Monday, July 25, 2016

Mid-Year Update on 10 Canadian Dividend All-Stars for 2016

After picking 10 stocks at the start of the year from the Canadian Dividend All-Star list (one from each sector represented on the list), and seeing them return 8.6% through March 31st, it is time to check them again to see how they performed through the first half of the year.  Before presenting the results, my disclaimers from the initial entry remain valid. Certain sectors contained only a small number of potential companies, namely Real Estate (3) and Technology (2). Additionally, my knowledge of the Basic Materials and Technology sectors is extremely limited...and even that might be giving myself too much credit. Therefore, my picks in those two sectors were based mainly on financial ratios and technical information. Lastly, I only own three of the companies I selected (Enbridge, Telus, and Bank of Nova Scotia), and would need to perform more due diligence on the remaining seven companies before committing capital to them.

Without further delay, here are the results of my picks through six months.



Although the 11.9% average total return (assuming an equal weight for each pick) is impressive, some context is needed. The S&P/TSX Composite Index was up 8.1% (excluding dividends) over the same period. Adding 1000 - 1200 basis points to account for dividends results in a comparable gain of 9.1 - 9.3%. A more apt benchmark, the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSE:CDZ) had a total return including dividends of 9.8%.

One observation that makes me quite happy is that the three companies which I own (ENB, T, BNS) all returned over 10% (21.3%, 11.1%, and 15.7% respectively). That said, my best pick SNC-Lavalin, which I have owned in the past and knew would benefit from the Liberal government's plans to invest in infrastructure, did not impress me enough to invest in, probably due to their 1.9% dividend yield. Its also interesting to note that my picks from the sectors where I feel least knowledgeable, Agrium (Basic Materials) and Evertz Technologies (Technology) performed poorly. There is probably something to be said with sticking to companies in sectors you understand. Lastly, being a contrarian, shares of Magna are starting to look interesting to me. Magna is an investment grade, multinational company, that is a leading automobile parts supplier. Beyond their global footprint, Magna pays its fast-growing dividend, that is well covered by their rising profits, in US dollars.

I would be remiss if I did not mention a pick I made when a fellow blogger from my area asked for my top investment pick for 2016 (thanks again for including me R2R!). My pick, TransCanada Corporation, is up 31.9% (including two dividends paid) from the start of the year. Although I thought about increasing my stake in TransCanada when it was on sale in January, I did not have the conviction to pull the trigger. TransCanada's recently completed the acquisition of Columbia Pipeline Group for $13B.  The acquisition seems to be helping management to be more focused in their capital allocation decisions, which should benefit the company going forward. Despite the high return during the first half of 2016, I would be reluctant to invest more in TransCanada at the current share price, as I feel the company is fully valued at the moment.

Although the first half of 2016 was a quite slow with only one new position (Granite REIT) being added to my investment holdings, my "picks" are over achieving my wildest expectations. The plan for next year is to put a nominal amount of money behind my picks to add a little motivation.

How have your stock picks heading into 2016 performed? 

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