Smith Manoeuvre Portfolio – May 2012
For those of you just joining us, below is my portfolio that is leveraged with money borrowed from my home equity line of credit (HELOC). As the money borrowed is used to invest, the interest charged is tax deductible. I write an update every so often to show new positions added along with any market gains/losses. For more details on the strategy and procedure, check out my modified smith manoeuvre strategy and my comparison of online stock brokers.
It’s been almost half a year since the last update (Dec 2011) with a bit of activity in the leveraged portfolio. We have added to a couple of our existing positions, and added a couple more new positions. With the TSX in negative territory year to date, it’s a tough time to write this report as everything is down! But despite the market volatility, I’m happy to report that several of our picks have increased their dividend in the first half half of 2012.
So which dividend paying companies increased their distributions thus far in the year? In my portfolio, I have Royal Bank, Scotia Bank, TransCanada Corp, TD Bank, Canadian Utilities, Rogers Communications, Pason Systems, Corus Entertainment, Thompson Reuters, Canadian Pacific Railway, and Canadian Oil Sands.
What did I buy over the past few months? I added to a couple of my existing holdings, namely, Pason Systems and Leons Furniture. New positions include Encana and Transcontinental which has already increased their dividend since purchasing.
My dividend watch list remains similar where I am looking to increase my position in BMO, TD, ENB, FCR and possibly add new positions in TMX Group (X), Bonterra Energy (BNE), Canadian National Railway (CNR) and Bell Aliant (BA) when their valuations become attractive.
The Smith Manoeuvre Portfolio as of May 14, 2012 (prior to open):
| Stock | Symbol | Shares | Avg Buy Price | Total | Div/Share | Yield |
| Royal Bank | RY.T | 100 | $48.39 | $4,838.99 | $2.28 | 4.71% |
| CIBC | CM.T | 45 | $67.14 | $3,021.25 | $3.60 | 5.36% |
| Power Financial | PWF.T | 105 | $35.14 | $3,689.65 | $1.40 | 3.98% |
| Scotia Bank | BNS.T | 105 | $41.91 | $4,400.52 | $2.20 | 5.25% |
| Manulife Financial | MFC.T | 125 | $33.12 | $4,139.48 | $0.52 | 1.57% |
| Fortis Properties | FTS.T | 150 | $25.63 | $3,843.98 | $1.20 | 4.68% |
| TransCanada Corp | TRP.T | 100 | $33.50 | $3,349.74 | $1.76 | 5.25% |
| AGF Management Limited | AGF.B.T | 50 | $22.71 | $1,135.49 | $1.08 | 4.76% |
| Bank of Montreal | BMO.T | 25 | $44.17 | $1,104.24 | $2.80 | 6.34% |
| Husky Energy | HSE.T | 135 | $32.53 | $4,391.27 | $1.20 | 3.69% |
| TD Bank | TD.T | 50 | $48.24 | $2,412.23 | $2.88 | 5.97% |
| Enbridge | ENB.T | 80 | $18.43 | $1,494.39 | $1.13 | 6.05% |
| TransAlta | TA.T | 50 | $21.47 | $1073.49 | $1.16 | 5.40% |
| First Capital Realty | FCR.T | 160 | $9.71 | $1,555.20 | $0.80 | 8.24% |
| Canadian Utilities | CU.T | 50 | $36.40 | $1,819.99 | $1.77 | 4.86% |
| Ensign Energy Services | ESI.T | 200 | $14.98 | $2,995.98 | $0.42 | 2.80% |
| Mullen Group | MTL.T | 100 | $14.54 | $1,453.98 | $1.00 | 6.88% |
| Rogers Communications | RCI.B.T | 100 | $34.39 | $3,439.48 | $1.58 | 4.59% |
| George Westin Ltd | WN.T | 50 | $68.64 | $3,441.99 | $1.44 | 2.09% |
| Pason Systems | PSI.T | 200 | $13.97 | $2,793.98 | $0.44 | 3.15% |
| Corus Entertainment | CJR.B.T | 100 | $19.87 | $1,996.99 | $0.96 | 4.81% |
| Thompson Reuters | TRI.T | 90 | $33.40 | $3,006.18 | $1.28 | 3.83% |
| Brookfield Properties | BPO.T | 150 | $16.01 | $2,401.23 | $0.56 | 3.50% |
| Canadian Pacific Railway | CP.T | 30 | $53.90 | $1,626.99 | $1.40 | 2.58% |
| Canadian Oil Sands | COS.T | 150 | $19.14 | $2,871.48 | $1.25 | 6.53% |
| Leons Furniture | LNF.T | 200 | $12.06 | $2,412.98 | $0.40 | 3.32% |
| Encana | ECA.T | 100 | $18.82 | $1,881.99 | $0.80 | 4.25% |
| Transcontinental | TCL.B.T | 100 | $12.72 | $1,217.99 | $0.58 | 4.56% |
More Stats
- Total Cost Base of Equities (inc. fees): $73,865.15 (vs. $68,093.19)
- Market Value of Equities (Closing May 11, 2012 – not including dividends or cash): $81,099.70 (vs. $73,429.05)
- Total Dividends / Year: $3,195.23 (vs. $2,897.03)
- Portfolio Dividend Yield: 4.33% (vs. 4.25%)
Sector Allocation (based on market value)
- Financials: 30.48% (vs. 32.22%)
- Utilities: 11.73% (vs. 12.38%)
- Energy: 29.40% (vs. 28.01%)
- Resources: 0.00% (vs. 0.00%)
- Real Estate: 7.05% (vs. 7.12%)
- Consumer/Telecom: 13.99% (vs. 14.27%)
- Other: 7.36% (vs. 6.01%)
With regards to sector allocation, you may notice that this portfolio is fairly concentrated in financials and energy. Note though that this is one of my accounts where I treat all of my accounts as one big portfolio. In other words, my international and other sector equity exposure are in other accounts.
