Recent Buys - currency exchange decision


Maybe it's a coincidence but after my recent post asking if we should continue investing in US dividend stocks at current subpar exchange rate, the Canadian/US exchange rate improved slightly to benefit us Canadians. But the improvement was not significant enough for us to convert Canadian cash to US cash immediately. After more discussions with Mrs. T on this topic, we decided to approach the exchange rate with two different methods. One, we would look for US value dividend stocks to deploy our US cash in our RRSP and convert as little Canadian currency to US currency as possible. Second, we would buy solid Canadian dividend stocks. We will then use Norbert's Gambit to journal the Canadian shares to US shares. Once converted to US shares, we would collect dividend income in US currency, once we have sufficient US cash, we will purchase other US blue chip dividend stocks. That's the general concept, obviously holding Canadian stocks on the US exchange means the associate US dividend amount will be affected by the exchange rate so we need to consider this as well.

With the approaches determined, we made the following purchases recently

20 shares of Royal Dutch Shell (RDS.B ) - new position
15 shares of Agrium Inc. (AGU.TO) - new position
58 shares of Canadian Imperial Bank of Commerce (CM.TO) - add to existing position

Total cash deployed is roughly $9,000.


Royal Dutch Shell
Royal Dutch Shell is an independent oil and gas company. The company explores and extracts crude oil, natural gas and natural gas liquids. It also liquefies and transport gas. Shell is one of the biggest companies in the world in terms of annual revenue, operating in over 70 countries and have over 44,000 gas stations. I'm very familiar with Shell gas station as I often fill up gas in one of many Shell gas stations here in Vancouver.

Important factor to note when holding Royal Dutch Shell stocks is that there are two classes of shares - A and B shares. For Canadian investors holding US and ADR stocks in RRSP, it is best to invest in the B shares, since we won't get charged the 15% withholding tax by the Dutch government.

We made this purchase after the Royal Dutch Shell announced the 85 billion cash purchase for BG Group recently. The merged company will boast a market value twice the size of BP and will also surpass Chevron, making the merged company a titan in the oil & gas industry. However, it seems that most of the investors didn't like this purchase announcement and the stock price plummeted by almost 15%. We thought this was the perfect time to follow our buy stocks on pullback strategy. As many of you are aware, the recent crude oil price pull-back has had a negative impact to revenues of oil & gas companies. Many investors believe this is not the right time for Shell to make such expensive purchase and paying a premium for BG Group. I happen to have a different view than these investors. I believe timely strategic acquisition will serve RDS shareholders very well in the long run. I have a good example when it comes to timely strategic acquisition. During the great recession my company acquired a competitor and paid a small premium. The company stock price plummeted during that time. But if you look at the bigger picture, it was a long term strategy and the acquisition has paid off. Six or so years later, this acquisition has allowed my company to be the leader in our industry. Furthermore, the company stock has risen from the dead by many multiples. I believe we'll see similar result with the Shell and BG Group merge.

RDS.B currently trades at a PE ratio of 13.53 and a book/price ratio of 1.2. The stock has a dividend yield of 5.9% at current price. Because we purchased the stock close to the current 52 week low, our yield on cost is over 6%. This is an excellent dividend yield for a multi-billion dollar company! The only matrix that I do not like is the high dividend payout ratio at 79.8%. Although Royal Dutch Shell held its dividends between 2009-2011, it did not cut its dividends. Since 2011, RDS has grown dividend by roughly 10% on an annualized basis. That's a pretty impressive growth. Despite the high dividend payout ratio, RDS is sitting on mountains of cash. I believe RDS will continue growing its dividends in the future.


Agrium Inc.
Agrium is a Canadian producer and marker of nutrients for agricultural and industrial markets. The company has two business units - retail and wholesale. The wholesale business unit produces fertilizer products - nitrogen, phosphate, and potash that get used for growing crops. The retail business unit markets all the crop inputs and services growers require, including producing and marketing a broad range of private label and nationally branded crop protection products and seeds.

Agrium has been on our radar for a while now. The company is very intriguing to us for several reasons. As world population increases, demands for food will continue to increase. To grow food to feed the population, products like fertilizer, crop protection, and seeds will be in high demand. This will certainly drive Agrium's revenue higher. We also like adding Agrium into our portfolio because the purchase increases our exposure in the agricultural sector, further diversifying our portfolio.

Agrium currently trades at a PE ratio of 18.96 with a forward looking PE ratio of 11.3. The return on equity (ROE) is 11.84% and a PEG ratio of 2.69. The stock may be slightly expensive by looking at the PEG ratio alone (I like to purchase stocks below PEG ratio of 1.5) but I think it's OK to pay a slight premium for this solid company with a huge future growth potential. Considering the stock price has slid the last few weeks from the 52 week high, I believe it's a good time to initiate a new position. The stock currently has a dividend yield of 3.05% with a payout ratio of 57.64%. Atrium has been growing its dividend at an impressive rate. It has a 5 year annualized dividend growth rate of 94.03% and a 10 year annualized dividend growth rate of 39.32%. I don't expect this kind of growth to continue but at 54.7% payout ratio, the company should be able to continue growing the dividend in the 10% range.


