The Passive Income Earner

Top 20 Dividend Stocks – May 2013

The Passive Income Earner — Sun, 19 May 2013 15:45:18 +0000

Every other months, I share the Top 20 Dividend Stocks from my tracking list. It’s pre-filtered by about 150 stocks across Canada and the US. I do track many stocks by sectors and they are mostly large cap as I am mostly investing in blue chip stocks with an economic moat. The purpose of the Top 2o is to highlight the movement of many of the companies and that value buys do come into play every now and again. If you feel a stock might be missing, let me know. I am always interested in tracking good stocks.

For my last three Top 20, Apple (AAPL) has been owning the crown of best valued company in my list and yet I continue to resist buying it. My investing strategy is for the long term and with Apple, it’s really hard to assess the long term and the highly competitive mobile landscape. When I say long term, I mean 10 + years… The cash on hand is making new buyers jump in feeling good about the dividends. I know we are all waiting for the next innovation and that’s why the company stock price is getting punished. Will it continue to be an innovator or just another electronic company? For those owning Apple, will you jump in Google if they start a dividend? They also have a lot of cash on hand. If not, why and what’s the difference? Google has more of an economic moat with advertisement than Apple with a phone. I personally would pick GOOG over AAPL if Google was to initiate a dividend with a growth target. What about you?

If you want to get access to some quick stock research on a technical front, try one of the services below. It’s free and you get technical trends by email.

Top 20 Dividend Stocks – Technical Screening

Below are the values I used in my technical screening system. You may find the range to be wider than necessary but it’s required to have more stocks in the screener to compare. I need to be able to see more stocks in order to compare as trends can come into play. That’s why the end value is normalize to 1 in order to weight each criteria effectively. I don’t buy purely from the filter but it does indicate stocks to be on the look out for. Sometimes a dividend increase will give a boost and in other cases, it’s the lower stock price.

I have also removed the REITs from the list as the comparison is not really possible. The REITs need to be looked at differently and the payout ratio isn’t comparative to the corporations.

The Canadian Banks are still rocking. I own the big 6 and they pay well. I am not sure what the growth is going to be in the coming years but they certainly pay well and I am one of those that don’t believe we will see a market crash just yet with the mortgage industry.

P/E : Target is 15
52 Week Range : The lower in the range the higher the score for an entry point
Yield : Normalized up to 6% (this one is manual)
Payout Ratio : Between 25% and 65%
Market Cap : Bonus multiplier with a target of $20B or more (+/- 10%). I normalize it between 0.9 and 1.1 and use that to multiply my previous total of the first 4 criteria.
Liability-to-Equity Ratio : Anything below 1.00 gets a full score and it goes down from there.

