Wednesday, July 2, 2014

Outlook for July 2014

Summer is finally here! The stock market continues to hover around the all-time highs relentlessly. On the Fed front, the bond purchases are cut in July to a total of $19B per month. The schedule is available here. For the most part, it seems business as usual, as the anticipated summer selloff never came. I am continuing to monitor closely looking for buying opportunities, even though there arent any great ones available.



My Holdings

Provided the right conditions, I intend to add to my positions in Johnson & Johnson (JNJ), Medtronic (MDT), Qualcomm (QCOM) and/or Rogers Communications Inc (RCI.B.TO)

Johnson & Johnson (JNJ) is a behemoth in the healthcare and consumer goods sectors. The double play on the two sectors makes this a great pick. JNJ is a dividend champion that has been raising dividends  (JNJ announced a 6.1% dividend raise in April) consecutively for 52 years; has 5-yr DGR of 7.6% and a 10-yr DGR of 10.8%. 

Medtronic Inc (MDT) manufactures and sells device-based medical therapies worldwide. Medtronic is a dividend champion that has been raising dividends for 36 years; has a 5-yr DGR of 11.6% and 10-yr DGR of 14.9%. The recent injunction against its CoreValve device has seen some weakness in the stock price - but MDT was able to appeal and meanwhile still able to sell the device.

Qualcomm (QCOM) designs, develops, manufactures and markets digital communications products and services based on CDMA, OFDMA and other technologies. QCOM is the leader in ARM-based processors which are found in the bulk of Windows, BlackBerry and Android devices. QCOM has been raising dividends for 12 years and has a 5-yr DGR of 16.95%Click here to read my full analysis of QCOM.

Rogers Communications Inc (RCI.B.TO) is the largest wireless service provider in Canada and is growing its business segments in cable and media aggressively. Rogers has been growing dividends for 10 years and has a 5-yr DGR of 11.13%. Click here to read about my analysis of the telecom providers in Canada.


Monthly Contributions: Every month, I add to my positions in the following stock and funds:
  • Claymore S&P US Dividend Growers ETF (CUD.TO) is an ETF of 83 dividend growers and provides me with exposure to excellent corporations across all sectors. The ETF has a 1.8% yield and pays distributions monthly.
  • iShares Canadian Financial Monthly Income Fund (FIE.A.TO) is an ETF of 24 Canadian financial equities (70%) and bonds (30%). The fund yields 6.5% and pays distributions monthly.
  • Scotia Canadian Balanced Fund (mutual fund) is an index fund tracking the Canadian S&P/TSX Composite Index and the DEX Universe Bond Index. The fund yields 0.52% and pays distributions quarterly.
  • The Bank of Nova Scotia (BNS.TO) is the third largest of the Canadian banks by deposits and market cap. BNS is also the most international of the Canadian banks with exposure in 55 countries outside Canada. BNS saw a pause in its dividend growth during the financial crisis. However, BNS has started raising dividends after the crisis with a 5-yr DGR of 5.03%. I have a DRIP plan in BNS and invest monthly to this holding.

