• I’m really excited as we just started our soccer selection camp for the summer of 2015. It’s fun to see all those kids running around and playing to get a spot on the team!

    This week, I’ve made a review of my asset allocation. I’ve also updated my dividend holdings. I have 2K sitting in my account; I’m still wondering what to do with it!

    I also compared Enbridge (ENB) Vs TransCanada (TRP). Which one do you like best?


    Here’s what I read this week on other blogs:

    Write your own reality writes about his 2015 goals. Yeah… that’s the time of the year! He’s looking for a $3,000 dividend payout this year.

    Dividend Growth Investor celebrates his blog 7th anniversary! That’s an amazing feat (for the record, this blog will be 10 year old on July!)

    Dividend Ladder looks at Cardinal Health.

    Sure Dividend explains how dividend investing is a good choice for retirees (hint; the payout reduces the volatility of your portfolio!)

    Here’s post about Bert’s saving rate of… FIFTY-SEVEN PERCENT!… I just can’t imagine I could do that… not for one month!

    Dividend Digger is buying Power Financial Corporation. Definitely not my favorite financial stock…

    Canadian Western Bank Analysis here.  It’s an interesting bank, but I still prefer NA and BNS ;-)

    Conservative Income Investor talks about the oil industry and its best picks.

    Dividend Yield lists 19 stocks ideas with solid dividend payout. A good chunk of them are Canadian stocks!

    Dividend developer talks about the hidden millionaires. I wish I’ll become one in a few years J

    DivGro highlights recent dividend increases. Gotta love BlackRock!

    Dividend Mantra posts his best stock idea for 2015. I can’t tell I agree but that’t the whole point of reading more than one blogs, right?

    3 Comments   |   Read more >
  • A few weeks ago, a member of Dividend Stocks Rocks enquired about Enbridge and Transcanada. Since both companies are trading on the same symbol on both US and Canadian market and that they are at the center of the attention with the Keystone XL pipeline, I thought it worthwhile to take a look at them.

    While small oil companies cut their dividends and oil exploration related companies saw their contracts cut, there is still a type of company related to oil that is providing immediate growth potential: pipelines!

    The pipeline industry is quite simple; it’s costly and complicated to put it in place (just look at the Keystone XL pipeline saga), but once it is open; the owner charges a price per barrel going through it. The best part; the flow of oil moving through pipelines is very stable. Therefore, it’s like having a direct line with a never-ending ATM. After reading this paragraph, you are probably going to ask: Mike, if pipelines are such an amazing dividend payers, why is it that both ENB and TRP are NOT part of your DSR portfolios? This is a worthy question. Let’s take a look at both companies to see why we haven’t picked them.


    Enbridge (ENB)

    Enbridge Inc transports and distributes crude oil and natural gas. It is also engaged in natural gas gathering, transmission and midstream businesses and power transmission.

    When I first looked at Enbridge’s DSR profile, I wasn’t impressed….


    enbridge profile


    Very high payout ratio, ever dropping EPS and hectic revenues. This doesn’t sound much like a never-ending ATM to me! The company struggles to show consistent fundamentals while trading at a very high P/E ratio (around 62). While their business model definition inspires trust and conservative investment; their fundamentals do not speak the same language.

    Then, we decided to dig further and look at ENB’s website and presentations. Here’s what we got from their 2015 Guidance Conference Call:


    industry leading adjusted EPS growth


    They use non-GAAP measures to adjust their earnings and show you they continue to make more money than before. Then, I looked at their statement of earnings to understand what is going on. I found that from 2012 to 2013, ENB operating income dropped by 14% due to higher expenses. I also looked at their cash flow to see if the pipeline was really growing the cash (keep in mind that EPS is based on accounting principles where the cash flow statement is king for any business). Well… due to a very high amount of investment, the cash flow statement is also lower in 2013 from 2012. There are good news related to this statement; #1 operating activities generate more cash flow than before and #2 if ENB invest massively, it also means they expect to make more money in the future.

    I’ll be honest with you, I’m not a pipeline expert. Therefore I had to search throughout many documents to find why and how ENB was able to play some magic with their earnings and post growth while I see a big downtrend from Ycharts. Here’s their definition of adjusted EPS (source Yahoo Finance):

    The adjusted earnings discussed above exclude the impact of unusual, non-recurring or non-operating factors, the most significant of which are changes in unrealized derivative fair value gains and losses from the Company’s long-term hedging program and gains on the disposal of non-core assets and investments, as well as certain costs and related insurance recoveries arising from crude oil releases.

    Let me translate this for you: from my understanding, this means; the pipeline business continues to generate higher and higher profits but the hedging strategies around oil prices and the disposal of various assets/investments hurts their profit big time… year after year. There is one thing I’ve learned from EPS. Yes, it is based on accounting principles and you can trick them from time to time. However, you can’t trick them forever; if the business is making more and more money, at one point in time, the EPS will follow. This isn’t happening with ENB. After this analysis, you probably understand why ENB is not part of any DSR portfolios.


