August 2nd, 2011 | 
Category: 
I recently sold Just Energy (JE) from my RRSP account. It was doing well for me as my yield on cost was 9.77% and I was able to re-purchase 2 shares per month with a 2% discount. At the time I sold, the price was going down with the markets and it would have worked well for buying new shares. In my Top 20 Dividend Stocks (July 2011 edition), it is ranked first from a technical screening perspective. So why did I sell considering it was doing well?
Simple, I am interested in taking a position with a couple of other companies and the account to hold these companies in is very important. I wrote a post describing how I decide which account to invest from that highlights the benefit of the different accounts from a tax perspective.
Many of you are probably like me where the available cash to invest is fixed with no major influx of cash available. What do you do when you want to go ahead with some investment opportunities? The challenge I was faced with is that the investments I wanted to buy only fit in my RRSP account. That limits my options to either sell some holdings or add more money.
Add more money
I am not in any position to add more money to my RRSP at the moment. Most of my RRSP are done through my defined contribution plan at the office. I only add to my RRSP when I top up for tax efficiency.
Sell some investments to buy others
As I am not in a position to add more money into my RRSP at this point in time, I decided to sell some holdings to raise the cash I wanted. I ended up selling two high yield stocks: Just Energy (JE) and Cominar (CUF.UN).
Why all this movement you may ask? The investment in questions are Johnson & Johnson (JNJ) and Coca-Cola (KO). Two conglomerates and dividend aristocrats that I have been looking to take a position in. The factors below will outline the reasoning that made me take a position:
US Market Correction
The current market correction provided me with an entry point on a small pullback. It’s nothing like the early 2009 but a pull back is nonetheless a saving when you are interested in taking a position.
High Canadian Dollars
As far as I am concern, my Canadian dollars is providing me with the opportunity to buy US companies at a discount. We get a 5% discount on our purchase basically. Over time, the US economy will recover and the Canadian dollars will go back to a more sustainable value for the Canadian export economy. This is a case of leveraging my Canadian Dollar purchase power.
Diversification
I was heavy in the energy and utility sector and I had no exposure to the healthcare and consumer products.
Proven & True Dividend Growth Stocks
As my RRSP account is for the long term, I want to ensure I have proven and true dividend growth stock and let them ride. Cominar is a REIT and isn’t focused on dividend growth. Just Energy had some really good dividend growth as an Income Trust but I am not sure how consistent they will be over time.
These movement in my RRSP account do not imply I am out of favor with Just Energy or Cominar. I may hold them again at some point. It does reduce my immediate dividend earnings for greater future earnings due to the growth these 2 companies have proven to have.
Readers: Are you taking advantage of the strong Canadian currency?
Disclamer: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your decision at your own risk – see my full disclaimer for more details.
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At first, I thought it was a strange move as JE seems like a strong high-yield stock. I also hold JE but under my TFSA to appreciate the tax free income.
However, your reasoning is very justifiable. I like how you are taking advantage of the Canadian dollar at this point, and taking into account what type of account you are are investing from. I feel like this is a very thought out decision.
I feel like I should also follow suit and take advantage of the dollar and the economic phase the U.S is in. But I feel like it isn’t yet the right time, as I see the U.S economy is still skeetering towards a rough patch.
@David
I still like JE and I may very well get back into it in my TFSA (in the new year) or in my trading account if I can find so funds. I may simply buy them under Computershare as well. They have a $500 minimum monthly but I could handle that here and there.
Diversification is always a good strategy! JNJ and KO are excellent picks PIE.
It’s long coming. My Dividend Growth vs Dividend Yield was quite an eye opener from a math perspective. Not too many Canadian companies have the same dividend increase and dividend growth as the US conglomerates.
Will you adopt me so that I can move to Canada and get an automatic 5% discount on my stocks?
Great way to look at the currency situation between the Loonie and our weak US dollar. It seems like sound reasoning.
It’s interesting the choices we are faced when we have limited funds. Markets move and therefore options change …
Hello Passive Income Earner,
I’m curious if your investment strategy in the short term has changed in the short term based on the US credit downgrade?
Most people are expecting the US dollar to drop next week when the markets open. Are you planning on waiting to hopefully get even more out of your Canadian dollar?
I’ve been waiting for this correction for a couple of months now and I think it is a perfect opportunity to pick up some great US companies at a discounted price.
I already took my position when it was 1.05. I don’t really have any money available but I could find some if I really wanted to take another position or increase the ones I have.
The banks are down by the way
I am sending some cheques to the Transfer Agents.
I totally see your reasoning, especially since your (sold) CDN stocks are in your RRSP. Makes sense to hold your U.S. stocks in your RRSP or LIRA.
Get some JNJ, we’ll own another stock together!
[...] The Passive Income Earner explains Why I Sold Just Energy (JE) [...]
[...] Passive Income Earner sold some Canadian stocks in favour of getting some cash to buy some U.S. stocks – check out what he’s thinking of buying. [...]
I have a position in Cominar but I can certainly see why you made the move.
I think it was a sound one. Given the recent value of the Cdn dollar, coupled with the fact that you will, with almost 100% certainty, have better long-term gains with KO & JNJ, the timing seems to be good!
I have recently made some U.S. equity positions for the very same reasons.
