Oh my, oh my, oh my! While I did well back in 2009 with my stock picks, I can’t say that my crystal ball was clear enough for this year’s contest! I thought it would be fun (and obviously that it would give me an additional edge) to take more risk. I was well aware that I could be wrong on 1 or 2 picks but I thought of taking 4 stocks that could make a home run… bad idea!
Here are the results so far:
Research in Motion (TSE: RIM) -27.08%
All right, investors are worried because major companies (such as JP Morgan) are switching from the BlackBerry to the iPhone. Investors are worried because RIM is having a hard time getting more individuals on board (while they continue to lose corporate accounts). Investors are also worried because the iPad is phenomenal and RIM has yet to hit the market with its new blackpad. Finally, I think investors are worried because RIM is becoming more and more reactive and has forgotten that they were the leader in the smartphone industry not so long ago. Presently, I have the feeling that they are just looking at what Apple does and are trying to copy it. I still hold RIM in my personal portfolio but I seriously doubt it will come back this year…
Manulife (TSE: MFC) -31.07%
I thought Manulife was over with the bad news when we started in 2010. I guess I should be more careful when I try to catch a falling knife! Manulife keeps on announcing bad news after more bad news. I still think it can bounce back (I wouldn’t if I hadn’t picked yet.. hahaha!) but lets just say that I wouldn’t buy any shares in a real portfolio right now. The only thing is that it currently offer a 4% dividend yield 😉
Goldman Sachs (NYSE: GS) -14.10%
Goldman Sachs has had its share of problems in 2010 but I think they are ready to bounce back. If I am lucky enough and they deliver strong results by the end of the year, I might see this stock going a little bit higher and cancel my loss from my first 2 picks L.
Vanguard Emerging Market ETF (NYSE: VWO) 11.27%
Can’t be bad everywhere, right? The emerging market showed some strength and this pick is now up by about 10%. This is a small consolation (I rather like Mike @ Money Smarts Blog picks with bear leveraged gold ETF 😉 ), but at least, I have one stock showing green on my sheet!
Here are the results from the stock picking contest of 2010: big winner so far: Dividend Growth Investor!
Intelligent Speculator -7.86%
The Financial Blogger -15.24%
Wild Investor 8.35%
Million Dollar Journey -10.46%
Where Does All My Money Go -2.90%
Four Pillars -27.07%
Zach Stocks 0.84%
My Traders Journal -1.31%
Dividend Growth Investor 21.34%
I actually like what is going on in the markets right now as I believe there is a huge opportunity for us to make money over the long term. While many investors thing the stock market is sick, I’d say it is just another rough patch to ignore.
The good side of things is that our Canadian dollar is still pretty strong (fluctuating between $0.95 and $1.00 US) and the US stock market hasn’t recovered as it should have (keep reading to know why).
This should give you 2 great reasons to think about investing in the US stock market:
Our dollar is strong
The fact that our dollar is strong compared to US money is really good news. We presently benefit from the good reputation of our economy (thanks to our Canadian Banks 😉 ). This brings more foreign investors to invest in Canada (either in our stock market or via Canadian bonds, government and corporate). We also host several major players in the oil and gold industries. Since China and India are still very hungry for these resources, our Canadian dollar has remained at a higher level than usual.
However, I think that once the concerns about the US economy are resolved, our dollar will start going down again. The US has a more diversified economy and was built with strong companies with a lot a liquidity and positive cash flows. Sooner or later, this will have an impact on their economy and it will recover from their housing-bubble-credit-swap mess.
In the meantime, it gives you a great opportunity to convert strong Canadian dollars into weak US dollars and buy US stocks. And this leads me to my second point:
US Stocks are being ignored
Since the credit crunch in 2008, there is a cloud of fear over the head of the US stock market. People seem to think that all companies have the H1N1 virus and we best kept our distance from them.
After further analysis, I have realized there are several interesting plays to make on the stock market. If you just take into consideration their PE ratios, you will notice that some US stocks are just ignored by most investors:
|Company||Ticker||Price (Aug 13th 2010||PE Ratio||Dividend Yield|
|Johnson & Johnson||JNJ||$58.52||12.09||3.69%|
|Procter & Gamble||PG||$59.99||17||3.21%|
As you can see, you can probably find great investing opportunities with some companies providing serious dividend payouts as well. If you are looking for a long term investment such as inside an RRSP, I think that some US investments couldn’t hurt ;-).
If you are not completely decided as to which stocks to buy, you can also consider US index ETFs or mutual funds (you can look at this article for more small portfolio investment ideas: investing a $1,000 or less). But take one that is not hedged against the currency to make sure to benefit from the future Canadian dollar drop (it may happen faster than we think if you agree with the idea that we are about to burst the Canadian housing bubble soon…).
Comments: 4 Read More
For years, any top dividend list has had many income trusts at the very top. If you look at the most recent one that was published, the top 5 stocks were in fact trust units. But the Canadian government announced changes to this structure that will affect those companies as well as the investors involved in these funds. We have received many comments and emails about Trust Units, the upcoming changes and how it will impact the investments in those companies. So we did some research and will do our best to answer these and additional questions as well.
