Dividend News for the Week Ending July 27, 2018

There were some interesting dividend announcments this week.  No increases, but on a year over year basis two companies are projected to exceed their 2017 dividends.

Loblaw Companies Limited

Ticker L.TO
Amount $0.30
Projected Annual Dividend for 2018 $1.16
Record Date September 15, 2018
Payment Date October 1, 2018
Market price as of July 26, 2018 $69.63
Forward Yield 1.66%
Rating AB5
CAGR (since 2011) 4.65%
CAGR (since 1986) 9.68%

Loblaw Companies Ltd is a retailer of food products that also provides drugstore, general merchandise and financial products and services. The company operates corporate-owned stores as well as franchised stores. (Source: TSX)

Loblaw has been paying a dividend for over 30 years (our history only goes back to 1986), and has an impressive 9.68% CAGR since we began recording. The dividend has only been increasing in earnest the past 5 years. However, even over that period the CAGR is a healthy 4.65%.

Waste Connections (Canada) Inc.

Ticker WCN.TO
Amount $0.14
Projected Annual Dividend for 2018 $0.56
Record Date August 7, 2018
Payment Date August 21, 2018
Market price as of July 26, 2018 $101.32
Forward Yield 0.55%
Rating A1+
CAGR (since 2010) 35.25%

Waste Connections Inc is a solid waste services company in North America. The company provides waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the United States, and Canada. Source: TSX.

Waste Connections is an interesting company to look at. For one, its dividend is paid in US dollars, so unless you are keeping your holdings in a US account, you will be susceptible to USDCAD currency exchange rate fluctuations. More interesting however, is that this company—in its Canadian form—has only existed since 2016. The dividend history, which stretches to 2010, is based off of the US parent company. The Waste Connections listed on the TSX is the child of acquisitions. That said, the growth is impressive (exceeding 35%), and if you are willing to deal with the low yield, this may be a worthwhile addition to your portfolio.

AECON

Ticker ARE.TO
Amount $0.13
Projected Annual Dividend for 2018 $0.50
Record Date September 21, 2018
Payment Date October 1, 2018
Market price as of July 26, 2018 $15.30
Forward Yield 3.27%
Rating AB2
CAGR (since 2007) 19.57%

Aecon Group Inc and its subsidiaries provide construction and infrastructure development services to private and public sector customers throughout Canada. It also provides services to the energy sector as well as to mining sector. Source: Company Website

I’m not quite what sure to do with Aecon. I own it, and it has been a bit of a roller coaster this year. It was to be acquired which shot the stock up, but then the Canadian government cancelled the buy-out, and the stock fell back to earth. That said, CAGR is almost at 20%, and the yield is decent. However, there has not been a dividend increase since 2017 Q1. Unless Aecon increases their Q4 dividend this year, they will end up going three years of no dividend growth.


Portfolio Updates – June 2018

Highlights

  • Lack of Aecon buy-out triggered large drop
  • TTM income still > $8M which puts us on track to meet our 2018 goal
  • Asset allocation still skewed towards equities

Monthly Performance Summary

As I mentioned in my last update, I purchased some GE call options which expire in January 2020. Those options continue to be the biggest drag on the portfolio. Other than that, the Canadian Government blocked the potential takeover of Aecon which I spoke of in a previous post. When the acquisition was first announced Aecon surged 22% in my portfolio, and since then it has dropped back down to “normal levels”. So, while my net gain on Aecon is practically flat, I did experience a material drop in the portfolio in May.

Interestingly, on a month over month basis both the LIRA and EPSP portfolios are lagging the benchmark, which is odd because those two portfolios are couch potato portfolios, as is the benchmark; one would think that they should be tracking each other. However, the variance could be attributed to a few factors:

The LIRA has not been rebalanced in some time, and there is now some tracking error. The portfolio is overweight a few percent in VXC and underweight 5% in VAB. There is also a growing cash position. The portfolio is due for a manual rebalancing soon.

The EPSP portfolio is combined couch potato and shares of my employer through the stock purchase plan. The stock purchase plan is approximately 33% of the portfolio so the remaining 67% is couch potato. But that means that the 75% equity is skewed, and not a perfect tracker to the couch potato.

On a TTM perspective we have been diverging more and more away from the benchmark. The benchmark TTM for June 2018 is 9.96% whereas the total fund is only 3.77%, a whopping 6% spread. Again, a large percentage of this can be attributed to the material decline in the margin portfolio due to the GE options. The other factor is that the certificated portfolios contain Riocan, and H&R REIT, both of which cut their DRIPs earlier this year, resulting in a drop in both holdings. Since REITs are large proportion of the certificated portfolio, insofar as those positions drop, the overall portfolio drops, increasing drag on TTM returns.

Passive Income

As always, passive income is the primary objective of my portfolio.

Passive income has been “okay” the past few months. As expected, non-quarter months (i.e. January, February, April, May) beat the benchmark, but this leveled out on the quarter months (March, June). The reason for this is that VCN and VXC, which are key components of the benchmark, only pay realized returns once a quarter, but the actual fund has dividend payments and distributions scattered throughout the year. But what we really want to see is the TTM passive income, in the following chart.

The good news here is that I am still beating the benchmark. All things being equal, I would rather beat the benchmark on passive returns than on total returns, reason being that I am creating an income fund, not a capital gains fund. Based on that metric, TTM for the benchmark was around $6,750, whereas our fund broke the $8,000 mark. More precisely, I gained 21% more passive income than the benchmark. All in all, that is an impressive feat in my view.

Allocation

Last but not least, allocation remains a key point of concern.