Ticker	Company	Quote	P/E	EPS	Market Cap	Debt Ratio	Yield	Payout Ratio	Value Metric
AAPL	Apple	$433.26	10.34	$41.89	407.31	0.54	2.82%	29.12%	0.98
NA.TO	National Bank	$74.18	7.92	$9.37	12.03	0	4.48%	35.43%	0.94
CM.TO	CIBC	$78.82	10.07	$7.83	31.68	0	4.77%	48.02%	0.93
IMO.TO	* Imperial Oil	$40.06	9.6	$4.17	33.95	0.79	1.20%	11.51%	0.92
G.TO	Goldcorp	$26.58	14.73	$1.81	21.58	0.36	2.26%	33.15%	0.89
INTC	Intel Corporation	$24.04	11.99	$2	118.90	0.65	3.74%	45.00%	0.88
BMO.TO	Bank of Montreal	$62.18	10.28	$6.05	40.54	0	4.76%	48.93%	0.87
TD.TO	TD Bank	$82.82	11.7	$7.08	76.24	0	3.91%	45.76%	0.85
BNS.TO	Scotia Bank	$58.76	11.15	$5.27	70.04	0	4.29%	47.82%	0.85
LB.TO	Laurentian Bank	$43.39	8.85	$4.9	1.23	0	4.52%	40.00%	0.83
TCK.B	Teck Resources	$27.98	17.93	$1.56	16.23	0.93	2.86%	51.28%	0.82
RY.TO	Royal Bank	$62.17	12.21	$5.09	89.92	0	4.05%	49.51%	0.79
XOM	** Exxon Mobile Corp	$91.76	9.36	$9.81	408.00	0.94	2.48%	23.24%	0.78
CVX	Chevron	$123.42	9.33	$13.23	239.31	0.69	2.92%	27.21%	0.78
AGU.TO	Agrium	$93.84	9.64	$9.74	13.98	1.31	1.09%	10.47%	0.77
CNQ.TO	* Canadian National Resources	$30.39	19.89	$1.53	33.14	0.98	1.65%	32.68%	0.74
HSE.TO	Husky	$30.24	15.17	$1.99	29.72	0.83	3.97%	60.30%	0.73
BPO.TO	Brookefield Office Properties	$19.29	8.94	$2.16	11.11	1.05	2.90%	25.93%	0.71
CWB.TO	Canadian Western Bank	$28.63	12.71	$2.25	2.26	0	2.38%	30.22%	0.71
IFC.TO	* Intact Financial	$59.45	13.94	$4.26	9.12	3.05	2.96%	41.31%	0.70

The double star (**) highlights a US Dividend Aristocrat and the single star (*) indicates a Canadian Dividend Aristocrat.

Top 20 Dividend Stocks – Dividend Yield

This section could simply raise the red flag yield or show you some good income producing investments as a high yield stock.

Ticker	Company	Quote	P/E	EPS	Market Cap	Debt Ratio	Yield	Payout Ratio	Value Metric
AGF.B	* AGF Management	$12.09	42.57	$0.28	1.08	0.60	8.93%	385.71%	0.29
TA.TO	TransAlta	$15.46	#N/A	-$3.17	4.05	1.83	7.50%	-36.59%	#N/A
ATP.TO	Atlantic Power Corp	$4.95	#N/A	-$0.60	0.59	2.37	7.27%	-60.00%	#N/A
CPG.TO	Crescent Point Energy	$38.24	61.02	$0.63	14.63	0.40	7.22%	438.10%	0.43
COS.TO	Canadian Oil Sand	$20.57	12.33	$1.67	9.97	1.25	6.81%	83.83%	0.44
BA.TO	Bell Alliant	$28.14	8.63	$3.26	6.41	0.00	6.75%	58.28%	0.53
ERF.TO	Enerplus Corp	$16.32	#N/A	-$0.78	3.24	0.77	6.62%	-138.46%	#N/A
AX.UN	Artis REIT	$16.63	5.72	$2.91	2.09	1.14	6.49%	37.11%	0.59
EIF.TO	Exchange Income Fund	$26.04	21.60	$1.21	0.54	1.13	6.45%	138.84%	0.35
KEG.UN	The Keg Royalty Income Fund	$15.25	66.05	$0.23	0.17	0.17	6.30%	417.39%	0.22
PBH.TO	Premium Brands Holding Corp	$18.60	25.45	$0.73	0.39	1.99	6.24%	158.90%	0.23
CUF.UN	Cominar	$23.61	7.95	$2.97	2.95	1.08	6.10%	48.48%	0.65
LIQ.TO	Liquor Store Income Fund	$18.03	21.99	$0.82	0.41	0.58	5.99%	131.71%	0.62
RSI.TO	Rogers Sugar	$6.01	14.55	$0.41	0.57	1.08	5.66%	82.93%	0.60
DH.TO	Davis + Henderson	$23.27	19.26	$1.21	1.38	0.84	5.50%	105.79%	0.46
MBT.TO	Manitoba Telecom	$31.81	13.85	$2.30	2.15	2.38	5.34%	73.91%	0.56
CWT.UN	Calloway REIT	$29.23	3.94	$7.41	3.86	0.78	5.30%	20.91%	0.85
HR.UN	H&R REIT	$24.57	9.03	$2.72	4.80	1.31	5.19%	46.89%	0.79
ENF.TO	* Enbridge Income Fund	$26.35	17.40	$1.51	1.49	0.03	5.12%	89.40%	0.45
KMP	Kinder Morgan Energy	$88.38	41.23	$2.14	33.66	1.77	5.02%	207.48%	0.43

