Outlook for April 2014

The name of the game is: Wait-and-Watch. The markets continue to stay resilient and the major indexes have been flat for Q1 2014. Every little stumble is causing more sideline cash pouring in to “buy the dip”. I’ve decided to sit these small dips out and concentrate on increasing my cash position. With the end of Q1, its earnings season again; and that means we can expect some volatility over the month of April as the companies release their results. A lot has been written about how the weather has played havoc over the economy and it’ll be interesting to see if it really did make a difference in the earnings.
On the Fed front, the Fed has decided to cut the bond buying program by another $10B and more importantly drop the Evans Rule – where rising interest rates are tied to a pre-requirement of a 6.5% threshold in unemployment – although the Fed has changed its tune a bit after that comment a few days ago. The current consensus for rate increase stands around early-to-mid 2015.

My Holdings

Provided the right conditions, I intend to add to my positions in Chevron Corp (CVX), Johnson & Johnson (JNJ), Medtronic (MDT), Qualcomm (QCOM) and/or Rogers Communications Inc (RCI.B.TO)
Chevron (CVX) is the fourth largest oil and gas company in the world operating in both Upstream and Downstream. CVX is a component of Dow Jones Industrial Average and is a dividend champion raising its dividends for 26 consecutive years. The 5-yr DGR is 9% and 10-yr DGR is 10.6%. The company is attractively valued at current levels and the recent clearing of the Ecuador suit is some long-awaited good news for the the company.

Johnson & Johnson (JNJ) is a behemoth in the healthcare and consumer goods sectors. The double play on the two sectors makes this a great pick. JNJ is a dividend champion that has been raising dividends consecutively for 51 years; has 5-yr DGR of 7.6% and a 10-yr DGR of 10.8%. April is also expected to bring a dividend increase announcement from JNJ.

Medtronic Inc (MDT) manufactures and sells device-based medical therapies worldwide. Medtronic is a dividend champion that has been raising dividends for 36 years; has a 5-yr DGR of 11.6% and 10-yr DGR of 14.9%.

Qualcomm (QCOM) designs, develops, manufactures and markets digital communications products and services based on CDMA, OFDMA and other technologies. QCOM is the leader in ARM-based processors which are found in the bulk of Windows, BlackBerry and Android devices. QCOM has been raising dividends for 12 years and has a 5-yr DGR of 16.95%. Click here to read my full analysis of QCOM.

Rogers Communications Inc (RCI.B.TO) is the largest wireless service provider in Canada and is growing its business segments in cable and media aggressively. Rogers has been growing dividends for 10 years and has a 5-yr DGR of 11.13%. Click here to read about my analysis of the telecom providers in Canada.

Monthly Contributions: Every month, I add to my positions in the following stock and funds:

  • Claymore S&P US Dividend Growers ETF (CUD.TO) is an ETF of 83 dividend growers and provides me with exposure to excellent corporations across all sectors. The ETF has a 1.8% yield and pays distributions monthly.
  • iShares Canadian Financial Monthly Income Fund (FIE.A.TO) is an ETF of 24 Canadian financial equities. The fund yields 7% and pays distributions monthly.
  • Scotia Canadian Balanced Fund (mutual fund) is an index fund tracking the Canadian S&P/TSX Composite Index and the DEX Universe Bond Index. The fund yields 0.52% and pays distributions quarterly.
  • The Bank of Nova Scotia (BNS.TO) is the third largest of the Canadian banks by deposits and market cap. BNS is also the most international of the Canadian banks with exposure in 55 countries outside Canada. BNS saw a pause in its dividend growth during the financial crisis. However, BNS has started raising dividends after the crisis with a 5-yr DGR of 5.03%. I have a DRIP plan in BNS and invest monthly to this holding.

