Ever since the start of the year, I've been trying to figure out what companies' stock to invest in with my 2014 Tax-Free Savings Account ("TFSA") contribution. Initially, my plan was just to top up my investments in TD Bank, Inter Pipeline Ltd, and Canadian Apartment Properties REIT...all of which I currently hold in my TFSA, along with Rogers Communications and National Bank of Canada. Over the past couple weeks, any stock that I've thought of adding to my TFSA has risen to the points where I think it's fairly or over valued.
Thus my new plan - use this year's $5.5K contribution and cash proceeds of dividends/distributions to create a small hedge fund to take advantage of what I perceive to be over-reactions in the market. I used a similar strategy during 2012/early 2013 to buy beat-down dividend growth companies like Western Union, Microsoft, Cisco Systems and Telus...but never sold them. Quite frankly, I already pay enough taxes, so taking advantage of market over-reactions in my TFSA is an appealing prospect. Plus, I can even look at over-reactions in US and other foreign markets, as capital gains won't be taxed. The goal will be to sell the investments made with these funds within a month, so I can avoid with-holding taxes on any dividends.
This style of investment is very different from my normal buy-and-hold solid dividend growth companies, but I'm really looking forward to seeing the results in 2014.
Saturday, January 11, 2014
Although I’m not much for resolutions, I enjoy setting goals for myself each year. Putting objectives on paper, or “on the cloud” helps me focus. Since I spend a fair amount of my free time researching companies and investments, I decided to share what I’m looking to do with my investment holdings in 2014.
Increase my portfolio value by 17% :
Since I’m not comfortable disclosing how much my investment portfolio is worth, I have to state the first two goals in percentages. The 17% increase in value corresponds to a number I’d like to hit by year end. Although I had very strong returns in 2013, I don’t expect the same this year. However, I do expect my portfolio to appreciate, I’ll reinvest the dividends I receive in 2014, and I should be able to deploy some new capital, all of which should help me meet this goal.
Total Dividends Received Up 18%:
As indicated above, the 18% also corresponds to the amount of dividends I expect to receive in 2014. None of the companies in which I'm currently invested should cut their dividends in 2014. Alternatively, I expect most, if not all of the company’s I own will increase their payouts during 2014. Add to this some new capital I plan to inject in my portfolio, and this is a realistic goal.
Maintain US Holdings at About 30%:
I ended 2013 with holdings of US stocks accounting for 28% of my investment portfolio. With the USD appreciating against the CAD, this number is now closer to 30%. I feel that by investing in large multinational companies with sales across the world, my portfolio gains geographic diversification. Even though the US market was hot in 2013, I’m comfortable with all my US holdings.
Doubling Down on Comfortable Holdings:
As my investment portfolio grows, I’ve learned that in order for a strong performer to make a difference to my portfolio return, there has to be a material investment in the company. A good example is Microsoft, a great dividend grower, who was up about 40% in 2013. However, since I only bought 100 shares, the impact on my portfolio was minimal. My plan is to invest in fewer companies, but increase the amount of money I invest in my core holdings.
Get rid of all companies who haven’t raised their dividend in the past 18 months:
During 2013, I was very happy to get rid of all the laggards in my portfolio, who hadn’t recently raised their dividends. I think it shows good financial management on the part of companies who are able to increase their payouts without raising their payouts ratio to unsustainable levels. I plan to get rid of any companies that haven’t raised their payouts in the last 18 months. So far, I think only Intel and Western Union are on my watch list in this area.
Figure out what to do with cash in excess of $500 (especially in TFSA and RRSP):
Given the amount of distributions I receive each month, I find myself with excess cash in my various investment accounts that isn’t doing anything. Since iTrade allows me to buy and sell a number of ETF without commissions, I plan to pick one or two high yielding ETFs to deploy my excess cash in when I don’t have any investment ideas I’m looking to test. I’ll pay particular attention to my TFSA and RRSP since I can buy and sell ETFs without worrying about tax implications.