This financial crisis appears to be getting worse by the day. The economy is stalled and millions of workers have lost their jobs. 🙁 Did you hear about the man who was fired at a coffee factory? They say he had no filter. 😎 But there is a silver lining here. As the stock market sinks the dividend yields rise. 🙂
Value investing with dividend stocks
Warren Buffett bought 4.3 million shares of Suncor (TSE:SU) last quarter when the stock was trading at roughly $40/share. Today TSE:SU is trading at just $16/share. Buffett is a value investor who only buys profitable companies that have promising growth prospects. Anyone buying SU today would be getting in at a 60% discount compared to what Buffett paid in late 2019. I don’t give stock tips, but I’m just sayin’. 😉
Similar to Buffett I’ve been on the lookout for bargains lately. I purchased many dividend growth stocks throughout this month. In today’s post I will disclose which stocks I bought, why I bought them, and how I have grown my forward dividend income by $7,200 per year. Wowzers! 😀
Narrowing down my options
There are thousands of stocks and ETFs out there. So how did I choose? Well first, I determined which type of investment account to use. This will ensure maximum tax savings. I don’t have much contribution room remaining in my TFSA and RRSP. So most of my new purchases will be in a fully taxable account. This means looking at securities that pay eligible dividends which can benefit from the Canadian dividend tax credit.
I personally like to buy and hold companies that consistently increase their dividends over time. These are known as dividend growth stocks.
The best dividend growers
Earlier this year Million Dollar Journey posted an article about the 25 best dividend growth stocks of 2020. There are other dividend achiever lists on the internet as well if you look for them. I have shortlisted the following dividend stocks based on their finances and competitive advantages:
- Fortis Inc (FTS) – Utilities company. Wide economic moat. Recession resistant.
- Telus (T) – Telecom company. Part of an oligopoly along with 2 other big names.
- BCE inc (BCE) – Telecom company. Another name in the oligopoly.
- Finning International (FTT) – Selling and servicing heavy equipment worldwide.
- Suncor (SU) – Oil and gas company. Integrated. Well managed.
- Canadian Natural Resources (CNQ) – Oil and gas company. Low cost producer.
- Pembina Pipeline Corp (PPL) – Pipeline company. Insiders have been buying like crazy.
- Canadian National Railway (CNR) – Railway company. Bill Gates likes it.
- TD Bank (TD) – Second largest bank in Canada. Has lots of U.S. exposure.
- Maple Leaf Foods (MFI) – Makers of meat and plant protein food. Everyone has to eat.
- Canadian Apartment Property REIT (CAR-UN) – Acquires and operates apartment buildings.
All these companies have strong balance sheets (not heavily leveraged) and a long history of growing dividends. Most of these names are listed on both Canadian and U.S. exchanges so American investors can buy them as well.
Another criteria I look for is insider buying and selling by officers and directors. Often top executives have skin in the game and are compensated according to company performance. So if they are buying shares during this bear market then it probably means they truly believe in the long term profitability and staying power of their business.
For example, it appears company executives at Pembina Pipeline have been busy lately. I will let the chart speak for itself. 🙂
My $100,000+ shopping spree
A couple of weeks ago I shared the transactions of my TD and Telus purchases. 🙂
- TD – 450 shares @ $52.30/share. Total cost $23,500. Dividend = 6.0% yield on cost
- T – 500 shares @ $49.32/share. Total cost $24,700. Dividend = 4.7% y.o.c
It’s very rare to find TD bank yielding 6% ever. This might be a once in a decade opportunity. Telus is recession resistant since everyone needs internet and phone service.
Other stocks I bought in March. (Transaction statements for transparency.)
