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January’s Pick

This month we’re straying from the rules a little bit. We have to be honest about that right up front. By breaking the rules, we mean we’re ignoring the scoring system and we’re ok with that. The system is meant to point out stocks, from a collection of quality stocks, that are attractive for a variety of reasons – the two most important of which are current price and dividend yield. Our mantra is “buy great companies at good prices and wait.” This month’s pick, while not the top scorer, is a solid company at a pretty good price. The top scorer this month was actually CIBC (TSE: CM) and it’s a great stock to buy if you don’t already own it or want to increase your position if you do own it. If you already own CIBC and want to diversify, our official choice this month is BCE Inc. (TSE: BCE).

Let’s talk about why we like this stock. We’ve owned BCE for some years now (it’s one of our original purchases) and has been a solid performer (it’s up 89% since we bought in May, 2010). The company has increased their dividend almost every year since 1983 (we didn’t look back farther than that) and the current dividend is $0.68 which is 4.7%. If you’ve been investing or learning about investing for any time at all you’ll know that there are lots of people tweeting and blogging about the fantastic 3% dividend yield of their favorite stock. Here at PDI we don’t even consider a stock that doesn’t pay at least 3.5%. So, you can see BCE is an attractive option for dividend investors.

So why did we choose this company this month? Simple. They’re currently trading at 8.5% below their 52-week high which means they are on sale! Now, this isn’t exactly a barn-burner sale but it’s a good price for a great company. Where have we heard that before?…

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December’s Pick

It’s hard to go wrong with banks. Especially Canadian banks. The banking industry in Canada is quite highly regulated and so bank stocks tend to avoid nearly all the risk that comes with owning some American banks. Also, let’s face it – when times are good banks make money and when times are bad banks make money. This month we’re recommending Canadian Imperial Bank of Commerce (TSE: CM) again (we recommended it back in October). GM, Ford and CIBC tied in our points system but it’s important to not have our exposure to any one industry too high so we passed on the two automakers.

CIBC is currently trading right at its 52-week high so it’s definitely not on sale and you might be thinking: “Don’t you always say to buy stocks on sale?” Yep, we do – usually. But price is only one thing to consider. CIBC is such an attractive stock that we are recommending it despite the fact that it is not on sale. We are, after all, dividend investors. That means we really like solid dividends and we really, REALLY like companies that increase their dividends regularly and often. Last time we recommended CIBC it was at $101 (3.7% below its, then, 52-week high) and it’s appreciated 8.7% since then. Not bad for a couple of months, right?

So, 52-week high isn’t everything. If a stock is well-priced it doesn’t really matter what the actual price is. Would we like to buy it for less? Of course! But we’re not going to pass on a great stock because it’s not on sale. We thought it was well-priced back then and we still think that. Why? The P/E is still an attractive 10.26 and the EPS is 10.71. For EPS, that puts CIBC 7th on the list of over 200 stocks we watch and the P/E is 14th on that list. All that and a 4.5% dividend! Did we mention the dividend announced for December offers a 3 cent increase (that’s a hike of 2.5%)?

If you’re not convinced on this pick, have a look at our October pick post (http://www.passivedividendincome.com/2016/10/01/octobers-pick/) for some more raving about CIBC.

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November’s Pick

It’s time, again, for our monthly stock pick and this entry will be short because there really isn’t anything left that we haven’t already said. General Motors Company (NYSE: GM) is our official choice – again. We should point out that Canadian Imperial Bank of Commerce (TSE: CM, our official pick last month) was a close second. The price of GM has been pretty stable over the last 7-8 months so there has been little capital appreciation but their dividend yield is still an attractive 4.8%. The really great thing about GM stock right now is that the P/E ratio is still exceptionally low (3.58). That’s the lowest of the over 200 stocks we follow! Their strong earnings (the EPS is 8.74) contribute to that low P/E. This means the price of the company compared to its value is very low. The only other company with EPS so much higher than their P/E is Gilead Sciences (NASDAQ: GILD). If you’re keen on capital growth, Gilead is a good choice because they are currently trading 34% lower than their 52-week high which is a great sale! Their dividend yield, however, is only 2.6% which is below our 3.5% threshold so we cannot officially recommend them.

