Recent Buys – TD, CM, and DRG.UN

buy

As per my previous recent buys update, I have been keeping my eyes on several dividend stocks for potential purchases. Over the past month, we continued saving money so we can have some free cash to invest in dividend stocks. Although price of crude oil has rallied the last few weeks, the stock markets remain quite volatile. Since we’re still building our dividend portfolio, volatility is a nice thing to have. The volatile markets provide good opportunities to buy dividend stocks at a reduced price. While energy sector stocks look enticing, I’m becoming more cautious because we have purchased several oil & gas stocks over the last few months. I believe over the short term, the energy sector will remain quite volatile. While more and more alternative energy sources are becoming available to us, crude oil remains one of the most important raw materials. Not only we use crude oil for heat and fuel, we also use crude oil in many synthetic materials such as plastic, detergents, and paints. For this reason alone, I do not see crude oil price staying this low forever. The demands for crude oil will always be there and the price will eventually recover.

For now, I will remain monitoring energy sector stocks and see if there are anything worthwhile to add to our portfolio. We would like to add enough shared of Chevron so we can enroll in DRIP and possibly adding more shares in ConocoPhillips to average down our cost basis.

 

Due to my attention shift, we recently made the following purchases in non-energy sector stocks:

27 shares of Toronto-Dominion Bank (TD.TO)

21 shares of Canadian Imperial Bank of Commerce (CM.TO)

210 shares of Dream Global REIT (DRG.UN)

 

Toronto-Dominion Bank (TD.TO)

We added 27 shares to our existing position. TD is one of the big five Canadian banks and has a very strong dividend history, having paid dividends since 1857. (Random fact, 1857 happens to be the same year that Ottawa was chosen as the new capital for Canada). TD currently has a PE ratio of 13.2 and a forward looking PE ratio of 11.3. Or if you’re Steve at Kapitalust who likes to use earning yield, TD has an earning yield of 7.58%. This is much higher than the current Canadian government 10 year bond yield of 1.30%. What I particular liked about TD is the low PEG ratio of 1.17. Having a low PEG ratio means TD will continue to grow its profits and earnings in the future. It also means that the stock is reasonably valued.

What I find the most interesting about TD is that here in Canada, the company quietly raised the minimum monthly balance requirement for the chequing accounts. What does this mean? This means that TD can generate more income by charging people with insufficient balance in their chequing accounts, or guarantee that they have a certain amount of funds available to lend out. Either way, this is a revenue generating move and it will only improve TD’s bottom line.

When it comes to dividend history in the recent years, TD has done quite well. Since the Great Recession, TD has raised dividend for 4 straight years. Recently TD raised the dividend from 47 cents to 51 cents per share, or an 8% increase. Like many Canadian banks, TD held its dividend the same during 2008 and 2010 but did not cut the dividend payout, unlike many American banks during this time. If we look at TD’s 10 year dividend growth rate, it has an annualized 10 year growth rate of 10.5%.

You can see TD’s presences in all major Canadian cities, as they seem to have branches almost everywhere. While Canada remains the stronghold for the company, TD has been expanding into the US as well. Since US has a much higher population than Canada, expanding into the US banking sector will only provide more revenue & profit streams for the company. TD has a current yield of ~3.7% and a payout ratio of 49.28%. Considering the strong dividend history, we can safely assume that the dividend growth will continue.

Buying TD comes with its associated risks too. Due to the volatile crude oil price, the Canadian economy is under siege. The value of the Canadian dollar has dropped significant over the last few months. Last time I checked, oil rich province like Alberta is starting to feel the pinch. Since Canadians have a high consumer debt level, a slowdown in the Canadian economy may hurt TD and other Canadian banks’ bottom lines. However, having seen how Canadian banks did during 2008 to 2010, I know TD will survive any potential downturns. Because we’re enrolled in DRIP, a drop in the stock price is a welcomed event because we can purchase additional shares at a lower price. Having said all this, I believe the risk for holding TD is somewhat limited.

The purchase of TD.TO will add $55.08 in our annual dividend income.

