The market hasn’t been as cooperative as I would have liked over the past month. I would have enjoyed a 500 or 1,000 point drop in the Dow Jones Industrial Average to bring some of the share prices in companies that I’m interested in down to earthly levels. But, alas, such was not to be. That’s fine. I continue to make my monthly purchases in high quality dividend growth stocks, as I become a part-owner in these fantastic companies for the long-term. Meanwhile, as a benefit of being a part-owner I collect rising dividends which I combine with fresh capital from my day job and make further investments as opportunities present themselves. Sounds like a winning strategy to me!
As part of my Recent Buy series, I try to let my readers know of any equities I purchase soon after the transaction is completed. This is just one way I try to document my progress toward early retirement and financial independence.
I’m actually going to list two purchases as I completed both transactions in close sequence.
First, I purchased 25 shares of The Bank of Nova Scotia (BNS) on 2/26/13 for $58.75 per share. I just completed a lengthy article on why I was interested in BNS, among other major Canadian dividend stocks. You can read that article here.
To summarize, BNS is a truly international bank trading at an attractive valuation with a high yield. BNS is committed to growing the dividend going forward and has a very well managed balance sheet. Currently, BNS is trading for a P/E ratio of 11.59 with a debt/equity ratio of 0.3. The entry yield on my purchase is 3.81% factoring in exchange rates.
This purchase adds $55.86 to my annual dividend total based on the current quarterly dividend payout of $0.57 CAD, and also factoring in current exchange rates.
For my second purchase, I bought 18 shares of Toronto-Dominion Bank (TD) on 2/26/13 for $82.08 per share. Again, the article linked above highlights the reasons I’m interested in TD.
TD is currently trading for a P/E ratio of 12.43 and has a debt/equity ratio of 0.3. Very similar numbers to BNS, overall. The yield is also very similar as I received an entry yield on my purchase of 3.77%.
The addition of TD to my portfolio adds $54.33 to my annual dividend total based on the current quarterly dividend payout of $0.77 CAD, and also factors in current exchange rates.
Overall, I’m very excited with these additions to my portfolio. Both are new positions for me and I’m now a part-owner in Canadian based businesses for the first time! Awesome. I’ve been focused on bolstering my exposure to the financial sector recently. I’m probably a little late to the game in that regard as a lot of financial stocks, most notably bank stocks, have had quite a big run over the last few years. Of course, the same can be said for most stocks in general as the stock market has doubled from its financial crisis lows.
I discussed a lot of the characteristics in these banks that I really like in the article linked above. However, I didn’t talk a lot about valuation, so I’ll do that now.
I used a Dividend Discount Model to value shares for both banks and used the same inputs as far as growth rates and the discount rate since they are similar businesses operating out of the same home market. Using a 7% long-term dividend growth rate and a 10% discount rate I get a Fair Value of $107.71 on TD shares and I get a Fair Value of $79.54 on BNS shares. I think I used fairly conservative numbers, and both banks are expected to raise the dividend this year. This model is sensitive however, as changing the discount rate up to 11% brings both stock’s Fair Value to right about what they’re currently trading for.
With these purchases I now have 31 positions in my portfolio, as both are new positions.
Some current analyst opinions on my recent purchases:
*Morningstar rates BNS as a 3/5 star valuation with a FV estimate of $60.00.
*S&P rates BNS as a 4/5 star Buy with a FV calculation of $62.30.
*Morningstar rates TD as a 3/5 star valuation with a FV estimate of $89.00.
*S&P rates TD as a 4/5 star Buy with a FV calculation of $86.60.
I’ll update my Freedom Fund in early March to reflect my recent additions.
Full Disclosure: Long BNS, TD
What are you buying?
Thanks for reading.
Photo Credit: Stuart Miles/FreeDigitalPhotos.net
I thought that your article on the Canadian banks was very well done. I’m glad to see that you followed up with some purchases. I may consider a small position in BNS later in March when I get some fresh capital.
Mantra, you know I’m a fan of this move. Not much else to say. We are both owners of BNS now. 🙂
I don’t think you have to worry about price, these banks will just keep powering-up higher and pay you a nice yield. Just wait for the earnings reports and dividend increases which BMO just started today. 🙂
Cheers
The Dividend Ninja
Way to go DM! As a Canadian I am glad to see some of our brands in your portfolio.