What are Income Trusts?
Income trusts are capital structures that are designed to pass on cash flows to their investors. This differs from traditional businesses because corporations generally do not keep much capital. Income trusts also avoid taxation since the taxes are paid by the investors who will receive the dividends. Because of that structure, trust units generally pay high dividends. They avoid the “double taxation” that affects almost any other company. Double taxation represents the fact that a company will be taxed on its profits and then the individual receiving the dividend will also pay income tax on those gains. They were created mainly to spur growth in Canada’s energy sector as this helped give shareholders an incentive to invest in these funds. Since the Federal government saw natural resources as an important driver for Canada’s economy, getting capital investments was a key to accelerating the development. It’s safe to say that these measures have been a huge success. Not only did these funds attract capital but many other companies realized they could increase their company’s value by 15-20% simply by converting to an Income Trust.
What is happening to these trust units?
Because of the favourable tax treatment, an increasing number of Canadian corporations started converting their structures to become “Income Trusts”. This of course had a major impact on the revenues of the Canadian government as it was an efficient way to diminish taxes paid out. That attracted attention from the government. But when BCE, one of largest telecommunications companies in Canada announced its intention to convert, it became too much for the government. Finance minister John Flaherty announced changes in the treatments of trust units that would be rolled out over 4 years. These changes applied to any company that became a trust unit after 2007 but others had 4 years to adapt to the new rules. As the January 1st 2011 deadline gets closer, many of the Income Trusts are converting to more traditional structures.
How big of a problem were these Income Trusts?
In 2002, 79% of the money raised in IPOs in Canada was for Income Trusts. All of these corporations would end up paying little to no taxes to the federal government. It is easy to understand why this could not continue for very long. The federal government estimated it had lost $300 million in the previous year in taxes and the amount lost by provincial governments was similar.
Are the changes a mistake by Ottawa?
Of course many would say that they are but in the end, every Canadian would have been affected if the government had left the rules as is. With larger companies such as Air Canada & BCE converting, the government was going to receive less income and would need to add or increase other taxes to compensate. In my opinion, this was not a mistake. It’s sad for all of us Income Trust investors but still right.
Are all trusts affected by these changes?
No, real estate income trusts and mutual fund income trusts are not affected.
Do all trusts have to convert into a traditional structure?
No, they can remain as is. The main objective of these changes is to eliminate the tax benefits. Thus, income sent out to shareholders will be taxed at a 34% rate (31.5% starting in 2011) at the corporate level. Individuals will also be eligible for dividend tax credits, which is the same as with regular dividends. Many income trusts have confirmed they would remain in that structure.
Will the dividends change?
It really depends on each corporation. In general, corporations are simply reducing their payout to account for these taxes. For example, Daylight Energy Ltd (DAY-U) recently convered into a non Income Trust, its new ticker is DAY. It also reduced its payout from 0.08$ to 0.05$ per month. But is far from the majority. Of the 33 trusts that initially announced they would convert into a traditional corporation, 23 confirmed they would not diminish their payouts.
Will the prices of these securities dip?
That is very unlikely. Why? Because the rules are known and most of these securities already have the new rules priced in. In the month following the announcements, the trust index dropped by 17.8%. That is when it was dangerous to hold them. These days, you will simply see your monthly inflows take a hit.
Is there anything good for the Income Trusts?
Yes, it is far from being terrible news. One of the reasons why many income trusts converted into a corporation early is that as Income Trusts, they were very restricted when they wanted to issue shares. That made it difficult to increase their size even when good opportunities existed. As corporations, the trusts will have more flexibility.
What do I need to do as a shareholder?
Nothing. No matter if the trust unit converts or not, you can hold on to that security. The corporation is the one that needs to take action to pay the proper amount of taxes.
In conclusion, you should expect the dividends from these corporations to drop when the new rules take effect or earlier if the company changes to a traditional model. However, the stock price should not be affected.Comments: 11 Read More
We are July already! The month of June was quite rough on the market and on the TSX 60. I guess it could be a good timing for dividend stock shopping!
We are currently finishing our Market review for the month of June along with our dividend stock review. They will be both available in our next newsletter (to be sent next week). Make sure to register (in the right column) if you want to receive update on the market and dividend stock review.