Disclaimer: There have been a lot of readers who have mentioned that they are interested in a leveraged portfolio. Over the long term it may be lucrative. However, over the short term, equities are volatile and can put the portfolio deep in the red. My portfolio during 2008 is a prime example of what can happen. If you can’t stomach losing 20-30% in the portfolio in any given year, then your risk tolerance isn’t suited for leveraged investing. Here is an article I wrote answering a reader question “Should I Start the Smith Manoeuvre?” Finally, the securities mentioned in this post are not recommendations to buy or sell.
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@FT, I’m wondering why you’re showing AGF.B as a market value of $1,135.49 for 50 shares? The share price on May 14 was $12.84, which would make your 50 shares worth $642.00. Do you think their dividend yield of 9.14% is sustainable?
@jet, don’t you think that’s a little pessimistic? My thoughts are that March 2009 lows will be hard to beat.
FT I like your posts but Iam not sure about this one but best of luck to you
Being to stomach a 20 -30 % drop in the portfolio I dont think will cut.
Realisticaly I think more like being able to stomach a 90% drop in the portfolio & more like 25 years for recovery is more practical. like the 89% drop from 1929-1932 that took about 25 years to recover. ( this bubble is bigger & if it goes higher it will suck in more money & set a bigger trap
In fact if the stock market does like gold did years ago it could drop in value for a 100 years.
Great update.
ESI has started to tank, might be time to get more shares
Thoughts?
I’m thinking of starting a position in this drilling company.
@On Demand, that is tough to say, I would need to see their reasons for the dividend cut and their guidance going forward. If it’s a small cut, then I may just hold.
@Andrew, I like having the flexibility of withdrawing from the portfolio without having to worry about taxation issues. Eventually, I will use the portfolio to pay for expenses.
@Meghan, I hold my US dividend stocks in my RRSP for taxation purposes. Check out my post on portfolio allocation.
@Jaclyn, I’m a bit confused by your response since it doesn’t seem to address either of my comments. But since you bring up the issue, yes, I realize that you have the option to invest in stocks that pay a return via dividends vs. companies who choose to reinvest profits back into the company (which would provide a return via capital gains). But since we are talking about leveraged portfolios, you need to follow the CRA’s guidelines in order to claim the interest on your loan as a tax deduction.
The CRA states that you can claim “most interest you pay on money you borrow for investment purposes, but generally only as long as you use it to try to earn investment income, including interest and dividends. However, if the only earnings your investment can produce are capital gains, you cannot claim the interest you paid.” (Line 221)
The CRA is pretty loose in their interpretation on this, for example, if a company does not currently pay a dividend, but you know it will in the future, I believe they will allow you to claim the interest on the investment loan (at least that’s what they told me when I called). But if there is no reasonable possibility that the company will be paying dividends in the future, than it is not a good idea to hold the stock in your leveraged portfolio IMO.
@ Meghan
Dividend stocks are good if you want a constant cash flow, but this does not necessarily mean that the company will provide you with a high return overall. The good thing about a company paying out dividends, is it shows the health of the company, however you have to ask yourself whether or not it is in your best interest for the company to keep earnings to reinvest in net positive projects, for the potential of a higher overall return, or if you would rather a few bucks in your pocket each year.
I would agree that ETFs are good for people who don’t know what they are doing and who, otherwise, should not be in the market. For these people, ETFs are better than mutual funds!
Having said that, ETF cost you money (about 0.5% every year – or about $400 a year for a portfolio of this size).
If you don’t trade but simply buy-and-hold dividend stocks over decades. The above portfolio is much better and provide the same diversification.
It also ables someone to ignore certain stocks the owner could be uncomfortable with. For example an ETF could hold Goldcorp yet you could be uncomfortable with such a volatile business considering your long-term holding goal and the possible “bubble.”
Not saying that Goldcorp trading at P/E of 8 and paying a nice dividend doesn’t make sense.
@safesidetrader
I’m a relatively new investor, about 40K in investments, with a small amount (under 10K) as a leveraged investment portfolio. My recommendation is to start out buying a few ETFs that cover different indexes. You might want to get 3 or 4 putting an even amount of money in each one. As you add more money to your account you can add one or two more ETFs. You can find good recommendations for ETFs on this website, or on the Money Sense website. Some other readers might have useful suggestions for where to find more information. I wouldn’t leverage your investments if you only have a small amount of cash to invest, just focus on building up your portfolio of ETFs until you feel comfortable taking on some added risk by leveraging. But you will need to open up a separate brokerage account for your leveraged portfolio when you decide to go that route.
Do you hold any US dividend stocks? I just started a leveraged portfolio of dividend stocks (Canadian stocks in a Scotia iTrade account) and I’m thinking about adding some US dividend stocks for diversity. I’m wondering what the problems with this might be or if it is something to be avoided. Any advice from other other readers would be greatly appreciated.