Tuesday, March 15, 2016

What My Top 3 Stock Holdings Reveal About Me

Being an introvert, one of my advantages when it comes to investing is my ability to look inward to learn more about myself. In past entries, I explored my most costly stock picking losses, my mixed feelings about holding cash in my investment accounts, and my tendency to gorge vs nibble on stocks. After reading a couple breakdowns of various bloggers`dividend income earlier this month, I decided to take an introspective look at what my top 3 stock holdings reveal about me. Since I do not provide detailed dollar disclosure on my investment holdings, this post will also shed some light as to the identity of my current 3 largest holdings.

1. Alaris Royalty

Since last summer, my biggest stock holding by a pretty large margin has been Alaris Royalty. Even before the recent 10% bump in share price after the company reported their Q4 2015 results, Alaris was my favorite company to own. Instead of boring you with numbers, here is a link to Alaris`s management`s definition of how they are building an optimal dividend stream for investors. This description really speaks to me as a dividend growth investor as my goal is to produce a low volatility, highly visible, extremely liquid, diversified revenue stream that increases my cashflow over time. On days when I worry about concentration risk in my portfolio (I have yet to meet a bank, telecom, or pipeline that I don`t take a closer look at), knowing Alaris has investments in 16 companies across a wide range of industries helps set my mind at ease. I am continuously impressed my Alaris`s management team that shows patience and long-term thinking in dealing with their portfolio of companies. Even with all these positives, I remain cautious that Alaris`s business model requires new capital to fund future investments. Although they can temporarily fund new investments from their recently increased revolver, the company will have to issue equity from time-to-time. That said, increasing their revolver last spring allowed the company to put off issuing equity until market conditions are favorable for them. Although I likely won`t invest more in Alaris, I do plan on buying shares in my non-registered account while slowly working down my position in my RRSP.

2. Royal Bank of Canada

My investment in Royal Bank, spread across my RRSP and my unregistered account proves I am lazy and slow to sell a good company. For the record, I do not consider either of those two characteristics to be huge downfalls as an investor. The story here is that my plan to migrate Canadian holdings from my RRSP to my unregistered account and TFSA is not yet complete, and I have been slow to sell my shares of Royal Bank in my RRSP as I have no idea where to invest the proceeds. Plus, the bank has twice raised their dividend in the past nine months, so I have kept collecting the higher dividend while I figure out what to invest in next in my RRSP. My large position in Royal Bank is also reflective of my comfort with the banking sector in Canada. Last December, I had about 20% of my portfolio in Canadian banks at a time when some pundits were forecasting huge oil-related loan losses that were imminent. After the Canadian banks reported record profits in 2015, and continued strong results in Q1 2016, some commentators are finally starting to realize that Canadian banks have diversified loan books and can generate top-line growth without underwriting questionable loans. Given that I work for an institution that could be thought of as a bank, and that I have spent part of the past 8 years analyzing foreign banks, my comfort with Royal Bank and the sector in general should not come as a huge surprise.

3. Telus

Had I not sold a couple shares of Enbridge Income Fund last week, that company would have edged out Telus as my third largest holding. Both are fantastic companies, which provide great visibility regarding their dividend plans, and have a record of delivering on those plans. Although Telus`s dividend yield of 4.3% is lower than Enbridge Income Fund`s yield of 6.2%, I sleep a bit better at night holding Telus as I understand their business model (telecom) with more clarity than that of Enbridge Income Fund (which is essentially a yieldco for pipeline assets). As an investor, I appreciate simple business models that even an idiot like me can understand. As much as I hate dealing with telecoms (I have been a customer of Rogers, Bell, and Videotron at various times), they have a unique ability to raise prices at regular intervals, provide highly demanded services to their clients, and operate in a somewhat oligopoly in Canada. In summary, Telus reveals my love of predictable, easy to understand business models, with management teams that know what is important to income investors (visibility and consistency). Although I am perfectly comfortable with my large Telus holding,  I do not plan to add to it in the near term given I would like to first build up my holding in BCE.

My top 3 investment holdings indicate that I gravitate toward visible, consistent, easy to understand companies whose management caters to income-focused investors. Even if I can sometimes be lazy and slow to act with my holdings, the comfort I experience by investing in predictable companies allows me to sleep well at night.

What do your top investment holdings reveal about you???


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