Outlook for June 2015

Outlook for Jun 2015

June is here! This year is just flying by, don’t you think? The stock markets have seen increased volatility over the past few weeks, while the bond markets have seen a rout with billions of dollars wiped out in a matter of weeks. This increased volatility can provide some good entry points for long term investors to pick up some attractively valued companies.

The Fed made a decision not to hike rates in June, which sent the market even higher. For now, its a wait-and-see approach and I intend to follow suit. Data coming in has indicated that the US GDP contracted in Q1 – and its really hard to see how the Fed can actually raise rates this year. Nevertheless, if a rate hike is announced, Im sure we will see some knee jerk overreaction which should present some good long term investment opportunities. On the Canadian front, the Bank of Canada (BoC) is taking a similar wait-and-see approach after the rate cut in January. BoC expects to see some major headwinds in western Canada after the oil rout, and there are already reports of a potential housing correction starting in Calgary. We will have to wait and see if the rest of the country follows suit.

Outlook for June 2015

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 over the course of the year. The portfolio details are shared here. As for my portfolio, I hold a decent amount of cash as discussed in my 2015 goals post. I am well above the 3-5% of cash position target to take advantage of market corrections.

Portfolio Considerations

Some of the stocks that I am keeping an eye on from my existing holdings:

  • Magna International (MG.TO) is the most undervalued stock in my portfolio, although the stock price has seen quite a run-up in the last few weeks. The fundamentals are absolutely fantastic and this company is relatively unknown outside of Canada, unless you follow the automotive sector closely. I am tempted to add to my position in this automotive parts giant with a 5-yr DGR of 76%. Magna raised its dividend recently by 16% and the stock split 2:1.
  • Main Street Capital (MAIN) is a Business Development Company that operates in southern US. The company pays monthly dividends and currently yields 6.7%. The high-yielding dividend grower also pays semi-annual supplemental cash dividend and announced last week an extra dividend of $0.275/share in June on top of the regular monthly dividends.
  • Power Corp of Canada (POW.TO) is a financial conglomerate. While the main focus is insurance and asset management, the company invests in various other sectors of the economy such as utilities, media etc. The company announced its first dividend increase after six years in May with a 7.3% bump in dividends. I initiated a position after the announcement and will be looking to add further to this position. Details of this purchase shared here.
  • After the recent rises in General Electric (GE) and AT&T (T), I have decided to put those companies on the back-burner as I seemed to have missed the boat on adding at an attractive price. I would still like to add them, but the recent rise in stock prices has pushed me to the sidelines when it comes to these two companies.

Possible new additions that I am looking at:

  • Canadian banks are at an attractive valuation 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. A few glimpses of this already apparent in the latest quarterly reports that were released last week. 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 Canadian banks are attractive to buy now.
  • In the food and beverage sector, I am looking to initiate a position in Tyson Foods (TSN), Coca Cola (KO), PepsiCo (PEP), or Starbucks (SBUX).
  • I am also looking at adding another REIT to my portfolio: in this space, I am considering international office REIT companies Dream Global REIT (DRG.UN.TO) or W.P.Carey Inc (WPC) and/or healthcare REIT to complement my position in Omega Healthcare Investors Inc (OHI) and looking to add either HCP Inc (HCP), Ventas Inc (VTR) or Health Care REIT (HCN). The other REITs on my radar are in the farmland sector: Farmland Partners Inc (FPI) and Gladstone Land Corp (LAND).

Dividend Increases

I am expecting dividend increase announcements from just one company in June.

  • Realty Income Corp (O) – last increase was 0.26% in March 2015

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: My full list of holdings is available here.

Photo Credit: kansasphoto

21 thoughts on “Outlook for June 2015

  1. Roadmap,

    I may add to my TD position this month as well. You are right about oil and Canadian banks. They both seem to be coupled with leg irons at the moment. I held my nose and bought some more Shell today, but I am a bit exhausted with the energy purchases. REITs and railroads also look pretty good right now.

    MDP

    • MDP,
      Congrats on buying Shell…its a great company to own. Railroads are another sector that has caught my eye…lately they’ve all seen a drop and are attractively valued. I should take another close look and see if I should just go ahead and buy at these levels.

      Thanks for stopping by. Happy investing!
      R2R

  2. I’ve been ignoring the market noise and just continue adding more capital in our portfolio. Looks like we share the similar stocks on our watchlist. 🙂

    • Thats the best course of action, Tawcan. No point in trying to time the market – just look for good opportunities and keep adding capital to work.

      Looking forward to see what you buy.

      Happy investing
      R2R

  3. Looking good, R2R! Glad to see the REITS on your radar, I see some serious value there as well. Also interesting seeing TSN foods pop up on your list. Is that a first or did I miss it before? I’ve looked at TSN in passing a few times and would very curious to hear more of your thoughts in a write up if you’re looking for some analyzing to do, hehe. Always appreciate your updates and have a great week my friend!

