Investing is not only about making money. In an ideal world, we all hope to pick the right stock at the right time and sell it for a profit. This always gives us a good story to tell and we wish we had the same story for each stock in our portfolio. Unfortunately, investing is a lot more complicated than simply picking strawberries during a warm, sunny day with your family.

I started my investing journey ten years ago and made some great moves and some stupid ones too. Over the years, I’ve tried to identify my own challenges, my own investing pain and try to solve them the best that I could. I’m sharing my experience here and hope you will find hints to solve your own investing pain through my story.

Right Time to Buy or Sell

Is there anything more complicated than knowing when is the right time to buy a stock or get rid of it? Building a list of prospects using stock websites hasn’t been a problem for me since my friend and I built our own Excel system that grabs crucial metrics in our investment model from different sources and puts them together. So I don’t have a problem building my watch list, but finding the right moment to buy and sell is more complicated.

When you buy, you want to make sure you do it during a slump because you hope for a quick profit. The point is to not sell the stock right away, but a quick paper profit makes you feel good about your trade, right? When selling the stock; you are stuck in a dilemma; the companies have generated a lot of profit, should I sell now or wait and make more profit? Greed comes into play and it’s always hard to make a decision.

I’ve decided to solve this problem with “neutral” metrics added to my decision. When I purchase a stock, I don’t worry too much about the timing (besides when I seize occasions like AAPL recently). I’m thinking that I’ll be holding this stock for a few years at least so the exact timing of the transaction shouldn’t matter too much.

When selling a stock, I base my decision on the fundamentals that made me buy the stock in the first place. As long as my required metrics are showing in the financial statements, I stick to it. The day it disappears, the stock is not part of my portfolio.

Buying Foreign Dividend Stocks – Tax Issues

Buying foreign stocks is not always easy. First you need more information on the company prior to trading. You want to make sure you understand its economic environment as you understand your own country. Then, currency fluctuations are a pain in your total investment return. Imagine if you pick a stock rising +10% but in a currency 15% weaker than yours during the same time… You lose 5% on a “good trade”. On top of that, you have to make sure that you don’t get hit twice by the tax guys.

In order to solve this problem, I’ve made extensive research for both Americans and Canadians investors. I’ve compiled several sources saying the same thing about different foreign investments. I wanted to keep my portfolio simple so I quit the idea of buying anything else but US and CDN stocks. I think both markets have enough to offer that I don’t need to go elsewhere to find a good stock. Plus, the tax implications regarding dividends is much easier to understand when you are playing with only 2 markets!

I’ve detailed my research and how to optimize your foreign stocks in my book; Dividend Growth – Freedom Through Passive Income.

Manage my Asset Allocation

When I look for a new stock to add to my portfolio, I sometimes feel like a bee going from one flower to another. I don’t necessarily keep my asset allocation per sector in mind. I set my global asset allocation a long time ago: 100% stocks. This was the easy part. However, I’m still struggling when it’s time to diversify my portfolio by sector.

When a sector is doing well, chances are that you will find several interesting stocks showing similar metrics. Since I always start my stock research within a pre-screened list, it happens that I have a concentration of a few sectors. For example, when you look for strong dividend stocks in the Canadian market, most of your screeners will show you 4 – 6 banks (RY, CIBC, BMO, TD, ScotiaBank and National Bank) and 4 telecom companies (BCE, Telus, Rogers and Shaw). If your target is to buy 10 different stocks, I don’t call buying this package a good asset allocation mix. It’s true that they have all performed well in the past 10 years but it’s also true about the banking and telecom industry in Canada in general. If the banking system would be hurt by a potential Canadian housing bubble, I don’t think holding 4-5 banks in your portfolio would be a good idea.

But then again, it’s easier said than done. I know I my affinity for techno stocks, I currently own INTC, STX, AAPL and Telus could almost count as a techno stock. This is definitely too concentrated but I’m torn between a sound asset allocation and the fact that I find so many good investing opportunities in this sector!