 

Canadian Imperial Bank of Commerce (CM.TO)
Before we made this purchase, CIBC was the only big five that we didn’t own in our dividend portfolio. For some reason, CIBC never came up on our radar until now. This purchase completes our ownership of all five major Canadian banks (or all the top six Canadian banks if you include National Bank). Just like TD, CIBC has a long history of dividend payment, having paid dividends since 1868. CIBC currently has a PE ratio of 12.15, a forward looking PE ratio of 9.9, a PEG ratio of 1.13, and a return on equity of 17.48%. With these good looking numbers I’m a little surprised that we haven’t pulled the trigger on CM earlier. But later is better than never right?

Just like TD, CIBC has done quite well when it comes to dividend growth. It recently surprised investors by raising its dividend payout from $1.03 per share $1.06 per share. This increase marks the seventh time that the company has increased its dividend since 2011. The company has a 10 year annualized dividend growth rate of 5.5%. Combined with an already high dividend yield of ~4.4% and a payout ratio of 53.94%, it is hard to ignore CM when it comes to dividend growth investing.

Right now we do not own enough CM shares to enroll in DRIP. I’m hoping that we can add more CM shares in the future so we can reinvest dividend each quarter and just put this position on auto-pilot. Banks like CIBC will continue making money. It’s in the business to keep people and businesses’ money for a fee while lending the money out for even higher fees. Hard to argue with this money making business model. I think CIBC is one of these blue chip dividend stocks that you can purchase and check back every 6 months. As Dividend Mantra stated, who doesn’t like keeping it simple?

The purchase of CM.TO will add $89.04 in our annual dividend income.

 

Dream Global REIT (DRG.UN)
I have to admit, this purchase is a pure income play as the stock pays a 8.5% dividend yield. If you look at our dividend portfolio, you’ll see that all the REITs that we own are Canadian REITs, with the exception of Omega Healthcare Investors Inc (OHI). Dream Global REIT manages retail and office buildings in Germany. It currently has 266 properties comprising approximately 14.8 million square feet. Dream Global’s properties are strategically located and geographically diversified within Germany. There are office properties in all seven major German cities (Munich, Berlin, Hamburg, Frankfurt, Dusseldorf, Cologne, and Stuttgart). Adding Dream Global REIT is our way to diversify our REIT positions geographically.

Dream Global REIT used to be called Dundee International REIT but changed its name in May of 2014. I have been monitoring this stock before the name change and just like CM, I finally managed to pull the buy trigger recently. The reason for not pulling the trigger earlier was my concern with DRG.UN’s tenants composition to Deutsche Post previously. When DRG.UN was first listed in 2011, Deutsche Post contributed at least 90% of the gross rental income. This was not income diversification at all; I did not like invest in a REIT that collects 90% of the rental income from one single tenant. Fortunately, this number has dropped to 37.3% in end of 2013 and 29.5% in the latest quarter. The Dream Global team has been able to add some solid tenants like AIG, Google, Imtech, CinemaxX Entertainment, and State of Bavaria to further diversify their tenant composition.

Evaluating a REIT can be challenging because you cannot look at the PE ratio, you have to look Fund from Operations (FFO) and Adjusted Fund from Operation (AFFO). In the Q4 2014 financial statement, DRG.UN has a FFO of $0.21 and an AFFO of $0.20. Both an improvement of one cent compared to the same quarter of 2013. If you compare on an annual basis, DRG.UN had a FFO of $0.88 and an AFFO of $0.83, an improvement of about four cents compared to 2013.

If we look at from a rental income point of view, the average in-place net rent is €8.86 per square foot, an increase of €0.40 per square foot compared to 2013. The occupancy rate is around 85%. The occupancy rate dropped by 1.1% from the end of 2013, mostly due to the termination of some Deutsche Post leases during this period. An 85% occupancy rate is an OK number but definitely can see some improvements. (For comparison purposes, RioCan has an occupancy rate of 97% and Dream Office has an occupancy rate of 93.0%). From a long term investor’s point of view, a mid 80% occupancy rate is promising. It means the properties are being occupied and rental income is being collected, it also means that more rental income growth can be generated in the future as the occupancy rate increases. A 5% increase in occupancy rate at the current net rent would generate about €6.5 million (14.8 million square feet of properties * €8.86 per square foot * 5%). I’m sure the Dream Global team will be working hard to drive the occupancy rate up.