Equity is still a dominant force in the overall fund, weighing in at north of 70%, well above the 55% target. For the next six months I will be focusing on increasing real estate exposure:

  • This will add some more balance to the portfolio
  • From a passive income perspective, REITs provide a better opportunity than fixed income
  • REIT ETFs are a cost effective addition to the overall fund since I can buy ETFs through Questrade for next to no commissions.

Closing Remarks

The first six months of the year have not been stellar, but they have not been necessarily bad either. At an aggregate, the losses I experienced were expected (e.g. Aecon dropping, GE dropping). But, as a long-term investor I am not overly concerned. I have literally decades for Aecon to increase back in value, and my GE options have over 16 months before expiry which gives plenty of runway for them to recoup any paper losses.

A bigger concern is passive income over the next six months. 3% of the portfolio was reserved to pay off my car in August of this year (the final “balloon payment” from my finance arrangement with the car dealership), which will mark a material loss on the liquid portion of the portfolio since those funds were in my TFSA account. That drop will also remove $250 of passive income from the overall portfolio; not a large amount but it does represent 3% of overall passive income.

As it stands, the TTM passive income positions me to meet my 2018 passive income goal of $8,100/year. However, if we take 3% off of that, I will miss the goal. My hope is that by investing aggressively in REITs to re-balance the portfolio, the higher yield on REITs will make up for the lost passive income.

Onwards and upwards!

 


Dividend News for the Week Ending July 20, 2018

Enbridge Income Fund Holdings Inc.

Ticker ENF.TO
Amount $0.19
Projected Annual Dividend for 2018 $2.26
Record Date July 31, 2018
Payment Date August 15, 2018
Market price as of July 16, 2018 $32.72
Forward Yield 6.91%
Rating AB2
CAGR (since 2011) 9.91%
CAGR (since 2003) 12.01%

Enbridge Income Fund Holdings Inc. is a publicly traded corporation. The Company, through its investment in Enbridge Income Fund indirectly holds high quality, low-risk energy infrastructure assets. The Fund’s assets consist of a portfolio of Canadian liquids transportation and storage businesses, including the Canadian Mainline, the Regional Oil Sands System, the Canadian segment of the Southern Lights Pipeline, Class A units entitling the holder to receive defined cash flows from the U.S. segment of the Southern Lights Pipeline, a 50 percent interest in the Alliance Pipeline, which transports natural gas from Canada to the U.S., and interests in more than 1,400 MW of renewable and alternative power generation assets. Source: Company Filings

The firm has been paying a dividend since 2003 but made a switch to a dividend paying corporation in 2011. Given its long track record it ranks as an A1B3 stock, but for comparison purposes CAGR is better measured since the conversion to a dividend paying corporation. Even then, since 2011 CAGR is an impressive 9.91%.

First National Financial

Ticker FN.TO
Amount $0.15
Projected Annual Dividend for 2018 $1.85
Record Date July 31, 2018
Payment Date August 15, 2018
Market price as of July 16, 2018 $28.80
Forward Yield 6.42%
Rating AC2
CAGR (since 2006) 12.00%

First National is Canada’s largest non-bank lender, originating and servicing both commercial and residential mortgages since 1988. Source: TSX.

FN moved to a dividend paying corporation in 2011, precipitating a cut in its payment to shareholders. Because of the cut, the stock was cut to a C dividend payer rating. That said, it has increased its dividend every year since the conversion, which gives it an overall rating of A1C2.

SECURE Energy Services Inc.

Ticker SES.TO
Amount $0.02
Projected Annual Dividend for 2018 $0.27
Record Date August 1, 2018
Payment Date August 15, 2018
Market price as of July 16, 2018 $7.49
Forward Yield 3.60%
Rating A
CAGR (since 2013) 21.98%

Secure Energy Services Inc is a diversified energy services company providing specialized services to upstream oil & natural gas companies operating in in western Canada and in certain regions in the United States. Source: TSX

SES has a relatively short history but has increased its dividend every year since inception in 2013, except for 2016 where it remained flat. This growth has given it a 22.0% CAGR over that period and earns it an A1 rating.

Vermilion Energy Inc.

Ticker VET.TO
Amount $0.23
Projected Annual Dividend for 2018 $2.72
Record Date July 31, 2018
Payment Date August 15, 2018
Market price as of July 16, 2018 $47.26
Forward Yield 5.74%
Rating B2
CAGR (since 2003) 2.52%

Vermilion is an international energy producer that seeks to create value through the acquisition, exploration, development and optimization of producing properties in North America, Europe and Australia. Our business model targets annual organic production growth, along with providing reliable and increasing dividends to investors. Vermilion is targeting growth in production primarily through the exploitation of light oil and liquids-rich natural gas conventional resource plays in Canada and the United States, the exploration and development of high impact natural gas opportunities in the Netherlands and Germany, and through oil drilling and workover programs in France and Australia. Vermilion holds an 18.5% working interest in the Corrib gas field in Ireland. Vermilion is targeting production of between 75,000 – 77,500 boe/d in 2018. Source: Company Filings

While not a consistent grower, VET has paid out a dividend every year since 2003 with no drops. This rates it as a B2 dividend payer, with a CAGR of 2.52%.

Exchange Income Corporation

Ticker EIF.TO
Amount $0.18
Projected Annual Dividend for 2018 $2.18
Record Date July 31, 2018
Payment Date August 31, 2018
Market price as of July 20, 2018 $32.10
Forward Yield 6.78%
Rating A2
CAGR (since 2004) 8.32%

The Company is a diversified, acquisition-oriented corporation focused on opportunities in two sectors: aviation services and equipment, and manufacturing. The business plan of the Company is to invest in profitable, well-established companies with strong cash flows operating in niche markets. Source: Company Filings

EIF has paid a dividend for the past 15 years, and except for 2010, has increased it every year since 2004. This was even after converting from an income trust to a dividend paying corporation in 2009, which is normally the time that companies cut the amount paid out to shareholders.

