Author Archives: Canadian Performer's Money

About Canadian Performer's Money

A Canadian actor living in Vancouver Canada.

High yield stocks.

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I have written a lot about buying dividend paying stocks, holding them for life and collecting an every increasing stream of income.

So why not just buy the stocks that pay the most money in quarterly dividends?

Remember yield refers to the total annual dividends collected as a % of the share price. So if a stock costs $100 and pays four quarterly dividends of $2.00 each ($8.00 annually) the stock would be said to have an 8% yield.

8% of $100 = $8.00 paid out as a $2.00 dividend every 3 months.

When stock prices fall, dividend yield raises. If our example stock dropped from $100 to $50 the yield would jump from 8% to 16%. The stock would still be paying $8.00 a year in dividends, but that amount would now represent 16% of the share price.

16% of $50 = $8.00 paid out as a $2.00 dividend every 3 months.

This math is pretty simple, but illustrates why you should be cautious if you see a high dividend yield. It usually means the share price has recently dropped and the dividend yield spiked.

Stable companies that pay dividends usually pay somewhere in the 3%-5% range. If you see a dividend yield higher than this you should usually do some more investigating.

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Right now there is a company called Chorus Aviation that is in the financial news. The stock pays a mouth-watering 25% dividend yield. The reason the dividend yield is so high is because the stock has lost half its value in the past year. The company has already cut its dividend in half once and there is a good chance it will cancel it all together (if they don’t go bankrupt first).

Chorus halves dividend as Air Canada arbitration continues. 

At one point I was looking at both Le Chateau and Yellow Media because they had an attractive 10% dividend yield. Both companies have since stopped paying a dividend and Yellow Media is on the verge of bankruptcy (who uses the Yellow Pages anymore?).

So don’t be tempted by high dividend yield. Instead focus on companies that have a long history of paying a consistent dividend that they slowly increase over time.

One of my favourite dividend paying stocks that I own is Bank of Nova Scotia. It currently pays a dividend yield of 4.08% and has increased its dividend in 42 of the past 45 years. Even more important is that they haven’t missed a dividend payment since 1833.

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Bank of Nova Scotia dividend history.

Based on this history, I am pretty confident that that dividend income will still be there by the time I retire and want to collect it.

Remember, I am not a certified financial advisor. You should use the information on this site to give you investing ideas only. You should then consult with a financial professional before making any investment decisions.  

A better way to buy a condo?

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If you want to make money by investing in condos, there may be a better way.

Macquarie Capital Markets Canada did a comparison between investing in apartment REITs versus condos. They compared returns from investing in a Calgary condo to the Alberta focused Boardwalk REIT. Then they compared returns from investing in a Toronto condo to eastern Canada-focused CAP REIT.

In both cases they found the REIT investment came out ahead consistently in recent years.

REITs pool the investment money from many people then buy apartment buildings (or shopping malls depending on the REIT) and distribute 90% of the profits to shareholders in the form of monthly distributions. It’s a way to profit from real estate without having to pay a down-payment, closing fees, monthly maintenance fees or deal with tenants.

Lessons from Telsa Motors.

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Many people are afraid to have anything to do with the stock market. They all know someone who lost money buying stocks, or read stories of market crashes and are glad they never invested any money.

One of the main reason people lose money in the stock market is that they just can’t stop buying high and selling low. When it comes to real estate and stocks, most people are only interested in buying when the price has been driven up.

Shorting a stock.

When someone thinks a stock is a good buy and will continue to go up, they are said to be “long”. When someone thinks a stock is too over priced and will fall soon, they will often “short” that stock.

Shorting stocks is too complicated for me, but basically it works like this. Instead of buying low and selling high, someone who shorts a stock will borrow shares to sell today (at what they figure is a high price) and then have to buy shares later (when they hope the price has dropped) to “cover their short position”.

Someone long hopes to buy low and then sell high.

Someone short hopes to sell high and then buy low.

Short covering driving up shares of Tesla Motors.

What’s happening today with Telsa Motors is a text-book example of how people behave irrationally and lose money in the stock market.

The stock has doubled in price in the last month. It’s gone up 50% in the past week alone. It’s now more over valued than 98% of U.S. stocks with a price-to-earnings ratio above 227. According to Thomson Reuters, Tesla Motors is 30 times over valued compared to auto makers GM, Ford and Porsche.

What’s driving the price up? The company recently beat earnings estimates by bringing in a first-quarter net income of $11.2 million (a year earlier they reported a loss of $89.9 million).

Another big factor driving the stock price higher is that it was one of the most heavily shorted stocks. Many investors who shorted the stock are now being forced to cover their short position by buying shares (to pay back the ones they borrowed) at this higher price.

This high volume of shares being purchased to cover short positions is creating more demand for the stock and pushing the price higher.

Did we learn nothing in 2008?

