Wow, what happened to the stock market so far in 2016? The market seems to be very emotional lately and we’re seeing a very strong push towards the red side. Lots of the stocks are at their 52 week lows or are very close to the 52 week lows. Is the sky falling? Am I worried? Not really. I sleep like a rock at night (I don’t use the term sleep like a baby because from experience babies typically wake up regularly at night :p).
Why am I not worried at all?
Since we’re not planning to sell anything right now, all the losses we’re seeing are unrealized losses, or paper loss. We can simply continue collecting dividends and let the stocks ride.
The second reason, and most important reason, is because we’re still building our dividend portfolio. We don’t plan to touch the principle of our dividend portfolio until perhaps in our late 70’s or later. That gives us more than 40 years of timeline, so it really doesn’t matter to us whether we have an unrealized loss or an unrealized gain right now. Our 5-10 year “short term” goal is to have enough dividend income to cover our expenses. I’ve said this many times. A downward market during our accumulating phase is a very welcomed event. This will allow us to buy stocks at a lower cost basis. With the same amount of cash, that means we can buy more shares. What’s not to like?
Given that the Canadian dollar is so weak right now (need $1.44 Canadian to get $1 US), we probably will be focusing mostly on the Canadian stock market to avoid converting currently. With that in mind, we recently went on a shopping spreed and purchased the following stocks:
30 shares of Bank of Nova Scotia (BNS.TO)
71 shares of Inter Pipeline (IPL.TO)
38 shares of Magna International (MG.TO)
87 shares of RioCan REIT (REI.UN)
115 shares of Vanguard Canada All Cap Index ETF (VCN.TO)
51 shares of Telus (T.TO)
20 shares of Canadian Imperial Bank of Commerce (CM.TO)
46 shares of Saputo (SAP.TO)
Most of these stocks we already own except for Magna International and Vanguard Canada All Cap Index ETF. The rationale behind purchasing more shares of what we already own is to be able to eventually enroll in dividend reinvestment plan (DRIP) or allow DRIP to purchase additional shares. I like to keep things simple. Once we are enrolled in DRIP, the dividends received are used to purchase more shares, allowing us to cost average through time. These stocks would essentially be on auto-pilot for us, making it easier when it comes to portfolio management.
Magna International Inc. (Magna) is an automotive supplier with approximately 313 manufacturing operations and over 84 product development, engineering and sales centers in approximately 28 countries. Its product capabilities include producing body, chassis, interior, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules, as well as vehicle engineering and contract manufacturing. Its customers include General Motors, Fiat-Chrysler, Ford, BMW, Daimler and Volkswagen.
MG currently has a PE ratio of 7.46 and a 5 year PEG ratio of 0.72 and a return of equity of 21.58%. All these numbers are very attractive. The company has raised its dividends for 6 straight years and has a 5 year annualized dividend growth rate of 33.2% and a 1 year dividend growth rate of 15.8%. At roughly 17% payout ratio, the company should be able to continue to grow its dividends. At 2.3% starting yield, that’s a very solid number given the huge dividend growth potential. I like Magna International because it is well diversified within the auto industry. Rather than buying one particular auto company like Ford or GM, we have purchased a company that provides components to multiple auto makers.
Vanguard Canada All Cap Index ETF (VCN.TO)
One of our goals for the last couple of years is to further diversify our dividend portfolio. This is where index ETF’s come into place. VCN.TO consists of 231 Canadian stocks with Royal Bank, TD, Bank of Nova Scotia, Canadian National Railway, Suncor, Bank of Montreal, Manulife Financial, Brookfield Asset Management, Enbridge, and CIBC as its top 10 holdings (about 38.2% of the net assets). Although we hold a large number of stocks in our dividend portfolio, there’s no way for us to hold and manage 231 stocks. VCN.TO is a passively managed fund with very low MER. The stock currently has a yield of 2.81%.
These purchases increased out annual dividend income by $577.84, making us one step closer to our 2016 dividend goal of $13,000.
On a side note, I guess I didn’t exactly followed my early 2016 stock considerations. With Canadian banks going lower, it’s hard not to ignore. Who knows, I may decide to pull a few more buys on Canadian banking stocks to take advantage of the low price.
What do you think about these purchases? Have you made any purchases recently?