As you can see, I haven’t resolved my asset allocation pain. I guess a good idea would be to build a virtual portfolio  with a  sound asset allocation and try to meld it with my real investment strategy.

Finding Time to Take Care of My Investments

Time is probably another big issue for most investors. We all have a few minutes to look at the market daily and see if our brokerage account went up or down. But how many times do you actually read the financial news, check out financial statements and make sure your investments are solid?

The fact that I work in the financial industry helps me a lot to combine both my job and my passion for investing. Therefore, each time I educate myself for work, I become a better investor at the same time. But if I didn’t work in the financial industry, keeping track of my investments would be quite a challenge. I would be interested in hearing about how you do it, do you use trading alerts? Are there any specific websites or tools helping you to manage your portfolio?

What about You? What’s Your Biggest Investment Pain?

I’m currently working on additional resources to be offered on The Dividend Guy Blog and I need your help with this. Since I don’t want to work for nothing, I want to know what your biggest investment pain is? What is the #1 thing lacking in your investment strategy to make you happy and make sure you are making money from your portfolio? Thx for sharing your thoughts!

You may not know this yet, but I’m a big hockey fan. Being raised in the tradition of the Montreal Canadiens, I have followed my team religiously since I was 12… that was when they won their last cup…. Hahaha!

Buying stocks is always the fun part when managing a portfolio. You go on the “hunt”, you find an interesting stock, do more research about it and get excited. You buy some shares and feel proud about the catch of the day. But when it comes to managing your portfolio, i.e. should you buy more of this company or should you sell it? It becomes a little bit harder.

Today, I’m going a little bit off the traditional post format where I suggest following strict metrics and a proven investment process (read about mine here). I wanted to share with you how you can truly and successfully build your portfolio and manage it to see each of your stocks like a hockey player. Have you ever dreamed of becoming a General Manager? Here’s your chance to see if you would be successful! As is the case with a hockey team, it’s impossible to build your portfolio with only Crosbys and Stamkos; you will have 1^st liners but you will probably end-up with some grinders too. Everybody can’t score on the same night .

Where do You Start? With Your Goalie !

As is the case with a real hockey team, your goaltender is your wild card. An average goalie can still do the job if you have a strong team in front of him. Also, you may have the best goaltender ever, if you can’t score, you will still end-up losing 1-0.

You guessed it; your goalie is your fixed income. Bonds are there mostly to “limit” the damage but can’t ride your portfolio to very high investment returns. I’m the kind of GM who thinks that offense is the best defense and this is why I don’t have bonds or CDs in my portfolio. I would rather leave my goaltending spot to steady dividend stocks such as Johnson & Johnson (JNJ) and Coca-Cola (KO).

How to Choose Good Defensemen

A good hockey team has 2 types of defensemen: defensive and offensive defensemen. While the defensive Def are doing a similar job as the goalie, offensive Def are very important as they will help you in your transition movements and become crucial during power plays.

You have already heard about “defensive stocks”, right? These are your defensive defensemen. No matter what happens during the stock market, they will always lose less during a recession but will lag during a bullish period.

Defensive stocks in a good sector can become offensive defensemen. The telecom and the banking industries are fairly protected and stable in Canada. You have 4 major players in the Telecom arena (BCE, Rogers, Shaw Communication and Telus). These stocks are part of a relatively secure environment which provides them with the title of “defensive stocks”. However, have you noticed how some of them have surged over the past years?  Just look at the Telus graph over the past year:

+22% in 12 months… does it sound like a very defensive stock? This looks more like Erik Karlsson to me! Stocks like these are probably the best card in your hand; stable, reliable and ready to burst at the same time! There is a reason why the Canadiens are doing so well this year so far. This reason is Markov (10 pts in 16 games) and Diaz (12pts in 16 games). Not bad for defensemen, huh?

I Have a Few Second Liners

As is the case for recruiters in the NHL, most of our picks will end-up as second or third liners and only a few of them will rank as “potentially the best player on the team”. The point when selecting a young player is to select a forward that has potential and that can fit into your team. You must find key characteristics that will help your team win more games.

