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    I must be honest with you; I discovered Disney (DIS) by fluke. It wasn’t on any of my watch lists and never appeared in my filters (since I prefer a dividend yield over 2.50%). I took a look at Disney solely because I wanted to analyze two other related kids’ entertainment companies: Hasbro (HAS) and Mattel (MAT). Those two companies represented great buys aopportunities back in 2012 but I never thought I would end up buying the low yield dividend stock used only for comparison purposes.

     

    Low Dividend Yield – High Investment Return

     

    Disney is not exactly comparable to Hasbro and Mattel since the first is more in the entertaining business with ESPN and their theme park division but all three businesses target the same market: kids and their parents. I wasn’t too excited to add Disney after my first analysis but I thought it would be interesting to compare a low yield stock compared to two strong companies with respectable dividend yields (over 3% at that time).

     

    I was reluctant to add a low dividend yield stock to my portfolio. After all, buying dividend stocks is all about receiving dividend payouts, right? I know many dividend investors who ignore stocks paying 1% in dividend yield. But on May 2013, I decided to buy 45 shares of DIS and I ignored MAT and HAS:

    disney

    It was definitely the best decision, but it’s easy to play Monday morning quarterback. My decision was motivated by Disney’s phenomenal fundamentals for future dividend growth. The company currently represents the perfect combination of growth: revenues, earnings and dividend payouts are following the exact same trend. This is quite a feat for any company:

    Disney2

     

    But This Was Last Year, What About Now – Did You Miss Mickey’s Boat?

     

    In my opinion, this is still the time to buy Disney. Funny enough, when I bought this stock back last year, it was at its 52 week high…  and if you buy it today (more than one year later), you will still buy it around its new 52 week high.

     

    I think that if you buy it today, you will probably have to be a little patient before showing a double digit return on your investment. The stock is trading at a 21 P/E ratio which is probably a bit high for the company at the moment. When you look at its P/E ratio history, you see Disney’s valuation a bit overpriced right now:

    disney3

     

    Mind you, it’s not the first time the stock is trading around the 20-22 mark. I don’t really mind about the relatively high price to pay for this company since the future looks bright as well. We all know they can work their magic around a character set to boost their profit and they recently bought the biggest character franchise ever created (Star Wars). Once the next Star Wars movie hits the screen; revenues will take another jump. Their recent acquisition of Maker Studios for $500M will boost their distribution channels in this segment and leverage their existing entertainment division (Lucasfilm, Animation Studios and Marvel).

     

    The US economy is going forward and the consumers’ appetite for entertainment will grow in the upcoming years. Disney is not only a leader in its industry; it has positioned its products to benefit from the next wave of spending. In my perception, Disney looks like a professional surfer ready to take on the next big wave.

     

    I believe there are several good years to come for this company, what do you think?

     

    Disclaimer: I hold shares of Disney (DIS)

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    September wasn’t in perfect harmony with this great year on the market. In fact, it was the opposite; we left the month of September with a sour taste in our mouths… similar to what happened in January.

     

    I don’t know if you recall what happened in January of this year (the human is likely the living being with the largest memory and has an even larger capacity to forget!). After an incredible 2013, investors started to become nervous and greedy. Results were never good enough and everybody started to think the party was ending. It seems we are getting to the same scenario right now. Some people will tell you the magic line “but it’s different this time!

     

    What we have on the menu of terror

    I’m amused by this investors’ nervous reflex to find ten thousand reasons to see the economy crashing. I decided to call it the “menu of terror”. So if you want to be anxious, you can stop sleeping right away! Here’s the list of reasons why:

     

    The Menu of Terror

    #1 Huge tension in Iraq

    #2 Huge tension in Ukraine/Russia

    #3 Huge tension in Hong Kong!

    #4 China’s economic slowdown (read less than double digit growth)

    #5 A market that is already overvalued (around 18 times its profit)

    #6 A strong US dollar that could slowdown exports

    #7 The fact the FED printed so many dollars with all their quantitative easing measures

    #8 Canadian housing prices at a crazy level

    #9 Canadians’ debt at a crazy level

    #10 The inability of Central Banks to raise their interest rates without crushing the economy

    #11 Brazil’s social problems and their potential debt arising with the Summer Olympics

    #12 Higher expectations of companies by greedy investors

    #13 The fact that October is historically the worst month for the market (where we experience the worst crashes)

     

    I’ll stop at 13 reasons because I like this number and want to make sure you are anxious about the market J hahaha!

     

    What makes you worry right now?

