Saturday, April 27, 2013

No Buying, No Selling, Just Patience

Although I describe myself as a dividend growth investor, even more fundamentally, I consider myself a buy and hold investor. I've learned that overconfident investors and money managers trade more often, thus increasing transaction costs, and decreasing returns. Despite being close to pulling the trigger on a couple buys over the several weeks, nothing really caught my attention enough to convince me to buy into a stock.

My most likely next two purchases are adding to my positions in Microsoft and Pfizer. Both stocks are trading near 52-week highs, so I'll sit back and wait for some bad news on either company. Hopefully, it'll pay to be patient.

Saturday, April 20, 2013

Watch List Company: Potash Corp. of Saskatchewan

In previous posts, I’ve mentioned that I have a watch list of about 20 companies that interest me, but that I haven’t decided if I’m willing to take the plunge to invest in. One of these watch list companies that has been looking more interesting lately in Potash Corp. of Saskatchewan (“Potash”).  For those of you not familiar with this Canadian company, Potash mines and produces fertilizers that it sells worldwide.

Here are the main reasons I’m considering the company:
-          It’s the type of dividend growth company that is rare in Canada. In the last three years, it has went from paying $0.13 per share a year in dividends to $0.70 a share.
-          The company has a very low current dividend payout ratio of 23%, which leaves it plenty of room to boost dividends in the future.
-          As a mining / fertilizer company, it would help diversify my Canadian holdings away from banks, telecos and REITs.

So what’s holding me back from investing in Potash?
-          The company operates in the mining sector, which I know little to nothing about. Even though Potash is a leader in their business, I’m not sure I want to invest in a company I don’t understand.
-          Even with the spectacular dividend growth over the last three years, Potash is still only yielding 2.9%, and that’s despite a recent dip in the stock price. I rarely buy into a company yielding less than 3% unless it has a compelling story.
-          Potash’s revenue and earnings over the last five years have been pretty volatile. This has a lot to do with Potash being a commodity seller, and their inability to influence the market price of their product.

Having written out this brief analysis, I’m still uncomfortably on the fence about Potash. I’ll keep it on my watch list, but it would likely take another drop in the stock price or a dividend boost before I bought. 

Wednesday, April 10, 2013

Bought: Laurentian Bank of Canada (LB)

One of the Canadian companies that kept coming up in many of the dividend growth screens I have set up to identify possible investments is Laurentian Bank of Canada ("LB"). Owning every shares in every major Canadian bank except for CIBC (they seem to be in the middle of any scandal that comes up), I wasn't sold on adding another to my portfolio of investments, until I took a closer look at Laurentian Bank. The reasons I decided to initiate a position in the bank were:

- The bank's steady growth in interest income and net income over the past five years.
- The bank's annual average dividend growth rate of 10.6% over the past 5 years, and a dividend yield of 4.6% when I bought my shares last Friday. 
- A fair payout ratio of 44%, and recent comments in an earnings call about the possibility of looking to increase the dividend twice per year, when business conditions would allow it.
- A P/E of 8.9X (similar to its Canadian peers)
- The fact that it had dipped substantially last week, and was closer to its 52 week low, than to its 52 week high.

Since my shares of LB are in my non-registered account, I'm comfortable adding to my position if the shares should dip again, and I have some capital available to invest. Although my portfolio might be too heavily tilted toward Canadian banks, telecommunications companies, and REITs...they seem to be the three sectors I've had the best luck with picking winners in over the course of the past 10 years.

Wednesday, April 3, 2013

Bought Intel (INTC)

Given the dip in the US and Canadian markets today, I took advantage of the buying opportunity to purchase some shares of Intel for my RRSP. Given I wrote a previous post about why I was not comfortable buying Intel shares, I thought I'd give you a peak inside my decision process that caused me to change my mind today.

- Intel's total revenues decreased by about 1% in FY12 vs FY11 as more customers are opting for tablets and smartphones, instead of PCs where Intel has a dominant position as a chip maker.
- Although Intel is finally making in-roads into the smartphone market, they don't appear to be capitalizing in the surging demand for tablets.

- A 4.25% dividend yield, a 39.5% payout ratio, and an average 11% dividend growth rate over the last 5 years.
- A growing cash balance (supported by strong free-cash-flow generation) that is in excess of total external debt.
- Issuer ratings of A+ and A1 from S&P and Moody's respectively.
- Dominant market share and a history of investing heavily in R&D.

In short, I think Intel will be able to invest in R&D and acquisitions that will enable them to maintain their strong market chare in the PC chip market, while allowing them to enter the tablet and smartphone markets. The company has extremely solid financial metrics, and this should provide them with the flexibility to increase dividends and respond to competitive threats going forward.