My Watchlist

I am also considering various stocks that are not currently in my portfolio, but the current high valuations do not provide many options. 
  • Canadian National Railway (CNR.TO) engages in transportation of goods including petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal, and automotive products. The company operates 20,100 route miles of track that spans Canada adn mid-America connecting the three coasts of Atlantic, Pacific and Gulf of Mexico. CNR is a dividend contender that has been raising its dividends for 17 consecutive years and has a 5-yr DGR of 13.9% and a 10-yr DGR of 17.4%.
  • Norfolk Southern (NSC) engages in rail transportation of raw materials, intermediate and finished goods operating approximately 20,000 router miles across the southern and eastern US. NSC and other railroads stand to benefit from the oil boom in continental US, and before permanent pipelines are put in place, railroads are the only option available to transport the huge supplies. NSC is a dividend contender raising its dividends for 12 consecutive years and has a 5-yr DGR of 10.8% and 10-yr DGR of 21.1%.
  • Aqua America (WTR) is a water utility company based in Pennsylvania but also provides services in seven other states. WTR is a dividend contender having raised dividends for 22 years consecutively. WTR has a 5-yr DGR of 7.4% and 10-yr DGR of 7.9%. Water utilities are a great fit as an essential resource and the company provides very agreeable dividend growth for the sector. 
  • Procter & Gamble (PG) and Unilever plc (UL) are giants in the consumer packaged goods field. PG has five segments - beauty, grooming, healthcare, fabric care and home care. UL has four segments - personal care, foods, refreshment and home care. PG has been raising dividends for 57 years; has a 5-yr DGR of 10.2% and a 10-yr DGR of 10.8%. UL has been raising dividends for 25 years; has a 5-yr 7.07%.
  • Index Funds - China ETF, Emerging Markets - I am considering adding a new index fund to my portfolio to track the Chinese market/economy. Read about my comparison of available China ETFs here. I am also considering using an emerging market ETF instead of China-specific ETF and need to weigh out the options available.
  • Global High Yield - In a global economy, it would be naive to ignore international equities as an investment target, especially when a plethora of foreign companies pay a attractive dividends. I am considering adding international equities exposure via ETFs which yield approximately 6.5%. Click here for my list and analysis.
  • Income ETFs - I am also considering adding covered call ETFs to my portfolio as a more economical alternative to writing covered calls myself. The current environment is well suited to taking advantage of this strategy and should provide some good complementary income in my portfolio. Read about my review and analysis here.

What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist?

Disclosure: My full list of holdings are available here.


12 comments:

  1. Hi R2R,

    As an European I'm focused on US companies for now. There are not many European companies that pay dividends and the Canadian companies are not very well known here.

    PG is on my watchlist tho. I think PG is trading at a fair value. It's right in the middle of the 52-low and 52-high at the moment.

    Thanks for sharing, your portfolio looks very safe and diversified to me!

    Best,
    DfS

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    Replies
    1. Thanks for the input, Dfs. I feel like European stocks are probably at a better place and am planning on taking a closer look at them as the US market seems fairly saturated and overvalued. Yeah PG looks interesting, right at the middle of the 52-week range.

      regards
      R2R

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    2. "There are not many European companies that pay dividends..."

      What is meant by this? European stocks pay dividends as much as US companies. No difference there. The frequency might be different but they do pay dividends, of course.

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    3. Thats right, Anonymous. There are a lot of European stocks out there that pay dividends albeit some not as frequent.

      R2R

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  2. I was really hoping to get a selloff but obviously that hasn't come yet. That's why I've been trying to put some capital to work even though it's not been at the best values. I almost added to my MDT position last month and am still looking for an opportunity to do so. A lot of the valuations on the good DG stocks are about the same so I think I'm going to focus more on allocation at this point. Of course I'll still keep value in mind though.

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    1. Hey PIP, I was hoping for a summer selloff as well..but oh well, its good to average in - as MDP says below. Good idea on keeping the allocation in mind with the valuation at similar levels.

      Best wishes
      R2R

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  3. R2R,

    I think you have to keep averaging your way through this market. There may be a 10% correction coming, but it may only be after a 30% move up.

    MDP

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    Replies
    1. You are right, MDP. I was building up on my cash positions over the past few months and selling a bit to fund the home purchase, but its a good idea to keep averaging in. Between the bond buying and the stock buybacks, the market is quite resilient. I am keeping an eye on the buybacks as well.

      Thanks for the input. Best wishes
      R2R

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  4. R2R,

    Looks like a solid watch list there.

    I like your regular contributions to BNS. I wish I could go back in time and add to my position in the mid-$50s, but such is life. I really like that bank.

    Best wishes!

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    1. I started the DRIP last year (which took months to get started) with all the mailing, delay and setup. I was a little bummed about the removal of 2% discount on BNS DRIP program, but am still keeping it. Eventually when I have a large position, I will move it to a tax-sheltered account. Its a solid investment and am quite happy with it :)

      regards

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  5. Thanks for sharing this, R2R! I'm interested in finally adding JNJ to my portfolio this month. I only wish it were cheaper so I could purchase more of it!

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    1. JNJ is one of my favorite holdings and I like the double play between healthcare/pharma and consumer goods. Its one of the companies I envision will be around and thriving for decades. I started with a small position last year and want to add more to it. It is expensive and I am also trying to figure out if I should wait or just buy more and average in.

      Best wishes with your investment
      R2R

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