Since my last purchases of Suncor and BP, I have been keeping a close eye on potential dividend stocks to add to our dividend portfolio. Although some of the US dividend stocks like UL, BBL, COP, and DE are very attractive right now, we do not have enough capitals or contribution room left in the RRSP accounts to make any purchases. To be tax efficient, I only buy US dividend stocks in RRSP accounts to avoid paying the 15% withdraw dividend tax. Due to this key reason, I have been monitoring mostly Canadian dividend stocks to add to our regular accounts.
Trying to monitor stocks and do stock analysis while I'm on a road has been somewhat challenging. Work has been keeping me busy with travel trips. I was in Germany last week and this week I’m in San Diego. In about 1.5 weeks’ time I will be in heading to Japan. I’m certainly racking up on credit card reward points with these travels!
I spent about $6,500 the last few days and purchased the following stocks:
30 shares of Bank of Nova Scotia (BNS) - to add to existing position
50 shares of Canadian Nation Resources Limited (CNQ) – new position
30 shares of Canadian National Railway (CNR) – new position
BNS Overview & Analysis
The Bank of Nova Scotia is one of the big four Canadian banks. It offers a wide range of products and services, including retail, commercial, corporate and investment banking to more than 18.6 million customers. BNS operates not only in Canada, it also offers the same banking services in more than 50 countries around the world. BNS has paid dividends since 1833. In case you are too lazy to do the math, that’s 181 years of consecutive dividends. That’s a lot longer than how long Canada has been around as a country! In addition to a very impressive consecutive dividend history, BNS has managed to increase its dividends in 42 of the last 45 years. In 2014 along, BNS has raised dividends twice from 62 cents to 64 cents in Q2 then again from 64 cents to 66 cents in Q4. This corresponds to a year over year increase of 6.45%.
Looking at the fundamentals, BNS is current trading at a PE ratio of 11.89, a PEG ratio of 1.22, and a return of equity (ROE) of 16.26%. The revenue has increased by roughly 9% over the last year. These numbers are all very attractive compared to other Canadian banking stocks.
The stock yields at 3.79% with a healthy payout ratio of 45%. The stock also has a good dividend growth rate of 11.0 % over the last 10 years. I would qualify BNS as a Canadian blue chip dividend stock with a modest dividend growth future.
BNS stock price had a recent weakness. The stock price dropped from around $74 in August to the current level. Last month, Bank of Nova Scotia announced some job cuts to streamline its operations which triggered additional sell-off. The part I like most about BNS is that it is much more diversified geographically than other Canadian banks. The recent price weakness created a great opportunity to add to our existing position.
CNQ Overview & Analysis
Canadian Natural Resources Limited is an oil & gas energy company that engages in acquisition, exploration, development, production, marketing and sale of crude oil, natural gas liquid, and natural gas production.
CNQ is currently trading at a PE ratio of 14.21, a PEG ratio of 0.59, and a ROE of 11.76%. The PEG ratio that is below 1 shows that CNQ has a lot of growth potential. I'm very excited about this. CNQ started paying dividends in 2001 and has increased its dividends every year since. The 10 year dividend growth rate is a very impressive 22.6% or 24.2% over the last 3 years.
The stock yields at 2.21%. Although it’s not as high as my typical 2.5% yield criteria, the dividend growth rate will help increasing the yield on cost rate in a few years. At 30.8% payout ratio, I am confident that CNQ will be able to continue its impressive dividend growth rate in the foreseeable future. Since oil & gas industry can be quite volatile, the low payout ratio also means there’s room to cushion a few bad quarters or any downturns in oil & gas industry. The CNQ purchase continues my stock addition in the oil & gas sector the last few months.
CNR Overview & Analysis
Canadian National Railway Company is engaged in the rail and related transportation business. It has approximately 20,100 route miles that spans Canada and mid-America. CNR transports goods for business sectors, ranging from resource products to manufactured products to consumer goods. In case you haven’t heard, Bill Gates happens to be the largest shareholder of Canadian National Railway Company stock. Last time I checked Bill Gates is a pretty good investor so it's nice to know that he holds this stock. 🙂
Railways have a long history in Canada. You can say that railways practically built Canada, allowing Canada to become a nation from the West to the Maritimes. Even 147 years after the birth of Canada, we still rely heavily on railways to transport goods across this great country.
CNR is currently trading at a PE ratio of 22.62, a forward looking PE ratio of 19.4, a PEG ratio of 1.58, and a ROE of 23.37%. The PE ratio is a little high but I’m comfortable with CNR’s future profit outlook. CNR has increased dividends for 18 years with a 10 year dividend growth rate of 17.8%. Like CNQ, CNR’s dividend yield is lower than my typical 2.5% yield criteria. At 1.24% current dividend yield, CNR is considered as a defensive play for me. It has a very low payout ratio of 28% indicating the dividend increase should continue moving forward.
I purchased CNR for two reason prime reasons. One, the rail transportation industry has been around for hundreds of years and it will not go away anytime soon. Goods need to be transported somehow and railways is an effective way to transport goods over a long distance. Because pipelines take a long time to get approval and takes even longer to build, many Canadian oil companies are now heavily relying on railway companies like Canadian National Railway to transport crude oil to refineries. The second reason for purchasing CNR is to diversify our dividend portfolio. We currently do not own stocks in industrial sector.
These 3 purchases will add $153.20 in our annual dividend income.
I have updated our dividend portfolio to reflect the new positions too.
What do you think about my purchases? Do you own any of these stocks in your portfolio?