    • Ryan,
      I looked at TSN more than a year ago, but dropped it because of the low yield. Now, I am reconsidering it (been on my watchlist for the last month or two) since their div growth is fantastic. Im sure the company will raise dividends aggressively over the next few years.
      The idea to invest in TSN comes from looking for food-based investments. Instead of buying packaged/processed food companies, I am looking at the source – the main ingredients that go into them – like agri and meat companies. That was one of the reasons why I started investing in ADM in the first place and have been very happy with it since owning it. Now, I am looking at the meats subsector – maybe I will post a detailed account of my thoughts on why I am considering this. Thanks for the idea 🙂

      Really like your UNP purchase. Keep it up!

      R2R

  4. You are well positioned if we see some market correction, I myself may have to use my emergency fund if we see steep decline then replenish my ER fund. I am living paycheck to paycheck right now in terms of investing which I dont mind.

    • FFF,
      That just means you are fully invested and your money is working as hard as it can. I am hoping that the slow contributions between my funds and my wife’s funds will average out the prices and stop me from buying at market tops…while giving us some wiggle-room in case of a correction.

      Best wishes
      R2R

  5. Hey R2R!

    Thanks for sharing your outlook with us. It is always so helpful to see what other DGI investors are doing, especially fellow Canadians.

    I was actually just looking at MG earlier today briefly, but didn’t take a hard look due to the dividend being below 2%…

    For me, I’d like to add to BNS but the price has kind of come back up a bit higher than when I bought it so I’m not sure about that anymore.

    I’m looking at adding CNQ or an insurance company this month.. I’m wondering what you think of CNQ? Ex-dividend date is next Wednesday so I kind of want to make up my mind before then.

    Best regards
    DB

    • DB,
      Thanks for stopping by and the comment – always great to hear from readers and get some feedback.

      MG is a fantastic company – I initially bought it last fall and the stock was flat for a while..but it has started taking off now after a series of upgrades. Last week Deutsche Bank upgraded from US$57 to US$75 for the US-listed stock (MGA) and I think they are just catching up on the real strength of the company. It is a low yielder – but the low payout ratio and strong financials mean that the company can keep the dividends growing easily for years to come.

      BNS also saw upgrades and has seen some rise in the stock price in the last couple of days. I think its still a really good buy and currently undervalued. A dividend of 4%+ is nothing to sneeze at. I am looking at it to add to my position myself. I wouldnt worry too much about the price – between $63 and $65, it really doesnt matter. If you are investing for the long haul – in 10-20 years time, you wouldnt care if you bought in at $63 or $65.

      I am not very familiar with CNQ. I know its really popular with Canadian investors, but I am not familiar with their business or financials – so I cant really comment on it. Insurance companies are looking good – I just initiated a position in Power Corp (POW.TO), and SLF/MFC are also looking good. In the US market, I really like Chubb Corp (CB).

      Hope that helps
      R2R

  6. R2R,

    June looks to be another great month for you. TD is getting to be at compelling levels again. Glad you pointed that out. Also, we forgot that O is likely to raise their dividend again this month since they just had 3 months at .1895 . Good luck with your purchases this month and thank you for sharing.

    All the best.

    FD

    • Thanks for the wishes, FD.
      O had a big 3% raise in Jan and I wasnt expecting any more raises, but they have been raising every quarter just as they did last year…so, Im looking forward to atleast one raise in June.

      The Canadian banks are very attractively valued – cant go wrong with adding to TD or BNS.

      Best wishes
      R2R

  7. The year is flying by alright buddy. June 2nd. I’m trying to figure out what happened to April and May. I have had Magna and Power Corp of Canada on my radar since we discussed them a few weeks back. I am convinced we’ll get a Euro inspired correction at some point soon, but it can’t come soon enough for me. Have a great week and I’ll talk with you later
    -Bryan

    • Both really good companies, Bryan. The strong US$ should also mean you get a good advantage in buying more shares in the market. I am expecting something from the Euro to blow up – but then again, we’ve been waiting for a while. Lets see what happens.

      Happy investing
      R2R

  8. Do pay attention to the transports and market internals here, transports are grossly underperforming (dow theory non conformation) and market internals are deteriorating. I think you will get good buying oppurtunities in sep-oct this year also the 8 year economic cycle is set to take hold in 2016 ( 2000, 2008, 2016). So no need to load up here. All the best.

    • Good points, rajveer. Transports – esp railroads, have caught my attention as well. I know a few other dividend growth investors are loading up on railroads and I just had a look at the financials and valuation – and they sure look very attractive. I will be looking for buying opportunities here.

      Thanks for the pointer. Appreciate it.
      R2R

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