Here are the Ex-Dividend date, dividend yield and ytd of the TSX as of this morning :
Ticker Name Price Dividend Yield Return MTD
YLO-U Yellow Pages Income Fund 5.94 13.47 -3.33
ERF-U Enerplus Resources Fund 22.94 9.42 -0.52
PWT-U Penn West Energy Trust 20.51 8.78 0.38
COS-U Canadian Oil Sands Trust 26.8 7.46 -4.11
AET-U ARC Energy Trust 19.99 6 -4.34
TA TransAlta Corp 19.74 5.88 -5.14
BCE BCE Inc 31 5.61 -0.94
CM Canadian Imperial Bank of Commerce/Canada 66.05 5.27 -7.92
SLF Sun Life Financial Inc 28.17 5.11 -8.54
T TELUS Corp 40.47 4.94 3.64
BMO Bank of Montreal 57.87 4.84 -8.36
HSE Husky Energy Inc 25.54 4.7 -2.22
POW Power Corp of Canada/Canada 25.51 4.55 -5.58
NA National Bank of Canada 55 4.51 -3.79
SJR/B Shaw Communications Inc 19.57 4.5 1.67
TRP TransCanada Corp 35.93 4.45 3.43
FTS Fortis Inc/Canada 27.16 4.12 -1.67
BNS Bank of Nova Scotia 48.35 4.05 -3.9
RY Royal Bank of Canada 50.91 3.93 -7.57
RCI/B Rogers Communications Inc 34.74 3.68 -5.57
TD Toronto-Dominion Bank/The 68.51 3.56 -3.25
ENB Enbridge Inc 49.47 3.44 3.19
MFC Manulife Financial Corp 15.41 3.37 -13.57
TRI Thomson Reuters Corp 38.34 3.13 2.93
CVE Cenovus Energy Inc 27.46 2.91 -4.97
SC Shoppers Drug Mart Corp 33 2.73 -7.51
ECA EnCana Corp 32.45 2.56 -3.7
BAM/A Brookfield Asset Management Inc 23.46 2.34 -7.09
L Loblaw Cos Ltd 38.51 2.18 -1.04
BBD/B Bombardier Inc 4.99 2 3.31
WN George Weston Ltd 72.1 2 -2.97
BVF Biovail Corp 20.02 1.99 30.25
CP Canadian Pacific Railway Ltd 56.75 1.9 -1.99
FM First Quantum Minerals Ltd 54.22 1.89 -2.92
SAP Saputo Inc 30.69 1.89 4.53
CNR Canadian National Railway Co 60.56 1.78 -0.53
MRU/A Metro Inc 41.9 1.62 -1.87
SNC SNC-Lavalin Group Inc 42.44 1.6 -7.8
TLM Talisman Energy Inc 16.06 1.56 -9.78
CTC/A Canadian Tire Corp Ltd 54.93 1.53 -5.99
THI Tim Hortons Inc 34.04 1.53 -1.45
SU Suncor Energy Inc 31.11 1.29 -5.76
TCK/B Teck Resources Ltd 31.61 1.27 -11.84
CCO Cameco Corp 22.35 1.25 -10.62
IMO Imperial Oil Ltd 38.73 1.14 -4.68
MG/A Magna International Inc 68.41 1.11 -4.8
NXY Nexen Inc 20.82 0.96 -9.47
ABX Barrick Gold Corp 45.95 0.91 2.52
CNQ Canadian Natural Resources Ltd 34.94 0.86 -4.54
YRI Yamana Gold Inc 10.34 0.6 -8.93
K Kinross Gold Corp 17.3 0.59 -4.42
IMN Inmet Mining Corp 42.72 0.47 -14.9
POT Potash Corp of Saskatchewan Inc 90.91 0.47 -11.82
G Goldcorp Inc 43.95 0.42 -4.24
IMG IAMGOLD Corp 17.66 0.36 -1.45
AEM Agnico-Eagle Mines Ltd 61.07 0.3 -1.9
ELD Eldorado Gold Corp 17.94 0.28 -0.55
AGU Agrium Inc 52.37 0.22 -8.67
GIL Gildan Activewear Inc 29.82 0 -5.66
RIM Research In Motion Ltd 51.11 0 -20.44
Oh boy, oh boy, oh boy! This is not my year to make the right stock picks! See how things can go sideways even with good companies?
First: Goldman Sachs Lawsuit
What can you expect from a good financial stock when the company is being sued by the Federal government? Nothing but a severe plunge! While I still think that Goldman Sachs is a great company and that they will bounce back (I would buy more of them if I had liquidity right now!), I really picked the wrong time to choose it as a good investment pick in 2010 😉
Second: Research In Motion Investors‘ Disappointment
While Investors were astonished by RIM for several years, they all seemed to turn their back on this amazing company and prefer Apple’s gadgets. I actually have an iPod and will probably buy an iPad eventually so I have nothing against Apple’s iDepartment. However, I still think that the best tool to work with is a Blackberry. The income and revenues are increasing but nothing seems to be enough for investors now that they have found their next flavour of the month!
Third: Manulife Going Down To Hell
I thought that the problems were over with Manulife and I had figured it was a good gamble for this year. Unfortunately, this is not the best pick either… investors seem to be reluctant to give Manulife credit for their operations… hopefully the wind will turn during summer time!
Fourth: Emerging Market On The Sideline
My best pick so far is also negative… man! It’s a bit depressing but I still have faith in emerging markets. They can surge at any moment and this is the kind of stock that can make me gain a few positions in our contest in no time.
So How Did It Go for the Others?
Take a look at the result so far at Q2: only 1 positive portfolio: Dividend Growth Investor at 6.39%!. You can click on each blog to view their comments about their stock pick experience so far this year:
Blog Best Stock Picks for 2010 Ytd
Intelligent Speculator UNG
Wild Investor BAC
The Financial Blogger RIM
Four Pillars DZZ
Where Does All My Money Go FUN
Dividend Growth Investor O
Million Dollar Journey HE.TO
My Traders Journal UUP
Zach Stocks BX
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