Dividend bubble?

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In the late 90′s people were pouring money into internet stocks. Then the dot-com bubble burst and between 2000 and 2002 the Nasdaq (the market that trades in tech stocks) lost 78% of its value.

Next came the housing bubble where low-interest rates (and the banks lending money to anyone with a pulse) led to a huge run up in real estate prices. By 2009 the bubble had burst and there were almost 4 million foreclosures in the U.S.

And while the Canadian real estate market hasn’t popped, sales of single family homes in Vancouver where I live are down 47% from 2011. Prices to follow?

widening US and Canada house price gap

There are some that are now speculating that dividend paying stocks are a bubble because of their popularity and recent run up in prices. Unless central bankers start raising interest rates, I think stable companies paying increasing dividends will be in a bull market for some time.

Conventional wisdom was that you should take the number 100, subtract your age and that is the percent you should have in stocks. The rest should be in bonds and fixed income. The problem is that with rock bottom interest rates, those bonds are now paying almost nothing. Retired people who relied on that income are now in shock as the bonds they held roll over at todays rates.

The U.S. can’t raise interest rates either without crushing the already fragile real estate market and increasing the interest they pay on the national debt. With the national debt spiralling out of control, will they ever be able to afford to raise interest rates?

So retirees now have a choice: Learn to live on 1/3 of what they used to, or venture out into dividend paying stocks. As money has been flowing back into dividend paying stocks, the prices have been pushed up.

Here is an example of a few popular Canadian dividend stocks.

Bell – 1yr return 16.55%, dividend yield 4.88%, total return = 21.43%

Telus – 1yr return 23.87%, dividend yield 3.64%, total return = 27.51%

Royal Bank – 1yr return 15.09%, dividend yield 4.13%, total return = 19.22%

Scotiabank – 1yr return 11.16%, dividend yield 4.11%, total return = 15.27%

TransCanada – 1yr return 15.15%, dividend yield 3.73%, total return = 18.88%

Fortis – 1yr return 0.57%, dividend yield 3.68%, total return = 4.25%

Enbridge – 1yr return 19.15%, dividend yield 2.64%, total return = 21.79%

 

Election day 2013.

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I always vote. I know a lot of people don’t vote, because they don’t fully understand the issues or are apathetic and think their vote doesn’t count, but I always vote.

Democracy is important and learning about each party and what they stand for doesn’t take a lot of time. Each party posts a platform on their website and you can skim through it in 5 minutes.

Read NDP platform here.

Read the Liberal platform here.

Read the Conservative platform here. 

Read Green party platform here.

I’m a Libertarian at heart and would like less government involvement in our lives. I read through the platforms and see if the party is trying to incite class warfare, or is promising to give money to one sub-section of our society. I want all Canadian’s treated 100% equal.

I’m also a business man, so I look at the numbers. I don’t see how it’s possible to increase spending, lower taxes, and balance the budget. Like my own household, I want a balanced budget and no debt.

The CBC has come out with a great tool to learn which party you should vote for based on answering a few basic questions. The results may shock you! You might just realize that the party you thought you wanted to vote for isn’t the best party for you.

Click here to take the test: Vote Compass.

 

Diversity.

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A friend emailed me the other day because she had watched a show about the retirement crisis in the States and she wanted my opinion.

Click here to watch: The Retirement Gamble.

The show seemed to have two main themes:

  1. People knew nothing about investing.
  2. People were losing money in the stock market.

The first one is very easy to fix. Read.

If you are reading this blog, you probably don’t have this problem, but many people I meet who don’t know anything about investing also tell me they have never read a single book on the subject. All the information is free at the library, but still people don’t bother.

If your work offers you an RRSP or a 401K and you don’t understand how it works there has never been an easier time to get the information you need. Spend 15 minutes a night googling the subject and you will have all the information you need.

The second one is also easy. Diversify.

On the “Retirement Crisis” program, they showed a couple that had $1.5 million invested in high-tech internet company stocks. The stocks were going up in value by as much as $30k a day. Then in the year 2000 the market crashed and they were left with $500k.

They said they didn’t know it was a bubble. They were earning $30k a day. That seemed sustainable to them???

Next it showed a single mom who in 1999 used 100% of her money to buy stock in the computer company she worked for, Comdisco. Well, you can guess the rest… sobbing, tears…

Never put all your eggs in one basket.

To me diversity is the #1 way to protect your money. There all kinds of rules of thumb about how much to invest in what based on your age, but just keep it simple and don’t put all your eggs in one basket.

Try to diversify your investments between different countries and asset classes.

  • U.S. based stocks, mutual funds or ETFs.
  • Canadian based stocks, mutual funds or ETFs.
  • International based stocks, mutual funds or ETFs.
  • The home you live in, a rental property, or a Real Estate Investment Trust (REIT).
  • Gold, silver, or any precious metal (a good hedge against inflation).
  • Your small business.
  • Classic cars, fine art, vintage wine (what’s your hobby?)

