The Passive Income Earner

Dividend Income – May 2012

The Passive Income Earner — Thu, 17 May 2012 04:55:38 +0000

This month, I have an addition to my dividend portfolio. After taking some profits from Liquor Store (LIQ) in my TFSA account, I decided to purchase Canadian National Railway – a solid transportation company across North America. From a business point of view, the company isn’t going anywhere any time soon as trains are still very economical in distributing our goods across the country. I did a comparison of CNR and CP if you are curious about the players and why I chose CNR over CP.

The addition of CNR will actually reduce my dividend income in the short term but I expect stronger results in the future as Canadian National Railway is a true dividend growth stock for the 10/10 rule.

Dividend Income

As you can see from the graph, there is a pattern in my dividends with a couple of good months followed by a lower month. May happens to be a good month with $512.73. I am on track to earn $6,000 this year but $7,000 may be stretching it. It’s my goal but even if I can save, I only have a couple of quarters to grow my dividends by an extra $1,000. That’s a tall order.

I am currently following a number of U.S. companies as I anticipate being able to add some money to my RRSP over the summer and take some positions in some dividend aristocrats conglomerates. MSFT just started trading a little below $30 these days too. I am a believer in holding a larger position U.S. companies in my RRSP whereas I have none in my TFSA since there are no beneficial treatment for foreign dividend income.

I continue to slowly add to my Computershare and Can Stock holdings. Every now and again I send a $50, $100 or even $300 cheque to increase my position. I have a simple simple where I add to the holdings that are behind. I hold BMO and BNS on both side mostly because I wanted to transfer share to my kids. At 10 and 12 years old, my children are investors

Dividend Paying Holdings

Here is a list of my current holdings as of writing by accounts.

Broker Accounts (RRSP, TFSA, …)

Bank of Nova Scotia (BNS)
Bank of Montreal (BMO)
Royal Bank of Canada (RY)
Toronto Dominion (TD)
National Bank (NA)
Canadian National Railway (CNR)
Crescent Point Energy (CGP)
Kimberly-Clark Corporation (KMB)
AT&T (T)
Rogers Communications (RCI.B)
Cominar Real Estate (CUF.UN)
Johnson & Johnson (JNJ)
Coca-Cola (KO)
Liquor Store (LIQ)
Power Financial (PWF)
Manulife Financial Corp. (MFC)
Husky Energy (HSE)
A Mututal Fund generating ~8% dividend

Computershare & CIBC Mellon Accounts

Readers: Do you have any stocks on your radar?

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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Why Hold High Yield Stocks

The Passive Income Earner — Tue, 08 May 2012 04:40:18 +0000

High yield investments can play a part in your portfolio. Even though I am a fan of the 10/10 rule of investing which focuses on the growth of a dividend stock,a high yield dividend stock (or income trust) can have a part in a portfolio. In fact, I have high yield investments in my portfolio.

What is a High Yield Stock

Let’s start by defining what a high yield investment is.

What it isn’t

It doesn’t meant that you chase investments based on yield.
It doesn’t mean you take risks with unworthy high yield investment (think of Yellow Pages here – I once had it on my watch list … shame on me).
It doesn’t mean you ignore fundamentals.

What it is – For me anyways

The yield is above average and sustainable.
The payout ratio will tend to be high which will limit growth appreciation.
The business is usually stable such as real estate.
The fundamentals are solid like other growth investments.

In the end, if you want to simplify the concept, it’s a stock (or income trust) that focuses on paying back the investors more than it focuses on growth. Dividend increases are usually limited and the price of the stock doesn’t move much under normal market condition. A stock with a dividend yield above 6% will tend to fall in my high yield investment pattern such as Liquor Store (LIQ.TO).

Avoid falling for really high yield stocks as it is usually a sign of trouble. I would say that a yield above 8% should be really scrutinized especially if it’s a corporation as opposed to an income trust.

Why Hold a High Yield Stocks

In one simple word; DIVERSIFICATION. Again, it’s important to not just pick any high yield stocks. I find that REITs (Real Estate Income Trusts) fit the bill of a high yield investments. It’s usually a really good source of monthly income and at their price range, it’s usually easier to DRIP. The usually lower price of a REIT also leads to a better compound growth.