The “drafting” selection is similar when buying stocks. You always hope to buy the next stock that will rule your portfolio but in the end, if you concentrate on selecting stocks that are able to contribute to your overall returns, you will do a good job.

For example, Chevron (CVX) and Husky Energy (HSE) are part of my Dividend Holdings. They are mature companies running a well established business in the oil industry. They should provide a steady dividend all the time. However, since the oil sector moves rapidly; their growth potential is higher than a regular defensive stocks such as KO. They will be scoring from time to time but they won’t probably become my best player or game changer either.

Looking for a Power Forward

The term “power forward” in hockey means a big, strong player able to shift towards the center of the ice and place himself in front of the goalie to score important goals. They are able to bring the puck with them and carry the team on their shoulders.  The more power forwards you have on your team, the more difficult it is to play against your team. Unfortunately, power forwards are rare and hard to discover before they evolve.

For the past 10 years, a good example of a power forward stock would be Canadian banks. Who would have predicted back in 1999 during the techno bubble that the best performing stocks for the next 10 years would be old grinchers with their techno retarded banks? Over the past recessions, Canadian banks have proven themselves as incredibly strong and productive stocks. Their balance sheets are stellar and their dividend yield impressive. They have consistently been scoring over the past 10 years and represent an important strength in anybody’s portfolio. I have shares of BNS and NA.

Looking for a Star Player?

Each team tries to get their hand on the next Gretzky, Lemieux or Crosby. Obviously only a few teams can count on a huge star like this. And, sometimes, those we thought could be stars end-up being normal players. I don’t know if you have looked at Ovechkin’s stats for the past few seasons but after racking up over 100 points three seasons in a row, he has dropped to 85, then 65 and he currently shows 10 pts in 15 games…. But this is not the biggest flunk in the history of hockey, far from it. I’m more thinking about another Alexander… Daigle (Sorry Ottawa fans!).

Searching for an all-star stock is always risky. You aim for huge returns but might end-up with close to nothing. In past years, I’ve tried my luck with RIM, PDN and VNP. So far, all three stocks look more like Scott Gomez today than anything else. They were very productive and impressive at one point but quickly faded away into mediocrity.

I’m currently trying to make some money back with a ride on Seagate Technology (showing over 30% return in my portfolio) and Apple (hoping to see it back at $700 in a few months). I’m taking two important risks right now in my portfolio and I feel I can do it because I have great stocks to compensate. My core is solid and, unlike NHL GMs, I don’t have a salary cap and can keep all of them .

Trade / Contract Buybacks – It’s the Same Thing With Your Stocks

When a player doesn’t fit in as you thought it would or doesn’t perform, sooner or later, a GM will trade this player or, now that he has the option, buy back the contract. He has taken a loss, but his team will be better without that player anyways.

This is how you should feel about an underperforming stock. “Trade” it for a better performing stock you have on your watch list or simply sell the shares, take the loss and wait to make a better move in the future. Hockey has become a business and it’s all about numbers, your investment portfolio is all about numbers as well! Never fall in love with a hockey player… and never fall in love with one of your stocks!

Let’s jump into the top hits from the last week.

1. BHP Billiton (BBL) Dividend Stock Analysis @ DGI.

2. Coca-Cola, Wal-Mart And Other Big Names Increasing Their Dividends @ DGS.

3. Recent Buy: Power Financial Corp. PF Series S @ Dividend Ninja.

4. Emerson Electric: Fair Price for 2013 @ Dividend Monk.

5. One Big Reason To Believe in Google’s ($GOOG) Stock @ IS.

6. My Dell Went Mmm @ Barel Karsan.

7. Why Index Mutual Funds Still Have a Place @ Canadian Couch Potato.

8. Recent Buy – Coca-Cola @ Dividend Engineering.

9. Why Recent Mergers and Acquisitions are Great for Investors @ The College Investor.

10. Carnival of Personal Finance 02.18.13: Springtime Running Edition.

Yesterday, I took a look at one company chosen to be part of my best 2012 dividend stock; IGM Financial. Today, we are taking a look at its big sister, a stock in my Best 2013 dividend stocks; Power Corporation.