- Suncor (SU) – 1300 shares @ $18.38/share. Total cost $23,900. Dividend = 10.1% y.o.c
- Finning (FTT) – 300 shares @ $15.41/share. Total cost $4,633. Dividend = 5.3%
- Maple Leaf (MFI) – 200 shares @ $22.89/share. Total cost $4,588. Dividend = 2.8%
- Pembina (PPL) – 200 shares @ $24.63/share. Total cost $4,936. Dividend = 10.2%
- Fortis (FTS) – 120 shares @ $47.59/share. Total cost $5,721. Dividend = 4.0%
- Cdn Natural (CNQ) – 500 shares @ $15.36/share. Total cost $7,690. Dividend = 11.1%
- Cdn National (CNR) – 100 shares @ $98.94/share. Total cost $9,895. Dividend = 2.3%
In short I purchased $109,600 of stocks this month boosting my monthly passive income by $600. 😀 On average I locked in a juicy 6.6% dividend yield with these new stocks. This is incredible! Much better than the 3.5% yield from a total market index fund.
Strong dividend growers have been distributing cash to shareholders for decades. For instance Suncor has been paying a dividend since 1992. It’s impressive how the distributions have never been cut over all these years – including in 2009, the depth of the great recession, and in 1998 when oil was cheaper than today. That doesn’t mean there’s no chance of a dividend cut this time. But I think if that happens it will be a temporary setback.
What I’m doing now
I still have $40,000 in cash. I will wait a couple of weeks and re-access my position.
If the market stays flat next month I will not take any actions. If the market drops lower, I will buy more stocks at even cheaper prices. 🙂 And if it climbs higher that will signal the correction might be over so I will probably also buy more stocks.
It’s been a wild year so far. Let’s see what happens in April. At this point I do not plan to use margin debt to buy stocks since I still have cash savings. Next week I will give a net worth update and it will not be pretty, haha. Stay safe, everyone. 🙂
Random Useless Fact:
You don’t have to wear pants if you work from home.
Great progress! How much % does the TSX need to increase from 13,038 (today) in order for you to take it as the correction is over?
Not much. Maybe 10% or so. If the TSX grows by just 1,000 points to 14,038 then it would be 25% higher than last week’s bottom, which would technically put it back into a bull market lol. But I would also like to see lower volatility and sustained support levels before putting more of my savings into the market. In the near term I’m looking at whether or not the TSX will test the bottom set last week. In the medium term I’m keeping an eye on oil prices and the volatility index. I don’t see Canadian stocks going meaningfully higher if global oil continues to stagnate at $20/barrel. 🙂
Some nice purchases, did you buy all in registered (TFSA, RRSP) or non reg accounts for low dividend taxation?
I bought most of these news stocks in non-registered accounts. I didn’t have much room left in my TFSA and RRSP.
You’re counting on a bunch of yields that you probably shouldn’t. If you think you can count on the dividend remaining the same for CNQ definitely, but PPL, and SU possibly, you have another thing coming. I wouldn’t go around talking about how much you’ll get in dividends like it’s a sure thing.
Dividend cuts are a possibility, especially if the recession drags on. I would still like to keep track of anticipated dividend income so I know how close I am to financial freedom. Since we both agree that dividends aren’t a sure thing, how would you recommend I track my anticipated dividend income while expecting possible dividend cuts? For now I’m simply using the most up to date dividend payment numbers. And if my dividend income changes I will update my graph.
When it comes to energy companies specifically, the potential for dividend cuts is directly related to how long oil and gas prices remain low. I heard ARX and OXY have already slashed their dividends. Good thing I don’t own those. 🙂
Nothing is a sure thing anymore. Rental income was once deemed relatively safe by most investors as something they can almost always count on. Now landlords are not so sure. Maybe blue chip dividends are generally safer than rental property income these days.
I think you’ll see a ton of dividend cuts. Many companies have less and less money coming in to pay dividends. Once the economy bounces back the dividends will rise but your best play here is to simply acquire more shares.
I’ve heard that some companies have already cut dividends, and more are coming. Things could get worse during the next earnings season, lol. I’m particularly concerned about the energy sector. Currently a barrel (159 litres) of Canadian oil sells for just $4.50, basically the cost of a Starbucks latte. There is no way even low cost producers like CNQ and SU can maintain their dividend payments long term in these conditions. Nearly all oil sands operations are underwater, and some companies have already slowed down production. But we just have to stay the course. 🙂 Like you said, now is the time to acquire more shares. Once the recovery begins those companies that have a history of raising dividends will continue to do so once more.
isn’t cnr still a little expensive given the pe?
