How we invest our money – Stocktrades.ca
I must say, I really enjoy reading and learning about how other people invest their money.
That’s because I feel while there are many personal finance principles that could apply to many of us, as investors, no two paths to financial independence are the same.
Again, a common refrain on this site: personal finance is personal.
On that note, you might have read a few recent posts on my site – as part of any long-standing investor profile series. Here are some examples:
A few months ago, I talked to a young, successful blogger and investor named Maria who is building a small real estate empire here.
I got the chance to catch up to Robb Engen about his FIRE journey – that is – Financial Independence, Retire to Entrepreneurship.
A few months before that, it was nice to learn how financial independence was finally fulfilled via Dividend Growth Investor.
Regular email subscribers know I’m a hybrid investor: I own a mix of stocks for income and growth, and I own some low-cost ETFs for mostly growth purposes.
Here are more details…
Approach #1 – we own a number of Canadian dividend paying stocks for income and growth.
We own these stocks inside our non-registered account and within our Tax Free Savings Accounts (TFSAs). These income updates focus on that.
Approach #2 – we own a number of U.S. dividend paying stocks for income and growth AND we’re owning more units of low-cost U.S. Exchange Traded Funds (ETFs) inside our RRSPs over time.
We own U.S. assets because we believe investing in companies beyond Canada’s borders will provide us with some much needed U.S. and multinational diversification.
But like I mentioned in my introduction, I remain very curious how other people invest their money…to see what’s different about their journey and what I could learn from it.
How we invest our money – Stocktrades.ca
As part of a small but mighty Canadian blogger and content creator community, I’ve been fortunate to meet many great folks in this space. The guys at Stocktrades.ca are some of those people.
In fact, if you’re a regular subscriber (of course you should be already to my site!) – you’ll remember I’ve published some content with Stocktrades.ca on my site before.
I try and eat my own cooking as much as possible on this site, when it comes to investing, and I was curious if others did the same.
Check out my interview with Dan and Mat from Stocktrades.ca to see how they invest their money.
Guys – welcome back!
Mark, thanks so much for having us! We appreciate the support back!
Before we talk about how you invest, today, in what, let’s back up.
Dan, starting with you, does anything strike you as different now?
This is an interesting article! In terms of what has changed, this is right when I was making a drastic shift from a pure dividend growth/income portfolio like I mention in the article to a more growth heavy model. I do speak on the speculative plays I was slowly adding to my portfolio in the piece, but this was just the beginning.
Looking back at that article, many things ring true. I have ETFs for international exposure (like you do Mark) but I also have laser focus on the Canadian markets, particularly small to mid cap growth stocks, to try and outperform. And, since this article was published, I have managed to achieve annualized returns of just over 38%. I’d say my main investment strategy right now as someone who is in his early 30’s (31) is to take on more risk to accelerate the size of my portfolio to generate more income later.
Don’t get me wrong, I do not expect to perform anywhere close to 38% in the future. But my main goal is to continue to outperform the index moving forward. Of note, I do have a cryptocurrency position as well, but I treat it much like any other equity, it has a mid-single digit weighting in my overall portfolio.
I think you answered a reader question on your FAQs about that – probably very wise to limit any one position to about 5% including Crypto.
Since that article, I ended up turning down my lucrative contracting job for a major oil company in Fort McMurray this year because Stocktrades and our Premium end has gained so much traction.
I have also completed the Canadian Securities Course, and now that Stocktrades Premium is a full-time career for me, my skill level when it comes to analyzing stocks and finding profitable opportunities is lightyears ahead of where it was in 2017.
Mat, what about you?
Well Mark, I started out as a pure dividend growth investor. However, as my skillset evolved, I have shifted to both a growth and dividend investor. Currently, my portfolio is still heavy concentrated in dividend growth stocks – approximately 70% or so.
I am currently in my early 40s and am comfortable with where I am at. As this point, I intend to keep the 70/30 ratio (Dividend/Growth) for at least the next decade. At that point, I’ll shift accordingly depending on market conditions, portfolio, etc.
I am 100% invested in equities (like you are I believe Mark).
My portfolio is about 60/40 in terms of Canadian and US-listed stocks. I don’t typically do ETFs. The only ETF I own is the BME Equal Weight REIT ETF (TSE:ZRE) but recently, I have shifted focus and become more selective in my REITs. Although I still hold ZRE, I now prefer to invest in individual REITs.
