My Own Advisor

I was happy to see the latest edition of Canadian Business in my mailbox this week.  Every year, the magazine issues the Investor 500 edition, a comprehensive look at Canada’s 500 largest publicly traded companies.  In this edition of CB, I also found an article listing the top 15 Canadian companies by profit and total revenue:

Although these stocks offer a range of yields, the top-15 by profit would likely be a good starting point for your dividend stock portfolio research.  Some of these Canadian companies have been paying dividends for over 100 years and others, regular and increasing dividends for decades.

Let’s a have quick look at some of the data:

• Royal Bank (RY) – paid dividends since 1870.
• TD (TD) – paid dividends since 1857.
• Bank of Nova Scotia (BNS) – paid dividends since 1832.
• Bank of Montreal (BMO) – paid dividends since 1829.
• Imperial Oil (IMO) – paid dividends for over 100 years and has increased annual dividend for 18 consecutive years.
• CIBC (CM) – paid dividends since 1868.
• Canadian Natural Resources (CNQ) – paid regular quarterly dividend since 2001.
• Canadian National Railway (CNR) – paid regular quarterly dividends since 1996.
• Bell Canada (BCE) – paid regular quarterly dividends since 1983.
• Great-West Lifeco (GWO) – paid regular quarterly dividends since 1990.
• Husky Energy (HSE) – paid regular quarterly dividends since 2001.
• Power Financial (POW) – paid regular quarterly dividends since 1990.

Can you imagine the income you might have received from such companies if you had bought and stay invested in such companies over the years – instead of jumping in and out of the market?

Can you imagine the capital appreciation you would have gained as well?

Investors, if you’re struggling over what Canadian dividend paying stocks to purchase for your portfolio, while pouring over company metrics still makes sense and buyer must always beware, consider owning the Canadian companies that make a bunch of money and have been doing so for a very, very long time.  Just ask do-it-yourself investors like Susan Brunner and Robert Gibb.

What do you think of these companies?  Do you think past performance could be any forecast of future results for these dividend paying stocks?

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A successful company has a few options when they earn real money.  Companies can:

• Reinvest its earnings back into the business,
• Buyback some of its common stock, or
• Pay a dividend.

I prefer the latter for all companies I own directly and from the perspective of a shareholder in Coca-Cola, I’m glad I do.

Coco-Cola (KO:US) started paying a dividend in 1893 and has been paying a quarterly dividend since 1920.  At the time of this post, the dividend payment is $0.28 USD.  Here are some interesting KO metrics courtesy of TMX and DividendInvestor.com:

Metric	Value
12/2012 balance sheet assets	>$86 B
12/2012 cash from operations	>$10.6 B
P/E*	22.20
Market cap	>$187 B
Dividend yield	~2.6%
5-year average dividend yield	~2.9%
Dividend payout ratio	~58%
5-year average dividend growth rate	>8%
Total return last 5 years	>80%

*Recall P/E tells us a ratio about market value per share / earnings per share (EPS).  Generally, a higher P/E means investors are expecting higher earnings growth ahead.

With 50 years of consecutive dividend increases behind them and a generous P/E on the books, I can see KO churning out profits and dividends for investors for decades to come.  Let’s look at some interesting calculations:

• An investor who owned KO 23 years ago today (just picked the year 1990 at random) would have returned over 1000% on this investment.  The total value of a $10,000 investment in KO 23 years ago would be worth about $117,000 today.  You can play with stock calculators from this page or other sites and see for yourself.

With international growth on the rise, up near 20% in Thailand in particular and near 10% in other countries year-over-year, the future looks promising for Coca-Cola.

Since I’ve owned Coca-Cola, I’ve seen the quarterly dividend rise from $0.41 USD per share, to $0.44, to $0.47, to $0.51 before the 2-for-1 stock split last year.  As a top-20 holding, blue-chip stud in Vanguard’s Total Stock Market Fund (VTI:US), I see no reason to sell this company for the foreseeable future.  If the stock price moves up, I will continue to hold it.  If the stock price moves down, I will consider buying more if I have the money to do so since killing my mortgage competes heavily with my investing objectives.

As an investor, reliability is important to me.  I also recognize there are other ways businesses can deploy their earnings and for many companies, dividends are not guaranteed.  However in the case of Coca-Cola, it seems like dividends and capital appreciation are pretty much sure things.

Do you own Coca-Cola stock directly?  Do you own it indirectly via Exchange Traded Funds (ETFs) like VTI or others?

