Wednesday, June 5, 2019

Three Self Storage REITs with Rising Dividends

Back in October 2016, I initiated a position in Life Storage Inc. ("LSI"), a US-based self-storage REIT that had a history of dividend growth dating back to 2012. I completed my position in December 2016 and my cost base was about $85/share. The company increased its dividend by 5.2% in April 2017, and has not raised its payout since.

For context, LSI managed to raise its revenue and funds from operations ("FFO") by 4% and 11% respectively in 2018. Both of those figures were up again through the first quarter of 2019. Having went through various investor presentations, earnings call transcripts and quarterly reports, I can't find any reason why the dividend growth came to a halt. Based on my frustration with the stagnant dividend and the fact the company is trading near a 52-week high, I've been thinking about replacing it with another self-storage REIT.

I created the table below to compare the five largest (by market capitalization) US self-storage REITs.

Based on the 1-year dividend growth (last column), CubeSmart ("CUBE"), Extra Storage Space ("EXR") and National Storage Affiliates ("NSA") became the obvious candidates to replace LSI in my portfolio. Although NSA is the cheapest priced with a Price/FFO ratio of 13.5X and has the highest dividend yield of 4.3%, it's also by far the smallest and most geographically concentrated REIT. I'm more attracted to CUBE and EXR given their large size and geographical diversity of locations.

These types of replace or hold decisions tend to baffle me and cause a great deal of over-analysis. That said, selling and replacing LSI has been one of the potential transactions at the forefront of my mind for a while now, and I promise to keep you updated on any decisions I make via my Transactions Journal.

Are you considering selling and replacing any of your holdings? Have you been successful of these types of replacement transactions in the past?

Friday, May 24, 2019

The 2 Vanguard ETF Experiment Continues - Year 4

In May 2016, I started my ETF experiment buying Vanguard FTSE Canada All Cap Index ETF ("VCN") and Vanguard FTSE All-World Ex Canada Index ETF ("VXC") for my son's Registered Education Savings Plan ("RESP"). Since that time, I added my daughter to the RESP, and have continued buying shares in VCN and VXC each year. After four years, it seems like a good time to check-in to see how this experiment has progressed.

I've stuck with the two ETF strategy for four years since it's fast, low cost, low maintenance and the ETFs produce returns in-line with the respective indices. Expanding a bit further, the time commitment to implement the strategy is about 5-10 minutes a year. After making my RESP contribution and waiting for the government of Canada to match 20% of it a couple months later, I simply calculate how much of the two ETFs I need to buy to maintain an equal dollar weighting. The low cost refers to the $20 per year I'm charged for buying shares in VCN and VXC. Unlike my other investment holdings which I monitor via news articles and filings, I don't monitor either ETF actively. When I'm conducting the performance analysis of my portfolio at year end, I usually spend a couple seconds seeing how closely each of the ETFs tracked their respective indices (answer: very). Then there's nothing to do until after the Government of Canada matches my contribution in the next year.

As smoothly as the ETF experiment has been going, I'll admit to making a stupid mistake for the second straight year. I bought shares in VCN and VXC earlier this month before the Government of Quebec added their Quebec Education Savings Incentive ("QESI") in the RESP. I keep forgetting that the QESI exists and to wait for it to be deposited before buying shares of the ETF. Now I'm stuck trying to figure if it makes sense to add a small number of shares to one of the ETFs by overweighting a position, or just wait until 2020. 

Despite the dumb mistake, I continue to enjoy the ETF experiment and have every intention to continue it until my kids head off to college, university, or a trade school. If anything, I have considered taking a two ETF approach to my personal investing. The simplicity makes the strategy very tempting. For those of you who are interested, my Investment Holdings to show the updated positions in VCN and VXC after the buy earlier this month. 

Wednesday, April 3, 2019

Dividend Paying Companies That You Hate

Tuesday February 5th, we had our alarm clock set for 5:30 so that we could get the kids ready and bring them to the airport by 9:00 for a week vacation in Mexico. At 4:10, my son woke us up crying since he'd vomited. We quickly changed his bedding, put him in a different pair of pjs, and told him he'd fell better if he got some sleep. My shower was then interrupted by my son making a mad dash to throw up over the toilet. Again, we cleaned him up, gave him hugs and told him to take it easy. We hit the road a bit late, but five minutes from our house, my son was sick again, and we came to the realization that five hours on a plane with a sick four year-old wasn't a smart plan. We turned around, brought my daughter to daycare, my son threw up again, and by the time we got home, my wife and I were both feeling pretty awful.