I maintain a list of my holdings in the Dividend Income section. It does not change very often since I am long with my investments and my dividend investing strategy. Have a look at my monthly dividend income since 2010.

If you are researching stocks, here are posts I have written to help others do their own research:

Readers: Any surprises in the list?

Disclaimer: I own a number of stocks listed, see my holdings in the Dividend Income section for a full list.

Disclaimer: 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.

Image: renjith krishnan / FreeDigitalPhotos.net

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International Allocation through Conglomerates

Mario Favela — Thu, 16 May 2013 14:16:02 +0000

A conglomerate is a large corporation with a variety of diverse business holdings. They were very popular from the 1960s through the 1980s. They are less popular today… many argue that they are not very efficient. But they can still offer opportunity for investors.

Some conglomerates are more narrowly focused, others invest in many different industries. Some are domestic…but the big ones tend to have foreign operations. In this post we will discuss investing in conglomerates with international subsidiaries. We’ll explore how they can provide investors with international exposure outside of the United States and Canada.

There are pros and cons to investing in conglomerates. Lets look at the benefits first:

Pros

Diversification. Reduced risk is the main benefit of investing in conglomerates. A company that operates diverse businesses might be in a stronger position. They are better able to ride out economic downturns. In theory, anyway. And as we will explore later, diverse foreign assets are one reason to invest in conglomerates.

Foreign operations. This ties into diversification. One advantage to investing money into these big business conglomerates is foreign diversification. Many conglomerates offer a way to invest in foreign countries without actually buying into the markets themselves.

The trend of moving operations overseas is not new, but it has been accelerating. According to Bloomberg, companies like Apple and Google are now keeping billions of dollars overseas, out of reach of the US government.

Tax benefits. A conglomerate with international operations can take advantage of low or no-tax countries. Large conglomerates can potentially save billions of dollars keeping their profits overseas. Many do just that.

Growth through acquisitions. Some conglomerates specialize in growing by purchasing smaller companies. Cash-rich companies can rapidly expand into promising markets using this technique. This can be a good thing if management knows how to sustain profits in unfamiliar industries.

Cons

Complexity. Bigger is not always better. Size does not always equal profits. Some conglomerates can get too big to handle effectively. This can make them confusing and hard for investors to understand. Simplicity and transparency are not typical of conglomerates. The famous investor Peter Lynch called this phenomenon “diworsification.” Conglomerates can get into trouble if they get into industries they don’t understand. Sometimes it’s best to invest in what you know.

Political risk. As of this writing, conglomerates enjoy the ability to make money overseas with relatively light restrictions. They are allowed to keep that cash abroad, avoiding domestic taxes. Lawmakers have noticed. There is alway the risk that new laws will be put in place restricting foreign operations. With Western governments running deep deficits, it seems likely that laws will change soon. And the changes will likely hurt conglomerates.

Breakup value. In a lot of cases, conglomerate parts may be worth more than the whole. If this is the case, it might be better to avoid investing in the business altogether.

Food for Thoughts

Conglomerates can offer interesting opportunities for investors. They aren’t always good investments, but worth looking into. In our next post in this series, will explore individual conglomerates with foreign operations.

For other asset allocation posts, check out the following posts:

Readers: Do you hold conglomerates? What are the reasons for investing in them?

About the Author: Mario Favela is a freelance content writer living in Austin, Texas. He blogs about investing and personal finance at Gator Finance. You can also follow him on Twitter, Google+ and Facebook.