    Transcanada (TRP)

    All right, now, let’s take a look at TRP DSR Profile:


    transcanada profile


    At first glance, TRP’s fundamentals look a lot better than ENB. What really catches everybody’s attention right now is more if the Keystone XL project will happen or not. While the State Department looked at the project, it published a positive report saying it would have minimal impact on environment. However, they also mentioned that if the oil prices were to fall below $70, “price below this range would challenge the supply costs of many projects”. We all know Obama is not too eager to see this pipeline crossing the USA and, according to some, would result only as a benefit to Canadians. For now, the best move for any investor would be to look at TRP and exclude the pipeline perspective. If Keystone XL happens, than you can simply add this to your “best case scenario”. Since TRP can also look at its other project (Energy East) that goes across Canada instead of into the US, you can bet TRP will eventually get a pipeline… From the graph found on the next page, you can clearly see that TRP’s pipeline diversification doesn’t stop at Keystone XL or Energy East by any means (source TRP presentation):

    In their most recent presentation, TRP expects to double its dividend growth rate from 2014 to 2018. For the past two years, it shows a 4% dividend growth and it should bump up to 8% annually. This wind of optimism is due to successful small to medium-sized projects (e.g. not major pipelines). If this would happen, the dividend growth might grow even stronger post 2018.

    Overall, if I had to choose between Enbridge and Transcanada, I would definitely buy TRP. TRP’s fundamentals are stronger, P/E ratio is smaller (62 vs 21) and dividend yield is higher. On top of all this, TRP has a lot of upside potential in the event of one of the two major pipelines get approved.

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  • A couple of weeks ago, I listed my personal goals for 2015. It will be a very busy year as I expect to retire from my day job in 2016. But besides my personal goals, I also have to take care of my investments! Let’s take a look at how I did in 2014…


    2014 Portfolio Review

    I’m quite satisfied with my investment return in 2014. At one point in time, I was almost beating my 2013 return! But then the price of oil sunk and hit my portfolio. I finished 2014 with a respectable +16.4% (including dividend). My portfolio pays a current dividend yield of 2.79%. This seems pretty low, but that’s because several of my picks went up greatly in the past two years (I’m over +30% since January 2013). Another interesting fact is all companies I hold raised their dividend in 2014.

    My best moves in 2014 were to increase my position in Apple (AAPL) and keep investing my new money in US stocks. As a Canadian, this boosted my return since the Loonie kept losing feathers to the Greenback. Apple is just an amazing company and it will continue to rock the mobile market now that Samsung is experiencing margin problems due to its “shoot everywhere and hope to kill” marketing strategy.

    Among my best performers (besides AAPL at +39.69% before dividend), I have Lockheed Martin (LMT) (+31.83%) and Disney (DIS) (+23.50%) with high returns excluding dividend. I have also many companies showing small double digits returns including dividend (JNJ, NA.TO, GS.TO, T.TO, WMT).

    My worst moves (so far) were to sell CVX and HSE and replace them with two oil related companies: Helmerich & Payne (HP) and Black Diamond (BDI). So far, both stocks are down the drain since the price of a barrel can’t stop falling. HP drills wells so investors are afraid the company may lose exploration contracts and Black Diamond rents modular equipments/homes and their major clients are oil sand exploration companies in Alberta. Numbers should be all right in 2015 since both companies will continue to honor their current contracts. However, I don’t expect a dividend increase this year for these two stocks. As long as oil prices remain volatile, they will be a heavy weight in my portfolio that I have to carry. At least, the dividend is good!


    Asset Allocation Review

    After working on my portfolio since 2010 to make it a 100% dividend stock investment in 2012, I have finally achieved a great diversification in terms of asset allocation:

    dividend guy asset allocation

    68% of my portfolio is invested in US stocks compared to 32% in Canadian companies. My biggest sector is Consumer, cyclical with 18% followed by all other sectors between 13% and 14%. It’s a well balanced portfolio preventing any market hit on a single sector. Therefore, even if my two oil related stocks (HP and BDI) continue their drop in 2015, it won’t affect my portfolio much (combined together, they are worth less than 9% of my portfolio.

    Since I expect to sell everything and leave on my RV trip, I don’t plan on adding new money in this portfolio for 2015. This will be the first year I skip an RRSP contribution. I prefer to use my money to pay off all my personal debts in order to improve my financial situation before I leave. The plan is to sell everything and keep roughly 50 to 60K invested (on top of my RRSP). I’ll have 0 debt and don’t plan on withdrawing money from the 50-60K either. Therefore, upon my return in late 2017, I should have enough cash for a down payment to buy another house!

    There are a few companies I’d like to add to my portfolio at the moment but I’m also happy with the ones I have in hand right now. Therefore, I don’t expect to trade much in this portfolio, sadly!

    Investment Return Expectation

    I’m pretty confident in the US economy for 2015 and since my portfolio is almost 70% invested in US stocks, I’m looking to get another double digit return this year, what are your return expectations?

    12 Comments   |   Read more >
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