Since we had checked into our Air Transat flight the night before, we thought we should give them a call and tell them we wouldn't be showing up. The agent on phone didn't seem to care that we weren't showing up and told my wife she should call back in three days to talk about a partial refund. Having dealt with airlines semi-frequently over the past 10+ years at my current job, I told my wife not to expect anything. Despite low expectations, Air Transat actually managed to disappoint her during the initial call to the point where she told them she needed a break. The agent tried to justify how the airline still had to charge us for pre-paid baggage fees, despite never hauling our luggage. When my wife asked if they managed to resell our seats, the agent evaded her. After "a supervisor" called back my wife later that day, providing a refund of about ~20% of our ticket costs, my wife promptly informed me that we would never fly Air Transat again. For context, after a similar experience a couple years ago with Videotron (a cable/telephone/Internet provider in Quebec), my wife canceled our cable and Internet subscription within days, and laughs every time she tares up a junkmail flyer from Videotron.

 The Air Transat episode got me thinking about a near-investment I made in WestJet (TSX: WJA). Their stock was priced reasonably (P/E around 15X if memory serves), yielding close to 3% at the time, they seemed to be growing their dividend regularly, and I thought investing in an airline would provide me with some industry diversification. While considering investing, I flew to Victoria on WestJet, had a horrible experience, and took the airline off my watchlist after checking into my hotel. I've a couple articles similar to this one indicating that investing in companies you hate can produce good returns. Although my gut reaction is that companies you hate probably aren't interested in long-term sustainable growth fueled by satisfied customers, after considering my own experience investing in dividend paying companies I hate, I'm not sure what to conclude. A couple examples of dividend payers that I hate, yet own, jump out in my mind.

The Bank of Nova Scotia (TSX: BNS):
If you follow me on Twitter, I apologize if you've noticed one of my many sarcastic, mean-spirited tweets calling out Scotia iTrade (my discount brokerage). Ever since BNS took over iTrade from E-trade, the client-focus and responsiveness fell off a cliff. For instance, iTrade still charges the same $10/trade as E-trade promoted when I joined in 2001. Scotia programmed a US-dollar RRSP, and then sat on it for four years before introducing it late last year. Why introduce a service your clients ask for when you can instead charge them $30/quarter for a fair USD/CAD exchange rate? I think iTrade is the only brokerage in Canada that holds dividends for an extra day (minimum) before depositing them into your account. Then there's the unpopular changes BNS has made transitioning ING bank's former Canada business into their "Tangerine" brand.

In terms of investment performance, BNS is up about 10% over the past five years (not including dividends). Safe to say that their operating performance and integration of acquired subsidiaries has caused a lag in their stock performance. Despite the bank being attractively priced ~10.5X trailing earnings and yielding 5%, I wouldn't consider adding to my position in BNS in the near-term.

BCE Inc. (TSE: BCE):
Like thousands of other Canadians, I have a couple stories about Bell Canada's horrific customer service. Before moving out of my condo, I called Bell to disconnect my little-used landline.. I was told that since I was moving on a Saturday, my line couldn't be disconnected officially, in their system until Monday at 9:00am, and I'd be responsible for any long-distance charges incurred over the 48 hours the new owner was in the condo. While holding back my laughter, I asked the Bell representative how they planned to bill me for charges after I had left, knowing I had prepaid my last bill and left them with no forwarding address. The agent seemed confident when she warned me that they would find me. That seemed like an appropriate end to my relationship with Bell Canada during which I threatened to take them to small claims court when they informed me they would be keeping a $20 prepayment I made against a Virgin mobile cell phone. Perhaps realizing that the cost/benefit relationship wasn't in their favor, the agent agreed to transfer back the $20 to me.

BCE is up over 20% over the past five years (not including dividends). The stock is a bit pricey at 19X trailing earnings, but I might consider adding to my position if it becomes a better value. Maybe it's the personal lack of recent bad interactions with Bell that has me feeling that way?

There are other dividend paying companies in my portfolio with which I have had less than spectacular interactions with over the years:

Enercare (now part of Brookfield Infrastructure (TSX: BIP.UN)) / Enbridge (TSX: ENB):
Since moving to Quebec seven years ago, I've rented my hot water tank from Enercare, with the payment flowing through Enbridge, my natural gas provider. I called Enbridge last year to see how much it would cost me to buy the 2009 hot water heater and they quoted me a price equal to that of a brand new, energy efficient heater. I've since been trying to figure out how to buy and get a natural gas heater installed so I can tell Enercare/Enbridge where they can pick up and stick their 10-year old heater.