Image: Master isolated images / FreeDigitalPhotos.net

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Dividend Income – May 2013

The Passive Income Earner — Tue, 14 May 2013 16:32:09 +0000

Since I always DRIP my dividends, I rarely pay attention to the cash portion of my accounts. I usually use it when I add new money to invest but I have not added new money in a while now and the cash portion is growing. Last month, I used the cash portion in my TFSA to buy a number of shares in Emera (EMA). Utilities are still under my diversification target. I own many of them but I just don’t have a lot of money invested in them. This year I am focusing on balancing my diversification.

Some stats for all of you interested in numbers. To date,

I have earned $16, 737 in dividends.
I have invested a total of $103, 483 (in my dividend portfolio) not including dividends and DRIP
I have a yield on capital invested of 6.01% (based on the total invested)
I have a yield on cost of 4.91% based on all stocks purchased without DRIP shares
I have a market yield of 4.16% based on all stocks purchased

My money works for me at a rate of 6.01%. Before you ask, today’s market value of this portfolio is $149,393. I invested heavily in 2009 and 2010 and I don’t expect the performance I have had to maintain itself. As you can see, the dividends earned play a factor in my performance.

Dividend Income

My May dividend income is $479.21. A nice amount but there is nothing I can do with it in a month since it is spread across multiple accounts. It’s a good start to my financial freedom though. My financial freedom has two major components:

Build a portfolio for income with compound growth. DRIPing my dividends is the accelerated compound growth.
Pay the mortgage to reduce non-efficient debt. My mortgage strategy will drive this inefficient load to zero.

Interestingly enough, one drives building compound growth and the other works on minimizing the front loaded compound interest of a mortgage.

You can find my full list of holdings in the Dividend Income section of the blog.

I will be making contributions in the coming weeks and I am thinking of the following:

DH for my RESP account. It’s a higher yield stock with minimal movement in share price. That’s what I prefer for my RESP investments.
EMA or TRP for my TFSA.

Readers: Do you have any stocks on your radar?

Image: Master isolated images / FreeDigitalPhotos.net

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Mortgage Strategies

The Passive Income Earner — Mon, 13 May 2013 11:21:16 +0000

I was recently reminded how low mortgage interest rates is making making home owners think about paying their mortgage faster or investing. It’s a constant conundrum for many, especially if you have limited savings to put towards everything. I will have to preface this post that I strongly recommend you put aside 10% of your gross income aside for savings. It’s called paying yourself first and has nothing to do with the interest rate environment. You do that regardless of any interest rates. That nest egg needs to be built. Once you have that in place and you can pump those savings, you have options and big decisions.

Mortgage Strategies

Depending on how long you have left, different strategies can come into play without putting stress on your wallet and yet it pays your mortgage faster. Beat the banks and pay the least amount of interest.

Accelerated Bi-Weekly Mortgage Payments

Use any mortgage calculator out there and you can see that using accelerated bi-weekly mortgage payments will initially reduce your amortization by 3.5 years on a 25 amortization. Making those two extra payments per year makes a difference. For many that are paid bi-weekly, it’s a simple process and it matches your pay structure.

Related: Best Mortgage Calculators

Increased Mortgage Payments

After 3 to 5 years of paying your mortgage, you should be comfortable with the home owner situation and have your budget in order. It’s time to look at those pay increases you get and put them to work Don’t forget that you are putting 10% of your gross income aside already. You are paying yourself first.

The goal here is to avoid lifestyle inflation and reduce your mortgage faster. I understand that this is where the conflict of interest rate may come into place and I won’t debate it as it is really dependent on your overall finance situation rather than just the interest rates. Someone with a $300K mortgage faces different dilema than someone with $100K.

Now that your finances are adjusted to being a home owner, think about putting your pay increases towards your mortgage. It’s not huge but you should still have 15 to 18 years remaining and putting your pay increases towards your mortgage will again reduce the amortization. I personally did that for 3 years.

