Thursday, March 14, 2013

Selling a Bank to buy some Coke & Viagara

As stated in a previous post, I've been looking for ways to increase my holdings in US dividend growing companies that I hold in my RRSP. There are no shortage of US companies that interest me, and I like the idea of investing in US companies with global operations as a way to diversify my investment holdings. Since my employer offers a defined benefit pension plan, I have limited contribution room for my RRSP each year. Additionally, at the start of today, shares in three Canadian banks represented over 30% of my total RRSP holdings.

Therefore, with Bank of Montreal ("BMO") trading just off it's 52-week high today, I took the opportunity to sell the shares I held inside my RRSP. I don't mind admitting that the capital gain (non-taxable) on the sale was significant. I continue to hold some shares of BMO in my non-registered account, and reap the benefits of their 4.6% yield and history of dividend growth. I might even add to the position in my non-registered account, although I believe I have to wait 30-days before adding additional shares in order to avoid a taxable capital gain.

The two US companies that interest me most at the moment are Coca-Cola (a long history of dividend growth and a reasonable payout ratio of ~50%) and Pfizer (another dividend grower in which I already own shares). I'm in no rush to buy either and will now be hoping for analyst downgrades or maybe a missed earnings estimate (if I'm lucky) in the next couple months. If any of my other US holdings (WAG, JNJ, WU, MCD, and MFST) slump over the next couple months, the additional capital from today's sale will allow me the flexibility to react and buy more.

All in all, I'm very happy with my trade today.

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