Dividend Questions From The Mailbag

 

 

I just came back from a week of training at work followed by a long weekend with friends at a vacation property we rented… nothing too juicy to keep my writing up to date on this blog! But while I was sitting by the pool and playing with my children, I received several questions from my mailing list members.

 

Don’t worry I don’t disclose names or addresses, just the questions and my answers. If you want to ask me a question, simply register to my newsletter and send me an email:

 

#1  What are your thoughts about Cdn REITs?

 

I bought RioCan this year, just to have it as a diversifier. I’m thinking of selling it because I’m concerned that real estate is not a good sector to be in this year.  I wanted to be invested in all sectors, but now I’m thinking that this is a feeble reason. It’s lost money – 7%. I’m in the for the long term and the dividend is good, but I prefer to be in growth sectors. Comment?  To sell or not. If I sold, I’d put it in an alternate Cdn sector, review your recs.

 

 

If you are looking for more info about REITs in general, it’s very important to look inside their financial statements. You will get crucial information such as their main field of activity (in this case, RioCan is mainly in retail space (95% of its assets) and mainly in Ontario (53.8% of its business). Top ten tenants are all big companies (just to name Walmart, Canadian Tire, Famous Players/Cineplex, etc). Technically, the housing market won’t be doing well in the upcoming 12 months, however, it doesn’t mean that big retail companies will stop paying their rent. RioCan future growth potential is probably as stellar as it was, and the stock will continue to pay a healthy dividend over 5%.

 

If you want to carefully analyse REITs, I cover them in my book; Dividend Growth on sale at Amazon.

 

 

#2 What are your thoughts about Rogers and Canadian Telecom Stocks in General?

Also Rogers.  I own all three telecoms Rogers, BCE and Telus.  Rogers seems to have been hardest hit this week. I wouldn’t mind replacing it with a US stock – maybe a US telecom since I don’t have any. 

 

The telecom industry in Canada is similar to the bank environment where most of the market is controlled by a handful of players (Rogers, BCE, Telus and Shaw). Regulations are currently changing and Verizon (VZ) aims to enter the Canadian market through a transaction (buying a small player in Canada to acquire their license/rights and enter the market). I hold shares of Telus (which has fallen big time too last week) but I believe the company is stronger than this. I’m actually considering buying more Telus at the moment.

 

#3 Would You Keep a Dividend Stock after a Dividend Cut?

 

I held onto my AGNC after it cut its dividend. Now the shares are around $23 would u sell at a loss or do u think they will come back over a longer time. Is it still a safe company?

 

My rule is quite simple: sell the same day there is a dividend cut. I don’t want you in my portfolio if you are not going to increase your distribution! You can also read my AGNC analysis for more details.

 

#4 What do you think of Seg Funds?

 

I am asking a general question regarding a specific segregated fund and their policy. The policy is offered by Empire life and all the details could be found on their site below.

http://www.empire.ca/consumer/investments/our-products/class-plus-2/en/

 

I’m not an insurance and don’t have this license. However, from my understanding and experience, paying high MERs for the potential “security” provided by Segregated Funds is like paying for an extra pocket of air in your water bottle; you don’t get much for your money.

 

Most Seg Funds guarantee the capital after 10 years. Which balanced fund has shown a negative return after 10 years?

 

In this specific product (click on the above link to read more about it), the concept is quite similar to Manulife Income Plus. Then again, if you do the math and compare the investment return of a regular mutual fund, chances are that the extra you are paying in fees (which are nowhere to be mentioned on the page… interesting!) cancel the benefit for having a predictable income. You can likely achieve the same result or better if you manage your funds with lower fees.

 

#5 Should you wait for a correction before investing?

 

Question: in light of ‘false’ economy signals of the high Dow … is it best to hold/wait for a correction in the Dow and sectors before investing in Dividend Aristocrats? I believe the DJIA and S&P P/E ratio is at all time high and overpriced now.

 

Background

 

I would like to create a long term retirement plan for my mid thirties adult children and believe this can be done prudently and effectively using solid Dividend Aristocrats. My problem is ‘when’ to invest. I recognize no one can time the market, dollar cost averaging is a marketing gimmick by financial houses to ‘appease’ volatility risk averse buyers (based on several doctoral thesis’ and the CFP Association studies: if you have the dollars simply invest and if not then DCA is acceptable). Do they wait or just jump in with monthly available investing through DRIP and more?

 

I’m not a big believer of market timing to be honest as it is too hard to predict if the market is going up or down. For example, after the small correction we got in the recent weeks, can you tell me if the market is going back up or down? For how long? How much% ? When I have money, I invest it, period. I actually bought MCD and DIS at a very bad time but since it’s for the long term, I don’t mind. Stocks will go back up and even go higher than the purchase price. I only have to be patient . Remember, the more you wait, the more you lose on dividend payments!

 

#6 Investing for the Future

 

My question is: With the majority of our RRSP, LIRA, TFSA, and Non Registered accounts in dividend yielding funds: we have now sold our home and intend to travel/rent for a year or two. What do you think about investing the money in ETF’s such as ZRE and ZDV?

 

I would probably consider investing some money in US dividend stocks or dividend ETFs within your RRSPs (read how you can implement tax optimization with your investment with my book). Then, depending on whether you consider using the money coming from your house over a short period or not, dividend ETFs will provide less volatility than stock picking. On the other hand, you get the good and the bad from the ETFs as you don’t choose your own stocks. You might want to consider buying short term bonds or something more stable as well instead of a 100% equity portfolio.

 

#7 Are we Heading Toward a Major Correction?

 

I’m expecting a 10%-40% correction on the stock markets (except Japan…maybe) within the next 3-4 months… I am mostly cash and a little HVU just in case… What is your take on this ?

 

I’ll wait three years and then tell you if there was a crash or not ;-). Honestly, I’m not the kind of guy who predicts crashes or bullish markets. I think companies can produce more profit during this second round of quarterly results and this is why I don’t see the market plummeting by 40% in the near term. We can go through a correction, but more than 10% would mean that we are in a bubble right now. I really don’t see where the bubble is (besides the Canadian Housing market which is not big enough by itself to bring down the global economy).

 

You Have Questions? My Mailbox is Ready!

 

You have a specific stock you want me to look into? You have questions about the US, Canadian or Global economy? You think the world is going to end soon and want to save your money from the crash? Register to my mailing list and send me your questions

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