Based on your age, you may want to decide on a ratio in your dividend holdings:

Dividend Aristocrats – 5 years of dividend increase in Canada and 25 years in the U.S. See the dividend aristocrats for a list.
Growth & Dividends - Usually a yield between 2%-3%, a lower payout ratio and a strong track record of dividend increase. Canadian National Railway is an example.
High Yield Investments – REITs fit the bill but some stocks such as LIQ.TO or CPG.TO also fall into that category. The stock appreciation is usually minimal since more money is pack back to investors in the form of dividends.

As an after thought, I realized that I currently have a mix of those investments. It was a natural selection in trying to diversify my portfolio and it’s a result that I am quite happy with. I have a couple of REITs and some investments such as LIQ.TO and CPG.TO that pay high yields but I am otherwise focused on Aristocrats and looking at adding more “growth & dividend” stocks that fit the 10/10 rule.

Readers: Do you hold high yield investments? Which ones and why?

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Weekly Blog Round: Tax Time

The Passive Income Earner — Sat, 05 May 2012 20:01:04 +0000

I finished my taxes last Sunday. Right on time To my surprise, I got a much higher tax refund than I expected. It turns out that I had not included my spouse deduction during the year (and I have for this year) so I got the deduction at the end and the new arts and craft deductions were a nice addition. Obviously, I ended up doing it at the last minute but not because I am a procrastinator. I usually need to wait until I have all documents and I try to get it done mid-April but never before as I need to wait to receive all the T5 forms for dividends.

Doing Your Taxes

Filling your income tax as an individual is usually pretty simple. I have been using Turbo Tax (previously Quick Tax) for a number of years and it’s simply a matter of filling in the boxes from your T4 and T5s. For your non-registered investments, it’s important to track your capital gains and losses. I have provided an investment spreadsheet to help out with capital gains tracking for those interested. I also take into account the $CDN and $US dollar conversion. I have to handle that since my stock benefit is all in $US.

Putting Your Tax Return At Work

I am still waiting for my refund to be deposited but I can admit that I am upgrading my Mac Mini to a 27″ iMac. I initially thought I would receive less than $1,000 and I said that if I get more, I am upgrading the computer. I am getting over $3,000! The iMac is a given and the remainder will be invested somehow. I am debating between RESP or RRSP. I have neglected the RESP for a little while …

Worthy Readings

Some weekend reading to share …

Boomer & Echo with ‘Beat Inflation with Rising Dividends‘
Beating The Index with ‘Portfolio Update: April 2012‘
Canadian Finance Blog with ’Are You Still Paying Bank Fees‘
Dividend Ninja with ‘IGM Financial Versus CIX and AGF‘
Dividend Monk with ‘Canadian National Railway: $65 a share is Fair Value‘
Finance Fox with ‘Money Will Change You‘
Freedom 35 with ‘Median and Average Net Worth‘
Invest It Wisely with ‘How To Register A Canadian Corporation‘
My Own Advisor with ’Why We Want a $10,000 Emergency Fund‘
Retire Happy Blog with ‘Financial Stages of Life‘

Have a nice weekend!

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Railway Battle: CNR vs CP

The Passive Income Earner — Wed, 02 May 2012 05:18:21 +0000

I am in the market for some railway and since I was going to research our two Canadian players (Canandian National Railway & Canadian Pacific Railway) I thought I’d make it a battle! Are you in the market for a railway company in your portfolio? If you are, read on and find out about them.

Railroad Business

Railroads have been the foundation of long distance transportation for a very long time and even now, it is still providing a consistent mean of transportation for goods across North America. I like the business model and I really don’t see it go away any time soon. It makes for a sustainable business and one that we must rely on and that’s why I want to have a railroad business in my portfolio. I started with utilities and banks for the reason that they are required and dependable and railroads fall into that model.

Even Warren Buffett has a strong appreciation for the railroad business. Just Google it and you’ll see numerous references. That alone shouldn’t be a reason to invest but a strong insight nonetheless coming from the ‘Oracle Of Omaha’.

CNR vs CP

It’s time for the numbers. Here is the quick comparison between the two companies. As you can see, it’s a win by knock out for Canadian National Railway. If you put aside all the news around the struggle within management and a large stock owner, the numbers alone are highlighting CNR as a healthier and more profitable company.

In CNR, we happen to have a candidate for the 10/10 rule. The 10/10 rule is about having a 10% dividend growth average over 10 years and CNR achieves just that. That 10% growth definitely beats inflation form an income perspective and when you re-invest your dividends, you have a really good compound growth rate.

