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.

My alternative to a portfolio manager

I have a friend approaching 80. He is a very bright guy and so when he told me that he handed his assets over to a manager, I stopped and listened. I have steered cleared of managers since getting badly burned by London Life and its mismanagement of my accumulated insurance policy savings. Was I wrong?

My friend's manager, whom I gather collects a percentage of the investment under management, has put my friend's savings in a number of mutual funds. I assume this means he pays a fee on each mutual fund plus the overall portfolio management fee. 

All these fees sound onerous. Still, if the manager delivers returns that best an asset allocation ETF like XEQT, I can see the benefit. XEQT, a complete global equity portfolio in one ETF, has delivered strong returns over the past year. YTD return is 15.97% and the 1-year return is 22.37% when the dividend is included. The fund has an annualized return of 12% since its  2019 inception.

Is XEQT suitable for my friend? Maybe not. At his age, he is no longer comfortable with the large losses a pure equity investment can suffer. That said, XEQT has some stablemates that add bonds to the mix.

For more info please click here: All-In-One ETF Portfolios.

Like my friend, I am old. Losses that once would have been recovered with the passing of time may not be recoverable today. For an example, think of Algonquin Power and Utilites Corp. (AQN). Given enough time, say a dozen years or more, my AQN losses might be erased. Today, it is quite possible my time will run out before a full recovery is realized.

The thing is, unlike my friend, I don't care. All I am concerned with is income, dividends. To this end I invest in from 20 to 30 individual dividend paying stocks. I pretty well ignore the day to day price changes. Yes, I have lost a lot on AQN and I've lost a lot buying Telus and Bell as well. But, in the grand scheme of things, the losses are manageable and the income solid. I make more than five percent on my retirement investments.

Note: the following was copied from my spreadsheet. My investments are broken down into sectors and I try to keep my exposure to no more than the percentage shown. Each separate investment also has a cap. I will leave it to you to set your own limits. The one piece of advice I have is do not put more than five or six percent in any one stock. Generally, I start getting uncomfortable when the exposure is greater than three or four percent. An investment shown in a bold, italic font is one that I do not own at this time but it is on my buy list.

Sectors

Financials 30%

BANK OF MONTREAL 4%

BANK OF NOVA SCOTIA 3%

CDN IMPERIAL BK COMMERCE 4%

BROOKFIELD AST MGMT-A LVS 3%

BROOKFIELD CORP CL-A LVS 3%

NATIONAL BANK OF CDA 4%

ROYAL BANK OF CANADA 5%

TORONTO DOMINION BANK 4%

Total of the above 30%

Utilities 20%

ALGONQUIN PWR&UTILITIES 2%

ALTAGAS LTD 3.5%

BROOKFIELD INFRASTRUCTURE PTNRS 3.5%

CANADIAN UTILITIES LTD. 3%

EMERA INCORPORATED 4%

FORTIS INC 4%

Total of the above 20%

Communication Services 10%

BCE INC 1.5%

COGECO COMMUNICATIONS INC 1.5%

QUEBECOR INC CL-B SV 2%

ROGERS COMMUNICATIONS INC 2%

TELUS CORP 3%

Total of the above 10%

Energy 10%

ENBRIDGE INC 3.5%

PEMBINA 3%

TC ENERGY 3.5%

Total of the above 10%

REITs 8%

BMO EQL WGT REIT INDX ETF 4%

CI CANADIAN REIT ETF 4%

Total of the above 8%

U.S. S&P 500 12%

ISHRS CORE S&P500 IDX ETF 12%

Total of the above 12%

International – Mainly Europe 4%

VIDY

Total of the above 4%

Materials (Agriculture) .75%

NUTRIEN (NTR)

Total of the above .75%

Metals and Mining (Industry) 1%

LABRADOR IRON (LIF)

Total of the above 1%

Food Products (Consumer Staples) .75%

ROGERS SUGAR (RSI)

Total of the above .75%

Transportation

ALGOMA CENTRAL (ALC) .75%

MULLEN GROUP (MTL) .75%

Total of the above 1.5%

Cash 2%

Cash 2%

Total of the above 2%

Total of all -- 100%

Algonquin Power, AQN, may suffer near-term volatility

Algonquin Power & Utilities Corp. (AQN) lost about a dollar on the open this morning. Is this a harbinger of stock price moves to come or has the damage been done and is it time for the healing to begin?

AQN reported its second-quarter financial results. The adjusted EBITDA increased 12% and the adjusted net earnings year-over-year rose 16%. The company has reduced its common share dividend again, this time by approximately 40% to $0.0893 per share. The reduction is somewhat larger than anticipated. This second dividend reduction continues the move towards financial prudence as AQN positions itself as a pure-play regulated utility.

 

A note here about the anticipated payout ratio. Management believes the revised $0.3572/share annual dividend will result in a payout ratio of 60%-70% once the current regulated asset base approaches its full earning potential. The closer the company comes to a 60% payout ratio, the less chance another dividend cut will occur.

 

The company also announced it is selling its renewable energy business for approximately $2.5 billion. Some investors had hoped the renewable energy business would sell for considerably more. For some, this announcement was a disappointment. Still, the sale will strengthen the AQN balance sheet as it moves its focus to being a regulated utility operation. In the long term, this transition should enhance the quality of earnings thus creating long-term value for shareholders.

 

The overall market sentiment appears cautious thanks to the dividend cut. The ongoing strategic changes only add to the uncertainty. Today the price dropped approximately a dollar on all the news. In the short term the stock could lose more share value but it probably will not be a lot as the negative news appears to be priced into the stock value now.

 

Christopher Huskilson, the current Interim CEO of Algonquin Power & Utilities Corp., is  the former CEO of Emera Inc. Huskilson has over 20 years of experience in the energy sector. Now with Huskilson at the helm, Algonquin is enjoying excellent leadership. When Huskilson expresses belief in the company's ability to improve returns and reduce external funding needs, his words inspire confidence.

 

Still, I would not buy Algonquin today. That said, I would not sell Algonquin at a loss today. There are indications that the AQN stock price may climb over the short term and, although I am not happy with it, I can live with the 4.8% dividend calculated on the closing price ($7.42) last Friday.