MTY Food Group Inc.

Ticker MTY.TO
Amount $0.15
Projected Annual Dividend for 2018 $0.60
Record Date July 31, 2018
Payment Date August 15, 2018
Market price as of July 20, 2018 $57.04
Forward Yield 1.05%
Rating A1
CAGR (since 2011) 18.77%
CAGR (since 2010) 38.23%

MTY Food Group Inc is a Canadian franchisor operating in the quick service food industry. It franchises and operates corporate-owned locations under different banners and brands offering multiple cuisines such as Korean, Japanese, and Mexican.

I’m very attracted to companies such as MTY which offer an easy to understand business model with great realized returns to shareholders. Since starting its dividend in 2010, it has increased it every year except for 2017. At the current pace, the dividend is projected to increase 30% year over year, paying $0.60/share vs. 2017’s $0.46/share. While the company started paying a dividend in 2010, for comparison reasons we measure against 2011 since that was the first full year of payments. Based on that, the CAGR is 18.8%, which is not that bad.

Cineplex Inc.

Ticker CGX.TO
Amount $0.15
Projected Annual Dividend for 2018 $1.72
Record Date July 31, 2018
Payment Date August 31, 2018
Market price as of July 20, 2018 $29.48
Forward Yield 5.83%
Rating A1B2
CAGR (since 2004) 2.92%
CAGR (since 2003) 19.99%

A leading entertainment and media company, Cineplex (CGX) is a top-tier Canadian brand that operates in the Film Entertainment and Content, Amusement and Leisure, and Media sectors. As Canada’s largest and most innovative film exhibitor, Cineplex welcomes over 70 million guests annually through its circuit of 163 theatres across the country. Cineplex also operates successful businesses in digital commerce (CineplexStore.com), food service, alternative programming (Cineplex Events), cinema media (Cineplex Media), digital place-based media (Cineplex Digital Media), amusement solutions (Player One Amusement Group) and an online eSports platform for competitive and passionate gamers (WorldGaming.com). Additionally, Cineplex operates a location-based entertainment business through Canada’s newest destination for ‘Eats & Entertainment’ (The Rec Room) and will also be opening new complexes specially designed for teens and families (Playdium) as well as exciting new sports and entertainment venues across Canada (Topgolf). Cineplex is a joint venture partner in SCENE, Canada’s largest entertainment loyalty program. Source: Company Filings

Love the movies? Then you’ll love Cineplex. The company has been a mainstay in the Canadian movie industry for decades, paying shareholders since 2003. Initially it was an income paying trust but converted to a dividend paying corporation in 2009. Its CAGR since 2004 (first full year of distributions) is 2.92%, which not stellar, has definitely beaten out inflation. At today’s prices it has a forward yield of 5.83% and may be a worthy addition to your portfolio as an income payer from the entertainment industry.


Dividend News for the Week Ending July 13, 2018

The week ending July 13, 2018, had 7 minor announcements, and one tragic one, in the dividend space.

AltaGas Ltd.

Ticker ALA.TO
Amount $0.18
Projected Annual Dividend for 2018 $2.18
Record Date July 25, 2018
Payment Date August 15, 2018
Market price as of July 13, 2018 $28.02
Forward Yield 7.79%
CAGR (since inception) 4.37%
CAGR (since 2011) 7.33%

AltaGas, a Canadian corporation, is a North American diversified energy infrastructure business with a focus on owning and operating assets to provide clean and affordable energy to its customers. AltaGas’ business strategy is underpinned by strong growth in natural gas supply and the growing demand for clean energy. (Source: Company filings)

AltaGas has been paying a dividend since before 2004, and its most recent hike was in January of this year. However, while it has paid back its shareholders 2004, it started off as an income paying trust, and made a conversion to a dividend paying corporation in 2011. The change to a dividend paying corporation necessitated a decrease in the overall payment. Measured since 2004 the CAGR is 4.37%, but for a more practical comparison we should measure the CAGR since converting to a corporation, which puts it at 7.33%.

Alimentation Couche-Tard Inc.

Ticker ATD-B.TO
Amount $0.10
Projected Annual Dividend for 2018 $0.39
Record Date July 18, 2018
Payment Date August 1, 2018
Market price as of July 13, 2018 $62.80
Forward Yield 0.62%
CAGR (since 2006) 22.25%

Couche-Tard is the leader in the Canadian convenience store industry. In the United States, it is the largest independent convenience store operator in terms of the number of company-operated stores. In Europe, Couche-Tard is a leader in convenience store and road transportation fuel retail in the Scandinavian countries (Norway, Sweden and Denmark), in the Baltic countries (Estonia, Latvia and Lithuania), and in Ireland and also with an important presence in Poland. (Source: Company filings).

Having paid a modest dividend since 2005, the firm has increased its dividend every year except for the year following the 2008 financial crisis, which makes this company is A2+ rated dividend payer. CAGR is a lofty 22.25%, but this isn’t without a price: the forward yield is a paltry 0.62% based on the current stock price. Assuming the firm increases its dividend again in the next 12 months, it will raise to an A3+ rated firm.

Boston Pizza Royalties Income Fund

Ticker BPF-UN.TO
Amount $0.12
Projected Annual Dividend for 2018 $1.38
Record Date July 21, 2018
Payment Date July 31, 2018
Market price as of July 13, 2018 $19.38
Forward Yield 7.12%
CAGR (since 2002) 7.13%

Boston Pizza is Canada’s No. 1 casual dining brand with more than 390 mainly franchised restaurants in Canada serving more than 100 unique and delicious menu items such as gourmet pizzas and pastas, juicy burgers and our famous BP wings. Annually, Boston Pizza serves more than 50 million guests, and has annual gross sales of $1.1 billion. Boston Pizza has proudly been recognized as one of Canada’s 50 Best Managed Companies since 1994, achieving Platinum Member status since 2001. (Source: Company filings).