Power Corporation (POW) Business Description:

Power Corporation is a holding company. It owns interests in several other companies such as Investors Group (IGM), Great West (GWO) and London Life (Freedom 55 anyone?). Their primary core of business is investments, financial planning and life insurance. It also owns interests in communications and media through Square Victoria Communication Group.

There aren’t many holding companies in Canada and Power Corporation is most probably the biggest with a market capitalization of $12.33B with participation in several important companies.

POW Stock Graph

POW Dividend Growth Graph

POW’s dividend payouts have been relatively flat for the past 5 years. In fact, the latest dividend increase was made in 2008 when the quarterly dividend went from $0.24 to $0.29 per share.  We can understand that their main business (mutual funds and life insurance) has been severely hit in 2008. A quick look at their earnings per share will show us why the stock hasn’t increased its dividend:

A big part of the insurance companies’ values obviously lies within their assets used to back the insurance policy payouts. For insurance companies; it’s all about actuarial valuation of their insurance payouts vs their premiums and assets under management. The recent interest rate collapse hurt this business as the actuarial calculations all went bust. POW wasn’t spared from this event and this is why you can see how difficult the following years were.

The Company Ratios and Financial Info:

POW Stock Technical Analysis

POW is currently trading on a strong uptrend. It might be a good time to explore this stock. Click here to get a free stock analysis report on POW.

Power Corporation Upcoming opportunities and dangers:

Power Corporation is an important player in the financial services arena in Canada. Notably, Investors Group is the biggest mutual fund company in Canada. It is a well-diversified dividend paying machine. EPS was down during the economic crisis (from 2008 to 2010) but POW show stronger metrics since 2011.

If interest rates continue to stay low (which will probably be the case), the life insurance (Great West, London Life, Canada Life) segment of Power may continue to hurt. As the investment market is shifting towards low cost ETFs, Investors’ mutual funds and its high MERs may also be at risk. However, they are doing a good job at selling financial planning to their clients in exchange for higher MERs on funds.

Now that insurance companies master a little bit better the “new” economic environment, we can bet that their future returns will be better. Private investments, infrastructure along with other alternative investments are taking more space in their asset allocation and this may be the way to avoid volatility and still earn decent interest payments.

Final Thoughts on Power Corporation

If I had to choose between POW and IGM, I would definitely take the first stock. Power shows more diversification and owns a good part of IGM nonetheless. This enables the company to play on both the insurance and mutual fund industries and operate one of the most admired Canadian conglomerates.

The reason why I picked POW in my Best 2013 dividend stock portfolio was based on my expectation of stability both in terms of value and dividend payout. You can’t expect to hit a homerun with each selection and this stock is a good “stabilizer” for me. At over 4% dividend yield, this is definitely a great alternative to bonds!

Disclaimer:  I do not hold shares of POW

I have sent out a couple of emails about investing strategies through my mailing list lately and it has generated some interesting discussion about certain stocks. Two of them were brought to my attention as they are somewhat similar: IGM Financials (Investors Group) and Power Corporation. Since I have covered IGM in my best 2012 dividend stocks and picked Power Corporation for 2013 (download the book here), I thought of sharing more views about both stocks. Here’s my IGM stock analysis.

IGM Financial (IGM) Business Description:

IGM Financials is mostly known for the name Investors Group, the largest mutual fund company in Canada. The company also manages Mackenzie Investments and belongs partly (57%) to Power Corporation (POW). Investors Group provides financial planning services along with mutual funds and insurance services. Through a partnership with National Bank, they also provide regular banking products and loans to their clients.

Investors Group has been particularly strong in Western Canada. This was a happy coincidence for them as the oil industry has propelled Alberta to become the richest Canadian province. IGM has also been known for their aggressive leveraging strategy (borrowing to invest). During the 2000s (before 2008), this strategy gained a lot of adept investors and you can bet that most consultants made a lot of money out of this “new” way of getting funds from their clients.

