Oct 172016
 

So Long, Air Canada Bonds

Earlier this year I purchased some Air Canada bonds for $5,305, with an attractive coupon of 7.625% annual interest rate. Very nice! They weren’t suppose to mature until 2019. However Air Canada decided to be a jerk and redeem them early at the beginning of this month. So all the bonds were bought back, including mine.

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As we can see, I lost $305 on my principal amount. However I’ve collected more money back from interest payments. So overall I still came out with a small profit. This concludes my first junk bond investment. I wasn’t able to earn the attractive return all the way to the end as I hoped, but at least I didn’t lose any money. 😀

Anyway, redeeming the bonds means Air Canada returned the $5,000 cash back into my RRSP account. 🙂 So I used the money to purchase 2 relatively defensive stocks, Boardwalk REIT and Enbridge Inc. The stock market reached a new high this year and it’s been over 8 years since a major correction so I believe we are overdue for a pull back any day now. Both Boardwalk REIT and Enbridge generate stable cash flow so they are more resistant to market corrections than most other stocks.

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Boardwalk REIT – New Addition to my Retirement Portfolio

I purchased 60 units of Boardwalk REIT (BEI.UN) at $50.56 each. The total came to $3,043.59 including commissions.

I like REITs because they own and operate properties, and pass on the profits to their unit holders. This means investors can make money in the growing real estate industry without all the hassle of dealing with tenants. 🙂 Boardwalk specializes in multi-family residential properties.

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Normally we determine the value of a stock based on its earnings, but in the real estate business we use funds from operations (or FFO) instead to measure a company’s performance. According to Boardwalk’s forward guidance the company expects its annual FFO to be in the $3.20 per unit range. This gives BEI.UN an equivalent earnings yield of about 6.4%. Which translates to a P/E ratio of about 16x. To me 6.4% isn’t a bad return in today’s market. 🙂

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Boardwalk owns property across the country, but about half of its portfolio sits in Alberta, including some in Fort McMurray. Alberta is struggling due to the unfortunate wildfires this year and the continuous low price of oil. Calgary’s unemployment rate last month was 9.5%. Ouch! 🙁 As a result BEI.UN is down 10% compared to a year ago. However, I believe this is a good opportunity to get in before the REIT recovers. Oil has already bounced off the bottom. And forest fire season is over. A lot of people are pessimistic about Alberta’s economy. But I think their concerns are overblown.

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