Wednesday, August 27, 2014

A Recent Trade - Bought Kinder Morgan Inc., Sold Bank of Nova Scotia

I'd apologize for not posting in over a month, but I have an excellent excuse - our son Dominic was born on July 19th. Needless to say life has been vastly different the last six weeks as we adapt to our first child. Despite being ridiculously busy and constantly tired, I did make a change in my RRSP holdings in early August.

Kinder Morgan Inc. ("KMI") has been on my watch list for the better part of the last year. Although I found the stock pricey (P/E over 30X) and the company's structure hard to understand, I have a soft spot for pipelines as they are steady dividend payers with a long-term competitive advantage due to their high initial capital expenses. When KMI announced it was consolidating their four distinct businesses under the KMI umbrella, and that dividend growth was expected to be in the 10% range from 2015 through 2020...I felt compelled to invest in the company.

However, I was fully invested at the time of KMI's announcement with less than a thousand dollars of cash in my RRSP (where I'd have to hold KMI in order to avoid the 15% dividend withholding tax on US stocks). Therefore, after carefully considering which stock to sell, I decided to part with my shares in Bank of Nova Scotia ("BNS") as a recent run up in price had drove the yield down to about 3.5%. I do plan on re-initiating my position in BNS in an unregistered account, as I feel the big Canadian banks are exception long-term wealth creators.

As an added bonus, I was able to buy KMI on a small dip during the first day after the consolidation announcement, which resulted in a dividend yield on cost of about 4.5%. Going forward, I'm looking to add to my position in KMI as I feel it could be the US version of Telus, my favourite Canadian dividend growth stock, due to their transparency and disclosure regarding their future dividend policies and objectives.

(Full Disclosure: Long KMI)