The purchase of DRG.UN will add $168.01 in our annual dividend income.

 

Together all three purchases will add $312.13 in our annual dividend income. Considering that we have already added $415 and $89.76 since the beginning of 2015, we’re on a roll! In case you’re wondering that’s an additional $816.89 of annual dividend for doing absolutely nothing at all. Please repeat that last sentence if you don’t understand how powerful it is. 🙂

I have update our dividend portfolio to reflect these new positions.

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42 Comments

  • Reply
    Dividend Mantra
    March 3, 2015 at 6:34 pm

    Tawcan,

    You guys are on an incredible roll over there!

    Adding $800+ in annual dividend income is a pretty good haul for an entire year, let alone for one quarter. Awesome stuff. And just $800/yr in dividend income can change most people’s lives forever. Meanwhile, that’s just icing on the cake for you guys.

    I’m going back and forth on the Canadian banks right now. I may add to BNS or TD at some point in the near future. The recent dividend increases certainly gives me some confidence.

    Keep it up!

    Best regards.

    • Reply
      Tawcan
      March 4, 2015 at 2:38 pm

      Hi Dividend Mantra,

      We’re very happy to be able to add $800+ in dividend income in this quarter already. Not sure if we can keep up this kind of amazing contributions moving forward but we will try.

  • Reply
    Henry
    March 3, 2015 at 6:37 pm

    Congrats on the buys! They look to be great quality!

    • Reply
      Tawcan
      March 4, 2015 at 2:38 pm

      Thanks Henry. We love banks. 🙂

  • Reply
    Dividend Hustler
    March 3, 2015 at 6:51 pm

    Great buy Tawcan. You’re doing great. Keep up the great work. You’ll be financially independent in no time. I love the buys. I would love to buy too but i have to pay taxes. Arghhh! Hehe take care my friend.

    • Reply
      Tawcan
      March 4, 2015 at 2:39 pm

      Hi Dividend Hustler,

      Thanks for your kind words. FI will come eventually if we keep up this kind of purchases. We’ll have to file our taxes soon too. Good times.

  • Reply
    Roadmap2Retire
    March 3, 2015 at 7:03 pm

    Congrats on the buys and adding another $312 to your dividend income, Tawcan. Thats fantastic progress since the start of the year – already $800 in FY dividend…you are absolutely killing it.

    DRG.UN has caught my eye too after Liquid featured it. I have looked thru their books and looks really attractive. I thought it was a bit expensive initially but realized that the FFOs I was looking at were quarterly. With a $0.88 FFO on an annual basis thats a P/FFO of 10.9, which is fantastic! I need to add this again to my watchlist and see if I want to add to my portfolio.

    cheers
    R2R

    • Reply
      Tawcan
      March 4, 2015 at 2:40 pm

      Hi R2R,

      Thank you. Like I said, I’ve been looking at DRG.UN for probably a couple years now and finally pulled the trigger after going through their recent financial statements. They now have better tenant mix which will provide better diversification. I forgot to mention P/FFO in the post but you’re right, at 10.9 that’s a pretty good number.

  • Reply
    Adam @ AdamChudy.com
    March 3, 2015 at 7:17 pm

    Interesting income play. Another to add to my list.

    • Reply
      Tawcan
      March 4, 2015 at 2:41 pm

      Hi Adam,

      Definitely add all 3 stocks in your watch list. 🙂

  • Reply
    Dividends with Children
    March 3, 2015 at 7:55 pm

    Tawcan,

    That’s just killing it right there and like you said, a very powerful statement. Can’t wait to see what your increase in annual dividends is this year versus last.

    I’m seesawing on the Canadian banks as well. On one hand they look attractive after the recent slide, but on the other I worry about the debt and any impact a housing decline would have toward extending the slide and impacting dividends.

    Right now I own some BNS that I bought last year around $55 a share and have been watching TD since I started dividend investing. Time will tell, and I admit to getting the itch with the TD 8.51% dividend increase 🙂

    Best,
    DWC

    • Reply
      Tawcan
      March 4, 2015 at 2:45 pm

      Hi DWC,

      It will certainly interesting to finally tally up our annual dividend at end of this year. Canadian banks are pretty solid. Instead of looking at the short term risks put your long term perspective goggles on. Looks like you’ve made some nice gains on your BNS shares. Congrats.