Someday, investors will discover the value in GM and the share price should move to a more reasonable P/E. Why not buy them now and enjoy the climb in the stock price!

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October’s Pick

This month’s pick is about diversification. Before we get to that, I have to be honest and say that General Motors Company (NYSE: GM), technically, earned the top score. If you own GM and want to increase your position, go for it! If for some reason you’ve ignored our past recommendations (it’s risen 9% since we suggested it back in March) and haven’t yet purchased GM, do it now. It’s still a good buy. It’s trading nearly 15% off the 52-week high with a spectacularly low P/E of 4 (in fact, the lowest on the S&P 100 except for Berkshire Hathaway) and strong EPS of 7.8. Not to mention the rock solid 4.8% dividend. Buying this stock is still a good choice.

That said, diversification is also good so this month our recommendation is Canadian Imperial Bank of Commerce (TSE: CM). One of Canada’s big banks, this stock offers the protection of a highly regulated and stable banking environment. The stock is currently only 3.7% below the 52-week high, which is not much of a sale, but the rest of the numbers are spectacular. At $101 a share, the P/E is in the single digits at 9.86 and the EPS is 10.32. That’s right – the EPS is higher than the P/E! Oh, did we mention the dividend yield of 4.8%?

 

Those EPS numbers put CIBC at 8th on our watchlist of over 200 stocks! The only companies with stronger earnings include Google, Blackrock, Biogen, and IBM. Of the eight, the next highest dividend return is IBM, offering 3.5% (another of our picks, by the way) and two of the eight offer no dividend at all.

The chart below shows the 5-year performance of CIBC. Notice anything about the dividend? Talk about a dividend growth stock! They’ve raised it every quarter in 2015 and 2016!

cibc_5_year

 

Needless to say, regardless of the 52-week high, CIBC is priced VERY well!

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September’s Pick

Well, the scores have been assigned to identify our stock pick for September and the winner is… General Motors Company (NYSE: GM) or Ford Motor Company (NYSE: F). You choose. Maybe you like a tie and maybe you don’t, but here’s the scoop.

GM earned a higher score (14) than Ford (12) but they both offer strong reasons to own them. GM came out on top for its strong earnings (EPS is 7.82) but is trading at only 14% below the 52-week high. To be sure, that’s a decent discount for a solid company. Ford’s earnings are not as good (EPS is 2.25) but they are currently trading at over 21% below the 52-week high. That’s a much better sale! The dividend yield for the two companies is essentially the same at 4.78% and 4.82% so we left that factor out of our decision. The price of each company has been pretty flat for the last few months so when they begin to recover Ford has a greater potential for capital appreciation. That’s not something to ignore, especially if you get the benefit of the same dividend in the meantime.

Soooo, if you want a company that is earning more per share for you buy GM. If you want to add the potential capital appreciation of Ford to the dividend yield, choose Ford. Our strategy identifies potential stocks to purchase using an objective method of assigning scores for a variety of factors. If you’re a regular reader, you know that we don’t always just simply buy the stock with the highest score. The system identifies potential purchases from which we then make a choice. Because the dividend yields are the same, we’re going to hope for the greater eventual price increase with Ford so that’s our official pick. Honestly, whichever you choose, you can’t lose in the long run with these two.

You’re Richer Than You Think

That’s the campaign tagline Scotiabank launched back in 2006. At the time, Canada was in an economic downturn (political-speak for recession) and the bank caught a lot of flack for the slogan. I happen to like it. A lot.

Piggy Bank on CashThe slogan elegantly captures the idea that we all have more money than we realize. The problem is, most of us don’t keep track of how we spend it. We’ve all had that moment when we look at our bank account balance and think “Where did my money go? I have nothing to show for it!” Lots of little purchases can add up to the feeling of having no money. The reality is, we simply need to keep track of our spending. When we do, we might be satisfied with where our money goes but, if not, we’re armed with the information we need to make changes.

