Wednesday, July 17, 2013

Sold: Canadian Western Bank ("CWB")

No, I didn't take the job that required me to get rid of all my shares in Canadian banks. Instead, despite an impressive record of profitability and dividend growth, I decided to sell my holding (100 shares) in Canadian Western Bank ("CWB"). There were two main reasons I decided to sell my shares in CWB:

- The paltry 2.4% dividend yield. This yield is much lower than its Canadian banking peers average dividend yield (~4.3%). Management had lots of room to increase the yield (dividend payout ratio ~ 35%), but has instead re-invested back into the bank. To me, this speaks to management not placing sufficient importance of paying a dividend sizable enough to attract investors to hold shares for the long-term.

- As mentioned, I only held 100 shares of CWB, making it one of the smaller holdings in my portfolio. Furthermore, the investment was made in my non-registered account, and I had accumulated a sizable capital gain on the holding. It came down to a decision if I wanted to increase my holding (which I didn't given the low yield), or sell and take the taxable capital gain now, when I have enough losses to offset it.

Selling CWB allows me to create some liquidity that can be used to increase my holdings in another company I'm more comfortable with, that offers a better yield. This was one of my harder sell decisions in recent years, but I think I made the right choice.

Wednesday, July 10, 2013

What would you do with $10,000?

I'm currently reading the book "All The Money In The World" by Laura Vanderkam in which she asks some interesting questions about money and time. One of the questions she raised that got me thinking was 'What would you do with $10,000?'

Since $10K was about the amount of cash I held in my portfolio until near the end of last month, I guess my answer was buy 100 shares of Potash, 100 shares of Telus (at near its 52-week low), and add 30 shares of National Bank. Assuming no dividend cuts/growth, my answer should add about $380 to my investment portfolio over the next year.  Given I have no interest in selling any of the shares in the great companies I bought, the amount of principal at the end of the next year won't matter to me.

One of my positions I'm currently thinking of selling (Walgreens), will yield approximately another $10K. I'd like to re-invest this in another US stock (my two likely candidates are McDonalds and Johnsons and Johnson), but given the crummy CAD/USD exchange rate, and that both of my two likely picks are trading near 52-week highs, I'd have to hold the money again until the Canadian dollar appreciated, or a more interesting US company went on sale.

Although Ms. Vanderkam's hypothetical question is enticing, in reality, for dividend growth investors focused on buying high-quality companies at attractive prices, it's more complex than what meets the eye. Ah well, given I have no problem being patient with the market, time is on my side.

Sunday, July 7, 2013

Bye Bye Bank Stocks?

It’s rare that my professional and investing lives meet. Some might find this odd since I work in the financial industry, and analyze many public companies and banks as part of the daily duties. In order to avoid any conflicts of interest, I’ve never bought shares in a company I looked at for work. Given my work specialties have been in the forestry, automotive parts, and automotive manufacturing sectors, industries not exactly known for their steady dividend growth rates, it further explains why I wouldn’t be pulled toward the companies in these industries.

I’m very happy at my job, and the company I work for has treated me well. That said, I try to keep my eyes open for opportunities to expand my breadth and depth of knowledge of the financial industry in Canada. Recently, while interviewing for a job with another organization, one of the interviewers confirmed my hypothesis, that if I was the successful candidate, I would have to sell my shares in Canadian banks in order to avoid any actual and/or perceived conflicts of interest.

If you have followed this blog for long, or know my investing tendencies, you might guess that selling my holdings in Canadian banks wouldn’t be particularly easy for me. Quite simply, I think Canadian banks are profit machines that have a proven tendency to kick back a nice percentage of those profits to investors as dividends that grow over time. After opening my trading account in 2000, I bought 100 shares of Bank of Montreal as one of my first investments. My investing love-affair with Canadian banks has only grown over the years, with shares in these institutions accounting for approximately 25% of my current holdings.

Although the challenge of replacing such a large percentage of my portfolio with shares in other companies would be difficult, it’s something I think I could do if required. However, I’d also have to take a tax hit by selling bank shares in my unregistered trading account…and that’s something I’m much less inclined to do.

I decided to decline the organization’s request for a second interview, as I don’t think the job would be a good fit for me at this time in my career. The fact I’d have to sell my shares in Canadian banks definitely contributed to my decision.