I like B2 Gold Corp. (BTO)

Little bells start ringing when I decide a stock may be a buy. The first bell is the stock price. If it is off its high for the past year by 20% or more, it is in bear market territory. If it's alone in its descent, this is worrisome. But, if the entire market is down as well, we may well have a buying low moment.

Recently, B2 Gold Corp caught my attention. It was off its high for the year by 38%. Was B2 Gold in trouble or was the stock undervalued?

For an answer, check the P/B ratio. If it less than 1.0, the stock may be undervalued. B2 Gold had a P/B value of 0.9. A promising number.

As a dividend investor, before going farther, I check the dividend. I require a dividend of at least 4% and ideally with a payout ration below 80%. The lower the payout ratio the better. The payout ratio indicates the percentage of a company's earnings, or in some cases cash flow, that is being devoted to dividends. B2 Gold has a 6% dividend with a payout ratio of 68%. All good.

Keep in mind, bear markets drive yields higher. A two dollar dividend on a hundred dollar stock yields 2%. If the stock price falls by half to $50, the two dollar dividend now yields 4%. This is yet another reason to buy low.

Moving on, it is time to check the ROE or return on equity. The higher the ROE the better. To get a handle on what high actually means, check the ROEs of comparable companies in the same industry or sector. The ROE is more than just a measure of profitability, it is a measure of a company's efficiency at pumping out profits. According to TD WebBroker, the B2 Gold ROE leads the pack. Read what WebBroker had to say:

TD WebBroker has a section on Profitablility under Function. The BTO numbers look excellent. See for yourself, the numbers are reproduced below:

If a company isn't profitable you probably do not want to buy its stock but a profitable company may still have stock selling from the bargain bin. More and more this appears to be the case when it comes to B2 Gold. Let's continue our investigation.

The P/E Ratio (TTM), TTM being the trailing price-to-earnings ratio, is another indicator of whether a stock is expensive or cheap. A low P/E (TTM) ratio suggests the stock is undervalued. B2 Gold has P/E (TTM) of 10.8. This is low.

Another clue indicating a company is undervalued is the P/CF or price to cash flow ratio. This ratio compares a company's share price to its operating cash flow. It is calculated by dividing the market capitalization by the operating cash flow of the company or on a per-share basis by dividing the share price by the operating cash flow per share. The lower the P/CF ratio the better. A number below 10 indicates the stock may be undervalued. 

The P/CF ratio is seen as a better investment valuation indicator than the P/E ratio because it provides a less distorted picture of a company's value, especially for companies with large non-cash expenses. B2 Gold has a P/CF of 4.7, well below 10. Again, good!

B2 Gold is getting ready to open a new gold mine in Nunavut come 2025. That's good. At the present time B2 Gold has a large mine in Mali among others. The Russians are showing interest in Mali and its gold. That's bad. I decided to buy B2 Gold. I picked up some shares for about $3.60. The dice are thrown. Will I have a winner?

Buying B2 Gold Corp adds excitement to life

I cannot afford to gamble but I enjoy it. At least, I enjoy gambling when there is some chance of winning. The better the chance, the more the fun. For that reason, I rarely buy lottery tickets. The odds are terrible.

The other day the market price for Canadian gold producer B2 Gold Corp dropped below its Exponencial Moving Average, its Bollinger Bands and its Moving Average Envelope. The stock has dropped from a high of $5.87 to a price of $3.56. That's a fall of almost 40%. This puts B2 Gold deep in bear market territory. With a solid dividend of 5.9% today, I saw a potential buy.

How do others see B2 Gold? It is on the TD Action Buy List this month. The analysts followed by TD Webbroker rate it a Strong Buy and I like the fact that in early 2025 B2 Gold is bringing a new mine online in Canada's far north, in Nunuvut. I see a mine in Canada as located in more politically stable region than a mine in Mali where B2 has a large mine today.

The TD analysts have set an average target price for B2 Gold at $6.30. That is a gain of more than 75% over its market price today.

I see a buy. I like to invest up to 1% of my portfolio in "flings". B2 Gold looks like a "fling". I picked up some shares at $3.64 and I hope to make almost 6% on my investment, that's the dividend, while I wait for the price to pop. One gets a lot of stock when the entry price is so very low. If it jumps even $2, it is windfall.

If the Mali story doesn't deteriorate, I may have a winner.

The Next Move is to Diversify

A few days after making my in-kind withdrawal from my imaginary retirement portfolio, I had transferred some shares of Canadian Utilities from the imaginary RRIF to the imaginary TFSA. Holding only one stock, the CU shares, in my TFSA made me uncomfortable. There were a couple of stocks I wanted to hold and so today I diversified.

The TFSA now holds 309 shares of Canadian Utilities (CU), 820 shares of Telus (T) and 160 shares of TD Bank (TD). A further perk is that the value of the TFSA has increased by about $400. I will keep you posted as to changes at the first of each month.

Telus is a five-star stock by Morningstar's calculation. I will sell the Telus when the price rises. Remember, I also hold Telus in the RRIF account. I see holding Telus as a winning move. It pays a good dividend while one waits for the capital gain.