Their latest quarter results (were published on Feb 8^th) were on target with analysts’ expectations. Unfortunately, they have failed to increase their sales in 2012 compared to 2011 (5.78 billion Vs 6.02 in 2011). I guess that their high MERs funds have started to hit their salesforce.

IGM Stock Graph

IGM Dividend Growth Graph

As you can see, there is a very small dividend growth over the years but nothing too impressive. The current payout ratio (65%) leads me to think that we won’t see a huge dividend increase in the upcoming years. The dividend yield is relatively strong for a financial company (over 4%) which makes it an interesting stock nonetheless.

The Company Ratios and Financial Info:

The company shows a high ROE and Earning per shares growth for the past 5 years. The fact that IGM had it rough in 2012 makes it a good contender to bounce back in 2013. Still, I don’t expect impressive sales from IGM this year.

IGM Stock Technical Analysis

IGM is currently trading on a strong uptrend. It might be a good time to acquire this stock. Click here to get a free stock analysis report on IGM.

IGM Financial Upcoming opportunities and dangers:

IGM is the Canadian leader in mutual funds sales with over $120 billion in total assets under management. They are still showing a very strong position and I would not underestimate their salesforce (which is their strongest asset in my opinion). They have successfully built a fence around their clients by offering all banking products through the National Bank back office (coupled with a non-competing clause). During volatile markets, sound financial advice is needed by investors and IGM will be there to meet clients’ requests. They show a positive 5 years sales growth despite a disastrous year in 2008.

With the coming of low fee investments such as Vanguards’ products, high MER funds such as IG’s and Mackenzie will face fierce competition. Their added value through sound financial planning will be challenged by clients who will require additional reasons to pay over 2% in management fees. New legislation around leveraged loans (a popular strategy at IG) may also affect mutual funds sales.

Final Thoughts on IGM Financial

If you are looking for a good financial stock paying a healthy dividend IGM may be a good pick for a few years. However, when I look at the long term perspective, I really wonder how IGM financials can continue to sell such high MERs fund competing with Vanguard for example.

I think they will have to review their business model and a good financial planner won’t be good enough to keep clients paying over 2.00% in management fees. What do you think?

Disclaimer: I do not hold any shares of IGM

Let’s see the news from the last week…

1. Become a Millionaire: Savings By Age @ Compounding Returns.

2. Does This Move Mean Anything For Microsoft ($MSFT)? @ IS.

3. What’s Your Business? @ Dividend Engineering.

4. Warren Buffett’s Dividend Stock Strategy @ DGI.

5. Facts and Benefits of The Foreign Exchange Market @ The Passive Income Earner.

6. McDonald’s Corporation (MCD) Dividend Stock Analysis @ DGS.

7. The Lure and Dangers of High Yield Stocks (Part-1) @ Dividend Ninja.

8. What is Dividend Investing? Why Should You Do It? @ My Own Advisor.

9. Should you invest in Target Date Funds? @ Retire by 40.

10. Carnival of Personal Finance: In the Name of Love and Money Edition.

At the beginning of the year,  I had set 3 main investing goals (you can read about them here):

#1 Buying a consumer stock (I picked another techno stock instead with Apple)

#2 Dripping most of my stocks (not done yet, I’m procrastinating!)

#3 Buying an index ETF (most probably an ETF tracking the S&P 500)

Why a Dividend Investor Would Switch to Index Investing?

The main purpose of dividend investing is obviously to select the stocks you think will both outperform the market and pay some healthy dividends at the same time. The power of dividend growth over time should guarantee a nice and comfy nest egg too.

So why would I invest a part of my money into indexes? What’s the point of adding ETFs to a 100% dividend stock portfolio? The reason is simple; I want additional growth while not spending too much time working on my portfolio. I will still buy dividend stocks and continue with my core strategy, but will add some ETFs to my asset allocation; here’s why.

Reason #1: Instant Diversification

When I look at my current asset allocation, I notice that I’m heavily invested in three sectors: financials (BNS, NA), technology (INTC, AAPL, STX and Telus is on the borderline of being techno) and resources (CVX, HSE, VNP). I added some stability with JNJ and KO but still, that only makes 4 sectors for my whole portfolio with a heavy concentration in techno stocks (there is a reason for this and you can read it here).