Rogers Communcation (TSX: RCI.B):
During my condo living years, twice I was quoted better prices for Rogers packages that were not honored on my next bill. This was apparently a favorite sales tactic for the company, which they continue to do over the telephone and in their retail stores.

Canadian Imperial Bank o Commerce (TSX: CM):
CIBC eliminated my no-monthly fee plan, didn't inform me of the change, started to charge me $10 per month on an account with no activity, then decided not to reimburse me when I called them out on it. Of course, this resulted in my closing my account, changing my credit card from one issued by them, and never setting foot in a CIBC branch again.

Canadian Apartment REIT (TSX: CAR.UN):
I moved from a CAR apartment to my condo over a period of a month during which I still paid rent. When I went for my last boxes about a week before month end, I noticed my fridge had been emptied including a recently acquired bottle of Cuban rum. This pissed me off to the point where I kept a key to the building that I used to park underground and play squash for years after I moved out.

McDonalds Corporation (NYSE: MCD):
Having worked in fast foot for about five years during high school, I have conflicted feelings about McDs. I know not to expect too much from minimum wage earning high school kids, but I feel that if the workers got my orders right more than half the time, I'd feel less crappy about owning shares in the company. In contrast I've never had a bad experience during visits to A&W or the Keg (other holdings of mine).

Is it good to hold shares in dividend paying companies that you hate? Looking at the track record of some of the companies above, the investment performance results are mixed. It almost seems like a necessary evil in Canada to hold shares in a bank, telecommunications firm and utility provider if you're a diversified dividend growth investor.

Do you own any dividend paying companies that you hate doing business with? If so, how have they performed for you?

Sunday, March 24, 2019

17 Monthly Paying Canadian Dividend Growers for 2019

Last Sunday for lunch, we did something very Quebecois, feasting on a deliciously sweet meal, taking a horse drawn sleigh ride, and finishing of with maple taffy on the snow at a sugar shack. Even though it was a tad expensive at about $25 per adult, I definitely got my money's worth in bacon and maple syrup (which is a great sugar substitute in coffee). While my father-in-law was making small talk with a former student of his who works as a waitress, I overheard her explaining that March is a critical month for maple syrup producers in Quebec. With the maple sap running when the temperature climbs above freezing and this coinciding with the only four weeks most shacks are open for meals all year, it's make or break for producers. How stressful it must be to have so much of your financial well being dependent on weather during one single month that has notoriously unpredictable weather. 

The visit to the "cabane à sucre" got me thinking that it was time to post the list of Canadian companies that pay growing monthly dividends for 2019. This has traditionally been one of my most read posts in 20182017 and 2016. Using the Canadian Dividend All-Star list from February, 2019, I determined the monthly dividend growers for 2019.   To be included, companies had to pay a monthly dividend, increase their distribution at least once in the last 12 months, and have a minimum 5-year history of annually increasing their payouts.  The initial screen this year yielded 23 companies before I removed five organizations that had not raised their payout in the last 12-months.  I then removed Boyd Group Income Fund due to their unimpressive 0.4% dividend yield. The 17 monthly dividend growers for 2019 were consistent with the number in 2018, down from 20 in 2017, but higher than only 12 in 2016.

The resulting 17 companies included eight real estate investment trusts (REITs). As the payout ratios and valuations of REITs are usually calculated based on funds from operations (FFO) or adjusted funds from operations (AFFO), I decided to separate the resulting list in two so as not to confuse any casual readers. For your browsing pleasure, the resulting monthly dividend payers are included below.

Here are some quick comparisons between the monthly dividend payers and the complete list of Canadian Dividend All-Stars:

- 23 of the 104 Canadian Dividend All-Stars at February 28, 2019 pay dividends monthly.
- Although the average yield of all Canadian Dividend All-Stars of 3.71% is considerably less than the seventeen monthly payers listed above (5.14%), the 1-year average dividend growth rate of 9.13% is significantly greater than that of the monthly payers (5.77%). 
- The average 3, 5, and 10-year dividend growth rates of the Canadian Dividend All-Stars of 9.62%, 11.95% and 8.74% are much greater than the comparable growth rates of the monthly payers 6.23%, 9.04%, and 5.27%. 

