February came and went in a blink of an eye. The short month turned out to be a great month for the equity markets – with the month recording the best performance since Oct 2011. The equity indexes continue to linger at all-time highs looking for direction heading into March. The FOMC indicated that most officials would rather wait before raising rates, which of course did not come as a surprise for a lot of investors considering there were close to 20 rate cuts around the world in Jan & Feb 2015. In fact, with some good news coming later in February, the chatter of rising interest rates was heard by the Fed, who swiftly suggested that there would be forward guidance before any rate increase. Some economists are now suggesting that the rate hike could get pushed back to September. We will have to wait and see how things develop.
Outlook for March 2015
On the home front, the Canadian central bank is going to take a wait-and-see approach after cutting the interest rates in January by 25 basis points. Most economists are expecting another rate cut – with some predicting this spring and some predicting a rate cut in summer. Whether they will or not, the name of the game remains the same for us. Save, invest and pay down debts.
In February, we started putting together an index-based ETF portfolio for my wife’s portfolio. In order to avoid buying at a market top, we started off with a modest amount of funds put to work. We will continue building our position in March and in the coming months over the course of the year. The portfolio details are shared here. As for my portfolio, I maintain a healthy cash position (as discussed in my 2015 goals post). If and when opportunities present themselves, I will be able to move quickly and pick up more shares.
Some of the stocks that I am keeping an eye on from my existing holdings:
- Amgen Inc (AMGN) is a biotech giant and has a relatively short dividend payment history (since 2011). Nevertheless, the numbers are impressive, with a 3-yr DGR of 63% and the company raising its dividend by 30% last year and guiding to raise it again by 30% this year. I started with an initial position of 10 shares last month. I will be looking to add more shares to my portfolio possibly this month. See my post on why Amgen is a great buy here.
- AT&T (T) is a provider of wireline and wireless telecommunication services. The company has raised dividends for 31 consecutive years with a 5-yr DGR of 2.3%. The recent quarterly results have shown that AT&T can grow revenues with its investments in Mexico, DirecTV, and have cornered the market in car connectivity. AT&T also recently outspent Verizon (VZ) during the spectrum auction, which will help them grow further.
- General Electric (GE) is an industrial conglomerate and has been raising dividends for 5 years. The company is decently valued in the current market conditions. GE has a 5-yr DGR of 1.4%. General Electric is a play on the global industrial market and the company has an ever-increasing backlog of orders.
- Magna International (MG.TO) is the most undervalued stock in my portfolio. The fundamentals are absolutely fantastic and because this company is relatively unknown outside of Canada, unless you follow the automotive sector closely, the stock prices remain subdued. I am tempted to add to my position in this automotive parts giant with a 5-yr DGR of 76%. Magna raised its dividend last week by 16% and announced a 2:1 stock split.
Possible new additions that I am looking at:
- Baxter International (BAX) is a medical device and pharmaceutical company. The company is on the verge of spinning off its biotech arm in mid-2015, called Baxalta, which is expected to create immense value for shareholders. Baxter has a record of spinning off companies which are either successful independently (Edwards Lifesciences was a BAX spinoff), or subsequently acquired by others (Caremark spunoff from BAX was acquired by CVS, Allegiance Healthcare spunoff from BAX was acquired by Cardinal Health). This dividend challenger has a 8-yr track record of raising dividends with a 5-yr DGR of 14.2%.
- United Parcel Service (UPS) is seeing a lot of interest from hedge funds and institutional investors. I really like the outlook of the company and like the fact that it has a wide economic moat. The company has a track record of raising dividends for 6 years in a row with its last announcement coming in Feb 2015 for 9%.
- 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) and Bank of Montreal (BMO) or add to my existing position in Bank of Nova Scotia (BNS) or Toronto-Dominion (TD). Read details of why I think the banks are attractive to buy now.
- I am also looking to add an insurance name to my portfolio. Some of companies that I am looking at are Intact Financial (IFC.TO), Power Corp (POW.TO) and Chubb Corp (CB).
- Some industrial names on my radar: Parker-Hannifin (PH), Emerson Electric Co (EMR), and General Dynamics (GD).
- For too long, I have ignored the utilities sector as the P/Es are high and the yields depressed. But I am going to consider adding some utility names to my portfolio, even though they might not be a bargain. In the past, I have owned Southern Company (SO), and the current PE of 20 and yield of 4% looks decent. If you have any other recommendations, please share them below.
I am expecting dividend increase announcements from the following companies in my portfolio.
- Bank of Nova Scotia (BNS) – last semi-annual increase was 3.12% in Aug 2014.
- Qualcomm (QCOM) – last increase was 20% in Mar 2014.
- Wells Fargo (WFC) – last increase was 16.7% in Mar 2014.
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.
Photo Credit: Global Panorama