The stock market has been a little bit more volatile lately which provides some good opportunities to invest in dividend paying stocks. Part of my plan to achieve financial independence is through purchasing dividend stocks. I love the idea of owning part of the company and having my money working hard for me while I’m busy dealing with my everyday life.
When I invest in a dividend paying stock, I usually like to hold the stock for a very long time, preferably forever. This is why I don’t sell stocks in our dividend portfolio too often. Since the stock market has a life of its own and company’s financial environments do change, sometimes I do sell stocks, whether for a profit or for a loss.
Recently I sold 50 shares of Intel (INTC) in the RRSP account. Intel has been on a good run so far this year, up by about 50% year to year. Because a lot of enterprises are replacing their Windows XP machines, PC sale has been good in 2014. Intel has been investing heavily in the tablet business for the past few years and is finally seeing the fruits of its labour. While things are looking rosy for Intel, it has not increased its dividend since Q2 of 2012. I suspect there won’t be a dividend increase until early 2015. Due to this reason I decided to take some profits and sold some of my Intel shares. I still have enough Intel shares to DRIP so I can still rack in the benefit if the run continues.
Using the proceed of the Intel transaction and dividend received from other stocks I made two additional transactions in the RRSP account.
I purchased 17 shares of Qualcomm (QCOM) for my first transaction.
Qualcomm is a semiconductor company that designs and markets wireless telecommunication products and services. Qualcomm’s chipsets can be found on many cellphones and various mobile devices. The company has patents in many of the key cellular technologies and charges royalties on each device sold using its chipsets. Lately you probably heard the phrase “Internet of Things (IoT). It is believed that there will be nearly 26 billion Internet of Things devices by 2020 (wikipedia). Most of these devices will be using Qualcomm chipsets, making Qualcomm a big winner.
Qualcomm’s price took a beating the last month due to royalty disputes in China. This short term drop gives a great buying opportunity. Qualcomm started paying dividend in 2003 and has increased dividend every year since. The current dividend yield is only 2.25%, which is below my typical dividend yield target of 2.5%. However, Qualcomm has been growing its dividend at a very stunning rate. Qualcomm has a 3 year dividend growth rate of 23.52% and a 5 year dividend growth rate of 18.08%. The current payout ratio is about 40% which means the company should be able to continue the stunning dividend growth. Qualcomm has a forward looking P/E ratio is 13.6 and an impressive PEG ratio of 0.93. Qualcomm should have a lot of growth ahead.
Although there are risks involved in purchasing Qualcomm I feel that Qualcomm is in a great position when it comes to competing against the likes of Broadcom and Intel. Qualcomm has been making a lot of strategic moves to target existing Broadcom and Intel customers. Knowing that the IoT trend will only grow, I feel that adding Qualcomm to our dividend portfolio is a strong move.
For my second transaction in the RRSP account, I purchased 10 shares of Johnson & Johnson (JNJ) to add to our existing position.
Johnson & Johnson is engaged in the research and development, manufacture and sale of a broad range of products in the health care field. The company is a well known brand in the world so I shouldn’t need to say much about JNJ. I see Johnson & Johnson as a defensive dividend stock to hold forever. It has increased dividend for the past 51 years with a 5 year average dividend growth rate of 7.47%. For the last few years, I have been adding to our JNJ position whenever there’s a pullback. The recent pull back gives a good opportunity to add to our existing position.
With some new capitals I made two purchases in the non-registered account.
First, I purchased 115 shares of Suncor Energy Inc. (SU). This is a new position in our dividend portfolio.
Suncor is one of the biggest oil companies in Canada. The company explores, acquires, develops, produces, and markets crude oil in Canada and internationally. In addition, Suncor also transports and refines crude oil. Suncor is currently trading at 16.85 P/E with a forwarding looking P/E of 11.1. The company came out with an unsatisfying Q2 earnings report recently which caused the stock price to drop. Interestingly Suncor decided to increase the dividend by 22% even with a poor Q2 earnings report, showing that the Suncor board wants to reward its investors. Even with the dividend increase and the poor quarterly result, the payout ratio is only at 43.4%, indicating that Suncor should be able to continue increasing the dividend moving forward. Oil is not going away anytime soon and Suncor’s production from oil sand has increased by 37% from the same quarter of the previous year. In addition, Suncor has been able to reduce the cost associated to oil sand production by about 25%, indicating an improvement of efficiency. It’s interesting to see that Suncor has provided a strong Q3 guidance even with a weak Q2 earnings report. To me this indicates that the Q2 result is really a little bump along the road.
For my final transaction, I purchased 70 shares of Royal Bank (RY) to add to our existing position. This purchase enables us to receive an additional RY share from DRIP whenever there’s a dividend payment.
Royal Bank is the largest bank here in Canada. Its latest results showed yet another record profit quarter. Royal Bank also raised its annual dividend from $2.84 to $3, or an increase of 5.6%. I love it when I hear a dividend increase! People will always need a bank to put their money somewhere and Royal Bank will continue to rake in profits. Who said banks can’t make money when the interest rates are low? Royal Bank has showed everyone that it can continue raking in profits even in this low interest rates environment. Knowing that the interest rates will go up in the near future, Royal Bank should be able to leverage the increasing interest rates and continue improving its profitable results. Although the Canadian real estate market is at its all time high and there are increasingly concerns about the overall market, Canadian banks have been slowly diversifying their exposures to real estate mortgage market since the financial crisis in 2009. If the Canadian real estate market were to dive by 20%+, the Canadian bank stocks will certainly go down. However, since we are holding Royal Bank for the long term and are enrolled in DRIP, any drop in RY stock price means we can add to more positions. Need an example? Just look at RY’s price in 2009 during the financial crisis.
Selling 50 shares of Intel stock decreased our annual dividend amount by $44.
Buying 17 shares of QCOM stock and 10 shares of JNJ stock increased our annual dividend amount by $56.56.
Buying 115 shares of SU increased our annual dividend amount by $125.44.
Buying 70 shares of RY increased our annual dividend amount by $210.
Overall the transactions increased our dividend amount by $348 annually.
I have updated our dividend portfolio to reflect the transactions.