Lump Sum Payments

Bonus time? if you have a bonus plan at your company or even stock options or an employee stock purchase plan (ESPP), it’s extra money that hopefully you don’t plan on using to cover your credit card spending. That extra money can definitely be put to work.

The question will weight on you to either top up your TFSA or RRSP or even your RESP. That is a fair question. What I have done is that I decide on a percentage to put away regardless. For us, it’s the fun fund. Having a family trip is important to us and we put a percentage away to fund our fun fund. The same process can be applied towards the mortgage.

Make Your Mortgage Tax Deductible

Once you are really confortable with your finances and ability to manage your debt, think about making your mortgage tax deductible – the reminder of it that is.

Executing the Smith Manoeuvre has been touted as a way to achieve this but it doesn’t make your mortgage tax deductible. It converts your mortgage into a tax deductible investment loan to help boost your investment. It’s basically an investment loan. I am still on the fence with this one. The process might help putting more of the income from the investment towards the mortgage which accelerates it.

The other way which officially makes you mortgage tax deductible is to sell your non-registered investments, pay your mortgage with it and borrow the same amount to invest. You continue to make your mortgage payments against your loan and all your interest is tax deductible. This is a tough one because you need to have savings outside your RRSP and TFSA. It’s already hard to keep up with those, who can really do this? I have some through Computershare and Can Stock but not enough to make it worth it just yet.

My Mortgage Strategy

Here is what I have done so far:

Bi-weekly accelerate payments
Increased mortgage payments
With 7 years left, I am now considering my next strategy
- Lump sum payments
- Sell investments and to pay and borrow again to invest to create a tax deductible mortgage
- Execute the Smith Manoeuvre

Readers: What’s your mortgage strategy? Do you play the interest rate game?

Image(s): FreeDigitalPhotos.net

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Dividend Stock Analysis: Canadian Western Bank (CWB)

The Passive Income Earner — Sun, 12 May 2013 15:29:25 +0000

Canadian Western Bank, ticker CWB, is a small bank by comparison with the top 6 Canadian banks. It has a market capitalization of $2.2B and operates mostly in Alberta and British Columbia. Saskatchewan, Manitoba and Ontario represents 22% of the business. It owns Canadian Direct Insurance Incorporated for home and auto insurance.

They have 4 different segments:

Banking
Trust
Insurance
Wealth Management

The banking services they offer are as follows:

Commercial lending
Real Estate lending
Equipment financing
Banking services
Credit Card services offered through MBNA Canada Bank

If you want to get a free technical trend analysis on Canadian Western Bank (or any other stocks), use one of the free services below. You’ll get a free email in your inbox on technical trends when they trigger.

CWB Quick Facts

Stock Ticker: CWB
Market Cap.: $2.27B
P/E: 12.76
Forward P/E: 10.794
P/B: 1.62 (Price to Book)
P/S: 2.74 (Price to Sale)
P/CF: 10.53 (Price to Cash Flow)
EPS: $2.25
Beta: 1.18
Liabilities to Equity Ratio: -
Quarterly Dividends: $0.17
Dividend Yield: 2.16%
Dividend Payout Ratio: 27.68%
10 Year EPS Growth Average: 15.39%
10 Year Dividend Growth Average: 21.01%
52-Week Low: $25.17
52-Week High: $31.88
52-Week Range: 53.06%

CWB Dividend Growth

This is one of bank is not currently a Canadian Dividend Aristocrats but I am sure they will meet the criteria in a couple of years as they have been increasing their dividends twice a year for the last couple of years.

In blue, the dividend growth is showing a nice trend. It was flat a couple of times between 2004 – 2005 and 2009 – 2010 which somewhat corelates to their EPS flatline. It shows that they stick to their plan for sticking to a certain payout ratio.

