Financial Jungle

In many ways, I’m living the deja vu of the 2006 summer correction. The skittish stock market, beleaguered by the subprime mortgage woes and the credit crunch, is lunging 1% ahead one day and plummeting 2% the next. As in the last summer, my Hotmail account is flooded with stock alerts which I setup on Globe Investors. Not that I’m pulling the trigger on every alert. It’s more for awareness than anything else, however I did nibble on few fallen stars like as Bank of America, Citigroup, Bank of Nova Scotia, Bank of Montreal, National Bank, CI Financial, Telus and Talisman, and 2 significant positions on Inter Pipeline fund and Boston Pizza Royalty fund.

It’s nerve racking to watch some of my holdings tumble, but I’m thrilled at the same time as I need to deploy new savings to high-quality but inexpensive businesses, and most stock screens always seem to bring me back to the same stocks in my portfolio. If I have it my way, we’d have a correction every second day, and Bank of Montreal would remain at $61 for the rest of my life, because a cheaper stock means more shares, more dividends and more importantly, a shorter road to financial freedom. I bought BMO in 2006 at $60.40. It rocketed to $72 before falling back to my purchase price momentarily on Wednesday. Fantastic! Same price as last year, but with a phenomenal 4.4% yield that will knock your socks off - they increased their dividends by 28%. It’s not just BMO, the other Canadian banks are teasing me with their dividends too.

If I learned anything from the 2006 correction, it’s that the moody market rewards contrarian dividend investors who have the conviction to become net buyers in a tough market. Looking back, I’m laughing myself silly that I peed my pants (not literally) when I bought IGM below $45 at a time when other investors were cringing under the falling sky. No, I wasn’t a genius. I was simply good at following instruction out of any sensible dividend investing book such as “Stop Working” by Derek Foster. Since that time, IGM’s quarterly dividends surged from 37 cents to 46 cents per share — a 24% hike! I need to have a talk with my boss about matching that pay raise.

Alas, I’m still a rookie investor. Some of my purchases have been premature; most notably DR. Horton. This time, I suspect it’ll take longer than a year before l laugh myself silly. Although my batting average is far from perfect, over the long-term, I feel that the aggregate of all the dividend-paying positions will do marvelously. Aspiring dividend investors who hang tough in this ordeal won’t come out empty handed, especially when corporate balance sheets are strong, profits are rich and unemployement rate is at a 33-year low.

In order to elevate fundamentals over the long-run, short-term pains are necessary to prune out dead weights, such as questionable structured commercial papers, loose lending standards and as ThickenMyWallet put it, NINJAs (no income, no job, no asset). Once these excess baggages are out of the way, the path to prosperity is paved for many decades to come.

Jungle Guy’s shopping list: all Canadian banks, REITs, Yellow Pages, Reitmans, pipelines (TRP/ ENB/IPL.un), insurance (MFC/SLF), CML Healthcare and CI Financial.