Outlook for January 2015

Outlook for January 2015

Santa Yellen sent the market soaring in late December. The Fed’s statement that they could possibly wait longer before the interest rates are raised was greeted by the markets as we have now seen multiple times. As much as the Fed likes to remind that the decision will be data dependent, investors remain happy while the low rates exist. Irrespective of what happens, my course is to stay invested and look for value in the market.

Outlook for January 2015

Looking at the various sector’s performance in 2014, Utilities seem to be where investors have parked their cash – possibly for income purposes. The sector remains overvalued by most measures, and will definitely suffer if and when the interest rates rise. As much as I would like to add to my utilities sector to balance my portfolio (its the smallest sector in my holdings), I cant seem to find decent value. For value investors, oil and commodities are two spots where stocks remain depressed. I continue to monitor this closely and will look for addition here.

I am almost fully invested, with just a 2.1% cash position in my portfolio. I will be concentrating on rebuilding my cash positions over the month (as discussed in my 2015 goals post) unless something un-passable comes up. Some of the stocks that I am keeping an eye on:
My existing holdings
  • Apple Inc (AAPL) is a new dividend payer/grower. The company started paying dividends in 2012 and has started raising the dividend right out of gate. The fundamentals remain solid and the company is at the forefront of innovation and is a money-making machine. It has been called by many investors/analysts to be the first company to possibly cross the $1T mark and is speculated to do so in 2015.
  • Chevron Corp (CVX) is a dividend champion having raised its dividends for 27 years consecutively. Under the current market conditions, where decently valued stocks are hard to find, CVX provides relatively good value. CVX has a 5-yr DGR of 9% and a 10-yr DGR of 10.6%. My Chevron dividend stock analysis can be found here.
  • Magna International (MG.TO) is a globally diversified auto parts manufacturer. The company’s parts can be found in almost every major car manufacturer’s products in the world. The company has a low starting yield, but a great dividend growth rate. Magna has raised dividends for 5 years and the 5-yr DGR stands at 76%.
  • RioCan REIT (REI.UN.TO) – is one of the largest REITs in Canada and owns a lot of retail real estate across Canada. The company generates 90% of its revenue in Canada and 10% in USA. Although not a dividend grower (5-yr DGR 0.50%), the stock is currently undervalued and I am considering adding to my position simply because there is plenty of value to be found at these levels.

Possible new additions to my holdings

  • Energy giants such as Exxon-Mobil (XOM), ConocoPhillips (COP) or Royal Dutch Shell (RDS.B) are all trading at very attractive levels. Each of these companies have very attractive yields and can survive the downturn in the energy sector.
  • Canadian banks have reached attractive valuations after the rout in the energy sector. The banks are exposed to the expensive Canadian oil sands and the drop in energy prices has resulted in a drop in the Canadian dollar – which will affect the banks’ balance sheets in the coming quarters. Banks that I would like to own are Royal Bank of Canada (RY), Toronto-Dominion (TD) or add to my existing position in Bank of Nova Scotia (BNS).
  • Main Street Capital Corp (MAIN) is a business development company specializing in long- term equity, equity related, and debt investments in small and lower middle market companies. MAIN does not seek to invest in start-up companies or companies with speculative business plans, but rather in traditional or basic businesses. MAIN is a high yielding dividend payer with a yield close to 7%.
  • Unilever plc (UL) is a giant in the consumer packaged goods field. The company operates in four segments – personal care, foods, refreshment and home care. Unilever has been raising dividends for 25 years and has a 5-yr DGR of 7.07%.
  • On a side note, I would like to add some dividend stalwarts to my portfolio in order to boost up my core holdings over the course of 2015. These stocks are almost always never trading at a discount and especially in current market conditions are quite expensive. However, I will continue keeping an eye on them to add to my portfolio when the opportunity presents itself. The companies are: 3M (MMM), Aqua America Inc (WTR), Coca Cola (KO), Disney (DIS), General Dynamics (GD), Johnson & Johnson (JNJ), Procter & Gamble (PG), Parker-Hannifin Corp (PH), PepsiCo (PEP), Union Pacific Corp (UNP), United Parcel Service (UPS).

Dividend Increases

I am expecting dividend increase announcements from the following companies in my portfolio.

  • Archer Daniels Midland (ADM) – last increase was in Dec 2013 by 26%. I was expecting an announcement in December, but that never came. The dividend raise is imminent as the management has made it clear that the payouts will be increasing. Read the ADM analysis here.
  • Canadian National Railway (CNR.TO) – last increase was in Jan 2014 by 16%. Read the CN dividend stock analysis here.
  • Omega Healthcare Investors Inc (OHI) – last increase was n Oct 2014 by 1.96%.

What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.

Disclosure: Long AAPL, ADM, BNS, CVX, CNR.TO, JNJ, OHI, REI.UN.TO. My full list of holdings is available here.

 

Photo Credit: Porto Bay Events

 

15 thoughts on “Outlook for January 2015

    • MDP,
      I was caught in a situation where stock prices dropped to tempting levels and didnt have any cash positions during the end of 2014. I have decided to build up my cash reserves and keep atleast 3-5% in cash for such scenarios. Lets see if the cash survives or will I be tempted to simply deploy it and put it to work.

      Thanks for stopping by and the input
      R2R

  1. Like the list, and have actually made moves on several of those positions. AAPL, BNS, DIS, MAIN, CVX, XOM all saw some sort of cash this month, split between Loyal3 and a reshuffling of my IRA and new capital. I’ll have a post out about it shortly.

    Plenty of fish in the sea, and I’m looking forward to really growing my passive income this coming year.

    • Those are some great names to invest in, w2r. I wish we had something like Loyal3 here in Canada. I try to keep my transaction costs low, so I cant really invest small amounts frequently. Best wishes for what sounds like is going to be a great year for you.

      R2R

  2. TD, BNS and RY are all on my short list going into 2015. I’ll be looking to potentially average down on those shares. We’ll see how the first week shakes out for us and be on the lookout for any “surprises” that come out of left field. The market has a knack for being irrational at times. Thanks for sharing.

    • The yields are juicy and hard to resist on the Canadian banks. Averaging down is probably a good idea. I will be looking to average down on my BNS as well. You are right..the market will sooner or later act irrationally and hopefully, I will be ready with some cash on hand to invest.

      Heres to a great 2015!
      R2R

  3. I own a lot of the stocks you mention; AAPL, CVX, DIS, JNJ, KO, MMM, OHI, UL, UNP, & XOM. I had been looking at ADM and PG, they are definitely on my watch list. The price of stocks recently has been pretty back and forth. I’m still learning, but dollar cost averaging seems like it would balance these high prices out in the long run. Assuming I add to my current positions. In any case, thanks for the post, and happy investing.

    – HMB

    • All solid blue chip names HMB, which is why I picked them. I want to add more wide moat companies to my core portfolio and those companies should do well. ADM is a fantastic company – and I have written much about it and have been an investor for a couple for year. Love the long term trend and recommend the stock to anyone.

      Best wishes. Thanks for stopping by and the input
      R2R

  4. R2R,

    Great list by the looks of it! Just like you I’ve been looking for value in industries that are underweight in my portfolio, but it’s not been easy. That’s why I decided to stock up on some more Unilever. Excellent company and decently high dividend payout.

    Looking forward to what you’ll be purchasing over the following months.

    Best of luck in 2015,
    NMW

    • Unilever is a great company and one that I would love to own. I have been keeping my eye on it and the stock has traded fairly sideways over the last year. The strong US dollar also skews the dividend amount, so I have to keep that in mind.

      Thanks for stopping by and sharing your thoughts
      R2R

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