By investing 10% of my portfolio into an ETF tracking the S&P500, I’m adding immediate diversification. will cover several sectors at the same time and ensure some growth during a bull market. I can then concentrate my dividend stocks into specific sectors without having to worry about my asset allocation being unbalanced.

Reason #2: Avoid the Impact of the Fiscal Cliff

We are still not 100% sure about what is going to happen with the dividend taxation model after the US government resolves its fiscal cliff. I don’t have a crystal ball but I expect an increase in taxes. The US government is stuck with a debt problem and it’s the lowest taxed industrial country. This seems like an easy solution to resolve an important problem.

What would be the companies’ and investors’ reactions once their dividends are amputated? We can’t really tell. History has shown us that tax breaks brought more dividend stocks to the market but it doesn’t mean these companies will withdraw their payouts once additional taxes are levied.

The best way to play safe is to add some non-dividend paying stocks to the equation. By adding an index, I ensure I hold companies doing others things to generate wealth for investors than paying dividends. They will invest in R&D, participate in mergers and acquisitions, market new products, buy back shares, etc.

Reason #3: Seek Growth in a Bull Market

The S&P 500 was up 16% in 2012. I expect 2013 to be a similar year as the problems are known (government debts, slow growth, BRICK slowdown) and businesses will continue to post solid results. Since the market is still undervalued, it would normal to see it jump by 10%

The problem is dividend stocks have been the teacher’s pet for a while now. With low yielding bonds and stock volatility, some dividend stocks grew fast and are how valued with a premium (over 15-16 P/E ratio). Non-dividend paying stocks have been ignored and undervalued. This situation may switch rapidly due to the fiscal cliff and pure growth stocks could steal the show in 2013. If this happens, it will be hard to beat the market with only dividend stocks. They may pay a nice dividend and I feel that pure growth will also be necessary. I don’t want to miss the bull market and think that investing 10% of my portfolio in an index ETF will be a good move.

Reason #4: One Position I won’t have to Reevaluate

Managing a stock portfolio is not only about buying the right stock at the right time. You have to follow each of your stocks over time to make sure the reason why you have bought them in the first place is still valid. This is why I reevaluate each stock once a year and follow their quarterly releases to ensure growth and cash flow are still generated.

Buying an ETF index is also buying some free time. You don’t have to reevaluate your position on a quarterly basis. You basically just have to rebalance your portfolio once a year but that can be done with a simple trade and not through a deeper financial analysis. I don’t want to go with a coach potato investment approach as I like reading financial statements and feel I can build a very solid dividend payout over time. However, it doesn’t mean I can’t save a few hours by buying an ETF!

Reason #5 It’s a Nice Way To Manage My Liquidity

Instead of parking a part of my money in a money market fund earning 1%, I would rather invest in the stock market right away. It’s more volatile but the money is still accessible. If I want to sell my ETF to buy a good dividend stock, I will always have this possibility. Chances are that if a specific security drops significantly and becomes a buying opportunity, the market as a whole will be down too but will still be less affected. Therefore, I would sell my ETF down by 4% and to buy a stock that dropped by 10% or more. This would be a great deal.

On the other hand, if I wait 6 months or a year to buy another dividend stock, I am almost assured to avoid leaving money on the table by buying an ETF. Leaving my cash in a money market fund that doesn’t even make up for inflation is a tragedy!

Final Thoughts on ETF Investing

I should be making my move in the upcoming weeks as the money is currently sitting in cash in my account (and I literally hate when this happens!). I think I will be making a better move by investing in a diversified ETF covering the S&P500. My goal is not to have a dividend concentrated ETF as I preferto  manage those stocks on my own. By adding a wider spread ETF, I think I’m building a stronger portfolio.

Do you invest in ETFs? How’s your asset allocation for 2013?