Canadian Imperial Bank of Commerce
We added CM back in March and decided to add more shares this month. It was somewhat difficult to pick one of the big five Canadian banks to invest, considering we already own all five of them. We picked CM simply because CM accounts a small percentage in our dividend portfolio when compared to other Canadian bank holdings. Not a whole lot has changed since our initial purchase back in March. As mentioned in the initial purchase, CM has a long history of dividend payment, having paid dividends since 1868. The stock currently has a PE ratio of 13.36, a PEG ratio of 1.33, and a dividend yield of 4.37%. All very solid numbers. Considering the payout ratio is 58%, the company should be able to continue its solid dividend growth history moving forward.


All together the three purchase will add $379.92 in our annual dividend income.  We feel very fortunate that we are able to add so much forward looking dividend in our annual dividend income. So far in 2015 we've made a lot of purchases to build up our dividend income.

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  • Reply
    April 24, 2015 at 11:33 am

    Dear Tawcan,

    What about the SMI (Swiss market), I am sure you could find very interesting stock to invest in. We have great companies, with strong dividend distribution and a strong economy.

    Let me know if you would like some advice.

    Cheers, RA50

    • Reply
      April 25, 2015 at 2:30 pm

      Hi RA50,

      I'm not familiar with SMI but that's probably something I should look into. Not sure if I can invest directly in Swiss Market with my brokerage though. Definitely need to investigate further. Thanks for the suggestion.

      • Reply
        Dividend Growth Investor
        April 26, 2015 at 4:32 pm

        I think there are a few dividend growth companies based in Switzerland such as Nestle or Novartis to name a few. They come with a 15% withholding for US brokerage clients. Not sure how Canadian taxes work.

        I never look at exchange rates when I buy something, so I am wondering, doesn't the fluctuations pretty much even themselves over time?

        • Reply
          April 27, 2015 at 7:42 pm

          Nestle and Novartis have ADR shares in the US so we'd still have to buy them through the US exchange in US currencies.

          You're right, the fluctuations eventually even out in the long run if you keep exchanging currencies.

  • Reply
    April 24, 2015 at 11:56 am

    Congrats on those investments - great investments! I own AGU and have been happy with teh investmetn so far -- although teh stock prices have run up quite a bit since ValueAct bought in..although they seem to be a better investor than Jana partners - who were just trying to make a quick buck.

    Would like to add RDS to my portfolio too - its one of the best run oil and gas companies in the world - although it doesnt get as much love from investors.


    • Reply
      April 25, 2015 at 2:33 pm

      Hi R2R,

      I might add more AGU in the future. Would like to get more exposure in the agriculture sector.

  • Reply
    Dividend Gremlin
    April 24, 2015 at 12:28 pm


    Great buys. I especially like CM and RDS, those will work for you for a long time. The Canadian banks are all excellent, and have really seen their prices come down over the last few months, good job getting in on that!

    Long CM,
    - Gremlin

    • Reply
      April 25, 2015 at 2:34 pm

      Hi Dividend Gremlin,

      Thanks. Definitely plan to hold all 3 of these stocks for a very long term. 🙂

  • Reply
    Dividend Hustler
    April 24, 2015 at 5:21 pm

    Awesome purchases Tawcan. Solid companies. Glad to see the Canadian dollar rising a tad. Keep up the hustle bud. You're doing fantastic. Be seeing you. Have a nice weekend bud. Cheers.

    • Reply
      April 25, 2015 at 2:35 pm

      Hi Dividend Hustler,

      Hopefully the Canadian dollar will go back to parity so we can get more bang of our bucks when investing in US dividend stocks.

  • Reply
    Sam the Man
    April 25, 2015 at 7:15 am

    Good buys.

    I own CM.

    RDS.B has been on my watchlist for long time, I am hesitant to make a purchase because rumour has it that they are planning to cut their dividend.

    I am waiting for a pullback for AGU before buying.

    • Reply
      April 25, 2015 at 2:37 pm

      Hi Sam,

      There are always rumours of certain companies cutting their dividends, if we believe all the rumours, then we probably wouldn't be investing in the stock markets. 🙂

  • Reply
    April 26, 2015 at 10:57 pm

    Another great article. I love reading your articles because I love your perspective. You always seem to have great ideas that lead me down some interesting avenues of research. Keep producing these great articles. I always look forward to reading them.
    Dennis McCain

    • Reply
      April 27, 2015 at 7:42 pm

      Hi Dennis,

      Thank you very much for your kind words.

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