Tuesday, August 30, 2005

Sin Stocks!!

I wanted to talk about something that I have been thinking about for quite some time now. Specifically, the question I ask myself is, "Should I invest in 'sin' stocks - specifically tobacco stocks?"

Let me start off by saying that I am in no way a straight-laced preachy type of guy. I believe that people have the choice to do whatever they wish (legal, of course). This post is just a representation of some of my analysis I did to decide on the course of action I use within my own portfolio.

There can be a big appeal to investing in stocks that focus on people's vices. The example that might come to most people's minds would be smoking. Altria, who controls Philip Morris International and Philip Morris USA, manufactures seven of the top 20 global tobacco products. Altria pays a very good dividend - currently at 4.2% - but I have seen it as high a 6%. In addition, the company seems pretty cheap against the market with a low P/E ratio. The high dividend yield is the premium that investors seem to expect as a result of investing in a risky stock that either through government regulation or huge lawsuit settlements can quickly alter the course of the company.

I must admit, this nice dividend payment would be a great addition to my portfolio and my $300,000 goal. I also believe that the company will do well into the future. They have been sued many times for billions of dollars and are still able to make shareowners happy. However, each time I think about buying it, a shred of guilt emerges inside of me that has me questioning whether I want to invest in a company that knowingly manufactures an addictive product that has been linked to a high number of deaths. In addition, I think about all the young kids I see smoking and it upsets me that they seem to think it is 'cool' to light up.

As a result of all this thinking I always end up not making a purchase. I just can't bring myself to do it. Even through all the numbers look stable and the payout is wonderful, I stay away. It amazes me too, because I try to keep my emotions out of my investing as it has burned me before.

Again, I am not suggesting that you should not own 'sin' stocks. In fact, if all the analysis looked good, I probably would buy a liquor stock or a gambling stock. You may think differently. Just be sure you are comfortable with your decision on an emotional level. It won't be fun owning a stock that makes you feel guilty!

P.S. I ran across a mutual fund that invests in what they call 'vice' stocks. It is called the Vice Fund and is run by Mutual.com. Interesting stuff.

Friday, August 26, 2005

Dividend Increase!

Just a quick post today, but one of the reasons I invest in dividend paying investments has happened today - a dividend increase of 5% (from $0.61 per share to $0.64 per share) from the Royal Bank of Canada. The entire article can be seen here. I will now be earning a total of $237.80 in dividends from the Royal Bank. A happy day in dividend investing land as the power of compounding shows its magic. The chart below shows my dividends that I will receive per year from all my investments:

To make things even more fun, I just checked my account and the Royal Bank just deposited a dividend payment of $56.66. This money will be reinvested into more Royal Bank stock on the next dividend reinvestment date with Canadian Shareowners Association.

Thursday, August 25, 2005

Keepin' It Simple

I love to make my life easier. I am constantly looking for ways to reduce the clutter in my life, and to be honest, not do something unless I really need to. My life is crazy as it is, with kids, a house, new dog, etc. Luckily, my wife is a wonderful person who handles a lot of the day-to-day stuff in our lives.

That being said, I came across an article that I thought was pretty good in terms of some key messages for busy people. The Six Rules for Lazy Investors provides a great overview of some of my own personal investment philosophies. For example, "Trust the Explosive Power of Compounding" provides a great summary of why I am so passionate about dividend investing. Watching my companies throw off income and then reinvesting that income to receive even more income on the next dividend payment date is awesome. "No market timing, no day trading" is also a good one for those of us who do not have hours a day to devote to watching the market.

I do have to question the author's viewpoint on "Buy Quality and Never Sell". If you are investing strictly in index funds then this makes sense. However, if you invest in individual stocks like I do, then I do not believe that you can buy and simply hold. Instead, I tend to look at in terms of "buy and monitor" or "buy and watch" as I have heard it referred to before. Individual stocks can tank (i.e. Merck), and understanding why it tanked and making educated decisions in terms of holding or selling is crucial. It has to be a pretty drastic situation for me to sell a stock, but that does not mean that I never will. I am pretty lazy but I ensure that I find time to monitor the stocks in my portfolio.

I really liked this article - even through it was focused more on index investing, a la The Coffeehouse Investor. I think if I can follow these steps well, I will succeed at my goal and then some.