It so happens that I also own TD and BNS, along with a few other Canadian companies. Our insurers are worth a closer look (just saying).
I work for one of the big financials myself. If you are curious to dig deeper into anything on their strategy or financials – will be glad to assist.
Regards,
AverageCFA
BNS and TD are great picks from the financial sector. If the banking industry will recover you will definitely have some fun with your picks. I personally have no banking stocks. I sold my latest choice two years earlier. I like financial services provider like FDS or TRI much more. Sure, the upside potential is limited but also the downside risk.
I own stock in all big 5 canadian banks. I hope they do not dissapoint me. However I was wondering, which brokerage are you using?
I like the buys. You made a pretty compelling case for the Canadian banks in your other post. I would like to get a little more international exposure although I do tend to own huge companies. Any worries about how Canada didn’t really have any issues during the financial crisis seen here? I’m a little concerned about there being a housing/debt crisis looming there. This was a pretty good article about the situation in Canada. About 6 months old now though so things might have changed.
http://www.thedividendguyblog.com/2012/09/06/the-next-bubble-is-in-canada-and-it-will-affect-everybody/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A%20thedividendguy%20%28The%20Dividend%20Guy%20Blog%29
Nice buys DM! I think these moves are a pretty sound way to add to your financial and international exposure.
So each time one of these Canadian holdings issues a dividend, am I correct to understand that 15% of that dividend will be withheld by your broker? And you’ll have to submit that amount on your year-end US income tax return to get reimbursed for that?
Journey,
Thanks for the kind words. Glad you enjoyed that article.
I personally feel BNS is the best of the major Canadian banks, while all being pretty good as a group. RY would be my third choice if I were to expand my Canadian bank holdings in the future.
Best wishes!
DGI,
Thanks for stopping by!
I wasn’t aware you were long all the major Canadian banks. I guess great minds think alike! Obviously they have to build up that dividend record again, but the same goes for a lot of our domestic banks as well. At least the Canadian banks held the dividend static, albeit maybe due to the fact that they weren’t as directly affected as our banks were.
To answer your question, I use Scottrade. I may diversify my brokerages in the near future to limit the potential damage if Scottrade goes bankrupt. I’ll be protected through SIPC, but not without headaches.
Best regards!
Ninja,
Thanks! I’m glad to be a fellow shareholder! 🙂
I think both banks are very strong, but I still remained concerned about the potential housing bubble in Canada. Housing prices are pretty crazy up there, and I know your area (Vancouver) is one of the worst.
We’ll see how it all turns out! At any rate, I’m excited for some dividend increases from both banks. 🙂
Take care!
AverageCFA,
Thanks! I appreciate the offer. I certainly am the first to admit that I can’t sift through all the financials of a bank and understand it all. There are teams of professional analysts that follow banks, and even they got fooled at recently as a few years ago. Tough to see it all.
Glad to be a fellow shareholder. Both banks appear to be pretty high quality, although I wish I would have purchased a year ago or so!
Best wishes.
Tom,
I haven’t looked into either of those companies. More companies to add to the research list! Always enjoy that.
Take care!
The Executioner,
You’re correct. Every time I receive a dividend from one of these holdings, it’ll be in U.S. dollars already converted for exchange rates and also less the 15% Canadian withholding. I’ll be able to reclaim that at tax time. I’m quite used to this as I had to do that with Telefonica (TEF) and Total (TOT) previously.
Hope that helps!
Best regards.
Pursuit,
I haven’t really seen that article until now, but I think it raises valid points.
I ran into this article during my research:
http://www.theatlantic.com/business/archive/2013/01/the-biggest-housing-bubble-in-the-world-is-in-canada/272499/
And those numbers remind me of what we recently ran into here in the U.S.
I’m not really sure what to think of it. I don’t concentrate too much on the macroeconomics of the world economy, but rather try to focus on how a company looks today, how it’s performed in past crises and how I believe it will behave during future storms. That’s really all I can do as an investor. The Canadian banks, specifically the ones I bought, appear well-capitalized but certainly a giant housing crash would hurt them and us.
The great thing about being a dividend growth investor, however, is that one doesn’t need to focus too much on things that cannot be controlled by the individual. I focus on things I can control: controlling my expenses, which thus gives me a good source of capital to invest with, and then investing that capital with high quality companies that have a long track record of rising earnings, and rewarding shareholders with a good share of those rising earnings with rising dividends.
