Baby R2R’s Portfolio Update – Q3 2017

This is a new series where I intend to share the progress of Baby R2R’s investment portfolio. Before I begin, a quick shout out to DivHut, who gave me the idea to write and document these updates.

Baby R2R was born in April 2016 and a few months later, I setup her education fund to which I contribute on a regular basis. We live in Canada, so we take advantage of the RESP program (Registered Education Savings Plan), an account type where you can save and invest for your child’s benefit for secondary education. In addition to tax advantages, we also receive an education grant, which matches upto 20% of the saved amount (upto a max of $500 per year). How can anyone say no to free money? 🙂

In addition to the education fund, I also decided to start a Nest Egg fund, where I save and invest for Baby R2R and let compounding do its job over the course next couple of decades. The two accounts take different approaches to investing strategy.

The Education Fund

For the Education fund, I have chosen to go with index funds. The details of portfolio construction are shared in this post. While I contribute regularly, I do not invest every last penny in the account. I have decided to invest slightly at a slower rate and dollar cost average over the months.

To get full benefits from the government, I contribute $2,500 per year and will receive $500 in grants. So, the total contribution amount going into the account is (and will be) $3,000 per year.

As it stands at the end of Q3 2017, the total account value is $5,900, of which 38% is invested and the rest in cash.

Portfolio Composition and Returns

This portfolio consists of four ETFs giving exposure to Canadian Equities (20%), All World Ex-Canada Equities (40%), Canadian Fixed Income (20%) and Emerging Market Fixed Income (20%).

Year-to-date, this portfolio has returned 5.8% + dividends.

The Nest Egg Fund

The Nest Egg Fund is extra savings and contributions that I earmark part of my tax free savings account for Baby R2R. The goal was to save an extra $100/month, although I may have been a bit more generous with the contribution in the last few months 🙂

Portfolio Composition and Returns

This portfolio consists of 2 dividend growth stocks: Bank of Montreal (BMO.TO) and Brookfield Asset Management (BAM.A.TO).

Year-to-date, these stocks have returned 10.9% + dividends (although that is not my real return value, since I only bought BAM in July 2017)


Between the two accounts, I am happy with the progress we are making for our daughter’s future. The account values have grown and Baby R2R has started earning dividend income. In fact, Baby R2R got her first pay raise in May 2017 when BMO announced a dividend increase of 2.27% 🙂

Baby R2R’s total portfolio value and dividend income looks like this:

What are your thoughts on these portfolios and the plan going forward? Share your thoughts below.

Full Disclosure: Long all stocks & funds mentioned above. Our full list of holdings is available here.

The Book Value

In this article, I take a closer look at the book value of the company and why you should consider it when picking your investments. The book value, also called net book value, or net asset value, is the total value of the company’s assets that the shareholders would theoretically receive if a company were to be liquidated. In other words, the net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities.

The Book Value

So, the book value is a pretty important factor when considering and evaluating companies, and for this reason, I use it extensively when I publish my dividend stock analysis of a company. It is so important in fact, that it forms the basis of the Graham Number (more on this below), which is a calculation of the fair value of a company as per Benjamin Graham – the father of value investing.

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The PEG Ratio

Stock Valuation The PEG Ratio, short for price-to-earnings to growth ratio is a quick short hand of figuring out which stocks are possibly undervalued. The current conditions make for very elevated levels of market valuation of most equities except for a couple of sectors (commodities and energy). In searching for undervalued stocks, looking at the PEG ratio may provide you with a clue.

The PEG Ratio

A stock’s PEG ratio is simply the Price-to-Earnings ratio divided by the (expected) earnings growth rate. Note that technically, PEG ratio can indicate “forward PEG” or “trailing PEG”. Since we are only concerned about the future earnings for new investment dollars, it is a good idea to look at the forward PEG ratio in evaluating stocks. The lower the PEG ratio, the more undervalued a stock is. A rule of thumb used in the industry to evaluate stocks is looking for a number less than 1 – indicating that a stock is possibly undervalued. The PEG ratio provides a better picture than simply looking at the P/E of a stock. For e.g., you may choose to use a screener and exclude high P/E stocks, say anything over 20. This may not be the best course of action, as the high P/E might be justified if the company is expected to grow its earnings aggressively over the next few years.

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Comparing Forward P/Es

As the year draws to a close, I am starting to keep an eye how my holdings have performed over the year, and more importantly, what the 2014 outlook looks like. The current market conditions seem to suggest that stocks are fair-to-overvalued. But looking at the analyst estimates and the forward earnings guidance could possibly shed some more light on how my holdings are valued for the year forward.
A Forward P/E is the measure of the price-to-earnings (P/E) ratio using forcasted earnings. The Forward P/E could be for the forward 12 months period or for the next full-year fiscal period. Note that these are merely estimates and guidance and are not an accurate measure as it is not reliable data compared to the current earnings data. Nevertheless, my portfolio’s P/E and Forward P/Es are listed below including the current and 5-yr average yields.

Company Name
 5-yr Avg
Archer Daniels Midland ADM $41.60 18.65 12.88 1.83% 2.30%
BCE Inc BCE $46.53 16.36 14.81 5.01% 5.10%
Chevron CVX $122.78 10.04 10.32 3.26% 3.30%
CHS Inc CHSCP $29.57 6.76%
Cineplex CGX $42.40 21.75 20.51 3.40%
IAMGold Corp IMG $4.32 16.74 16.33 6.09% 1.70%
Inter Pipeline Ltd IPL $25.52 5.05% 6.40%
Johnson & Johnson JNJ $95.06 21.21 16.29 2.78% 3.30%
Medtronic Inc MDT $57.36 15.33 14.06 1.95% 2.20%
Omega Healthcare OHI $32.29 23.38 20.85 5.95% 7.20%
Qualcomm QCOM $73.65 18.84 13.13 1.90% 1.60%
RioCan REIT REI.UN $24.82 8.32 5.68% 6.30%
The Bank of Nova Scotia BNS $65.42 13.00 12.02 3.79% 4.00%
The Jean Coutu Group PJC.A $18.18 9.42 15.14 1.87% 1.90%
The Southern Company SO $40.73 22.16 14.69 4.98% 4.70%
Thomson Reuters TRI $39.28 37.23 19.70 3.46% 3.50%
Wells Fargo & Co WFC $44.31 11.67  11.07 2.71% 2.10%
The difference in the P/E and Forward P/E gives us a clue if the stock is currently under or overvalued as per the earnings estimates. From the lot, only Chevron (CVX) and The Jean Coutu Group (PJC.A) have a Forward P/E less than the current P/E. On the other end of the scale with the largest difference between current P/E and Forward P/E, we have Thomson Reuters (TRI), The Southern Company (SO), Archer Daniels Midland (ADM) and Qualcomm (QCOM). I will be digging deeper into the analyst estimates, forward guidance statements of these four equities to consider adding to my position.
What are your thoughts on Forward P/E? Do you ever consider this metric in your investing decisions?
Disclosure: Long all positions mentioned here.