Let’s do some math. Maybe you like to grab a coffee on the way to work each morning. At Tim Hortons that would cost you $1.70 for a medium and at Starbucks a Grande would be about $2.10. For this exercise, let’s pretend you get four weeks vacation and 10 statutory holidays. That means you would buy 230 cups of coffee, or spend between $391 and $483 a year. Let’s imagine you go out to lunch a couple of times a week at $8 a shot. That’s another $768. We can all think of lots of other small, repetitive purchases we make but let’s just use these two for now. If you eliminated those purchases you would have $1,205 every year to invest. Now let’s imagine you do that for 10 years and you manage a return of 5.63% which is our annualized return at the time I’m writing this. After 5 years you’d have over $7,100, after 10 years you’d have about $16,500 and after 20 years it would be almost $45,300! (For this calculation we did not increase your contribution for inflation. If we had, you’d have even more money.)

Now, I’m not suggesting you give up coffee and going out for lunch. If you enjoy those – great! Pick any small, regular expense you have – cable bill, cell phone package extras, whatever. The point is we all have little expenses that add up without our realizing. We could cut out some of those as a small sacrifice andmake a big difference to our retirement savings.

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August’s Pick

For those of you who like variety, you’ll be happy with this month’s pick. The bottom line is Metlife Inc (NYSE: MET) again because it comes out with the top score, but we have a couple other options for you. Metlife is still trading nearly 25% off the 52-week high and pays a 3.7% dividend. Really, not much has changed since last month so we’re recommending them again. But we promised some variety… While not the top pick (nor our official recommendation) there are a couple of stocks that are worth taking a look at.

First, Canadian Imperial Bank of Commerce (TSE: CM, NYSE: CM). Canadian banks are strictly regulated and so make for very stable choices for investors. For example, here’s the performance of CIBC over the last 5 years. Notice the number of times they’ve raised their dividend! From $0.90 to $1.21 is a 34% increase in five years. Impressive. That dividend currently sits at 4.9% by the way.

CIBC

So why not recommend CIBC you might be wondering? One reason only: they are trading at just 5% below their 52-week high so Metlife offers greater potential for capital appreciation. CIBC would be a great purchase too, though, and that’s why we’re mentioning it.

Second, Capital One Financial (NYSE: COF). With a dividend of under 3.5% (currently, 2.5%), this company does not make our cut but I’m mentioning it here because it’s currently on sale and offers some capital appreciation potential. The stock is nearly 32% under its 52-week high which is a great discount for a solid company. With a P/E of only 9.16 and EPS of 6.87 it’s an attractive option. Our portfolio is a dividend income one so we wouldn’t purchase COF but you might want to allocate a small amount of your portfolio to it to reap the reward of the expected (inevitable?) price increase.

There you have it. Three interesting options for you this month. Happy investing!

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July’s Pick

Well, it ain’t GM. After recommending General Motors Company (NYSE: GM) for each of the last four months, we’re offering something different for July’s stock choice. Before we do, it’s important to be completely transparent and let you know that GM was actually tied again this month with another stock at 14 points each. If you’ve already built a position in GM based on our suggestions, go ahead and add to your holdings this month. It’s still a great-looking stock scoring 14 out of a possible 20 points. More on that later.

Our choice this month is MetLife, Inc (NYSE: MET). MetLife is paying a dividend of 4.05%, considerably less than the 5.26% you’ll get from GM. The P/E ratio for MetLife is 8.46 which is nearly double GM’s 4.33, meaning GM could be viewed as being a little better-priced. GM is also more profitable as measured by their EPS of 6.68 compared to 4.67 of MetLife. Ok, you might be wondering, “Ummm, then why are you going with MetLife instead of GM?” One main reason: MetLife is 32% off their 52-week high while GM is only 22% off theirs. That means MetLife is at a better sale price compared to what people were willing to pay over the last year. Put another way, the price of MetLife stock could appreciate more compared to that of GM in the next several months. We think that possibility will compensate for the lower dividend yield. To be clear, we don’t advocate buying a stock just because you think it might increase in value. That sounds an awful lot like acting on a ‘hot stock tip.’ That’s not the case here. We’re simply trying to choose between two solid, reliable companies and we’re using potential capital appreciation to break a tie. It’s worth noting that another minor advantage to buying MetLife this month is that it increases the diversity in our portfolio by adding an insurance company to the mix.