 

My Watchlist

I am also considering various stocks that are not currently in my portfolio. I have decided to clear out some old names from my older watchlist and added a bunch of new ones as I need better diversification. I am starting to look more closely at the following sectors: Industrials and Services.
Industrials:
I have dropped Deere & Co (DE) from my watchlist after the lack of dividend increase this year. Instead, I have added conglomerates (GE and UTX) to my watchlist.
  • General Electric Company (GE) is a conglomerate operating in eight segments – Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Home & Business Solutions, and GE Capital. GE cut its dividends during the financial crisis and now has a track record of raising dividends for 4 years in a row at an annualized rate of 16%.
  • United Technologies Corp (UTX) is a conglomerate operating in six segments – Otis, UTC fire & security, Pratt & Whitney, Hamilton Sundstrand and Sikorsky. UTX has been raising dividends for 20 years with 5-yr and 10-yr DGRs of 10.3% and 14.5% respectively.
  • Illinois Tool Works (ITW) is a manufacturer of diversified range of industrial products and equipment with operations in 58 countries. The company operates in seven segments: transportation, power systems & electronics, industrial packaging, food equipment, construction products, polymers & fluids and all other. ITW is a dividend champion who has been raising dividends for 39 years. ITW has a 5-yr DGR of 9.9% and a 10-yr DGR of 12.6%.
  • Parker-Hannifin Corp (PH) is a full-line diversified manufacturer of motion and control technologies and systems, including fluid power systems, electromechanical controls and related components. The company’s motion and control technologies and systems are used in the products of its three business segments: industrial, aerospace, and climate & industrial controls. PH is a dividend champion who has been raising dividends for 57 years. PH has a 5-yr DGR of 16.2% and 10-yr DGR of 12.9%.

Services:

  • Canadian National Railway (CNR.TO) engages in transportation of goods including petroleum and chemicals, grain and fertilizers, coal, metals and minerals, forest products, intermodal, and automotive products. The company operates 20,100 route miles of track that spans Canada adn mid-America connecting the three coasts of Atlantic, Pacific and Gulf of Mexico. CNR is a dividend contender that has been raising its dividends for 17 consecutive years and has a 5-yr DGR of 13.9% and a 10-yr DGR of 17.4%.
  • Norfolk Southern (NSC) engages in rail transportation of raw materials, intermediate and finished goods operating approximately 20,000 router miles across the southern and eastern US. NSC and other railroads stand to benefit from the oil boom in continental US, and before permanent pipelines are put in place, railroads are the only option available to transport the huge supplies. NSC is a dividend contender raising its dividends for 12 consecutive years and has a 5-yr DGR of 10.8% and 10-yr DGR of 21.1%.
Other:

  • Aqua America (WTR) is a water utility company based in Pennsylvania but also provides services in seven other states. WTR is a dividend contender having raised dividends for 22 years consecutively. WTR has a 5-yr DGR of 7.4% and 10-yr DGR of 7.9%. Water utilities are a great fit as an essential resource and the company provides very agreeable dividend growth for the sector.
  • Procter & Gamble (PG) and Unilever plc (UL) are giants in the consumer packaged goods field. PG has five segments – beauty, grooming, healthcare, fabric care and home care. UL has four segments – personal care, foods, refreshment and home care. PG has been raising dividends for 57 years; has a 5-yr DGR of 10.2% and a 10-yr DGR of 10.8%. UL has been raising dividends for 25 years; has a 5-yr 7.07%.
  • Index Funds – China ETF, Emerging Markets – I am also considering adding a new index fund to my portfolio to track the Chinese market/economy. Everyone is dumping the emerging market equities these days, and I am looking for the right time to jump in. Read about my comparison of available China ETFs here. I am also considering using an emerging market ETF instead of China-specific ETF and need to weigh out the options available.
  • Global High Yield – In a global economy, it would be naive to ignore international equities as an investment target, esp when a plethora of foreign companies pay a attractive dividends. I am considering adding international equities exposure via ETFs which yield approximately 6.5%. Click here for my list and analysis.
What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist?
Disclosure: My full list of holdings are available here.