CBC casting “any race except caucasian”.

 

 

 

Stop investing. Zombies are taking over the world!

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In BC where I live, the savings rate is negative 8%. The average Canadian household’s debt to disposable income is 165%. We owe $477 billion in consumer credit debt (up 5.5% on an annual basis).

65% of Canadians have an RRSP and only 47% have opened a TFSA (even though you could currently shelter $25,500 worth of investments from taxes by opening one). Of the people who have opened a TFSA, 80% of the holdings are in a savings account of some kind (which actually lose money since the interest rate they pay is less than inflation).

So why is it that people aren’t saving and investing for the future? Well, if you believe pop culture, there is no future. Here is the plot of the latest offerings from Hollywood…

Oblivion – Tom Cruise is sent back to earth to extract vital resources after it’s surface is devastated after decades of war.

After Earth – One thousand years after cataclysmic events forced humanity’s escape from Earth, Will Smith crash-lands on the now unfamiliar and dangerous planet.

Pacific Rim - When legions of monstrous creatures started rising from the sea, a war began that would take millions of lives and consume humanity’s resources.

World War Z – Brad Pitt is in a race against time to stop the Zombie pandemic that is toppling armies and governments, and threatening to decimate humanity itself.

And my person favourite is the movie Elysium that I was lucky enough to work on when they shot in Vancouver. This one should be a favourite with the Occupy Wall Street crowd. In the movie the rich one percenters live on a pristine man-made space station and the rest live on an overpopulated, ruined Earth.

I find it ironic that Matt Damon plays the poor everyman who is a victim of “the privileged”. Matt Damon went to Harvard University, reportedly earns $24 million a year and lives in a 8,890 square foot mansion worth a reported $15 million. The film was shot in Canada and Mexico to avoid paying taxes.

 

 

 

Money making robots.

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What if you could buy a robot who would go off to work every day and give you the paycheck? What if this robot got regular raises at work so every year you got more income from this robot? And what if, once you bought this robot, there were no ongoing maintenance costs?

To make it even better, lets say the government taxed robot income lower than human income. Now imagine upon your death, you could give this robot to your kids where it would continue to earn increasing income and need no maintenance.

These robots exist. I own thousands of them. I bought them directly from the company that makes them. The price of the robots go up and down, but I don’t really focus too much on that, I just collect as many as I can and get excited when they mail me their paycheck every month.

The robots I’m talking about are shares of dividend paying stocks.

Let’s take a look at one “Robot” I own as an example. The company Fortis has increased its dividend for 39 consecutive years which is the longest record of any public corporation in Canada. Fortis sells gas, electricity and natural gas in Canada, two Caribbean countries, Belize and Upstate New York. It also own hotels and commercial real estate in Canada.

Ten years ago shares of Fortis were selling for about $15 and today as I write this they are trading for $33.82. The more exciting thing to me though is that ten years ago the annual dividend was $0.50 a share and today it is $1.24.

This means that anyone who bought a “robot” (a share of the company) 10 years ago paid $15 for it and is getting over 8% of their purchase price back in cash every year.

If you bought a share of the company 20 years ago, they cost $7.16 and today you would be getting over 17% back in cash dividends every year!

I am not making a stock recommendation and suggesting you run out and buy Fortis stock. I am suggesting though that you focus your investing on companies that have a long history of increasing their dividends.

Now back to collecting my robot army…

Click here to view Fortis Inc.’s dividend history.

 

Fear is sexy.

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I haven’t written anything in a while because I have been too busy with work. I have been reading every day though and one story jumped out at me that I think sums up the reason people are so confused when it comes to saving and investing.

Three weeks ago I saw headlines popping up online that said things like, “The risky move Mila Kunis makes with her money” and “Mila Kunis rotates from cash to stocks”.

The fact that it’s news when an actress decides to buy shares in a company and the headline is splashed across yahoo with the same excitement as the latest school shooting should tell us two things.

  1. People fear owing real businesses (stocks) and love real estate.
  2. People buy high and sell low.

If Mila Kunis had bought a house at 2006 it wouldn’t have made headlines even though she would have been recklessly buying in an over-inflated market which would soon lose almost half its value.

In 2009 when the stock market was low and there were great, solid companies selling at discount prices and paying high dividends, Mila Kunis thought is was best to avoid the stock market and keep her money safely in the banks (where it would lose value due to inflation).

Since 2009 many stocks have doubled in price and we are in the middle of a bull market (markets rising). Historically the stock market averages a return of around 7%. I own 3 mutual funds through my actors union. In the past year they have all returned between 11% – 13%. Almost double the average expected return.

Click here to read: Mila Kunis rotates from cash to stocks

To be continued…