January is always a good month for me as I receive my year-end bonus! Each year, I use this bonus to fund my retirement account and maximize my savings. Enjoying life today is important, but being able to enjoy it once I’m retired is priceless!

So each beginning of the year comes with the very same question: How Should I Invest My Money?

The question is always the same but the answer differs greatly from one year to another. My portfolio evolves as the market does. This year, I mentioned that I wanted to buy shares of a consumer stock. I have had my eye on McDonald’s (MCD) for a while now but want to open my horizon. I would have bought MCD when it was trading at $88 but my bonus just came in too late. This is why I’ve decided to search for other options.

Looking at My Own Dividend Stock List

I don’t know if you are like me, but each time I have money in my brokerage account, the money is calling me!  I feel the urge to invest it, ASAP. This is kind of dumb since I won’t be touching this money for the next 30 years but still, I want to invest it right away. I feel that I’m leaving money on the table if I don’t trade right away.

However, buying a stock in a hurry is probably the worst decision an investor could do. This is why I keep a “watch list” close at hand. Each time I have money to invest; I can turn around and see what’s on my watch list. At least these are pre-screened stocks representing all decent investments (in my opinion anyways!)

At the beginning of the year, I produced 30 stocks analyses (20 US and 10 CDN stocks). They are what I call The Best 2013 Dividend Stocks. Last year, my virtual portfolio did better than well and this is why I repeated the experience again this year. This is my own watch list for the year. Out of my list of 30 stocks, a few are part of my “favorites”:

KMB (well diversified, strong company)

MAT (I’m still a kid )

PG (long term bet since P/E ratio is high)

BDI (leader in a growing industry)

EMA (a lot of promising projects)

You can buy the book here for only $2.99 and get the 30 stock analyzes.

Then Something Caught My Attention…

In order to create my top 30 stocks list, I’ve used severe metrics. Each stock must show the following characteristics:

Dividend yield over 3%

Positive 5 year dividend growth

Dividend payout ratio under 75%

Return on equity (ROE) over 10%

Positive 5 year annual income growth rate

Current price / earnings ratio (PE) under 20

When screening with these metrics, I ensure that I select long term dividend payers. I obviously ignore a lot of stocks that could be of interest. On the other hand, the point of screening the stock market is to put several companies aside in order to save time.

This is when something caught my attention while reading the financial news; Apple (AAPL) dropped significantly in value. If you look at the past 6 months, the stock dropped by 25%:

What’s the reason for this huge drop? It’s mainly because investors don’t see how Apple can continue their incredible growth. Both the iPod and iPad models have been duplicated faster than a virus. It has become complicated to create a “new” product to sell to customers. For that reason, the stock is going down.

But the key here is how much Apple is valued compared to its peers?

As at February 8^th, here’s the P/E ratio of some other techno stocks:

You may argue with my comparison but I tried to reach as many techno stocks that could share a part of the business with Apple. This is not easy as these companies now have several departments and it’s hard to compare one with the other. Technically, there are no companies doing the same thing as Apple!

What I see from this chart is that Apple is undervalued compared to other techno stocks companies and has a lot of room to distribute a higher dividend. The company will continue to sell their products and a P/E ratio at 10 is more than reasonable.

Besides my dividend metrics (minimum 3% and dividend growth positive over the past 5 years), Apple meets my other requirements. In addition to that, it also has the possibility of increasing its dividend over the next 5 years and will definitely meet my 5 years dividend growth requirement in the future. These are the main reasons why I decided to buy AAPL.

Since it’s a “gamble” as I also count on a stock rebound to $600-$700, I only bought 5 shares at $453.81 for a book value of $2,269.05. This represents 7% of my RRSP portfolio. I figure it’s a good gamble since the drop potential is quite low (I can’t see AAPL trading at a P/E ratio of 8!) and the impact on my portfolio is not too important.

I have some liquidity in my portfolio and I’m expecting to complete another of my investing goals for 2013 by buying an ETF. I’ll do some research and share my experience with you in the future.

What do you think? Do you think that Apple is a good pick around $450-460?

Disclaimer: I hold shares of AAPL.