10 thoughts on “Outlook for April 2014

  1. Nice post R2R. I would love to add to my positions in JNJ and Chevron, but I don’t see getting the chance…..because these blue chips tend to be very resilient. That (and the dividend growth) are why we own them, right?!

    I saw Unilever and P&G on your Other list. While I bought some Unilever on the sell off in early Feb, I am wary of the sector……and especially P&G. I feel P&G is crazy expensive for what you get.
    -Bryan
    (Long all stocks mentioned)

    • Hi Bryan,
      CVX is currently at a good level and they are trying to get leaner and more focused than trying to be the biggest in the field. But they can only get leaner by so much since they are so huge. I still think its a good valuation here in the sub-$120 level.

      Yeah theres always a premium on the defensive stocks like PG, KO, PEP. I just have to admit that and initiate my positions once I feel comfortable with paying that premium. For now, its wait and watch 🙂

      Thanks for stopping by and the comment.

      regards
      R2R

  2. I like a few of these on here, especially PH and ITW. Of course, waiting for the same dip everyone else is waiting for. I may dabble in some PG for my retirement accounts. I’m still dripping the WTR too and getting a 5% discount on dividends. Nice deal there.
    -RBD

    • Hi RBD,
      My Industrials exposure is minimal and the only exposure I have is due to the funds I own. There has been quite a run up in both PH and ITW, so Im not sure I want to invest at the current levels. The only industrial(-related) on this list that I like at current levels is GE. Im still undecided on whether to pick GE or wait for better valuations in PH or ITW.

      Thats great you are getting a 5% discount on WTR. My only DRIPping was in BNS and they just cancelled the 2% discount last month 🙁

      Thanks for sharing your thoughts.

      Best wishes
      R2R

  3. I’ll be a bit more judicious with my investment capital in April. I hope that a new earnings season will bring out some more volatility. There’s really not a whole lot that I’m excited about in the markets right now except for companies that I’m already fairly overweight.

    • Same here, JC.
      The only two holdings in my current portfolio that have decent valuations are CVX and RCI.B.TO.

      I hope theres a selloff in May giving us better valuations.

      regards
      R2R

  4. Nice list R2R.

    Those dividend growth rates for WTR are pretty impressive for a utility. I’m keeping Deere on my radar. Even though they didn’t raise the dividend this quarter, they still will pay out more this year than last since they last raised it part way through 2013 and will have to raise it sometime in 2015 before they “officially” fail to raise it. They did something similar in 2009-10. Then again, maybe I’m just being overly optimistic. 😉

    For your industrial list, I too like GE. With the announced spin off of SYF, it looks like its finally getting back to its industrial roots and should made a good dividend stock going forward.

    Best wishes,

    SFZ

    • Agreed that its too early to call it failed for DE. They could still raise it as we are still early in the year. I cant imagine why they would have such a huge buyback program but not declare either special dividends or raise dividends.

      I like GE as its such a huge conglomerate and they have a huge backorder for a couple of hundred billion dollars. But I am also distracted a bit by all the defense contractors in the industrial sector like LMT, RTN, GD etc. I might just go with GE the more I think about it.

      Thanks for stopping by and the input.

      Best wishes

  5. Hey R2R, great watch list, yeah i’m still watching the water stocks, i’m in VE on its turnaround..i want more exposure and WTR maybe a good fit. FXI also worth watching as you say, some great bargains over there although it is more for speculation, always wary with accounting and so on. Maybe more HK based would be better? I think HK stocks provide 0% withholding tax? Not 100%, need to look at it.
    cheers

    • Thanks for the input, TFTT.
      I looked at VE a couple of years ago, but withholding tax rate stopped me from investing in it. What rate do you pay – 15% or 25%? I read mixed reports on withholding taxes from French companies.

      Thats interesting that HK has 0% withholding rate. I will have to look into it. You are right that investing in the Chinese ETFs is a bit of a speculation – but this turmoil/slowdown could provide a good investment opportunity.

      Thanks for stopping by

      regards

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