As with any other screen, the above list is simply a starting point for further research.  Clearly, a deeper dive is required given the average EPS payout ratio of 77.26%, although the trailing average P/E of 15.5X looks downright reasonable. As indicated on my Investment Holdings tab, I currently own two monthly paying Canadian Dividend All-Stars (Granite REIT and Canadian Apartment Properties). Of the remaining fifteen companies, Savaria is jumping off the page for me to conduct further research, and I'd also consider a deeper dive into Global Water Resources based on their industry and the fact they pay their dividend in US dollars. 

If your retirement savings happen to be as concentrated or weather dependent as owning a sugar shack in Quebec, I think you could do worse than diversifying into some of the names above to smooth out your cashflows to have funds trickling in each month. The psychological boost I get from holding a couple monthly dividend payers in my portfolio helps me on the 15th and last day of each month to be a proud dividend growth investor!

Do you hold or are you interested in purchasing any of the 17 monthly payers?

Friday, March 15, 2019

The Calm Investor?

After almost three months without an entry, it seems overdue to post something. My lack of activity on this blog mirrors both my attitude and my inability to find compelling buys. After adding some shares of Johnson & Johnson on Christmas eve, I felt excited about growing my portfolio in 2019. Now, with the North American markets attaining new highs almost weekly, I find myself with more cash in my portfolio than ever before.
Instead of opening up cans of worms regarding market timing or anchoring on past prices, I thought I’d write about my pre-occupation of late: calmness. It seems like rather I’m reading about meditating, listening to a podcast about how to be a better parent, or learning some kernels of wisdom from Howard Marks about business cycles, the importance of remaining calm and avoiding unwarranted action keeps re-appearing.

There are a lot of conflicting pieces of advice about investing, but one of the few universal truths seems to be that the ability to control your emotions, keep fear and greed in check, and respond to opportunities in a calm and rational manner is a winning formula. Trying to develop a sense of calm, being perfectly happy to do nothing, not yearn for more (action, stocks in my portfolio, possessions, etc.) has been, and will continue to be, a huge struggle for me. For example, here’s one of the needy, anxious, greedy thought patterns that plays in my head: If you added a few more higher growth/lower yielding stocks to your portfolio at more frequent intervals, you’d have more to blog about, you’d achieve a higher dividend growth percentage, you’d add more income, you could follow more exciting holdings, you’d be a more interesting person, etc., etc., etc.. Crazy? Yes. Destructive? Definitely! Yet, it’s a story that plays far more than I wish it would.

I failed at developing a mediation habit last fall. Focusing on my breath, for a mere five minutes at a time, without my thoughts wondering in a hundred different directions, was too much of a mental challenge for me. Forcing my mind to be calm, instead of letting it run wild, proved nearly impossible. On the bright side, I did find that focusing on my breath was helpful in getting to sleep at night. That was a nice silver lining.

With my son and daughter approaching five and two respectively, calm is not a word I’d use to describe my home. Some nights, both kids run laps around the kitchen/dining room/living room screaming, laughing and crying. After she wakes up, my daughter finds it hard to keep calm in bed at 5:30am in the morning for less than minute before starting to cry. Then she likes to play with mom and dad in our bed as we’re floating in and out of consciousness. My moments of calm around the house tend to come when both kids are in bed, my wife’s out somewhere, and I find myself with an hour or two to spend as I will. Instead of enjoying the solitude and embracing the calm, I tend to read, watch a show or contemplate a work problem. Although I think I’m decent at remaining calm when the kids are riled up, I need to improve my ability to be comfortable doing nothing on my own.

I’m not sure if I’ve become calmer as an investor, or that I’ve deprioritized it as an activity. I still think about possible transactions, spend time researching companies, read some filings to monitor my holdings. It’s the pulling the trigger to buy shares with a feeling of conviction that I have lost. I’ll likely not achieve my portfolio goals of adding forward dividend income this year. It’s part of where I perceive the market to be (frothy, eighth inning, few obvious opportunities), it’s a bit because of some of my holdings provided pathetic dividend increases (i.e. Coca-Cola, Tanger, etc.), and it’s also due to a calmer attitude. Ultimately, I’m happy at my job, fulfilled with my family, so meeting a stretch forward income goal doesn’t seem to matter much anymore.  

Two and a half months into 2019, this entry sums up my attitude and progress pretty well. I feel like an odd combination of the turtle and the hare in the famous fable, had the turtle pulled off to the side of the road and took a nap in the middle of a race against the hare. I’ll enjoy my slumber, let the hare sprint ahead, appreciate the calm, and we’ll see how long it lasts.