While CAGR is an impressive 7.13%, growth has been flat with no increases since 2015. The yield also raises flags for concern as it is creeping north of 7%.

Brookfield Real Estate Services Inc.

Ticker BRE.TO
Amount $0.11
Projected Annual Dividend for 2018 $1.35
Record Date July 31, 2018
Payment Date August 31, 2018
Market price as of July 13, 2018 $19.30
Forward Yield 6.99%
CAGR (since 2004) 1.47%

Brookfield Real Estate Services Inc owns Franchise Agreements and Trademark Rights of residential real estate brands in Canada. The Company’s brand include Royal LePage, Johnston & Daniel and Via Capitale. (Source: Company Filings)

Callidus Capital Corporation

Ticker CBL.TO
Amount
Projected Annual Dividend for 2018 $0.60
Record Date July 13, 2018
Payment Date July 13, 2018
Market price as of July 13, 2018 $3.77
Forward Yield 15.92%
CAGR (since 2015) 19.68%

Established in 2003, Callidus Capital is a publicly traded, specialty debt fund that provides capital on a bridge basis to meet the financing requirements of companies that cannot access traditional lending sources.

Callidus was shaping up to be a strong dividend contender. Having announced its first dividend in 2015, it was showing consistent growth the past 24 months. However, on Friday the 13th (!!) they cancelled their dividend; the cut shaved 28% off of the company’s stock price, hence the astronomical forward yield.

Inter Pipeline Ltd.

Ticker IPL.TO
Amount $0.14
Projected Annual Dividend for 2018 $1.68
Record Date July 23, 2018
Payment Date August 15, 2018
Market price as of July 13, 2018 $25.25
Forward Yield 6.65%
CAGR (since 1999) 5.21%

Inter Pipeline is a major petroleum transportation, natural gas liquids processing, and bulk liquid storage business based in Calgary, Alberta, Canada. Inter Pipeline owns and operates energy infrastructure assets in western Canada and Europe. Inter Pipeline is a member of the S&P/TSX 60 Index and its common shares trade on the Toronto Stock Exchange under the symbol IPL. (Source: company filings)

IPL has been paying distributions since 1997, and it came out swinging in 1998 before stabilizing its dividend in 1999. Since then it has proven to be a solid contender, with a 5.21% CAGR over the past 20 years. Since it froze its dividend twice over that timeframe it is only a A2B4 rated stock at the moment. In any case, with a forward yield of 6.65%, and having increased its dividend every year for the past 10 years, it would be a worthwhile addition to a portfolio.

Keyara Corp.

Ticker KEY.TO
Amount $0.14
Projected Annual Dividend for 2018 $1.68
Record Date July 23, 2018
Payment Date August 15, 2018
Market price as of July 13, 2018 $37.18
Forward Yield 4.52%
CAGR (since 2003) 11.74%

Keyera Corp is a midstream energy company. It is engaged in gathering, processing, and fractionation of natural gas in western Canada; storage and transportation of crude oil and natural gas byproducts; and marketing of natural gas liquids. (Source: Company Filings)

Having increases its dividend every year since 2003, with only one year of no growth, Keyera is an A3 rated dividend company. At a forward yield of 4.52%, it is still moderately overpriced, but if you are looking for an energy player with a strong history, this may fit the bill.

Crius Energy Trust

Ticker KWH-UN.TO
Amount $0.07
Projected Annual Dividend for 2018 $0.84
Record Date September 30, 2018
Payment Date October 15, 2018
Market price as of July 13, 2018 $6.28
Forward Yield 13.32%
CAGR (since 2012) 35.93%

Crius Energy Trust through its subsidiaries engages in the sale of electricity and natural gas to residential and commercial customers under variable price and fixed-price contracts. (Source: TSX)

Crius has paid a dividend since 2012. There was a slight spike in 2013 but this may be attributed to the fact that their first dividend was only for December 2012, so they were “smoothing out” payments over time. Since then it has remained relatively stable, albeit not always increasing.

K Bro Linen Inc.

Ticker KBL.TO
Amount $0.10
Projected Annual Dividend for 2018 $1.20
Record Date July 31, 2018
Payment Date August 15, 2018
Market price as of July 13, 2018 $38.40
Forward Yield 3.13%
CAGR (since 2007) 0.79%

From the company website:

K‑Bro was founded in 1954 as Stork Diaper Service and later grew to meet the needs of the healthcare and hospitality industries. To better reflect the company’s evolving role and in honor of its founders – the Kinasewich brothers, the name was changed to K‑Bro Linen Systems Inc. in 1984. Today, K‑Bro is the largest provider of laundry and linen services in Canada meeting the needs of healthcare, hospitality and other commercial sectors. K-Bro employs 1600 people across Canada at processing facilities located in Victoria, Vancouver, Calgary, Edmonton, Regina, Toronto, Montreal and Quebec City.

K‑Bro provides an extensive menu of services that go beyond basic laundry services. These include reusable OR pack services (KOR Services), resident personal clothing programs, specialty linen purchasing, various textile testing and extensive customer site-based services, including floor-to-floor distribution and linen room management.

K-Bro has a B2 dividend rating based on my analysis and has been relatively flat the past four years. At this point, there is nothing special about this dividend payer.

Onwards and upwards!

 


Dividend Increases for the Period Ending July 6, 2018.

There were 4 notable dividend increases, and one company initiating a quarterly dividend, for the period ending July 6, 2018.