Good point. Assuming we use this year’s estimated earnings of $5.84 I paid 17 times this amount for my CNR shares. So you are right. 17x P/E is certainly not cheap by historical standards when it comes to stock investing. That being said, we have to look at present day alternatives. There doesn’t seem to be many other investments today that can match the future returns of CNR with the same level of risk. 🙂 CNR was trading at 21x earlier in the year so it’s relatively cheaper now compared to a couple of months ago. Given the company’s strong dividend growth over the decades, and resilient share price during recessionary times I feel this is probably as cheap as this stock will get. 20 years ago CNR may have dropped to 15x P/E but these days every central bank in the world is engaged in printing money which puts a floor under the stock market. The way we value stocks has changed.
So true. It’s quite worrying how prices will go up with all of this money printing. The money printed will never be unprinted. Especially since currencies are no longer backed by gold.
I appreciate your explanation. I guess its more about stability than roi.
Thanks for sharing. I also picked up some Suncor averaging down, for $18/share. I haven’t bought anything this week yet. Still waiting for prices to be back at around $50 for TD haha. I think it will happen. I also think dividends will probably be cut, but so far nothing has been announced for me yet.
That’s great. Suncor closed at $24/share today so we are both doing well. 🙂 I haven’t bought anything this week either. I’m going to wait and see which direction the market moves first. 10 million Americans filed for unemployment claims over the last 2 weeks. I’m surprised the stock market is handling it this well so far.
BTW from which website are you getting that nice graph of insiders selling and buying?
I got it from webbroker.td.com. It’s the online platform of my discount brokerage firm. The stock market research section offers a lot of useful reports like this one for individual stocks. 🙂
Hello, i found your blog because of reddit and i find your journey intresting!
I was wondering if you could give me your opinion on my plan.
Im in university and I have 1.5 – 2 years left in university. I live with my parents so I dont pay rents.
I have 3 paying coop to do in my degree (will start my first one this summer, if its not cancelled). Right now I have 50 shares of $TD bought at $55.32 yesterday. And I have around 32k CAD sitting in my bank (mostly in HISA – 2.1%).
10K CAD is from my gouvrnement student loans. Do you think its a bad idea to invest right now like
20k-25k of my money to buy some stock during this crash? I was planning on buying more $TD and $BMO. I will definitely be able to pay my student loans when im out of university (1 coop should pay me around 13-16k cad). Thank you.
Congrats on starting to invest at a relatively young age. I can’t give specific financial advice. But if I were in your shoes I would put about half of the savings (15K to 20K) into the stock market now, only buying high quality companies like TD, Royal Bank, FTS, BCE, and BMO is good too. The remaining savings would stay inside the HISA until later in the year when it’s more clear which direction the market is trending. 🙂 And naturally I would look into DRIPs for each stock I buy so the investment can compound automatically every quarter when dividends are paid.
Thank you for your quick response and the info! Ill look into it!
Great site and so much information to learn from. Those buys – are excellent additions to every portfolio. I have to agree that the only certainty during these days is Nothing. When Inter Pipeline Ltd.(IPL) one of Canadian aristocrats announced they are reducing their dividends, I am not surprise if others will follow suit. But as a dividend investor I am not just going to sit on the sidelines waiting what the companies are going to do. If one has the resources investing regularly whatever the market conditions is the key in my humble opinion.
I was looking at IPL earlier in March. I ultimately went with Pembina as a larger company should weather the storm better. There’s still the possibility that even the most well run companies will cut dividends, but we just have to mitigate risk where we can. 🙂
[…] been loading up on high quality stocks at discounted prices, increasing my forward dividend income by over $7,000 a year. And I’m not the only one shopping around these days. Other personal finance bloggers such […]
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How did you have 100k available for investing? Did you sell real estate or borrow?
I sold my Canadian farmland in Saskatchewan late last year. I received about $260,000 in cash in January this year after paying back the mortgage. I used about half of that money to buy a rental property in B.C. and the other half to buy stocks as you are aware. 🙂
Good stuff. Congrats on reaching FI!
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