The potential for business is much higher with CNR considering they server 75% of the US population whereas CP operates in 6 provinces and 13 states. Their railroad routes definitely highlights their potential for business growth and their size. I would say that CNR has an economic moat on the railway transportation sector across North America.

	CNR.TO	CP.TO	Winner
Stock Price	$84.39	$76.68	-
Market Capitalization	37.02	13.11	CNR
P/E	14.78	19.32	CNR
FP/E	13.22	14.62	CNR
EPS	$5.71	$3.97	CNR
Liabilities-to-Equity Ratio	1.44	2.04	CNR
Dividend Yield	1.80%	1.56%	CNR
Dividend Payout Ratio	23.85%	34.72%	CNR
10 Year Dividend Growth	17.75%	3.79%	CNR
5 Year EPS Growth	7.03%	-5.32%	CNR
52-Week Range	98.52%	92.16%	-
52-Week High	$84.7	$79.29	-
52-Week Low	$63.72	$46.01	-

Canadian National Railway (CNR.TO or CNI)

CNR recently beat earnings and the stock price was rewarded from it as well. In the span of a week the stock is up already 6%. CNR has a consistent track record of growing its dividend annually making it a Canadian Dividend Aristocrat. With an average dividend growth above 10% annually, it also makes it a member of the 10/10 investing rule thus a excellent investment for dividend growth.

On the right, you can see its dividend growth graph for the past 10 years. The recession is practically missing. The consistent growth is what any investor is looking for and the only other company I have seen with such a graph in the Canadian market is Fortis (FTS). From looking at the CNR dividend growth graph on their website, it appears that it even had a 20 year run with a 10% annual dividend hike. That’s some consistency I am willing to invest in.

Canadian Pacific Railway (CP)

CP also beat the expectation but it’s current dispute between management and one of its major owner is stirring trouble. It makes for an uncertain path for many investors and it’s probably why the stock has stayed flat after the earnings.

The dividend growth graph is showing a few hiccups all within a 10 year period. In 2001, there was an anomaly and I could not find the reason for the higher payment either. It followed with a couple of flat years and it did the same during the 2008/2009 economic down turn. That’s a little too much struggle for me when I just look at the dividends – it lack consistency.

Readers: Are you interested in a railway or transportation investment?

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Dividend Income – April 2012

The Passive Income Earner — Mon, 30 Apr 2012 15:56:57 +0000

I usually tend to do my dividend income update in the middle of the month but my time was at a premium this month. I am however managing to update you at the end of the month April marked the second year anniversary of this blog and 2009 is when I officially started down my dividend investing path. It has been an great journey so far. I encourage you to take some time and look at my dividend income over the past 3 years and see how growing wealth can be done albeit slowly.

Dividend Income

April is a good month for my dividends. I earned $511.73. Earning $500 per month is what I am looking for in the short term to reach $6,000 per year in annual dividends but I really need to add more to my portfolio over the coming months if I want to reach $7,000. If I look at my projections for the coming months, I don’t really see my income going above the $520 per month and I need to reach $600. If you have done dividend investing, you know it means one of 2 things:

Add more money to generate more income
Find higher yields investments

I am in favor of the first point. I want to focus on adding money to my portfolio and buy dividend growth stocks. If I get the right stock, I know they can outperform. I did the analysis once with Just Energy and Embridge, it’s a eye opener when you extend your outlook to 10 or 20 years down the road.

Dividend Paying Holdings

Here is a list of my current holdings as of writing by accounts.

Broker Accounts (RRSP, TFSA, …)

Bank of Nova Scotia (BNS)
Bank of Montreal (BMO)
Royal Bank of Canada (RY)
Toronto Dominion (TD)
National Bank (NA)
Crescent Point Energy (CGP)
Kimberly-Clark Corporation (KMB)
AT&T (T)
Rogers Communications (RCI.B)
Cominar Real Estate (CUF.UN)
Johnson & Johnson (JNJ)
Coca-Cola (KO)
Liquor Store (LIQ)
Power Financial (PWF)
Manulife Financial Corp. (MFC)
Husky Energy (HSE)
A Mututal Fund generating ~8% dividend

Computershare & CIBC Mellon Accounts

I am currently spending time reviewing companies that I believe could provide me with a 10% growth over 10 years – also known as the 10/10 investing rule. As a hint, it would appear that Canadian National Railway is one of those companies.

Readers: Do you have any stocks on your radar?

Image: Master isolated images / FreeDigitalPhotos.net

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