Nice job; nice post.
Thanks! I watched them for long enough to be honest telling myself I can find better yields but at the end of the day, they definitely have dividend growth on their side. That and the current economic factor made it an easy move. Most of my RRSP now is in US in my dividend account.
[...] The Passive Income Earner recently published, “Portfolio Update: Why I Sold Just Energy (JE)“ [...]
Definitely see your reasoning. I wish we all had tons and tons of money to buy when the going gets rough, then we wouldn’t have to sell stocks that we like
I have JE too, and am enjoying the high dividends, but am weary of the high CDN dollar.
Need to spend less time on my blog and start looking at my portfolio!
JE had great growth as an income trust and I wasn’t sure if they would continue the growth. I need to listen to their quarterly earnings to see if it’s discussed. They have moved in the US and it’s work to gain customers. Their attrition rate is 50% or so … A bit of a sacrifice in dividends for now to ensure growth.
[...] Portfolio Update: Why I Sold Just Energy (JE) » August 7th, 2011 | Category: Weekly [...]
http://www.marketwire.com/press-release/just-energy-reports-first-quarter-results-tsx-je-1548700.htm
Company management is maintaining the current guidance of 5% per share growth for the year for both gross margin and Adjusted EBITDA. While operating results are far ahead of that level to date, the first quarter seasonally is the lowest quarter for sales and gross margin. The comparable quarter in fiscal 2011 reflected the impact of a record warm winter with resultant weak operating results. Further, the adverse impact of the decline of the U.S. dollar versus the Canadian dollar during and subsequent to the quarter provide grounds for caution in any forecast. Management intends to update on targets as the year progresses.
Dividends were $0.31 per share, equal to unit distributions paid in the prior comparable quarter. Payout ratio on Adjusted EBITDA was 116% down from 142% a year ago in what is seasonally the weakest quarter of the year. Management’s expectation is that the payout ratio will be below 100% for fiscal 2012 and allow us to comfortably pay out interest, income tax and dividends.
Executive Chair Rebecca MacDonald stated, “I am very pleased with the double digit growth seen in our operating results for the first quarter. Just Energy has been and remains a growth company. While there are always uncertainties at the end of the first quarter, we are off to a solid start in meeting our expectations.”
CEO Ken Hartwick added, “We have had a two year plan to diversify our business while remaining within the deregulated energy sector. The success of the plan can be seen in this quarter where our commercial expansion has bolstered our Energy Marketing segment. Our success with National Home Services and our Green Products have also given us new sources of revenue moving forward.”
“At the same time, management has focused on controlling costs both in the administration of our business and through bad debt where we are exposed. Controlling costs has helped us deliver results even during a period which, for Just Energy, is one of slower growth.”
“We plan to continue to review other opportunities for diversification and intend to maintain Just Energy as a unique income/growth vehicle moving forward. I want to thank our team for their efforts this quarter.”
…that being said, I took a long position in JE over the past few weeks, purchasing 500 shares at 13.50. If JE slips below $13 again, I may have to purchase 100 additional shares just to average down. As well 600 shares would provide $62 a month in dividend income or 4 shares a month reinvested until the price rises above $15.50. I had considered adding shares of POW instead of BNS last week, and I struggled with the decision, but I went with BNS, as I already hold SLF and PWF…..and I figure BNS is a stronger core holding…..
I would have already purchased that extra 100 shares last week, but BNS was trading below $50, so I purchased 125 shares, thinking that the price would drop lower the following morning….however, as it turns out it didn’t….perhaps I should have purchased the entire 250 shares that I had allocated for BNS……oh well, it’s impossible to time the market…..I’m still hoping we see another market pullback….I’m very keen to add that 125 shares to BNS sub $50!
LONG: RY (225), CM (230), BNS (125), JE (500), ENB (304), SLF (300), PWF (207), FTS (205), BCE (156)
looking to add T, Rogers, TRP, and TD in the near future as funds allow…..
I”m holding 3100 JE with a yield on cost of 9.55%.
My broker says the JE price drop = the market trying to tell me that there is some unknown danger to the dividend.
I reviewed the JE fact sheet and (for what it is worth) I don’t see anything there that is alarming.
http://www.justenergygroup.com/SiteResources/ViewContent.asp?DocID=87&v1ID=&RevID=954&lang=1
Following link shows analyst consensus as 4/5 buy.
http://www.reuters.com/finance/stocks/overview?symbol=JE.TO
Why is JE price dropping? Is it a message from the market that there is some hidden danger to dividend?
Hi Ray,
Thanks for the comments. I do not know if the dividends are at risks. It’s the same dividend as before when they were an income trust and they have kept it the same. Have a look at stockchase.com to see what the analysts have to say about it and read their financial reports for more details. They have a very high rate of attrition and must spend a lot of money to acquire new customers.
There usually is a tendency to fear a drop in dividends when they are high. I am still holding to CPG which is in a similar situation.
The comment from your broker is interesting … The markets don’t decide when a dividend should be reduced but rather the company and its ability to sustain the dividends. That’s where you need to listen to their quarterly reports and read their balance sheets. They discuss the number of customers they have and the rate of acquisition. That will allow you to understand if their paying customers is going down or up.
Cheers!