A&W Revenue Royalties Income Fund

Ticker AW-UN.TO
Amount $0.13800
Projected Annual Dividend for 2018 $1.65000
Record Date 15-Jul-18
Payment Date 31-Jul-18
Market price as of July 06, 2018 $31.84
Forward Yield 5.18%

The A&W name is well known for its restaurants and world-famous root beer. Despite this, the A&W fund does not directly have any ownership in the A&W restaurants or soda business. Instead, it invests indirectly in the A&W Quick Service Restaurant business. The present structure gives the A&W fund 3% of top-line revenue, paid for by A&W Food Services of Canada Inc.

The fund has been paying a distribution since 2002. Of note, 2007-2010 the fund paid an extra payment per year (13 payments in 2007 and 14 payments in each of 2008, 2009, and 2010) based on the date of record. Other than that, the distributions have been relatively flat, however there has been growth since 2015. Since 2014 CAGR has been 4.0%. The fund most recently increased its distribution in March, and at the current pace is expected to increase 2.4% year over year from 2017.

Enercare Inc

Ticker ECI.TO
Amount $0.08320
Projected Annual Dividend for 2018 $0.98880
Record Date 16-Jul-18
Payment Date 31-Jul-18
Market price as of July 06, 2018 $18.13
Forward Yield 5.45%

As one of North America’s largest home and commercial services and energy solutions companies with approximately 3,800 employees under its Enercare and Service Experts brands, Enercare is a leading provider of water heaters, water treatment, furnaces, air conditioners and other HVAC rental products, plumbing services, protection plans and related services. With operations in Canada and the United States, Enercare serves approximately 1.6 million customers annually. Enercare is also the largest non-utility sub-meter provider, with electricity, water, thermal and gas metering contracts for condominium and apartment suites in Canada and through its Triacta brand, a premier designer and manufacturer of advanced sub-meters and sub-metering solutions.

Enercare has been paying a distribution/dividend to shareholders since 2002. However, following tax changes the company converted from an income trust to a dividend paying corporation in 2009, precipitating a large drop in the cash paid out to unit holders (who became shareholders). For all intents and purposes total growth is measured since 2010 since that gives us a more meaningful comparison.

Taking that into consideration, the dividend has a CAGR of 5.29%. The firm recently increased its dividend in April, and year over year growth is projected at 3.25% higher than 2017.

MBN Corporation

Ticker MBN.TO
Amount $0.08
Projected Annual Dividend for 2018 $0.16
Record Date September 30, 2018
Payment Date October 15, 2018
Market Price as of July 06, 2018 $6.30
Forward Yield 2.54%

MBN is a newcomer to the dividend space, who recently announced its inaugural dividend of $0.08/share. The corporation is the result of a merge between Globalance Dividend Growers Corp., for which Middlefield Limited is the fund manager, and MBN Corporation.

Since this is the inaugural dividend, the projected income for 2018 is $0.16/share, assuming the next record date is in December 2018 (i.e. the next quarter).

Pembina Pipeline Corp.

Ticker PPL.TO
Amount $0.19
Projected Annual Dividend for 2018 $2.24
Record Date 25-Jul-18
Payment Date 15-Aug-18
Market price as of July 06, 2018 $46.41
Forward Yield 4.83%

Calgary-based Pembina Pipeline Corporation is a leading transportation and midstream service provider that has been serving North America’s energy industry for over 60 years. Pembina owns an integrated system of pipelines that transport various hydrocarbon liquids and natural gas products produced primarily in western Canada. The Company also owns gas gathering and processing facilities and an oil and natural gas liquids infrastructure and logistics business. Pembina’s integrated assets and commercial operations along the majority of the hydrocarbon value chain allow it to offer a full spectrum of midstream and marketing services to the energy sector. Pembina is committed to working with its community and aboriginal neighbours, while providing value for investors in a safe, environmentally responsible manner. This balanced approach to operating ensures the trust Pembina builds among all of its stakeholders is sustainable over the long term. Pembina’s common shares trade on the Toronto and New York stock exchanges under PPL and PBA, respectively. (Sources: Company website, TSX).

Pembina has paid a distribution and/or dividend since 1997, and in October 2010 converted to a dividend paying corporation; for a meaningful comparison our basis starts in 2010. In May 2018 increased dividend by 5.56%, giving us a forward projected annual dividend if $2.24.

Richelieu Hardware Ltd.

Ticker RCH.TO
Amount $0.06
Projected Annual Dividend for 2018 $0.24
Record Date 19-Jul-18
Payment Date 02-Aug-18
Market price as of July 06, 2018 $27.23
Forward Yield 0.88%

I most recently covered Richeleu in this analysis at Seeking Alpha.

Headquartered in Montreal, Quebec, Richelieu Hardware Ltd. is an importer, distributor, and manufacturer of specialty hardware and related products, focused on the North American Markets. Its primary customers are split amongst retail customers vis-à-vis the residential and commercial woodworking industry, home furnishing and office furniture manufacturers, and hardware and renovation superstores.

Richelieu started paying a semi-annual dividend in the third quarter of 2002 and switched to a quarterly dividend in the third quarter of 2003. The firm also issued a 3:1 stock split in 2016 and had its most recent dividend increase of 5.82% in January of this year. Since inception, it has had a CAGR of 16.80%.

 


2017 Investment Performance Review

In my last post I spoke about re-focusing on blog updates, and that includes periodic reviews of portfolio performance. Because I’ve been behind in blog updates in general, it took me a while to key in the last four months of returns to see where we sat at year-end. But, the numbers are in!

