchased years ago but I am down big time on the purchase made some months ago.

Come Monday I will collect another dividend. I should see a nice, well into the four figures, dividend. It is the second big payout I have enjoyed thanks to Telus. When I have collected four of these payments, I will break even, assuming the Telus price does not keep collapsing.

Telus may reduce its dividend. If it does, I will still be back in the black on my total Telus exposure in what is a very short time to a buy and hold investor like me. I'm thinking of a time frame like a year or so.

I continue to bet on a Telus recovery. When it finally recovers, whenever that might be, it will flip my frown to a grin and my Telus holdings will go from in the red to in the green.While I wait for what I see as an inevitable turnaround, the constant flow of dividend dollars will pay the bills, keeping the wolf from the door. If I don't sell, I don't realize my losses. When it comes to the dividends, I realize my profits every three months.

If I had some free cash, I'd buy a little more Telus. I'm a glutton for something. I hope it's not punishment. 😄

Telus just keep getting better!

Telus just keeps getting better? Really? Telus is selling for $21.765 at this moment. It is so far into the bear market zone, all hope for a quick recovery is hibernating. Telus is down and may stay down for some time. With its payout ratio now at 261%, Telus may suffer the unthinkable: a dividend reduction. How could it be getting better?

Let's look at the dividend first. It is yielding almost 7% today. Buy Telus at today's price, a price that has some of the fear of a possible dividend cut already factored in, and even if the dividend gets reduced you will probably enjoy a good yield. You will be paid well to wait for a recovery.

Telus is outperforming its main telecom competitors, BCE and Rogers. Of the three, Telus had the best telecom revenue and EBITDA growth to report at the end of the last quarter in 2023. Telus's strength may be in its good management. For instance, Telus has replaced most of its legacy copper network with fiber. It started early and it is finishing early. There's a lot of good news behind the scenes, and not that far behind, when you begin reading the financial reports on Telus.

So, am I buying more Telus? Sadly, no. I do not have the free cash to tie up in Telus. Having admitted this, I will also admit to why I am so low in cash: Telus. Yes, I bought Telus when I thought it had lost as much as it would. It seemed to be on the road to recovery. It wasn't. I have lost thousands.  And yet, I smile.

Come April 1, I will reap my reward for holding Telus; I will pocket a dividend of $0.376 for every Telus share I own and I own a lot. Too much. But, as a retiree, my Telus stock is paying the bills. I look forward to holding Telus for a year or two or even longer and paying oodles of bills with the yield whether it gets cut or not. 

When Telus finally recovers, I will take my profits and run, run to the nearest good looking investment opportunity available at that time. There are always places to stash one's money even if its just a money market fund.

Five ETF Portfolio

Recently, I read a post detailing a Canadian income portfolio created with only five ETFs. I wondered how I would approach this problem. Here is my answer.

• First, one must have a good whack of U.S. stocks. I would put 20% of my funds in ZSP (ZSP - BMO S&P 500 Index ETF) The yield is low (1.21%) but so be it. I can live with that to benefit from a fair amount of exposure to the U.S. market.
• To round out my non-Canadian holdings, I would put 7.5% of my money into VIDY (Vanguard FTSE Developed ex North America High Dividend Yield Index ETF.) The dividend is about 3.66% today.
  
• Now, for a decent exposure to Canadian stock I would put 57.5% into XEI. (iShares S&P/TSX Composite High Dividend Index ETF.) This ETF is yielding in the 5.2% range at this moment.
• Next, I'd invest 10% in CDZ (iShares S&P/TSX Canadian Dividend Aristocrats Index ETF.) This yield about 3.9%.
  
• And I would finish by putting 5% in FCCL. (Fidelity Canadian Low Volatility ETF.) Low volatility and a small dividend at about 2.55%.
  

I created a portfolio similar to the above but with about 5% of the portfolio kept as cash in TDB8150 where it earns 4.55% daily interest. When the Bank of Canada lowers its rate, this money market account rate will be cut as well. I figure we are good until at least June. 

This five ETF portfolio plus its cash component would yield about 4.12% today. This is not bad but it's far short of what my true retirement portfolio is yielding. The question is will it deliver better growth?

Now, how would you handle this problem. Enter your answer in Portfolio Manager in TD WebBroker and then track your portfolio for a year or two. See how your ideas play out in real time.

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Note: This post has been updated a few times as I learned more about suitable ETFs. It is too early to say too much about the success of this portfolio in the long run but so far it has outperformed my own portfolio which holds more than 20 investments. Stay tuned.

I realize there are quite a few overlapping investments to discover if one drills down into the holdings in the ETFs based on the Canadian market. I don't care. I didn't claim be an expert but a duffer. That said, it's Good Friday and I my Five ETF portfolio is up $14,611.58. Nice.

Bell, the telecom giant, is it a buy?