I am also a big believer in Crypto – going from a pure dividend investor to one that has decent exposure to crypto is a big stretch. I don’t believe in limiting myself and as my knowledge grows, my investment strategy grows with it.
I like that – as your knowledge grows, you are considering different investments.
So, that brings me to this for each of you: what are your top holdings right now and why?
Dan: For someone with the aggressive approach like I do, my top holdings would surprise people. However, one of the key reasons for them being structured the way they are is a launch in share prices of Canada’s Big Banks. Right now, my top-5 holdings are:
- TFI International (TSE:TFII)
- Bank of Montreal (TSE:BMO)
- Telus (TSE:T)
- Royal Bank of Canada (TSE:RY)
- Toronto Dominion Bank (TSE:TD)
TFI International is the only stock that currently has a double-digit weighting in my overall portfolio. It was one of 3 stocks I went heavy on during the pandemic at depressed price levels, and I found it to be the least speculative out of all of them, so I only sold off a little to get it to around 10%.
If we were to go back to January of 2021 when I rebalanced, my top-5 looks quite different. But as you can tell, I am fairly bullish on the Canadian banks.
Ha, yes, I see that. There is good reason to believe some major dividend hikes are coming this fall. So, you’ll be rewarded.
Mat: Here are my top-5 Mark:
- Fortis (TSE:FTS)
- Toronto-Dominion Bank (TSX:TD)
- Goeasy (TSX:GSY)
- Target (NYSE:TGT)
- Power Corp (TSX:POW)
My top-5 looks much different than it did last year – not because of anything I did, but because of outstanding performance of by GSY, POW and TGT.
My holdings in FTS and TD are self explanatory and I continue to add to FTS (and AQN) as well as Canada’s Big Banks when it’s time. As for Goeasy, I’ve been pounding the table on this stock as a triple-threat for years. It came through in a big way this year.
While I’ve been looking to trim, I still see upside which is why I’m sticking with my overweight position for now. POW has had a resurgence and is one I’ve been adding to in recent years. I just felt it was undervalued in a big way, and that is now paying off.
With respect to Target, I jumped in and accumulated when it was pulling out of Canada and it was completely out of favour with investors. The fundamentals looked good (despite the debacle here in Canada) and it has been one of the best retail stocks to own. Nice 32% dividend raise this quarter as well!
Yes, very juicy raise!
So guys, what metrics do you look at for your stock purchases? I know my friend Kanwal uses these steps for his, his 12 simple steps to build an income portfolio.
Dan: We like to look at a wide variety of qualitative and quantitative metrics for our stock selections both in our individual portfolios and over at Stocktrades Premium. It’s becoming increasingly hard to find attractive companies from a valuation standpoint, but there are some out there.
What we look for depends a lot on the company’s business cycle. For a mature dividend growth company, we like to see strong coverage ratios, a significant economic moat, and a strong history of dividend growth.
In terms of our growth research, we like to see company’s that are providing better than average growth in comparison to their earnings or sales multiples. We primarily use the sales multiple when looking at unprofitable companies. We also like to see a consistent history of sales growth and somewhat of a plan to future profitability. There is also a shift from the dividend end in that we do not look for companies with significant moats, but those who have the disruptive technology to capture market share.
However, I do own plenty of growth stocks that have dominant market shares. For example, Savaria (TSE:SIS). Not every growth play needs to be a flashy stock. There are plenty of companies out there who already have a well-established footing but are growing at a double-digit pace.
Mat: I’ll build on what Dan mentioned, there are so many metrics I look at and it will be different depending on the industry. For example, traditional payout ratios mean nothing for REITs, but are key for banks. When it comes to the safety of the dividend, we focus on cash flows first and foremost and take leverage ratios into account.
In terms of growth, PEG is one of my favourite ratios. While we never use a single ratio in isolation, it really gives investors a good idea if the stock price is keeping up with expected growth rates. It has rarely steered me wrong and companies like TFII, EQB and GSY all had miniscule PEG ratios (below 0.50) at one point – ridiculous given their strong history of performance. It’s a great starting point in identifying growth stocks for further due diligence.
Alright, now the really good stuff. We shared this post about 5 stocks to own for great post-pandemic results. It’s really interesting to see the stock prices for some of these picks now.
What are both looking at and why?