Image courtesy of http://www.photographyblogger.net/16-exceptional-coca-cola-pictures/

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For the last few months, thanks to winning a prize from one of my favourite sites, I’ve received daily newsletters from the TSI Network.  For those that don’t know, the TSI Network is the online home of Pat McKeough’s highly successful family of investment publications:  The Successful Investor, Stock Pickers Digest, Wall Street Stock Forecaster and Canadian Wealth Advisor.  You can sign up for some or all of these publications about Canadian, U.S. and international stocks.

After reviewing my inbox filled with these publications for the some time now I’ve noticed a rather interesting (and predictable) investment trend when it comes to great buys for Canadian stocks.  Maybe you’ll agree with me…

First up though here are some of the Canadian stocks highlighted as great buys in Pat’s recent publications, in no particular order:

• Toromont (TIH)
• Enerflex (EFX)
• Intact Financial (IFC)
• Yamana Gold (YRI)
• Great-West Lifeco (GWO)
• Alimentation Couche-Tard (ATD.B)
• Transcontinental Inc. (TCL.A)
• RioCan REIT (REI.UN)
• Teck Resources (TCK.B)
• Bellatrix Exploration (BXE)
• Encana (ECA)
• Cenovus (CVE)
• Canadian Utilities (CU)
• ATCO Ltd. (ACO.X)

Although Pat’s reports are interesting and I’m thankful to receive the stock details in them, they can be distilled down to “tipping” many Canadian dividend paying stocks you’ll find by owning Exchange Traded Funds (ETFs) like CDZ (that holds Canadian dividend aristocrats) or XIU (that holds the biggest 60, mostly blue-chip Canadian stocks).  Either that or you can own many of these “hot stocks” directly.  Once your stocks are purchased, you can largely forget the tips and focus on doing other things with your time; since a plan that includes buying and holding low-cost ETFs, blue-chip Canadian stocks or a combination of both will provide steady dividends and capital appreciation for the foreseeable future.

This now said, hopefully TSI won’t take my subscription away.

Do you agree with me?  Do you subscribe to any investment newsletters for tips?  

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In the My Own Advisor inbox recently, I got an email from a reader wondering the following:

“Hi,

I would like to invest in dividend paying stocks.  Do you know where I can find a good list of companies that have been paying stocks for 20 years or more?  I really don’t know where to start other than looking for companies individually.”

Thanks for your question and you’re luck.  I’ve selected a list of U.S. and Canadian companies that have been paying dividends for generations.  Here they are:

U.S. Stocks

These U.S. companies have been paying dividends for well over 100 years.

• Stanley Works (SWK:US) – paid dividends since 1877.
• Exxon Mobil (XOM:US) – paid dividends since 1882.
• Consolidated Edision (ED:US) – paid dividends since 1885, increased for 38 years.
• Proctor & Gamble (PG:US) – paid dividends since 1890.
• Coca-Cola (KO:US) – paid dividends since 1893 and a quarterly dividend since 1920.
• Colgate-Palmolive (CL:US) – paid dividends since 1895.
• Dupont (DD:US) – paid dividends since 1904.

If you want the oldest of old, you’ll have to buy York Water.  They made history last year when it comes to dividends; they are the oldest investor owned utility in the U.S.

Other selected U.S. companies that have paid increasing dividends for decades include:

• Johnson & Johnson (JNJ:US)
• Diebold (DBD:US)
• Emerson Electric (EMR:US)
• 3M (MMM:US)
• Target (TGT:US)
• Kimberly Clark (KMB:US)
• Pepsi (PEP:US)
• McDonald’s (MCD:US)
• Clorox (CLX:US)
• Walmart (WMT:US)
• Becton Dickinson (BDX:US)

The list is longer than this.  You can find a list of U.S. dividend aristocrats here.  The S&P 500 Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years.

Canadian Stocks

These Canadian companies have been paying dividends for well over 100 years.

• Bank of Montreal (BMO) – paid dividends since 1829.
• Bank of Nova Scotia (BNS) – paid dividends since 1832.
• TD (TD) – paid dividends since 1857.
• CIBC (CM) – paid dividends since 1868.
• Royal Bank (RY) – paid dividends since 1870.

Other selected Canadian companies that have paid dividends for decades include:

• Enbridge (ENB)
• Fortis (FTS)
• Bell Canada Enterprises (BCE)

As you can see, dividend histories are not as established for many Canadian stocks when compared to U.S. stocks.

You can find a list of Canadian dividend aristocrats here.  Alternatively, you can visit the iShares website.  Look up CDZ.  CDZ is the iShares S&P/TSX Canadian Dividend Aristocrats Index Fund aims to track the S&P/TSX Canadian Dividend Aristocrats Index, less fees and expenses.  For holdings to quality, securities must: “a) be common stock or income trust listed on the TSX and in the S&P Canada Broad Market Index (BMI); b) have increased ordinary cash dividends every year for 5 years, but can maintain the same dividend for a maximum of 2 consecutive years within that 5-year period; c) have a minimum C$ 300 million float-adjusted market cap.”