BCE is one of my core holdings but it has been on a race to the bottom, as of late. In fact, all the telecoms are dropping like proverbial stones. When BCE dipped below $49 recently, I should have added to my holding and averaged down. Maybe I will do it tomorrow as it closed today at $49.13. The Morningstar Analyst Report gives the stock a four star rating and yet many analysts I checked feel BMO is a hold. It is possible BCE is going to linger at the bottom for awhile longer. Many analysts seem to think so.

The yield today is 8.12% with a payout ratio hitting 117.19%. This payout ratio, found using WebBroker, is quite high but the number posted by Digrin is even higher -- an unbelievable 175%. Something is wrong here. These numbers are taking us into "Do you feel lucky, punk?" territory.

BMO hasn't reduced a dividend payment in years but past performance yah-da, yah-da, yah-da means don't believe such a move is off the table. DRG (dividend growth rate) is O.K. but not exciting. To put a dividend you believe you can trust into a retirement portfolio, a dividend yielding 8.12%, I am tempted to act and buy a little. BCE seems to present a buying opportunity, a too-good-to-be-true buying opportunity. So, do you, do we, feel lucky?

Bank of Montreal (BMO): Buy

In the interest of full disclosure, I own Bank of Montreal and have for many years. A damn fine stock. When it dipped well below $120 recently, I added to my holdings. It has regained some of its value but it is still a buy today. The Morningstar Analyst Report gives the stock a four star rating and most analysts I checked agree BMO is a buy.

The yield today is 4.84% with a payout ratio of only 83.31%. This payout ratio is quite high for a Canadian bank. A number closer to 45% is what I expected.  For instance, the Royal Bank (RY) is 50%.

BMO hasn't missed a dividend payment in more than 30 years. Its DRG (dividend growth rate) for the past three years is 10.71% and for the past twenty years 11.85%. With numbers like this, I see a core holding for a retiree: a dividend you can trust and it increases regularly.

If I didn't hold any BMO, I'd buy a little at this price but I'd keep some powder dry for other opportunities. With patience one can add to the BMO position when the stock is rated a very strong buy. You must stay alert though, it does not stay in the basement for long and that is a good quality in a stock one plans on owning for a very long time.

Algoma Central Corporation (ALC): Buy

I do not own Algoma Central Corp. (ALC) but at some point in the future I will. Why? Good company, well run with an excellent history when it comes to paying dividends. Today the yield is 5.1% with a payout ratio of only 32.71%. ALC has chalked up 28 dividend paying years and its DRG for the past three years is 30%

Also, ALC has a good moat. It is the only stock in the TSX Marine Shipping sector. If you like diversity, adding a little ALC today looks like a good move.

Why am I holding back? The stock is fairly valued today. I like a bargain. I can afford to wait for a more appealing entry point. When it appears, I'm in.

More advice for a retiring friend and nephew

One has to build a solid, dividend-paying portfolio if one is to have a good trusted flow of income in retirement. A stock to consider is Emera (EMA).

First, it is selling in bear market territory. It could go lower and it might but it is well off its recent highs with a drop of more than 20%. 

 

 

At a price of $46.93, EMA is yielding 6.12%. Impressive. Morningstar has Emera on its Canadian Income Pick List for good reason and recently put Emera on the Morningstar Canadian Core List as well.

All retirement portfolios should have some exposure to the utilities sector. Emera is an excellent utility. If one did not have any cash in utilities, EMA today presents an investment opportunity.

The utilities sector is considered a defensive play as people need electricity regardless of economic conditions. With stable earnings and consistent dividends, utilities are less sensitive to market fluctuations. During recessions, defensive sectors like utilities tend to outperform the broader market. But, this does not mean the sector will not lose money in a downturn. Utilities can, and do, take a dive like any other investment.

An investor might allocate 4% of their retirement portfolio to Emera, investing half of that amount today and, if the price retreats, investing the other half.

Another good utility is Fortis (FTS). Fortis is down today but nowhere near as much as Emera. Fortis is correcting. It is off its recent high by about 15%. Selling at $52.49, it is yielding 4.5% today. Again, buying 2% today and 2% later seems like a fair approach.

Utilities are known to increase their dividends regularly. The dividend growth rate (DGR) for Emera is 11.66% over the past three years and 9.38% over the past decade. According to Investopedia, the DGR is the annualized percentage rate of growth of a dividend over a set number of years.

Aiming to invest 10% of a retirement portfolio in utilities is not unreasonable. A portfolio of $400,000 would have $40,000 distributed among a number of Canadian utilities. For instance, if one invested in Canadian Utilities, Emera and Fortis, (2-4-4%), this would generate about $2175 annually.

In the interest of full discloser, I have 3.45% of my portfolio in Emera. I am looking to add another 200 shares if and when the stock price falls a bit more. I also own Fortis and I do not own Canadian Utilities at this time. I do own Altagas (ALA). A stock many include in the utilities sector.