Highlights:

  • Total returns for the year 10.98% vs. benchmark of 10.70%
  • Passive income for the year in excess of $7,700, beating last years total by 11.51%
  • Assets under management growth of 26%

Monthly and Annual Performance

Monthly Performance as of December 31, 2017

The biggest drag on monthly performance for the past quarter was the purchase of some GE options following GE’s announcement to re-org.  From a long-term perspective I believe GE will pull through and ultimately increase share price.  Based on that, I’ve purchased some call options which expire in January 2020.  However, since that purchase GE has plunged even deeper: when I purchased the call options the market price was ~U$20, and it is now hovering at the U$15 mark, a 25% drop.  The options have dropped in a similar fashion.  However, I am not overly concerned.  That particular position accounts for only 0.14% of the overall portfolio, so even a material loss of 25% amounts to an insignificant drop in the overall scheme of things.

My employer has also been doing relatively well lately, so my EPSP and DC pension plan with the company have been performing well.  My DC is actually a model of the couch potato portfolio–similar to the LIRA–so for the most part it moves in lockstep with the benchmark.

Trailing Twelve Month Performance as of December 31, 2017

Trailing Twelve Month Performance as of December 31, 2017

On a year over year basis, we came in at 10.98% for the year vs. the benchmark return of 10.69%, so we just barely beat the benchmark.  At the end of 2016 we had come in at 10.63% vs. a benchmark return of 7.27%.  So we did not beat the benchmark as much as we did last year, but we still beat it.  To me, that is a win.

Passive Income

Passive income for the year came in at $7,700, which beat my goal of increasing by 5%.

2014 $4,400 n/a
2015 $7,000 58.7%
2016 $6,900 (2.3%)
2017 $7,700 11.5%

Reviewing the historical data, things are shaping up like I thought they would.  The large drop in 2016 was mainly due to liquidating a large chunk of the portfolio to purchase a house.  Since then, I have been aggressively working to increase overall income.  To date, the work seems to be paying off (no pun intended).

Asset Allocation

My asset allocation did not improve much year over year.  In fact, it got worse.

Asset Allocation as of December 2017

Asset Allocation as of December 2017

Total allocation to equity went form 73.15% in 2016 to 76.37% in 2017.  I’ve invested the majority of new capital into REIT ETFs, primarily Vanguard’s VRE, to increase my real estate exposure.  However, even with that, my real estate  exposure decreased from 11.35% to 10.94% year over year.  The primary driver for this was the overall increase in the value of my holdings: put simply, my stocks appreciated more than my real estate holdings.  Taking the long view this is not a bad thing, however I still have some work cut out for me to rebalance this year.

Total Returns Since Inception

All in all, the total fund came in at 10.98% for 2017, which has pulled the nine-year compounded return down from 12.35% in 2016 to 12.20%:

Year Return Since Inceptoin
2009 23.59% 23.59%
2010 14.69% 19.06%
2011 (1.60%) 11.73%
2012 13.51% 12.17%
2013 21.59% 14.00%
2014 15.41% 14.23%
2015 3.27% 12.60%
2016 10.63% 12.35%
2017 10.98% 12.20%

A 12.20% per year return is nothing to scoff at, so I am generally happy with the way that things have been going.

In terms of pure assets under management, total assets under management have gone up by 26% year over year.  Of the growth, 37% was organic (i.e. growth in holdings, dividends, favourable exchange rates), and the remaining 63% was accretive (i.e. new invested capital).  I’m happy to say that I have finally broken the quarter-million mark in AUM, since the portfolio now holds north of $310M.

Closing Remarks

My plan this year, other than the goals mentioned in my last post, is to stay the course.  Except for the gamble on GE I took, as a whole the portfolio has grown considerably.  Here’s hoping for another good year.

Onwards and upwards!

 

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2018 Goals and 2017 Review

The blog has fallen somewhat behind the past few months, and for good reason. In April 2017 the Baby Dividend Gangster (BDG) entered my life, and the past nine months has been a whirlwind tour of sleep loss, stress, laughter, tears, joy, and everything in between. But now that he is nine months old things are slowly stabilizing where I can start to focus on some of my other activities, such as this site.

The best place to start would be to review the 2017 goals, and see how we fared.

2017 Goals

Goal #1: Increase TFSA Contributions

My goal entering 2017 was to contribute at least $20,000 to my TFSA. I’m happy to say that I beat that goal by 35%, contributing over $27,000 to my TFSA. I had actually exceeded the goal by more than that, but had to take some money back out of the TFSA mid-year for some miscellaneous expenses, so my net contributions put me right back at 35% over my goal.

Goal: Exceeded!

Goal #2: Minimize Taxes

We met this goal during the mid-year write-up.

Goal #3: Rebalance my Total Fund to my Target Allocation

My targets are 55% equity, 20% real estate, 20% fixed income, and 5% cash. Unfortunately I didn’t meet this goal: I actually increased my equity position from 73% to 76% in F2017 — mainly due to the overall stellar performance of the markets. I’ll continue to work at investing new capital into fixed income and real estate through F2018 to meet my target allocation.

Goal: did not meet. 🙁

Goal #4: Increase Passive Income by 5%

My plan was to increase total passive income across all accounts by 5%, to roughly $7,400 in F2017. Total passive income for F2017 came in at $7,700, beating the goal by roughly 6%!

Goal: EXCEEDED!

Goal #5: Update and Expand Investment Research

I was going pretty strong in my analysis by mid-year, but have slowed down since BDG was born. I’ve only published three articles since my June 2017 update:

All in all, I exceeded my goal, but I am not impressed with my slowdown the past few months.

Goal: Exceeded!

2018 Goals

So, where does that leave us for F2018?

As I said above, I’ve been lacklustre in updates the past few months (but for good reason!). I’ve also let most of my portfolio run on auto-pilot, and have been investing new capital straight into the Vanguard REIT, VRE.TO. My intent was to move excess cash into VRE.TO to increase my real estate exposure to support 2017 Goal #3. But whichever way you look at it, I haven’t been paying much attention to my investments as of late.