I hope this information helped, providing you with a starting point for further research.

Got a question for My Own Advisor?   Ask away in a comment or contact me.

Thanks for reading and sharing this article.

Inspired by the recent “RRSP season” this post is about some Exchange Traded Funds (ETFs) and Canadian dividend paying stocks that might not win any sprints but will win the marathon that is long-term investing.  Why do I think that?  Because ETFs are some of the best in the business and less miniscule money management fees, as the market goes, so does the ETFs and your portfolio returns.  In other cases, I’ve listed some individual stocks for you to consider for your portfolio, what I consider dividend paying studs that should never stop rewarding investors over time to provide almost bond-like income.

Let’s go.

VTI in your RRSP

The Vanguard Total Stock Market Exchange Traded Fund (VTI) invests in more than 3,000 U.S. stocks.  This ETF won’t wow you with yield but based on historical data this ETF will give you long-term capital appreciation.  A hypothetical $10,000 investment in VTI ten years ago and held to today would have grown to almost $25,000.  You cannot control what the stock market will do but you can control your money management fees.  This ETF is one of the best at that.  The Management Expense Ratio (MER) is a skimpy 0.06%.  For the price and the long-term return it should generate, it’s one of the very best investments for your RRSP portfolio.

XIU in your RRSP or TFSA

The iShares S&P/TSX 60 Index Fund (XIU) seeks to provide long-term capital growth by replicating, where possible, the performance of the S&P®/TSX® 60 Index less minor fees.  This Index is comprised of 60 of the largest (by market capitalization) and most liquid securities listed on the TSX.  Like VTI, you’re not going to get huge yield (just over 3% yield) but holding this ETF should provide long-term capital appreciation.  10-year returns are close to 9%.  The MER on this product is a slim 0.18%  - to own the biggest 60 companies in Canada and avoid stock picking all together.

Any Big 5 Canadian Bank in your TFSA or unregistered account

Canadian bank stocks have offered yield and capital appreciation for investors for decades.  Personally, I like these companies for yield since I don’t see lots of capital appreciation from the Canadian financial industry in the future.  If I’m wrong, well, that’s a very nice bonus.  I suspect most investors would do well to buy any of these companies at reasonable prices and hold them until, well, forever.

• Bank of Montreal (BMO) – paid dividends since 1829.
• Bank of Nova Scotia (BNS) – paid dividends since 1832.
• TD (TD) – paid dividends since 1857.
• CIBC (CM) – paid dividends since 1868.
• Royal Bank (RY) – paid dividends since 1870.

Enbridge (ENB) in your TFSA or unregistered account

Enbridge (ENB) is responsible for the transportation and distribution of energy across North America.  From an investing standpoint Enbridge has distributed dividends for decades, almost 60 years.  Dividends have increased every year since 1996 even through the dot-com boom and bust and the recent Great Recession.

Fortis (FTS)  in your TFSA or unregistered account

Fortis (FTS) is the largest investor-owned distribution utility in Canada serving more than 2,000,000 gas and electricity customers.  Its holdings include electric utilities in five Canadian provinces and two Caribbean countries, and a natural gas utility in British Columbia.  It also owns hydroelectric generation stations in Canada, Belize and northern New York.  Fortis has increased dividends every year for almost 40 years.

Why these built to last ETFs and stocks in those particular accounts?

Canadian dividend-paying stocks receive favourable tax treatment from our government; they are eligible for the Canadian dividend tax credit if held in taxable accounts.   My plan is to place Canadian dividend paying stocks in these accounts to obtain this tax credit for those investments.  I also choose to own Canadian dividend paying stocks in my TFSA to earn tax-free dividend income.  I’ll lose the dividend tax credit doing so in the TFSA but then again, the dividends are tax-free and do not affect income tested government programs.

On the contrary, U.S. ETFs do not receive any favourable tax treatment from our Canadian government.  With U.S. ETFs in your RRSP however, you will avoid paying withholding taxes.

I recognize I’ve left out other great ETFs and Canadian companies to invest in but these are rock solid investments in my opinion that could fit into most DIY investor portfolios rather nicely.  Besides, I can’t list every great company to invest in, in one blogpost.  I need to save some content for the future.

What do you make of these choices?  Do you agree or disagree? 

What great ETFs did I leave out?  What rock-solid companies did I leave out?

Thanks for reading and sharing this article.