Monday, August 22, 2005

Dividend Aristocrats

S & P regularly tracks a list of stocks that it calls "Dividend Aristocrats" - companies that have regularly upped their dividends for 25 or more consecutive years. Business has recently posted an article that lists the stocks here. As of this list, Merck is still on the list and that makes me feel a little more comfortable holding this dog in my portfolio, given the worries I expresses in this post.

Please note that I have updated my portfolio values on the left. Take a look - I am $1000 closer to my goal since my last update.

Sunday, August 21, 2005

A Bunch of Good Links

There is a number of websites that I visit on a regular basis (for blogs see my list in the left hand sidebar under 'Links'). Each one of these sites usually serves a regular purpose for

Value Line Free Reports:
Value Line is an awesome source for great research on 1000's of stocks. They publish what is called the The Value Line Investment Survey but it is really expensive to subscribe. However, they do offer all their reports for the Dow 30 stocks free. Check out this link.

Dividend Based Investing:
This is a great site focused on dividend investing run by someone who is just plain passionate about his dividend investments. There is loads of research. Every month he sends out a free report that screens dividend paying stocks based on criteria that he feels is important. I love the way he values investments based on their current yield in comparison to their previous periods average yield. Check this site out here.

Mergent's Dividend Achievers:
Mergent runs a portion of their site that they call Dividend Achievers. What is a Dividend Achiever? It is:

A publicly-traded company that has increased its dividends for the last ten or more consecutive years will be classified as a Dividend Achiever. Depending on the industry, companies must also meet certain capitalization requirements in order to be considered a Dividend Achiever.

Check Mergent out here.

The DRIP Investing Resource Center:
Lots of articles, research, and tools that will help with dividend-based investing. I really like the Choices section of his site that shows the results of a poll he runs every year asking people which DRIPs they invest in.

Gummy Stuff:
This guy is a math wize and he has A LOT of Excel files that analyzes investing a million ways. His site can be found here.

The Motley Fool:
I have been on this site for a long time. I subscribe to their forums which I find to be the most valuable section of the site, however I don't post much at all.

Yahoo! Finance:
Most of you probably already know about this site, but I will list it anyway. I go here a lot to get research on the companies I own or am looking to invest in.

Better Investing:
This is the site for the National Association of Investors Corporation. It provides investors with a good methodology for selecting stocks. Its counterpart in Canada is the Canadian Shareowner Magazine, which as you know is the service I use as my broker.

This site calculates the risk in your portfolio. They use some form of complex math to figure out how risky your portfolio is compared to other investment type. Pretty cool stuff.

Shakespeare's Canadian Investments:
Simply a primer for do-it-yourself investors. Loads of good information in here.

Anyway, those are a few of the sites I frequent regularly. Take a look and let me know what you think.

Transactions Since August 5th:

Reinvest IGM Financial Dividend: $33.44

Tuesday, August 16, 2005

My Poorest Performing Investment - Merck

Right now, the worst performing investment in my portfolio is Merck. I made my first purchase of Merck in December of 2003. At that time, things were not looking great for pharma but I liked Merck's numbers and the fact that they had been consistently raising the dividend year after year. In fact, I ended up buying some more in July of 2004. Then the Vioxx fiasco happened and my holding dropped by half. I faced a big decision - do I hold 'em or do I fold 'em.

5 years ago I would have unloaded that stock faster than you could say "Merck Just Tanked". However, I was a more mature investor and I decided to study the facts before acting. Besides, research had taught me that stocks tend to over-shoot when the crap hits the fan and I didn't want to give up too much if I didn't need to. The facts told me that the Vioxx withdrawal would hit the company on the top line and the bottom line. Additionally, the stock was not very popular - there was more selling than buying. However, as I was watching it the stock eventually stabilized after a couple of weeks. Even more importantly, the management kept the dividend steady in a time where they could have justified a cut. This was enough for me to keep holding on - and I did. I even bought a bit more in December 2004 and have continued to reinvest dividends.

Given the cloud over the company with regards to the Vioxx lawsuits the future doesn't seem too bright and I am getting a bit antsy. The stock has not moved much but I am still receiving good dividends and am looking for a dividend increase in the foreseeable future. If this does not happen I will seriously consider selling. I am going to be patient for now, looking primarily for that dividend increase, but would like to hear your thoughts. Please comment on what you would do in this situation...