  • Reply
    Investing Pursuits
    March 3, 2015 at 8:28 pm

    Nice purchases you made there. I own 389 units of Dream Office. I am a TD shareholder who loved hearing about the recent dividend increase. BNS raised their dividend also, which I will gladly take . I own BNS directly with the transfer agent so it is full drip.

    I looking to deploy capital soon in an investment.

    • Reply
      Tawcan
      March 4, 2015 at 2:46 pm

      Hi Investing Pursuits,

      We own Dream Office as well, DRIPing the dividend each month. Looking forward hearing what you buy with your capital.

  • Reply
    Vivianne
    March 3, 2015 at 8:46 pm

    I need to add some REIT, I saw liquid suggested it, maybe I should follow suit. However, one question, would the US interest rate increase affect DRG.UN? I know somebody mention that the US’s REIT and dividend stock will get hurt when the rate starts to increase. One sector will benefit is banking. What’s your thought?

    • Reply
      Tawcan
      March 4, 2015 at 2:48 pm

      Hi Vivianne,

      The way I see it, we don’t have enough money at this point to invest in rental properties ourselves so REITs are a great way to get into the real estate investment. I don’t believe US interest rate increase will affect DRG.UN. DRG.UN is a Canadian company and the interest rates here in Canada just got lowered recently. Due to the volatile crude oil price I don’t see the interest rates going up anytime soon.

  • Reply
    A Frugal Family's Journey
    March 3, 2015 at 9:39 pm

    Way to add another $300plus to your annual dividend payout. Not familiar with all three but we do follow TD and actually own a few shares ourselves. Glad to hear we are fellow shareholders. 🙂

    Keep up the great work Tawcan! AFFJ

    • Reply
      Tawcan
      March 4, 2015 at 2:51 pm

      Hi AFFJ,

      TD is a pretty solid company, we happen to bank with them too so might as well be a part owner to take advantage of the money making business model.

  • Reply
    Jason @ Islands of Investing
    March 4, 2015 at 1:44 am

    Hi Tawcan,

    They look like really solid buys, and the valuations look great too. Hopefully that means some decent capital growth, but more importantly for you, growth in dividends! Over $800 annually is an awesome base, hope to see it keep growing!

    Cheers,

    Jason

    • Reply
      Tawcan
      March 4, 2015 at 2:52 pm

      Hi Jason,

      Thanks, all 3 have good valuations that I’m comfortable with hence for pulling the trigger. I expect some decent capital growth as well. 🙂

    • Reply
      Tawcan
      March 4, 2015 at 2:53 pm

      Hi Rebecca,

      Glad to be able to help you out on dividend investing. If you have any questions feel free to ask.

  • Reply
    RA50
    March 4, 2015 at 10:33 am

    Hi Tawcan,

    Nice strategy on you portfolio to achieve high dividend growth.

    Cheers,

    RA50

    • Reply
      Tawcan
      March 4, 2015 at 2:54 pm

      Hi RA50,

      Thanks for dropping by and taking the time to comment. High dividend growth will hopefully allow us to achieve FI in the near future.

  • Reply
    Dividend Diplomats
    March 4, 2015 at 9:37 pm

    Tawcan,

    Short and Sweet – CAN WE SAY MAKING MOVES?! I like the CM pick up – they just increased their dividend again and have taken a nice slide – I own quite a bit so, just MAYBE a little bias there. GREAT slew of purchases!

    -Lanny

    • Reply
      Tawcan
      March 5, 2015 at 11:11 am

      Hi Lanny,

      Thanks for dropping by. Would love to add more CM later so we can enroll in DRIP.