Goal #1: Re-focus on Blog Updates

As a target, I’d like to get back on track to publishing at least four updates per year (i.e. quartelry) on the portfolio. I’ve also got a backlog of ideas to write on, so I’d like to get those out as well. To that end, I would like to target at least 16 articles this year (one per month, plus an additional one per quarter for portfolio updates).

Goal #2: Increase Passive Income by 5%

This year’s passive income goal is $8,100/year.

Goal #3: Focus and Revisit Research

All in, my portfolio currently contains 52 individual companies and/or ETFs. Some of those I haven’t actually done research on, and some companies I have done research on but not invested in (e.g. Richelieu). Goal #3 will be to re-focus my analysis on the companies I own in the portfolio, and publish quarterly updates on each of those to stay current.

Goal #4: Publish the Dividend Gangster Dividend List

I had started in June 2017 with my initial post of dividend updates, but didn’t publish anything after that. The past year I have been compiling a dividend database for Canadian companies to help me in my research. For 2018, I’d like to get this list published on a periodic basis.

There you have it! It will be an exiting year to see how well I can meet those goals!

Onwards and upwards!


The Great Pension Experiment: 2017 Update

Another year has passed, which means it is time to review The Great Pension Experiment to see how we are doing.

This will be my second year of results to review, and as such I’ve had some time to mull over exactly how we can measure performance, to see how the experiment is running. When I first discussed the experiment, I decided to undertake it because I thought I could do better than what my previous employer was offering me for a pension when I turned 65 years old. Based on my pension with that company, I would receive a monthly pension of $600, or an annualized pension of $7,200. I argued that I could take the lump sum that the company would give me if I cashed out my pension, and over time, end up with a portfolio that would pay me more than $600/month. To that end, there are a few key metrics to see how well we are doing.

First and foremost, I want to check my actual returns over the previous 12 months, and compare them to the annual returns of OPTrust. This is mainly a source of pride: I’d like to see if I, as a small time investor, can beat the performance of a pension fund with over $19 billion in assets, which pays money managers $45 million in investment administrative expenses (See Note 10b of their 2016 annual statements). As an aside, for the purposes of my own portfolio I use a October 31 year-end, since I started the portfolio in November 2015. OPTrust uses a calendar year-end — so I will be comparing my November 1 to October 31 results to their January 1 to December 31 results.

Second (and arguably the most important), we have to compare the monthly income my portfolio would give me, versus what my pension from the company would have given me. The best measure of this is to determine what the present value of the monthly pension from OPTrust would be, and compare that to the currently monthly income that my portfolio is giving me.

Finally, using Monte Carlo Analysis (MCA), we can run a model to see how well the current performance of my portfolio will project into the future. To do this, we will use actual returns up to the point of review (in this case, two years of actual returns), and then use MCA for the remaining years. For the experiment, the total duration (i.e. from when the portfolio started, to when I turn 65), is 26 years. Since we are two years into the portfolio, that means we have two years of actual returns, and will use  MCA for the remaining 24 years. From there, we can see if the probability of beating $600/month in income at age 65 (i.e. what my company pension would have been) is still favourable.

So, how did we do for 2017?

Portfolio Review

The returns will be discussed in a subsequent section. For 2017, I pretty much left the portfolio on auto-pilot. Using synthetic drips, my brokerage continued to purchase shares for me whenever a dividend/distribution was issued. The composition of the portfolio is now:

Ticker Weight Target Weight Over/Short
CASH 0.48% 0.48%
VCN.TO 26.05% 25.00% 1.05%
VXC.TO 52.12% 50.00% 2.12%
VAB.TO 21.34% 25.00% (3.66%)

All in, we picked up 12 shares of VCN.TO, 18 shares of VXC.TO, and 14 shares of VAB.TO. Because a synthetic drip cannot fully invest all proceeds, there has been a slow buildup of cash: in 2016 we had $106 in cash and we now have $370 in cash. When the cash account hits the $1,000 mark, I’ll redistribute it to one of the ETFs. There is little value in doing so right now with such a small amount: to do so would 2.7% going to transaction fees.

Total Returns

Period Ending Returns OPTrust Returns Beat (Miss) vs. OPTrust Assertive Couch Potato Returns Beat (Miss) vs. Couch Potato
2016-10-31 5.79% 6.00% (3.56%) 8.10% (28.57%)
2017-10-31 12.05% TBD TBD 10.60% 13.67%

Total returns for the period ending October 31, 2017, were 12.05%. This yields a 18.53% return since inception, or an 8.87% return compounded annually over the past two years. Since The Great Pension Experiment is based on the Assertive Couch Potato portfolio, it is useful to compare my results to the Assertive Couch Potato, since that is effectively my benchmark. Ignoring transaction fees, the return on the Assertive Couch Potato was 10.6%. All in, I have beat the benchmark by 13.67%. Unfortunately OPTrust hasn’t yet published its 2017 results, so I do not yet know if I have beat them, but I will publish an update once their results are in.

Monthly Income

Returns aside, the monthly income of the portfolio is the real “meat” of the investment: since this is what is supposed to support me in retirement. To that end, the following graph highlights the salient points:

Year Present Value of
OPTrust Annual Income
Annuity Income Real Income
2015 $4,297 $2,589 $0
2016 $4,383 $2,739 $1,429
2017 $4,471 $3,069 $1,590

For 2017, discounting back the OPTrust pension at 2%, the pension is worth $4,471/year or $373/month. The Great Pension Experiment is currently producing $1,590/year in real income (i.e. from dividends and/or distributions), or a hypothetical $3,069/year if we were to cash out the entire portfolio and buy a 4% annuity today. The real test of The Great Pension Experiment will be when one of the black lines crosses the red, since that will signal that The Great Pension Experiment is now generating income greater than the pension that OPTrust had offered me. It is much too soon to tell how well we are doing, but as long as the Real Income and/or Annuity Income are increasing over time, we should be okay.