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    We will never repeat this enough; You can never start saving too early! And being a father of three, I can appreciate that savings is not always the top priority when you work on the budget. Not so long ago, I wanted to start a new portfolio for my kids’ education (called an RESP in Canada). My oldest son just turned 9 this summer and college is not too far away. However, between my mortgage payments and retirement savings, I don’t have much cash left to save. This is why I started this portfolio with only $50 per week.

     

    Is $50/Week Enough?

     

    You might think $50/week is not much to start investing, but it’s more than enough. Between a an 30% Gov’t subsidy for education and two good years of market return, my portfolio is now showing a value over $8,500. As you can see, you don’t need a fortune to build an interesting portfolio.

     

    I must admit I made a mistake when I started this portfolio; since I didn’t have much money to start with, I started by investing in mutual funds. When I compare my two portfolios (my self-managed RRSP vs mutual funds in the RESP), I can see that it is a mistake:

     

      2013 YTD
    RRSP 21.70% 12.50%
    RESP 17.23% 12.09%
    Difference 4.47% 0.41%

     

    The choice of picking mutual funds cost me about 5% total over almost 2 years. It’s not the end of the world, but still, it is still money I didn’t make. When I realized this; I started working on how to build a portfolio with a small amount. If I had to start over with $0 in hand and savings of $50/week, this is how I would start my portfolio:

     

    #1 Setup an online brokerage account

     

    Well… this may sound obvious for some of you, but as soon as you are committed to start investing, you should open an online brokerage account. You don’t need $10,000 to start investing with a brokerage account; most companies will accept your money, no matter how much you want to save. If you are American, I recommend you start with TradeKing for two reasons: #1 great customer service and #2 the lowest trade commission in the industry ($4.95/trade). It definitely matters a lot if you intent to invest small amounts.

    You can check out TradeKing’s account special features here.

     

    If you are Canadian like me, Questrade is the way to go. They offer a USD RRSP (not all brokers do) and they are also the cheapest online broker on this side of the border. They offer promotions when you open an account so check out their website for their latest promotion.

     

    #2 Set up an automatic savings plan in my brokerage account

     

    The first move to make once you have opened your brokerage account is to setup an automatic savings plan in a money market fund or an index fund/ETF if you are more aggressive like me. I don’t like having money sitting on the sidelines. This is why I always prefer to have my small cash amount invested in an index instead of seeing it dying at 1-1.5% in the money market. However, this is up to you; both strategies will lead you to the same point: growing your fund up to $1,000. The $1,000 mark is important because of the transaction fee charged. If you pay $4.95 per trade, this represent 1% on a complete buy and sell transition ($9.90 on $1,000). Since your goal is to keep saving on a weekly basis, I wouldn’t bother buying with a smaller amount on hand (you will eventually have too many stocks with small positions).

     

    #3 While you save; build your “buy list”

     

    As soon as you start saving, build your buy list. At $50/week, you will be able to make your first trade only five months down the road! This is enough to make a list of about ten stocks that will meet your fundamental requirements (you can read mine here) and follow these companies through at least one quarter.

     

    I would personally aim for blue chips that show great diversification such as Procter & Gamble (PG) or Johnson & Johnson (JNJ). They are almost as diversified (product wise and geographic wise) as a mutual fund!

     

    #4 Get your first $1,000 to work for you!

     

    Once you reach $1,000, it’s time to buy your first stock. Make sure you keep your $50/week investment plan in your money market fund or index to make sure you build another $1,000 very fast. You can also use your dividend payouts to build your next $1,000. Since the dividend payout will be very small on a $1,000 investment, dripping at this point is not very useful. Keep in mind that in another five months, you’ll have enough money to buy another stock!

     

    Risk management and diversification is extremely difficult when starting a new portfolio with a small amount. Your investment return for the first two years are pretty much luck as it will be hard to compete against the market with so few positions in hand. In order to help new investors choose their first stocks, I built a starter portfolio with four stocks.

     

    #5 In two years; you’ll have a “real portfolio”

     

    With an annual savings of $2,600, you will get reach a total of five different companies in only two years. At this point, you will have something that looks like a real portfolio and going forward will be easier. The point is to keep buying stocks with your next $1,000 available until you have 10-15 stocks in hand. This will happen after another two-three years of savings. Then, you can add to your existing position through dripping or by adding an extra $1,000 to each of your positions.

     

    It’s a long process but as you can see, you don’t need much money on hand to start investing. Only $50/week is enough to build your nest egg! Now, I have to get moving and sell my funds to start trading for my kids’ future!

     

    Disclaimer: I hold shares of JNJ

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