Honestly, we don’t think you could go wrong with either one of these companies. If you prefer the higher dividend yield of GM then buy them instead. Either way, you can sleep at night and that’s a really nice spot for investors like us to be.

Ever Wish You Had More Money?

“If only I had more money…” Ever heard yourself utter those words? If you only had more money you’d… Travel more? Save more for the kids’ education? Invest more? The trouble is, most of us can’t just demand a raise every time we want more money. Well, what if I told you there is a way you could make more money without asking for a raise and didn’t require getting a second job? Would you be interested?

Let’s do some math. Let’s say you live in Ontario and your taxable income is $60,000. That would make your marginal tax rate (the amount of tax you would pay on an additional dollar of income) 31%. That means you would need to earn an extra $1.45 for each additional $1 you want to take home (1.45 x 31% = 0.45). Now let’s turn that around. If you could save $1 it would be like earning an extra $1.45! Get it? You buy things with after-tax dollars which means if you buy something for $100, you had to earn $145 in order to make that purchase. If you can buy things on sale, it’s like earning more money. When you consider your marginal tax rate, it makes waiting for a sale price really appealing. Of course we all know you have more money in your pocket when you spend less, but we rarely stop to consider how much we actually had to earn in order to have that money in our pockets. When you do, it makes your money seem much more valuable.

Now let’s really make things interesting. Let’s see what happens if you take the money you saved and invest it in a tax-sheltered vehicle such as a RRSP. Like lots of men, I love a big screen TV. Basically, the bigger the better. If I’m considering a new TV that retails for $1000 but I wait for a 20% off sale, I save $200. Remember, I had to earn $1630 in order to spend $1000 in after-tax dollars (my marginal rate is 38.5%). The $200 I save during the 20% off sale represents $325 in additional earning.

Ok. If I then invest that $200 in my RRSP, I save $77 in income tax. In other words, I save $200 on the TV but the government gives me a tax refund of $77 which means my actual savings on the TV is $277 and the $200 contribution really only costs me $123! Oh yeah, and that $200 will continue to grow tax-free! Let’s not forget I also have a new TV! If you commit to saving 20% – or more – on everything you buy, it’s not hard to see how it can be an important pillar in your retirement strategy.

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June’s Pick

To be honest, we had a hard time settling on a stock pick this month. There was a couple of companies at the top but a couple of really tempting, slightly more risky options, too. If you’re looking for something with a little greater reward we still like Potash Corporation of Saskatchewan (TSE: POT) and you could also think about Williams Companies (NYSE: WMB). Beware though, with greater reward comes greater risk. Potash Corp did cut their dividend in April but they’re still paying an attractive 5.9%. Add to that the fact that we think the world will need fertilizer again in the future and this stock has room for growth. Since we started talking about them a few months ago, Williams Companies has risen from $11 to $21, an increase of about 90%. Not bad if we do say so ourselves. As the uncertainty caused by low oil prices levels out, their share price will continue to rise and they’re paying a juicy 12% dividend in the meantime. Remember that means even if the price was flat for a year you could sell it and walk away with a 12% return.

But enough avoiding the issue. The idea is to recommend a single stock each month, so let’s get to it. There’s something inherently uncomfortable about repeatedly recommending the same stock but one strength of our scoring system is its ability to remove subjective biases like that. That said, we’re suggesting General Motors Company (NYSE: GM) – again.

After we assigned the scores this month there was a three-way tie between General Motors, IBM (NYSE: IBM) and Gilead Sciences (NASDAQ: GILD). Although it scored high in other categories, GILD offers a dividend of only 1.9% which is well below our threshold of 3.5% so we eliminated it right away. If this feels a little like deja vu it’s because we had a tie between GM and IBM last month too. Our reasons for choosing GM again are going to read just like last month as well. The 4.7 P/E for GM is significantly better than IBM’s 11.5 which puts GM at a better price even though IBM produces more income per share with an EPS of 13.3 versus GM’s 6.7. The dividend return for GM is still nearly a full percentage point higher than for IBM (4.9% and 3.7%, respectively). Remember, this blog is still about dividend income so GM gets the nod once again.

Like we said last month, you can’t go wrong with either of these. Buy whichever you want – or both – and sleep at night.

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