Buying the TD today will capture the quarterly dividend. Nice. And the TD stock should climb in the coming months and climb more than the CU stock I was holding. Eventually I may actually gravitate back to holding more CU. Remember, I am treating my RRIF and my TFSA as essentially one large portfolio. I do not want to be underweight in my CU holdings indefinitely.

Just to keep everyone up-to-date, the RRIF plus the TFSA is worth $1,055, 642.30 as of market close today. Not bad for a portfoliio opened with one million dollars in June. That means it is only seven months ago.

Inkind Transfers To Meet Mandatory RIF Withdrawals

The average Canadian couple retires with approximately $800,000 in retirement savings. It is not uncommon for individuals to open RRIFs worth $450,000 upon retirement. For this reason, when I created an imaginary million dollar RRIF for an imaginary couple it was not an unreasonable amount.

RRSPs are designed for saving. At retirement RRSPs are converted into RRIFs structured to dole out the saved funds. The imaginary RRIF that I created is a self-directed portfolio of mainly dividend-paying stocks plus a smattering of ETFs. The imaginary RRIF Portfolio is posted here. Please, take a look.

If this had been a real portfolio, no withdrawals would have been made in the first weeks after its creation. Dividends must be given time to collect. Emulating reality, the first monthly withdrawal of $3,333.33 was made in August. By year end a total of $16,666.65 had been withdrawn. Despite the withdrawals, the portfolio value  grew to $1,042,126.11 by December 31st.

How did I choose a monthly withdrawal of $3,333.33? Four percent of a million is $40,000. Divide that by 12, for the 12 months in a year, and the result is $3,333.33.

With each passing year the minimum percentage that must be withdrawn grows. The mandated withdrawal for a 66-year-old retiree is 4.17%. This works out to a $43,456.66 withdrawal in 2024 calculated on the imaginary portfolio value of $1,042,126.11. 

I make my mandated withdrawals as in-kind withdrawals by tranferring stock from my RRIF to my TFSA. In the case of my imaginary portfolio, 1344 shares of Canadian Utilities (CU) at $32.33, plus $5.14 in cash is being transferred from the imaginary RRIF to a newly opened imaginary TFSA.

In the coming year, $2413.82 in CU dividends, which previously went to the RRIF, now go to the TFSA. These dividends can be withdrawn tax-free from the TFSA when needed. If there is not enough contribution room in the TFSA, the balance of the mandated withdrawal is transferred to a non-registered plan. This is the way I handle my own RRIF withdrawals. I try to live solely on the dividends.

A breakdown of the withdrawals, transfers and taxes follows:

• RIF value at market close on Dec. 31, 2023: $1,042,126.11
• Mandated withdrawal (4.17%) posted on Jan. 2nd by TD WebBroker: $43,456.66
• In-kind withdrawal (1344 CU shares @ $32.33+$5.14 in cash) to TFSA: $43,456.66
• No tax is withheld on mandated RRIF withdrawal but tax will be due in the following year.
• Tax, as much as 30%, is withheld on future withdrawals over the mandated minimum withdrawal.
  

To ensure there is no nasty income tax surprise in 2025, 30% is withheld from each monthly RRIF cash withdrawal to cover future tax demands . The cash withdrawals are made to provide the imaginary retired couple with the funds needed to live. As the RRIF is expected to yield at least $39,947 in dividends, payments of at least this amount should not be a burden. An estimated $11,984 will be withheld for future tax needs.

Thanks, in part, to the tax-free nature of the TFSA payments, more money is available for withdrawal per month in 2024 than in 2023. As dividends tend to increase annually, this is another reason the monthly payments will increase in the coming year.

I imagine you are wondering how much the imaginary portfolio is worth today, Jan. 5th, after all withdrawals have been made? Amazingly, it is worth more than its starting balance and don't forget that there is almost $40,000 in a TFSA as well.

My imaginary retired couple is very happy.

Click the link to see my next move: Next Move is to Diversify

Some rules I follow and some I don't

I like rules and the rules guiding investing are no exception. I follow a lot of them. But, I must confess, I break almost as many as I follow.

One rule I follow rigidly is the diversification rule. A portfolio should have no fewer than 20 investments and no more than 30. Too few and risk begins to rise. Too many and one might as well buy an index ETF. This is not to knock index ETFs but I am retired. I need income. I can buy two dozen dividend-paying stocks and get more income than I could from most index ETFs. Think ENB, TCP, T, TD, BMO, PPL, BCE, FTS, EMA and the list goes on.

One rule I do not follow is the fixed income vs. equity split that, according to the rule, one should have in one's portfolio. The traditional rule says subtract your age from 100 and allocate that percentage to equities. An updated version says subtracts your age from 120. I do neither. I simply invest in equities. Period. No fixed income investments other than cash and that cash is there to meet emergency expenses or to buy more equities when a bargain arises. Since cash today is yielding 4.55%, I do O.K.

