Financial Jungle

This is the sixth post in the Dividend Increases series.

I think dividend-investing is one of the few free lunches left in investing. Most people looking for higher returns are often confronted with persistent market volatility, but it doesn’t always have to be that way. The strongest driver behind my investing in dividend-paying stocks is the steady and growing income stream that accompanies the strategy, but without the baggage of market volatility.

Take Johnson and Johnson for example. Today, the Board is delivering, yet, another mundane pay raise to shareholders by boosting dividends for the 46th consecutive year. 46 years is a long time. The best part about being a Johnson and Johnson shareholder is that your income is immune to the jittery stock market awash with doom and gloom prognoses in every corner. The stock may be up 5% today and down 5% tomorrow, but as long as dividends are flowing in, investors have no reason to panic and sell low. For this reason, I feel that the dividend investing strategy does a terrific job at stimulating good investment habits for certain individuals.

Below, I have charted Johnson and Johnson’s historical share prices followed by dividend payments from the past decade. When you retire, would you rather live off of the capital gains or dividends?

Dividend increases since my last portfolio update:

• TD - 3.5% (11.3% from last year)
• North West Company - 18.5% (45% from last year)
• Johnson and Johnson - 10.8% (10.8% from last year)
• Husky Energy (non-core) - 21% (60% from last year)

This is the fifth post on the Dividend Increases series.

It has only been 3 weeks since my previous dividend increases post, but I feel compelled to hurry one in as Boralex Power Income Fund just announced a distribution cut from 90 cents to 70 cents, amidst external headwinds from weaker hydrology and the declining US dollar.

In 2007, BPT.un’s $42-million net cash flow related to operating and investing activities was $9-million short of the $53-million circulated to unit holders, but management has been proactive all along warning investors about the hurdles they’re facing.

Rather than masking the problems and jeopardizing the fund’s long-term health, the new distribution policy will see payout easing to $41-million a year. This is a conservative move considering the fund still has $10-million in the bank. (i.e. the cash could’ve prolonged the current payout by another year while waiting for a turnaround.) If it were an oil & gas trust, management would’ve dug themselves deeper into the hole by (a) issuing new shares, and/or (b) borrowing debts.

Here’s my original analysis on Boralex Power Income Fund:

So why is the trust being punished? The answer likely lies in the unfavourable hydrology in the 3rd quarter. Hydrology is fickle science. Due to unusually low water level, their hydroelectric segment generated 22.8% less than historical average, even though that’s only for one quarter. It was only a year ago when the water current was exceptionally strong, while year-to-date, the segment is down only 6%.
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Since power trusts are generally considered stable and boring, coupled with Boralex’s conservative balance sheet and high ratings from S&P and DBRS, I feel the distribution is safe, and the higher yield offers a margin of safety in a rare event of a distribution cut.

Obviously I was wrong about the payout being safe. Despite the relaxed distribution policy, BPT.un is still yielding an attractive 11+% based on my average purchase price, and I see the distribution chugging back up as hydrology restores to their historical average. Although I don’t think we’ll see 90 cents anytime soon unless the US Dollar is making a come back.

Disclaimer: I’m not a professional investor. It’s vital that investors perform their own due diligent, and invest accordingly.

On a brighter note, here are my dividend increases over the past 3 weeks:

• Great West - 6.4% (14% from last year)
• IGM Financial - 5.9% (13.4% from last year)
• 3M - 4.2% (4.2% from last year) More analyses from Money Gardener and Middle Class Millionaire.

There are several stable stock markets in which investing through different stock brokerage is very profitable. Several forex companies are doing online trading. The home investment or home building business is on its boom nowadays in different developing countries. If you can invest some thing then investment property is the most favorable option.

This is the fourth post on the Dividend Increases series.

First, let’s get the sore thumb out of the way. My portfolio suffered a minor set-back as CI Financial Income Fund, a non-core holding, is cutting distribution by about 10%, likely due to market jitter.

Dividend Increases

• Canadian Oil Sand - 36% (150% from last year)
• Canadian National Railway - 10% (10% from last year)
• Enbridge - 7.3% (7.3% from last year)
• TransCanada - 6% (6% from last year)
• HR Reit - 5.1% (5.1% from last year)
• Bell Aliant Regional Communications Income Fund - 2.8% (2.8% from last year)

I’m not worried about market turbulence…

Once again, TSX and S&P500 investors are reeling over recession fears as the indexes sank by 2.5% and 2.9% respectively today. Good! This just means that we can invest new money and dividends into progressively higher yielding shares. For example, Royal Bank is paying you $2 a share, doesn’t matter if the share is trading at $40, $50 or $60. As long-term accumulators, we don’t want Royal Bank shares to shoot up the roof. In fact, the cheaper the shares, the more we can buy, and the more dividends we collect. Let’s pray for the market to remain at these bargain levels for awhile.

Many investors are wondering if we’re at the bottom yet. Nobody knows. But one thing is certain; at 16.35 PE ratio, TSX’s earning yield is a savory 6.1%, which compares favourably well to Canada 10-year bond’s 3.84%. Yes, there are short-term risks. But 10 years from now, nobody will be lamenting over that they could’ve bought TSX at 1 or 2 bucks cheaper. It’s that they should’ve bought more.

It’s true. The rumour is resonating well in the office. According to our supervisor during a departmental meeting, management has reserved the necessary budget to increase salaries next year. Word on the street is for an average hike of 5% - not bad considering the Core CPI is resting at 2.2% this quarter.

As uplifting as it is, it’s still no match against the slew of dividend increases ringing under our Christmas tree:

• Encana - 100% (100% from last year)
• Parkland Income Fund - 8.6% (50% from last year) + ~4.7% of special dividend
• Fortis - 19.0% (31.5% from last year)
• Reitmans - 12.5% (12.5% from last year)
• Scotia Bank - 4.4% (11.9% from last year)
• Pfizer - 10.3% (10.3% from last year)

Not only that, most of these increases are tax-free, while about a third of salary increases goes to taxes.

Related post: Dividend Increase: Devoted Friend In A Stormy Market.

While feeling a little helpless during the recent market tailspin, it’s comforting to know that we can still count on many stocks to raise their dividends, as they always have been. My second anniversary as a dividend investor is coming up in Feburary, but boy, so far the reality is panning out just as all the dividend investing books said: scoop up rock-solid businesses with histories of raising dividends when they’re cheap. Pretty simple, really.

It’s time for another update on my portfolio. 2 months ago I reported a 22.7% distribution increase from North West Company income fund, however 4 more stocks have energized my passive income since:

Power Financial – 7.7% (25% from last year)
Telus – 20% (20% from last year)
Yellow Pages – 3.7% (9.7% from last year)
Boston Pizza Royalty Fund – 1.8% (5.5% from last year)

Pampered between a rent freeze and dividend increases, I can get used to this.

I’ve added a new category in Financial Jungle called “Dividend Increases”, where I’ll record all dividend raises from my portfolio. Dividend and distribution increases tend to resonate well amongst the dividend investing community, and a constant stream of positive feedbacks should motivate everyone to stay on course.

North West Company is a retailer in rural communities and urban neighbourhoods across Canada, Alaska and now, Hawaii. This income trust recently improved their annual payout from $0.88 to $1.08, or a 22.7% pay raise! This represents a 5.08% yield based on Friday’s closing price of $21.58, or a 7.37% yield based on my purchase price of $14.65.

Who says income trusts are boring and slow growing investments?