Outlook for June 2014

May has come and gone, still no correction. In fact, the markets have risen to further all time highs with the S&P 500 at 1923.57, up 2.1% from end of April. On the Fed front, the bond purchases are cut in June to a total of $25B per month. The schedule is available here.On the personal front, we bought a house in May and with the closing date in July, I will be looking to liquidate some of our holdings. I am hoping to liquidate holdings in some of the ETFs and high income stocks rather than the dividend growth stocks. The readers will see some selling from my side in the coming weeks before seeing any buying. However, I am still maintaining some liquidity in my portfolio to take advantage of corrections.

 

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 (70%) and bonds (30%). The fund yields 6.5% 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%.
  • Bemis Company (BMS) is a manufacturer of packaging and pressure sensitive materials. The packaging materials are used in food packaging, chemicals, agribusiness, medical, pharmaceutical, personal care, electronics, automotive, construction, graphic industries and consumer goods. I really like the idea of owning a company that is hidden from the view but is present everywhere. I would like to thank DivHut for bringing this company to my attention. BMS is a dividend champion that has raised dividends for 30 consecutive years, with a 5-yr DGR of 3.4% and 10-yr DGR of 6.4%.
  • Index Funds – China ETF, Emerging Markets – I am also considering adding a new index fund to my portfolio to track the Chinese market/economy. 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, especially 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.

14 thoughts on “Outlook for June 2014

  1. Congrats again on the house purchase. There is nothing wrong with selling one asset to buy another. I am also a fan of the water utility space, having just purchased American States Water (AWR). I also like WTR, but need to do more research.

    I am apprehensive about the consumer staples sector. PG adn UL are both good companies…..I own both…..but I don’t see how their forward growth justifies their price. These companies are getting squeezed by a little bit of inflation….and a weak consumer. I fear what will happen if we ever get genuine inflation

    Have a great week
    -Bryan

    • Thanks for the input Bryan. I havent looked at AWR and will have to take a closer look. I did notice your purchase a few weeks ago.

      The current high prices have stopped me to buying anything on the stock market (except the automated monthly purchases I make). The high prices of all blue chip stocks has me waiting for the sideline for the last little while, but now my funds are diverted to the home purchase.
      We are already seeing food inflation – but most people miss it since the government changed the definition…broader/genuine inflation will follow – unless the government starts changing the definition of inflation again 😉

      Best wishes
      R2R

  2. To answer your question – I do not have enough money to own all of the stocks you have listed plus other dividend growth investors are listing on their blogs 😀

    Well, you are listing good stocks, I do not know those Canadian ones, but those US are classic.

    • Likewise, Martin. I wish I had some extra cash for investing but dont think I will be investing much this month. I guess its not so bad considering most are overvalued…so a good time to build up cash reserves.

      Thanks for stopping by
      R2R

  3. Great lists. I am trying to figure a game plan of my mother in laws finances. She doesnt trust anyone other than me with her money and frankly its quite a burden on me. At first I was thinkin a gic and dividend stock strategy but the more I think about it ETFs might be the best route. The ishares monthly income funds look enticing and it might be best I construct a portfolio with them in mind. How do you like yours?

    • ETFs would be a great choice, Asset-Grinder. I have CUD.TO and FIE.A.TO focusing on two different things. CUD.TO is a US dividend growers etf – but the distribution is pretty low. Ive had some good appreciation on that fund over the years and some low income from it. FIE.A.TO has a really high distribution rate (around 7%), but part of it is return of capital..so, I have a cap on how much I invest in that fund.

    • I missed on the weakness in MDT last month when it dropped to $58 level…but hopefully there will still be some opportunities once theres a pullback from these all-time high markets.

  4. Hi Sabeel,

    what do you think about Qualcomm and Intel?
    Do you think Intel may catch up Qualcomm in the sales of mobile processors?
    I have heard, that Samsung will use Intel-Chips for the grafic in new mobilephones…

    Best whishes
    Michael

    • Hi Michael,
      I am bullish on QCOM – they have a robust product line and their innovation is targeted in the right direction of the market – mobile. 2/3 of their earnings come from licensing their technologies. Check my detailed analysis from 2 months ago.
      http://seekingalpha.com/article/2081283-where-will-qualcomms-growth-come-from

      With Intel, Im not sure where they will end up. They completely missed the boat on mobile and for a company of that stature, there is no excuse. However, they are still the largest chipmaker for desktops/laptops. Desktops/laptops arent going to die anytime soon as some people seem to believe. For all serious work in offices, you still need to use them and cant use tablets/mobile phones. So, their future is fairly secure in that sense. Where does growth come from? I think it’ll be from Internet-of-Things, home media equipment, in-car entertainment – all of which Intel seems to be concentrating well on. So, all hope isnt lost yet for Intel 🙂

      Hope that helps
      R2R

    • Hi Evan,
      Thanks. Closing costs usually range from 1.5% to 4%. Our closing costs are at the low end of that scale = about 1.5%.

      – The land transfer tax is a bracketed system depending on the value of the house. Details here: http://www.ratehub.ca/land-transfer-tax
      The first time home buyers (which we are) get a $2,000 rebate on that amount.
      – Other closing costs are: home inspection (about $500), lawyer fees (about $1.5K to $2K), moving costs.
      – No Realtor fees from our end as the seller pays the 5% to both agents.

  5. Thanks for the update.
    I’m interested in more CN holdings.
    Took a quick look at FIE.A.TO tho and have to ask, why hold a fund whose major holdings are other funds? Also, the label says equity but one of the major holdings is a bond fund.
    Just curious as to why you chose that one.
    Find my recent post about using June to do a mid-year financial review at:
    http://www.moneydiva.com/its-june-do-you-know-what-your-moneys-doing/
    Later – Leah
    P.S. You going to come down to New Orleans for FinCon in Sept.? I’d love to meet some Canadian money bloggers there!

    • Thanks for pointing out the error, Leah. I have updated to include the equities and bonds details above. A fund that holds other funds does not add double expenses, as is common in the ETF industry to build fund of funds.
      That ETF is purely an income play. It pays 6.5-7% yield and pays monthly. Part of it is return of capital, so I have limited exposure. I sell positions in that fund periodically to rebalance my portfolio.

      I looked at the FinCon in Sep and was interested initially, but I have too many things going on here and couldnt commit to it. Maybe next year.

      Thanks for stopping by and the comment. Your blog is new to me. I will be sure to follow along.

      regards
      R2R

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