Dan: Right now, with the reduction of my Lightspeed position and a sale of my Shopify position, I am slim on tech exposure right now. Conveniently, tech has taken a pretty big beating, so I do have some attractive options I’m looking at right now. The start of 2021 and the resurgence of “real economy” type stocks has resulted in my core holdings growing while my growth has stalled out a bit. So, I’ll be looking to add some solid growth options in the future to get that balance back to where I like. At this point in my investing career, I am less worried about diversification, and more so worried about simply finding the best opportunities.
In a broad sense though, I do see more potential in the financial/material/oil and gas sectors, and I really do believe the TSX will close out 2021 as the best performing index.
Mat? Looking at beaten-up REITs or other?
Mat: You bet Mark!
I am looking to increase my REIT exposure. Likely will focus on the Apartment REIT industry, followed by industrials.
I am also now looking to put new money into US positions and beef those up. About a decade ago I dumped all my new money into US stocks as the CAD was at or above par. It took a long while for the CAD to strengthen again, and now that it has, I will be looking to top up some of my U.S. positions like Johnson & Johnson (JNJ) and Lockheed Martin (LMT).
Do either of you favour dividends or growth or don’t care? Thoughts?!
Dan: I’ve taken a lot of heat from the income community over the last couple years because I am a huge advocate for total returns. What a lot do not understand is our core audience, which comprised of over 2.5 million Canadians in 2021, is primarily aged 20-40 years old, with plenty of working years left. This is why the bulk of our content, and our investment philosophy is going to be directed towards getting the highest returns possible (based on your risk tolerance of course.)
My overall yield is relatively small across all my accounts at 2.23%. Out of my 28 stock holdings, 9 of them do not pay a dividend at all, and I instead focus strictly on capital appreciation. Neither strategy is wrong, you just need to figure out what works for you.
Mat: I absolutely consider total returns. I am in my early 40s and it is not time for me to focus on dividends only. I still have a decade or so before I seriously consider rotating out of growth and decide to focus more on income.
That being said, I think there is a misconception that one has to sacrifice growth as a dividend investor. That is not the case – there are several good examples of stocks that qualify as both dividend and growth stocks that have done quite well. Dan mentioned a couple in Savaria and TFI International, and I can add further examples like Equitable Bank (EQB) and Intact Financial (IFC).
Sure, they may have low starting yields now, but that wasn’t always the case. They all have exceptional growth profiles which has caused their yields to drop.
Bottom line is you don’t have to sacrifice total returns as a dividend investor.
Let’s look ahead. How do you intend to fund any sort of semi-retirement or not? Do you want to continue to be an entrepreneur for the foreseeable future?
Dan: I am relatively young right now, so any sort of retirement is not really a thought for me right now. When I was in the oil and gas sector, early retirement was a thought I had all the time. However, now that I am running Stocktrades and helping millions of Canadians invest better, it doesn’t cross my mind at all. I guess this will be a “cross that bridge when I get there” type situation.
Mat: I’m not ‘as’ young as Dan, but why stop something when you enjoy it?
Good points! Finally, I think (!), since you’ve established Stocktrades.ca are you a better investor? Why?
Dan: As I mentioned at the start of this piece, running Stocktrades has improved my overall skill level as an investor by leaps and bounds. Prior to starting the blog, I would have considered myself a pretty strong investor, but with a day job spending a ton of time analyzing the markets and individual equities isn’t something most people can manage.
But now that I have eyes on them 8 hours a day, 5 days a week, my knowledge and skill level as a self-directed investor is growing at a much faster pace, and continues to this day.
Mat: I’ll second most of what Dan mentioned. Just the sheer amount of research we have done – testing screeners, analysis tools, etc. – it has increased my knowledge and in turn, I do consider myself a better investor. I’m a data geek and to be honest, quality data on Canadian stocks is very hard to come by. Often, I am the one correcting data providers on their information. Proceed with caution when looking at sites like Yahoo! and the like.
I’ll likely continue improving daily as there is always something new to learn. IMO, pushing your boundaries and venturing outside your comfort zone is key to enhancing your skills.
Thanks very much Dan and Mat, and it is all about continuous improvement, isn’t it?
I want to thank my friends, Dan and Mat, from Stocktrades.ca for once again contributing to the site. I know they will be watching the comments section on this post, closely, so please fire away in the comments section.
For readers that might be interested in learning more, Stocktrades.ca is offering a Premium membership at 30% off backed up by their 30-day 100% money back guarantee. Meaning, if you don’t like what you see for any reason within the first 30 days just cancel. Your wish is their command.
To take advantage, visit my Deals page, scroll down to find this 30% off Deal and enjoy. That simple.
All the best and happy investing,