Tuesday, September 23, 2014

Bought: Bank of Nova Scotia ("BNS")

After selling my position in the Bank of Nova Scotia ("BNS") over the summer to finance an investment in Kinder Morgan Inc, I used my Q4 contribution to my investment account to re-establish my investment in BNS. I know it's not quite Q4, but given the record date for BNS's dividend is October 2nd, and since it seems to take four business days for trades to settle on the TSX, I made my quarterly portfolio contribution early in order to re-establish my position in BNS. Here are a few reasons I feel so comfortable investing in BNS.
- Relatively low P/E of 12X in this highly priced market
- A fair dividend rate of 3.7X coupled with a dividend growth rate of 10% in the last year (and an average growth rate of about 10% over the past 5 years).
- High barriers to entry given the duopoly banking industry in Canada.
- Gives me some exposure to Latin America through BNS's operations in that region.

Lastly, with my plan to slowly move my Canadian holdings from my RRSP to my taxable account, this re-investment follows-through with my plan. Although it's only two-thirds of the total number of shares I held in my RRSP, if I can scrimp together some extra money in Q4, I plan to buy some more shares in order to re-establish my initial position.

(Full Disclosure: Long BNS and KMI)

Sunday, September 21, 2014

Short-term Trade: Bought and Sold Alaris Royalty Corp.

After a nice gain on a short-term trade in Sirius XM Canada ("XSR"), Mr Market discounted my other favorite short-term trading target, Alaris Royalty Corp ("AD") on September 9th. Since the stock was down more than 3% that day on no news, and because I'd eventually like to own Alaris for the long-term, I bought in at $32.61.

Fast forward almost a week to September 15th, while I was waiting for a connecting flight in Los Angeles airport (LAX), using their free WIFI, I noticed that Alaris was selling about a $1/share higher. I exited my position at $33.61, and made another gain with my short-term trading fund.

The latest gain allowed me to repurchase Alaris on Friday at the great price of $32.45. I was even able to buy 10 more shares with the gains of past transactions and a dividend I received on Inter Pipeline fund (a company I own for the long-term in my TFSA). If Alaris falls below my purchase price, I'm perfectly happy holding them and collecting the 4.6% dividend (which grew over the summer)....but if they happen to rebound above $33 again, I'd likely look to sell them and buy more shares back at a lower price.

(Full Disclosure: No position in Sirius XM Canada, Long Inter Pipeline Ltd, holding Alaris for the short-term)

Saturday, September 13, 2014

Savings Rate

I've read a couple interesting articles lately about the low savings rates of Canadians (apparently only 3.9% on average) and how 51% of us live pay cheque to pay cheque. I find these types of articles depressing and frustrating. One of the great values my parents instilled in me was that you should spend less than you earn and save/invest the surplus. That said, I was curious to calculate my own savings rate. Below is a rough estimation based on my revenues and expenses over the last 30-days. Since I'm the shy type, all numbers are presented in percentages.

Work Income - 85%
Investment Income - 15%
Total Income - 100%

Payroll deductions (EI & CPP) = 5%
Bus pass = 1%
Charitable donations = 1.8%
Mortgage payment = 18.3%
Household joint expenses = 9.1%
Property taxes = 2.2%
Cottage expenses = 1.8%
Car = 1.8%
Cable and internet = 1.3%
Insurance = 1.8%
Miscellaneous (dining out, gifts, travel, clothes, frisbee, etc.) = 7.3%
Vacation = 1.8%
Total expenses = ~ 52.7%

After doing the above calculations, which are obviously laced with estimates (notice the 1.8% coming up relatively frequently), I'm not terribly surprised to see that I have about 50% of my income available for savings. A couple interesting points are included below to further explain my actual savings rate.
- Work deducts the equivalent of 10.3% of my total monthly income off of my pay cheques to fund my contribution to the work pension plan. This sounds like a lot, but having never received the money, I don't miss it.
- Every three months, I aim to invest 30.3% of my total income in stocks.
- I get a yearly bonus at work in February, and the great majority of that is usually invested in my TFSA and RRSP.
- Since moving to Quebec, I usually end up paying in the equivalent of 6% of my total monthly income in taxes at the end of the year. This might sound horrible, but I look at it as an interest-free loan from the government of Quebec.
- After the end of November, my largest monthly expense, the mortgage payment, should be history!
- Getting paid every two weeks, I receive two extra pays each years which aren't factored into the above breakdown.
- Although my work income is almost 6-times as much as my investment income, I'm much more proud of the latter.

Any of my readers open to calculating and discussing their savings rates? As long as it's positive, I think you're on the right track.

Wednesday, September 3, 2014

Short-term Trade: Bought & Sold Sirius XM Canada

As much as I consider myself a long-term investor, sometimes, the temptation to make a short-term trade overwhelms me and I give in. Most books I've read caution that this behaviour is risky, and to set a limit as to how much you'll commit to such trades. Through the first nine months of 2014, I've kept the amount of capital I use for such trades at no more than 3% of my total portfolio value. I've made seven of these trades and managed to generate a return of about 27% of my capital. Furthermore, I've generated this return by trading in two stocks that I'd be perfectly happy holding for the long-term (Sirius XM Canada and Alaris Royalty Corp). 

The latest trade was buying shares in Sirius XM Canada last week, when they were priced at a bargain basement $7.55. At this price, Sirius had a dividend yield of 5.6% (that does not considering the special dividend paid earlier this year). I've analyzed Sirius's financial statements and feel that not only is the dividend sustainable given their free-cash-flow generation, it could actually be increased provided operating and capital costs are kept in line. Today, through a limit sell order, I sold my share of Sirius at $7.76. Since my short-term trades have been done in my TFSA and RRSP, there are no taxes, only $20 in total brokerage fee transaction costs. 

My short-term trades have been infrequent because there are very few Canadian companies that I follow closely that I'm not already invested in. Furthermore, I like shares in these companies to fall about 3% on no news before I'd consider investing in this manner. This short-term strategy is not something I'd recommend for cautious investors. That said, so far this year, for me, the returns have been worth the risk. 

(Disclosure: No position in Sirius XM Canada or Alaris Royalty at this time)