Monte Carlo Analysis

Rerunning the Monte Carlo Analysis (MCA) using real returns for 2016 and 2017 still produces a favourable graph:

With the newest MCA completed, our probability of exceeding $600/month in income by 2041 is as follows:

Year Probability
2015 93.0%
2016 87.5%
2017 93.1%

So, while we had a dip last year, we’re back on track at a 93% probability of making our income targets.

Closing Remarks

All things considered, I would consider 2017 to be a good year for The Experiment. While I am still a far ways away from beating the pension that OPTrust would have given me (I’m about two-thirds there when using the Annuity Income projection, and about one-third there when using the Real Income value), I do have a very long time horizon: I still have in excess of 20 years to make this work! So for now, I will sit back and let the portfolio do its thing.

Onwards and upwards!


Aecon Group’s Buy-out is an instant 22% Gain!

Back in May I wrote a review on Aecon Group, and recommended it as a buy. Following my own advice, since then I have been purchasing shares on dips in both my TFSA and corporate accounts. It seems that I wasn’t the only one that thought Aecon was under valued, and a worthy investment, because CCCC International Holding Limited (CCCI) has offered to purchase Aecon Group at a price of C$20.37/share!

From the Aecon Group press release:

  • All-cash consideration of $20.37 per share; 42 per cent premium to unaffected share price
  • Aecon gains access to new platforms and partnerships for continued growth in Canada and abroad; CCCI advances its global growth strategy
  • New growth and employment opportunities expected as Aecon gains significant capabilities and financial strength by joining the world’s largest network of engineering and construction companies
  • Aecon will retain its name, continue to be Canada-headquartered and led by its Canadian management team
  • Aecon and CCCI share a strong commitment to maintaining customer service excellence and a safety-first culture
  • Aecon board of directors unanimously recommends transaction to shareholders

This is great news for me. My adjusted cost basis is $16.67, and with an offering price of $20.37 that nets me a healthy 22.20% gain!

I had originally purchased Aecon for its strong dividend growth—21% compounded annually since 2007—and great underlying fundamentals, and I will be sad to see a solid dividend payer go away. However, given the capital gains attached to the sale, this is a great win. What makes things even better is that half of my holdings are in my TFSA, which means that the 22.20% gain is tax-free.

All in all, a great way to end October; this was certainly a treat!


Portfolio Update – September 2017

Time for the quarterly results review!

Highlights for this quarter:

  • I’ve increased my payroll contributions to take advantage of employer matching, which should result in some instant returns
  • TTM passive income came in at $6,500, beating the benchmark TTM passive income of $6,000 by 8%
  • Asset allocations are still out of whack

Let’s start off with the monthly performance summary:

This has been a rough quarter; in fact, the past five months have been rough. We have underperformed the benchmark since February, and in the tail end of the summer both the benchmark and my own total fund returns were in negative territory. That said, I did not let this deter me; if anything I went deeper into the market at that time and picked up additional shares of Aecon, Ryder, and Vanguard’s REIT index (VRE). As evidenced by the graph, in August we started to drift upwards again, and as of this quarter we are now exceeding the benchmark again.

One important thing to point out is that the margin portfolio is composed entirely of US stocks at this point; in fact: it is composed of a single US ETF, that of HYG (iShares high yield US ETF). I keep this ETF mainly as a way to generate passive US income for any time I travel to the US. You’ll notice that June, July, and August, had negative returns for that portfolio, and those negative returns were primarily a reflection of bonds dropping in the US at that time, as well as a weakening Canadian dollar against the US dollar. Finally, as expected the LIRA portfolio closely matched the returns of the benchmark — this makes sense since the LIRA and benchmark both track the Canadian Couch Potato strategy. That said, as the LIRA portfolio is only 25% of the aggregate portfolio value, it is only a small contributor to overall returns.

On a trailing twelve month view, we are still relatively in positive territory. We have lost the monstrous 20% TTM returns from earlier this year, but are still coming in at a respectable 7.5%, which is virtually a match to the benchmark. Again, these aggregate TTM returns are being pulled down by the US only margin portfolio.

Of course, month over month returns are one thing, but as an income investor, total passive income is the key metric. The following two graphs show the story there:

The rolling month over month passive income is not that impressive: we have lost to the benchmark virtually every month. However, as discussed last time, this is mainly an artifact of timing. Illustrated in the second graph, TTM income is still relatively strong, and beating the benchmark by ~$500.

You’ll notice that there is a bit of a discrepancy from the March report: in March we reported less than $6,000 in TTM income, but now that number has been exceeded. I had inadvertently excluded some passive income from the certificated portfolio, and from my work DC pension plan, which adds to overall tax-deferred income. The latest numbers paint a rosier picture. That said, I also mentioned a concern with passive income dipping due to a large withdrawal in 2016 to help purchase our new home — that is still a going concern, as we are nowhere near the $8,500 TTM passive income that was occurring in 2015.

Finally, there is the issue of portfolio allocation:

While I have been aggressively investing any spare capital into my tax-free account, and purchasing iShares REIT ETF–VRE.TO–I have not made much of a dent in the allocation. I am still grossly over-allocated to the equity sector, and as such the focus will continue to be on building up the real estate exposure of the portfolio. I plan on doing this by continuing to allocate spare capital into VRE.TO, H&R REIT, and RIOCAN, as the opportunities arise.

Closing Remarks…

While many Canadian’s experienced a stellar summer, they did not experience stellar markets. However, even in down times the important thing is to stay the course, and take advantage of market downticks if you can, by deploying any excess funds you have into the market while prices are suppressed.

Onwards and upwards!