Outlook for May 2014

That’s another month of see-sawing activity, but the market remains fairly resilient closing at the the all-time high, even though we saw some corrections in the pharma, tech and solar sector. I am still sitting tight on the sidelines hoping for a better entry point which May traditionally provides, with the sell-in-may-and-go-away mentality. On the Fed front, the bond purchases are cut by another $10B in May to a total of $45B per month. 

My Holdings

Provided the right conditions, I intend to add to my positions in Johnson & Johnson (JNJ), Medtronic (MDT), Qualcomm (QCOM) and/or Rogers Communications Inc (RCI.B.TO)
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  (JNJ announced a 6.1% dividend raise in April) consecutively for 52 years; has 5-yr DGR of 7.6% and a 10-yr DGR of 10.8%.
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%. The recent injunction against its CoreValve device has seen some weakness in the stock price – but MDT was able to appeal and meanwhile still able to sell the device.

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, but the current high valuations do not provide many options. I am also looking closely at the following sectors as I am under-invested and need better diversification: Industrials and Services.
Industrials:
  • 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.
  • Income ETFs – I am also considering adding covered call ETFs to my portfolio as a more economical alternative to writing covered calls myself. The current environment is well suited to taking advantage of this strategy and should provide some good complementary income in my portfolio. Read about my review and analysis here.
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.

6 thoughts on “Outlook for May 2014

  1. Both Aqua America (WTR) and AWR are on my watchlist. In general I’m holding off for better prices, but I would like to get some exposure to the water utilities.
    -Bryan

    • I think water utilities have a brighter future than the electric utilities. Both great stocks, but I narrowed it down to WTR because of the dividend growth rate track record.

      Thanks for stopping by. Happy investing
      R2R

  2. These last few months have seen the markets go just about everywhere but nowhere. I’ve still been trying to buy on the dips like I did through most of 2013. I’d really like some sell in May and go away action. There was an article on SA about it and based on some technical indicators it looks like it could be in the works. We’ll see what happens though.

    • I am really keeping my fingers crossed for a sell-in-may action. I have made no purchases (except my monthly auto deposit and purchase in some funds and one drip) in April hoping for a mini-correction.
      There are couple of stocks on the Canadian market that are already a decent value, but I might get it at a better discount if theres a broad market selloff.

      Best wishes
      R2R

  3. I’m glad that the Fed is continuing to wind down the buyback program. I understand the reasons for it, but I’ll be glad when it is over and the market can just do what it does best and doesn’t have any “interference”.

    As for your mentions, I think they are all great options to look into for building a healthy dividend portfolio.

    • Jon,
      Yes the market will go ahead and do what it does best once the crutches are removed. We can definitely expect some increased volatility in the future.

      Im still looking for a better entry point on some of the equities mentioned – hopefully May will provide an opportunity.

      Thanks for stopping by.

      regards
      R2R

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