  • Reply
    FrugalitytoFinancialFreedom
    March 4, 2015 at 11:46 pm

    Tawcan,
    Another solid buys, excellent use of capital to put it to work! Those Canadian banks remains attractive, they recently got hammered due to fear of oil, fear of the housing bubble but yet they reported strong growth and consistent dividend increase. You are right, if they can withstand the great recession they can withstand the headwind they are facing right now, we just need to be patient and invest in the long run. Thanks for sharing your recent buys!
    FFF

    • Reply
      Tawcan
      March 5, 2015 at 11:12 am

      Hi FFF,

      Invest for the long run is the trick. Warren Buffet also mentioned this in his latest letter. Definitely need to listen to this smart man.

  • Reply
    Jeff
    March 5, 2015 at 5:18 am

    Hi Tawcan, the Canadian banks keep on taking a hit but noticed that keep increasing their dividends. I will be looking to add some to my portfolio as well. Nice purchases!

    • Reply
      Tawcan
      March 5, 2015 at 11:13 am

      Hi Jeff,

      Hard to argue with the money making business model for Canadian banks. Can’t wait to hear what you decide to purchase. Thanks for taking the time to comment.

  • Reply
    Dividend Gremlin
    March 5, 2015 at 9:07 am

    Tawcan,

    I like those CAN Banks. I have CM myself, and man I wish I had a solid chunk of cash to throw at it or other banks. I’ve seen their prices dip, and after they reported results. People must really not like success and profits… CM has really been pound some ground though!

    Also like the other moves, and the history lesson on Ottawa. Living in the US we really only don’t learn much Canadian history unless it pertains to the it and the USA. However, I have learned my fair deal about Canada from watching so much hockey.

    – Gremlin

    • Reply
      Tawcan
      March 5, 2015 at 11:15 am

      Hi Dividend Gremlin,

      Unlike US banks, Canadian banks are pretty solid, considering they went through the great recession without cutting dividends. If you watch hockey that’s really all you need to know about Canada lol. 😉

  • Reply
    Ace
    March 5, 2015 at 12:38 pm

    Solid buys Tawcan, Nice to know we own similar companies and have a similar mentality of owning and DRIPping all of the big banks in Canada!
    Thanks for sharing, and congrats on some excellent purchases.

    Ace

    • Reply
      Tawcan
      March 6, 2015 at 6:04 pm

      Hi Ace,

      Thanks for taking the time to comment. DRIPing all the way and taking advantage of the power of compound interest. 😀

  • Reply
    DivHut
    March 5, 2015 at 4:33 pm

    Well you know how I feel about the Canadian banks. Like the TD add and CM too. I have that one on my watch list along with BMO. It looks like many of the dividend bloggers are taking a break from the energy space as many have become overweight in that sector. Thanks for sharing.

    • Reply
      Tawcan
      March 6, 2015 at 6:05 pm

      Hi DivHut,

      Funny how we are all gravitation toward Canadian banks. I guess there are values in Canadian banks right now. 🙂

  • Reply
    MU
    March 6, 2015 at 7:49 pm

    Solid buys, Tawcan. Canadian banks are my current focus too. I watch TD and RY very closely. I wrote an April put on RY at $55. Hope to add some shares to my portfolio soon. Thanks for sharing.

    • Reply
      Tawcan
      March 10, 2015 at 2:14 pm

      Hi MU,

      Canadian banks are pretty solid. If possible we would love to add more TD and RY too.

  • Reply
    BeSmartRich
    March 8, 2015 at 5:45 pm

    Great Purchases. Canadian banks really rock. I use TD as my main bank and I was a bit annoyed when it jacked up its minimum monthly balance but I guess it is for the best if I am the owner of TD. I indirectly own TD through VCE but I will have to own its stocks directly at some point.

    Thanks for sharing.

    BSR

    • Reply
      Tawcan
      March 10, 2015 at 2:15 pm

      Hi BeSmartRich,

      Raising the minimum monthly balance is sneaky but if you’re a shareowner of TD you will benefit from this move.

  • Reply
    Felix Money
    March 8, 2015 at 11:23 pm

    Wow, it’s awesome to be able to increase your passive income just like that. REITs are becoming more and more interesting to me, don’t own any stocks right now but dividend pays would definitely be a lot more passive than most of my investments right now.
    Keep up the great work!

  • Reply
    NRG
    March 10, 2015 at 8:41 am

    Great buys. I also added HHL.UN to my RRSP Healthcare Leaders
    to my RRSP pays 6.91% div

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