When I evaluated our dividend growth for 2015, I learned that we need to put more focus on high growth dividend stocks. One of the short term goals I have is to slightly re-construct our dividend portfolio by selling some high dividend yield stocks that doesn't offer much dividend growth and focus on high growth dividend stocks, or stocks on the dividend aristocrats list.
With that idea in mind, I went through our dividend portfolio to see which high yield stocks might be the ideal candidate to sell. This is when I came across Chorus Aviation (CHR.B).
From Google Finance:
Chorus Aviation is a Canada-based dividend-paying holding company with various aviation interests, including Jazz Aviation Holdings Inc. (JAH) and Chorus Aviation Holdings Inc. (CAH). JAH holds all of Chorus' business interests associated with a capacity purchase agreement (CPA) with Air Canada, which includes Jazz Aviation LP (Jazz Aviation), Jazz Aircraft Financing Inc. (JAFI), and Jazz Leasing Inc. (JLI). JAFI and JLI were established for the sole purpose of acquiring and financing Q400 aircraft and related equipment, and leasing them to Jazz for use in the CPA. CAH is a holding company to facilitate diversification of Chorus' business, such as the establishment of Chorus Airport Services Inc., which provides airport handling services.
Sounds like a complicated company structure. The stock has a yield of 9% with payout ratio above 100%. CHR.B had cut its dividends in 2013 due to dispute with Air Canada. Considering the unstable dividend numbers and the company greatly relies on different purchasing agreements with Air Canada, I decided to sell all of our Chorus Aviation shares and take a gain of about 45% and use the cash to purchase other dividend stocks.
With the money from the sell and dividends that we've been collecting for the last few months, we purchased the following stocks:
22 shares of Wal-Mart
28 shares of Potash
23 shares of VXC
Both Wal-Mart and Potash are facing perspective challenges. Wal-Mart's price has trended lower following a disappointing guidance issued by the company in mid-October. The guidance sent the price from around $67 down to around $60, nearly a 10% drop. Most people seemed to be extremely pessimistic about Wal-Mart's guidance and believe that the Amazon's online model will evaporate Wal-Mart's revenue. Wal-Mart is spending money to improve their online sales operation. The online sales will remain slow for the next few quarters but I believe we'll start seeing results in a couple of years. Furthermore, I don't think the brick-and-mortar store concept is going anywhere. Wal-Mart has many physical stores that will continue selling products to consumers and generate profits. I've been wanting to add Wal-Mart to our portfolio for a long time and at a PE ratio of 12 and a dividend yield of 3.3%, I think this is the right time to pull the buy trigger. Wal-Mart has a history of 40 years of increasing its dividends. The dividend increase for the next couple of years may slow down slightly as the company works on overall profit efficiency. Long term though, both the company revenues and the dividends should continue trending upward. The stock price should trend upward too as a result of improving fundamentals.
I also purchased more shares of Potash to average down our cost basis. Similar to Wal-Mart, Potash stock has been hammered by a bunch of bad news. First the potash pricing weakness and the potential pricey takeover of K+S Potash. Just recently Potash cut its outlook and production amid rough market conditions. The fertilizer sector is very cyclical. What doesn't change is the fact that we all need food. What's needed to grow plants? You guessed it, fertilizer products that Potash produces. The world population isn't decreasing any time soon so the need for fertilizer will only increase over time. The only concern with Potash is whether the current 7% dividend yield is safe and sustainable. At a payout ratio of 83%, the dividends should be pretty safe but perhaps we won't be see the 10+% dividend growth rate in the short term. At such high yield rate, we can afford to sit around and wait for the market condition to recover. Potash has recently withdrawn the $8.6 billion bid to purchase German K+S Potash company. This means the money can go toward expanding the company in a different way and that Potash wouldn't need to take on more debt. Potash will be a very long term hold for us.
I also purchased VXC, Vanguard Golbal Ex Canada Index ETF. This ETF has about 50% exposure to US, 8% to Japan, 7% to UK, and 3% to France and Switzerland. Utilizing a low cost ETF is a way to diversify our portfolio outside of the usual Canadian dividend stocks.
The sell and purchases will add approximately $70.31 in our annual dividend income.
Readers, what do you think about our decision to sell Chorus Aviation and purchasing Wal-Mart, Potash, and VXC?