I have too much home bias in my portfolio. Why? I have a dividend-weighted portfolio and dividends from Canadian companies carry benefits denied those dividends from foreign companies. But even I cannot completely ignore other markets, especially the United States. I have about 10% of my portfolio invested in XUS. If the American market pops, I benefit. If I were younger and did not need the dividends to live, I would own more but I am not and I don't. If the price declines in the future, I am planning on adding to my non-home investments by buying a little VIDY (Vanguard FTSE Developed ex North America High Dividend Yield Index ETF). Its yield today is 3.9%. VIDY delivers diversity, maintains dividend income and lowers one's home bias. Love it!

I like to buy and hold and hold and hold. I have held my BMO stock so long it is close to doubling in value. My BMO investment is yielding about 9.75% a year in dividend income calculated on the original investment value.

But, I am learning there is a time to sell. When a stock price gets inflated, dump it. Move on. When the price comes down, consider buying back in. I sold some Nutrien when it was in the $145 range but for the most part, I held on while the stock slipped all the way to $76. By the time I sold, NTR may have hit bottom and it might have been a better time for buying than selling. If NTR gets low enough to raise the dividend yield to 4%, I will buy a little for diversity while maintaining income.

And those are my thoughts for the day. Oh, and have a very merry Christmas. Cheers!

Diversification in a retirement portfolio

I believed in diversification long before I had even heard the term. Owning more than just one or two stocks just intuitively seemed right, to me. And despite what you may have heard or read, building a diversified portfolio of about 25 individual investments is not difficult. In fact, capping your portfolio at no more than 25 investments can be difficult. 

Owning more than one or two stocks, spreads out risk. Owning more than 30 stocks risks diluting your portfolio with second string investments. It is easier to build a solid, successful 20 stock portfolio than one crammed with 40 investments. Less is more when it comes to portfolio building. 

 

There are three risks that immediately spring to mind when one is investing in the stock market: market risk, firm-specific risk, sector risk. Market risk cannot be avoided. The market goes up and the market comes down but, it goes up twice as often as it falls. Market risk fades with the passing of time. Given enough time the market will always graph as an uphill slope.

Firm-specific risk refers to the uncertainty of making money on any given stock. Try as you might, firm-specific risk is always with you. Think of Nortel. You do recall Nortel, don't you? It was said to be "too big to fail." It failed.

Lastly, sector risk applies to all the stocks trading in one sector. For instance, AltaGas, Enbridge, Pembina, and TC Energy are all pipelines. If sentiment turns against pipelines, it turns against all the companies in the sector. Recently, telecoms ran into a rough patch that affected all the players in that sector. BCE, Cogeco, Quebecor, Rogers and Telus all dropped in value. Some dropped more than others but they were all affected.

Increase the number of stocks in a portfolio, increase the number of sectors in which one is invested, even throw in an ETF or two or three into the mix, and one has cut both firm-specific risk and sector risk. If you are Canadian with most investment in the TSX, buy an ETF based on the U.S. market, like XUS, and you have reduced market risk as well.

How many individual investments should you own? Well, it depends a lot on who one asks. Some claim  as many as 30 stocks are required for proper diversification. Others say owning 12 to 18 stocks in adequate.

I believe a good rule of thumb is to own at least 20 individual investments, up to a maximum of 25, with no more than five percent of a portfolio dedicated to any one stock. Note, I said stock. ETFs are different. It is easy to have 15% of a portfolio in an Index ETF based on the U.S. S&P 500 like XUS. Buy XUS and you immediately have a well diversified investment made up of 500 U.S. large cap companies. ETFs by their very nature are risk-diluting through diversification.

A spreadsheet is an excellent way to track one's portfolio. I know TD WebBroker will allow one to download a spreadsheet of one's investments. I imagine most other brokerage houses have similar software available to those with self-directed accounts.

A downloaded spreadsheet is incredibly malleable. One can easily track the percentage of a portfolio that is invested in each individual stock. And one can group stocks together and calculate how much of a portfolio in invested in each sector.

If you have more than one portfolio, download each and then link all to one master spreadsheet.

A well diversified portfolio should deliver good returns with less risk. A good spreadsheet will tell you how closely you are adhering to your diversification plan.

Telus has been a winner for me

I like Telus. It has been good to me. I held Telus when it split and took that as an opportunity to sell half my Telus holdings.

Recently, Telus has peaked my interest as it, and the rest of the Canadian telecoms, have been emerging from a long downward spiral. 

For instance, Telus dipped to a low of $21.60 in the past year. Sadly, I didn't add to my Telus holdings at the time.

Recently, I noticed it had recovered to $23.90. I took the bait and added almost two thousand shares to my Telus holdings. It has continued to climb since my purchase and today it is at $25.795. I am up $3600.50 on that buy.

Tomorrow is the ex-date for Telus and Monday is the date of record. Will I be reducing my Telus holdings? Yes but not immediately. Morningstar is rating Telus a 5-Star stock and that means it has more room to run. I will hold until Telus has lost at least one star and possibly two.

But, at some point, I will be reducing my holdings. I do not feel comfortable holding more than four or five percent of my retirement portfolio in any one telecom. Four percent is the goal. One must have goals.