Best wishes!
writing2reality,
Thanks! I killed two birds with one stone. 🙂
Hope all is well.
Best regards!
grox01,
Thanks! I’ll definitely have to look into it. I wasn’t aware of it. Always enjoy new opportunities to investigate. Thanks.
Best wishes.
Mantra, I won’t dismiss your concerns, because there is always a risk with banks and financials. But I think you can put your mind to rest. 😉
Much of the insane house pricing in Vancouver is being driven up and purchased by people without mortgages. There is a significant amount of foreign ownership of residential housing in our city, which is one factor to driving prices up.
As you know from your research, you simply cannot get a mortgage in Canada unless you have a massive down-payment or the income to substantiate it. Almost all mortgages in Canda are CHMC insured. This is much different than the U.S. were mortgages were sold to anybody and everybody by unscrupulous lenders, prior to the financial crisis. 😉
The real issue for the Canadian banks is the Lines of Credit (LOCs) which are secured against homes, and the credit card debts. If people get into trouble, that could be the first default area.
But IMO the Canadian banks can take some serious loan loss provisions before it hits the bottom line. But it is certianly possible if we had an enourmous recession. But at that point, everything is going to pot, and I’ll just buy more shares. 🙂
Cheers
The Dividend Ninja
Ninja,
Great information there. I really appreciate that, and a lot of that information does put me to ease. As you put it, there is always risk with financials. As far as that goes, there’s risk with stocks in general, and that’s why we are getting a return on our money. Great point.
I’m with you. If things really get that bad, then we’re just buying more shares anyway! Well, as long as we continue to have jobs. 🙂
Best wishes!
Great call Mantra. Eventually you will own at least 4 or 5 big Canadian banks for the stellar dividends 🙂
TD, BNS, RY, BMO and either CM or NA.
I might add, it’s rising interest rates that are the real problem.
Having an affordable mortgage at 4% is a lot different when you go to renew and its 8% or 10%. Many people did buy into housing with ultra-low rates these last few years. But I don’t remember massive default back in the mid-late 80’s when rates where double digit. 😉
Cheers
Mark,
Thanks for the thumbs-up! Much appreciated, and feels good to be in great company.
I hear you on the other banks. I’m definitely open-minded to owning RY. That’s my third pick, but I’d likely increase my position in these two banks first. I also like WFC in our neck of the woods.
Hope all is well up North!
Best regards.
Nice buys, may I suggest you take a look at HCG.to, it’s a canadian bank that has more bang for your bucks!
Interesting purchases. I’m sure you’d be happy to know that TD just did a 5.2% raise. Great way to start out and continues the pattern of a raise every 6 months.
I’m a fan of TD as you know. I was put off by the BNS dividend cut a few years ago, but other than that they looked great! I think banks offer a lot of value right now when compared to other industries.
As a BNS employee and former TD employee with a few thousand shares of each bank, I am reasonably confident that your recent investment decisions will pay off over the long term.
I think the prices you recently paid are a bit rich but given your buy and hold strategy, I don’t think you made a rash decision to make these purchases in what I feel is a frothy market (I hope a huge correction happens soon).
Don’t rule out purchasing RBC at some stage. This is another solid Canadian bank.
Just a thought. You have many stocks but very few shares of each. Are you generating enough dividends from each holding such that the dividends earned are sufficient to automatically buy additional shares? Is it your intent at some stage to focus on growing your current holdings versus investing in new companies?
I like watching your progress. Great work!!!
Great purchases! I just started a small position in TD last week as well as WFC which you also bought recently.
Canadian banks are as strong as they come, as witnessed by their ability to keep paying the same or increasing their dividends during the financial crisis. I was looking for some Canadian exposure and additional banking exposure in general so TD filled that bill. The multiple yearly increases are also nice!
Keep up the good work!
It always feels good to go from “watch list” to “portfolio”. Then you can cheer instead of cry when the stock appreciates in price.
Compounding Income,
Yeah, I’m loving that raise! If I could get a 5% raise every 6 months from a stock yielding almost 4%, I would be an elated investor.
In my research I wasn’t aware of a dividend cut by BNS. I know they held the dividend static for 2 years. The dividends that go back to the 1800’s only show “cuts” when the stock splits…the most recent of which goes back to 2004. I don’t actually see any dividend cuts. Maybe I’m not reading it correctly?