Thursday, August 11, 2005

My Personal Finance Strategy

As part of my entire personal financial management plan, I have been looking at some of the debt and emergency reserves that I have and want to take action immediately. I have been thinking about it for some time now, but this post over at It's Your Money really got me thinking about it again. The issue however is that my dividend investments will have to take a bit of a hit to do so.

Every pay period, I put 5% of my gross income from my job in my ESPP account. My original plan with this money was to sell the company stock when it comes due, take the 15% gain I receive through participation in the plan, and simply invested it into one of my CSA accounts. Instead, I have developed a more comprehensive plan for this money that now includes the following personal financial goals:
  1. To build up a $1000 emergency fund by December 31, 2005
    • Action Plan (currently have $100 in Emergency Fund):
      • Deposit $156 per month to ING Direct account
  2. To pay off entire truck balance by August 1, 2007
    • Action Plan
      • Continue to make regular monthly truck payment
      • When monies become available through ESPP (every 6-months), sell stock and use proceeds to pay down loan
  3. To build up an $12,000 emergency fund by August 1, 2010
    • Action Plan
      • Continue to deposit $156 per month to ING Direct account
      • When monies become available through ESPP (every 6-months), sell stock and deposit into ING Direct account
As a result, I am going to remove the ESPP values from my listing to the left as it will not be contributing to my dividend paying investments for some time. All other contributions (pension, 10% of additional income earned, etc) will still be invested. It hurts to see this drop in value but I know that the money is going to a good cause - increasing my net worth and cash flow through debt reduction and securing my family's safety through a substantial emergency fund.

To keep track of my progress, I have created a little Excel spreadsheet that will highlight my progress.

Monday, August 08, 2005

Slow Progress

I have been on vacation for the past week and half and the life of leisure is a wonderful thing. Today, my kids and I headed out to Banff, Alberta just to hike around and I got to thinking how much I enjoy the ability to just go out and do whatever I want. That is really the primary driver for my desire to build a $300,000 portfolio by the time I am 40 years old that throws off an income of at least $15,000 per year. This, along with other passive income that I am trying to build through other business ventures will provide me with the ability to pick up and head out to Banff for the day just because I feel like it.

However, the problem is that I am impatient. I want this now. This is just basic human nature and I realize that it is not going to happen. All I can do is keep tracking to my plan and ENSURE that I meet my financial and personal goals - these goals are set up specifically to allow me to live freely and doing exactly it is what I love - spending time with my kids in the fresh mountain air. Onward and upward...

As a quick aside, I ran across this article in the Globe and Mail over the weekend. I truly believe that most investors would get spooked by such an article and start selling their financial stocks. However, if you read closely, it is pretty clear that the article says NOTHING AT ALL!!! Just that financial stocks went up, and now they are coming down. How insightful. The key is to ignore such drivel as nothing fundamental has changed.

Friday, August 05, 2005

Income Trusts

I just finished reading the book, Canadian Income Fundsand found it to be pretty good. The best thing I liked about it was that it did not paint Income Trusts as the be-all-and-end-all investment vehicle. Some authors believe that if they are writing a book about a certain investment type they have to be all positive and subsequently ignore the negatives (and the risks!). This book does a good job of explaining what those risks are, even hinting that income trusts may be near the tail end of a bubble that once interest rates move up in a concrete fashion - look out below. It provides a pretty comprehensive list of all Income Trusts available in Canada and is a good starting point for some research.

If you look at my portfolio, you will see that I own some Income Trusts - mainly my iUnits iREIT index fund. I have found this to be a pretty good income generator providing me with about a 7% income stream on my investment, which I reinvest right back into the fund. I also like it because it is diversified across a number of REITs which I believe limits my risk in the sector. I only wish the folks at iUnits had an oil and gas income trust.

Transactions for the week:
IGM Financial Dividend: $33.44
Reinvest Merck Dividend: $15.25
Reinvest iUnits Canadian Bond Fund Dividend: $19.31
Reinvest iUnits iREIT Fund Dividend: $21.43

Good Book:
As mentioned, Canadian Income Funds is a good primer on Canadian income funds as a source of income for a portion of a portfolio.