Year	Dividends	Growth	Stock Price	Shares	Dividends	New Shares	Value
2002	$0.10	-	$6.69	747	$74.7	11	$4,997.43
2003	$0.12	20.00%	$9.90	758	$90.96	9	$7,504.20
2004	$0.19	58.33%	$13.29	767	$145.73	10	$10,193.43
2005	$0.19	0.00%	$17.90	777	$147.63	8	$13,908.30
2006	$0.25	31.58%	$26.39	785	$196.25	7	$20,716.15
2007	$0.36	44.00%	$31.45	792	$285.12	9	$24,908.40
2008	$0.42	16.67%	$13.00	801	$336.42	25	$10,413.00
2009	$0.44	4.76%	$21.15	826	$363.44	17	$17,469.90
2010	$0.44	0.00%	$28.36	843	$370.92	13	$23,907.48
2011	$0.54	22.73%	$25.80	856	$462.24	17	$22,084.80
2012	$0.62	14.81%	$28.46	873	$541.26	19	$24,845.58

It looks rocky around the financial crash timeline but the stock price recovered. A little slower than others I might say though as I have seen many reach the pre-crash level within a couple of years and it took 5 years for CWB to get back to the same level. The lower yield may have had something to do with it considering bond rates were low and many investors were looking for yield that CWB wasn’t necessarily providing.

CWB Dividend Payout Ratio

Much better payout ratio than the major banks. The major banks average around 48% within their group and CWB averages to 23% for the past 10 years. Looking at the trend below, we can assume they are trying to keep it under 30% now. It leaves them with cash for growth. I don’t see them buying mutual funds companies yet

CWB EPS Growth

Nice growth over the years. The consistency is nice and their business isn’t as anchored in consumer mortgage loans as the major banks it would appear. That means they won’t have to try to make up for it, they can just keep on working on their core business to increase their earnings.

Canadian Banks

CWB has definitely outgrown the major banks over the past 10 years. Just have a look below but does it justify the lower yield compared with the banks? Is it worth picking up CWB over other financials such as POW or PWF to look for growth with a higher yield.

The major banks definitely sign the same song and Canadian Western Bank is driving growth through acquisition it would seem.

Ticker	Company	Quote	P/E	EPS	Market Cap	Dividend	Yield	Payout Ratio
BNS.TO	Scotia Bank	$59.08	11.21	$5.27	70.42	$0.63	4.27%	47.82%
RY.TO	Royal Bank	$61.65	12.11	$5.09	89.17	$0.63	4.09%	49.51%
TD.TO	TD Bank	$83.29	11.76	$7.08	76.67	$0.81	3.89%	45.76%
BMO.TO	Bank of Montreal	$62.34	10.31	$6.05	40.65	$0.74	4.75%	48.93%
CM.TO	CIBC	$79.49	10.15	$7.83	31.95	$0.94	4.73%	48.02%
NA.TO	National Bank	$74.89	7.99	$9.37	12.15	$0.83	4.43%	35.43%
LB.TO	Laurentian Bank	$43.84	8.94	$4.90	1.24	$0.49	4.47%	40.00%
CWB.TO	Canadian Western Bank	$28.73	12.76	$2.25	2.27	$0.17	2.37%	30.22%
JPM	JP Morgan Chase	$48.96	8.74	$5.60	185.05	$0.30	2.45%	21.43%

Thoughts

It’s a Canadian Bank under the same regulation as the big ones. It will have all the necessary provisions to not fail but their dividends is not on par with the big ones and it would have to make it up in growth for me to buy into it. The growth can only be spurred through acquisitions, consolidation or pure competition. The major banks compete but it’s usually the same difference between all of the them. It would be interesting to see if the customers for mortgages and banking are simply swapping between them. The population doesn’t grow fast enough to provide the growth through customer acquisitions.

Readers: Are you interested in CWB? What’s your take on their potential growth?

Full Disclosure: No position in CWB at the time of writing.

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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