The stock market remained very volatile since our last round of purchases where we purchased over $12,000 worth of dividend stocks. Since we’re still building our dividend portfolio, we are constantly looking for opportunities to add more dividend stocks to increase our dividend income. A downturn market provides an excellent opportunity to buy stocks at a discount.
Buying a stock when the price is falling is not an easy task. Nobody wants to buy something that continues to fall in price. How do you know if the price won’t fall another 10 or 20%? How do you know that the price is at the bottom? How do you know that the company won’t freeze or cut its dividend payments? How do you know that the company won’t go bankrupt? You can evaluate the company, analyze the numbers, and determine whether it makes sense to invest or not. Unfortunately you can’t be 100% sure. Investing is an art and sometimes you just need to trust your instinct. Having said that, if you are investing for the long term, you have a great ally on your side – time.
When your investment plan is counted in decades rather than months or quarters, time becomes your best friend. This is because over the long term, stock market has the tendency to go up. So if you are investing for 10, 20, 30, 40 years or even longer, you don’t really need to pay attention to the short term volatility. It doesn’t really matter if your portfolio is down or up. Since you’re not selling anything, these are unrealized losses or gains. Let’s put it in a different perspective. Say you own your house and plan to live there for all your life. Does it matter if your house is worth $20k or $20 million today? If you don’t plan to sell or re-finance your home, the value of the home does not matter to you.
With that in mind, we recently added the following stocks:
32 shares of Royal Bank (RY.TO)
66 shares of National Bank (NA.TO)
Both companies we already own in our portfolio. The Canadian banks have taken a lot of beatings due to the low crude oil price. Royal Bank currently has a PE ratio of 10.2 and dividend yield of 4.6% while National Bank has a PE ratio of 8.3 and a dividend yield of 4.66%. I think both are extremely cheap, especially considering we purchased both stocks when the stock price was very close to the 52 week low.
Why Canadian banks rather than oil & gas as I indicated in our 2016 early stock considerations? I think crude price will continue to be very volatile. Earnings of oil and gas companies will continue to suffer in 2016. We are putting cash aside to buy more oil & gas stocks in the near future but I believe right now the Canadian banking stocks are more appealing from an evaluation point of view. Canadian banks did not cut their dividends during the financial crisis. They simply paid the same amount of dividends. Considering the likes of Royal Bank, Bank of Nova Scotia, and TD have been paying dividends since the mid 1800’s, it’s hard to look the other way when these bank stocks are so cheap. Even if National Bank and Royal Bank do not raise their dividend payouts this year, having +4.5% yield on cost allows us to sit and wait.
These purchases will add $243.68 in our annual dividend income. We’ll probably continue to be busy on the purchase front in the next few months.
What do you think about these purchases? Have you made any purchases recently?