The great thing with BNS is that they’ve been paying a dividend since 1833! That’s some shareholder commitment.
Best wishes!
Anonymous,
Thanks for stopping by. Always great to hear from someone “on the inside”.
I think these stocks are trading at a fair price, factoring in everything (including the frothy market). They’ve had a hell of a run, so no doubt I would have been better off purchasing a year ago, or even a couple years ago. However, that can be said for many stocks. You also have to remember that I didn’t start investing until early 2010, and I’m a man of modest means. I decided to start building my portfolio around steady, consumer based stalwarts like KO, PG, PEP, PM and the like. I just started seriously venturing into banks very recently.
I don’t track dividends by the number of shares they buy as I don’t DRIP my dividends. I selectively reinvest into what I see as the best available opportunity for my portfolio.
As far as buying new positions vs. building current positions, this is something that will always be a work in progress as I continue to invest. Some positions will become temporarily overweight or underweight as I go along, but the portfolio is only about 25% built…so this is always changing.
As far as Royal Bank, that’s my third choice. Seems like a very solid bank.
Thanks for stopping by. I appreciate your thoughts!
Best wishes.
AAI,
Thanks for stopping by.
Great minds think alike! It looks like we’re both interested in the banks. They offer some decent value, whereas many of the consumer stocks and utilities have run up quite a bit.
Keep up the great work on your end, too! You’re building that portfolio at a monstrous pace.
Best regards!
Headed Home,
This one went from watch list to portfolio very quickly. I did a fair amount of research and liked what I saw. Like I’ve said, I am in no way capable of fully analyzing a bank…but I feel good about investing in what have been some of the most solid banks in the entire world.
Great job putting $9k to work. You had a huge month! Keep up the good work. 🙂
Take care.
This comment has been removed by the author.
I own in different forms all 6 big Canadian banks…. my lowest allocation had NA, so last week I added another 25 shares.
gibor,
I don’t know if I’ll ever own shares in all 6 major Canadian banks, but I do like RY from where I sit. I wouldn’t mind expanding my TD and BNS holdings with shares in RY. But I would imagine that would be the end of my Canadian bank ownership. We’ll see.
If your lowest allocation required adding 25 shares then it sounds like you’re doing great! Keep up the good work!!
Best wishes.
Hi,
Have you considered O or IVR ?
Thanks
inq,
I have considered O. It’s a solid REIT, but has had quite a run-up over the last year or so. I plan on having exposure to real estate at some point, either through an REIT or direct ownership in my own home or a rental property.
I took just a quick look at IVR just now. I have purposely stayed away from mREITs, as I don’t have the macroeconomic expertise to keep up with these securities and their sensitivity to interest rates. On top of that, I overlaid its chart to the S&P 500 since 2009 and it has far underperformed the index even while factoring in that dividend. High yield typically means high risk, and that is certainly true with mREIT holdings.
Best wishes!
Hi,
I’m curious (if I got interested in a foreign dividend stock) how the whole record keeping should be set up on my end so I can figure out how the foreign DRIP is doing due to exchange rates, DRIP fees, broker fees, etc. and also as IMPORTANT for reporting to the IRS. Are transactions USD based? Do Canadians withhold taxes (at what rate?) on the DRIPs before paying dividends to you? What about 1099-DIV or 1099-B?
Thank you.
Anonymous,
The transactions for the stocks listed above are USD based, at least for me. I purchase the stocks using U.S. dollars in my U.S. brokerage account (Scottrade) on a U.S. stock exchange. I receive my dividends in U.S. dollars and I can sell the securities at a later date and receive U.S. dollars for my assets.
However, I cannot comment or help you with the DRIP information unfortunately. One of the many reasons I choose not to DRIP my shares is because of the paperwork headaches that’s involved.
Sorry I could not be of more assistance.
Best regards.
Thanks for a quick reply. Based on your explanation, Scottrade will provide you 1099-DIV in the US dollars as well. What stays unclear to me is the Canadian taxes, when you’re a US citizen/resident. I’m in the US as well. I’ll have to research more before thinking about a foreign dividend stock. Taxes affect your return.
FYI, TD is dipping in after-hours trading…could be a potential buy tomorrow.