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Helping Canadians with Personal Finance Since 2006

Smith Manoeuvre Update December 2009

It’s been a while since my last Smith Manoeuvre portfolio update (see August update). Perhaps it’s because of the lack of portfolio changes lately as I’m one of those people who are not buying much in this market.  However, since it’s the end of the year, it may be a good time to do one last update until 2010.

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, check out my modified smith manoeuvre strategy.

As mentioned above, there has been very little change to my portfolio since August 2009.  The only change was the decision to sell PRFZ from my portfolio as it didn’t exactly fit.  US distributions are better held in my RRSP as it is more tax efficient.

What dividend stocks am I watching?  When valuations become attractive again, I will be looking at add to T.BMO, T.TD, T.ENB, T.FCR and new positions in T.CNR and T.L.  I’m still looking for exposure in the telecom industry but having trouble finding the best candidate.  Do you have a favorite?

The Portfolio as of December 2009:

Stock Symbol Shares Avg Buy Price Total Div/Share Yield
Royal Bank RY.T 75 $47.62 $3,571.25 $2 4.20%
CIBC CM.T 45 $67.14 $3,021.25 $3.48 5.18%
Power Financial PWF.T 105 $35.14 $3,689.65 $1.40 3.98%
Scotia Bank BNS.T 105 $41.91 $4,400.52 $1.96 4.68%
Manulife Financial MFC.T 125 $33.12 $4,139.48 $0.52 1.57%
Fortis Properties FTS.T 150 $25.63 $3,843.98 $1.04 4.06%
TransCanada Corp TRP.T 100 $33.50 $3,349.74 $1.52 4.52%
FTSE RAFI US 1500 Small-Mid ETF PRFZ.US 20 $51.50 $1,029.99 $0.42 0.82%
AGF Management Limited AGF.B.T 50 $22.71 $1,135.49 $1.00 4.40%
Bank of Montreal BMO.T 25 $44.17 $1,104.24 $2.80 6.34%
Husky Energy HSE.T 85 $35.90 $3,051.28 $1.20 3.34%
Teck Cominco TCK.B.T 100 $15.35 $1,258.99 $0.00 0.00%
TD Bank TD.T 50 $48.24 $2,412.23 $2.44 5.06%
Enbridge ENB.T 40 $37.36 $1494.39 $1.48 3.96%
TransAlta TA.T 50 $21.47 $1073.49 $1.16 5.40%
First Capital Realty FCR.T 100 $15.75 $1,574.99 $1.28 8.13%
Canadian Utilities CU.T 50 $36.40 $1,819.99 $1.41 3.87%

More Stats

  • Total Cost Base of Equities (inc. fees): $39,821.95
  • Market Value of Equities (Dec 11, 2009): $40,870.50
  • Total Dividends / Year: $1,692.10
  • Portfolio Dividend Yield: 4.25%

Sector Allocation (based on market value)

  • Financials:    57.12%
  • Utilities:    18.36%
  • Energy:    19.29%
  • Resources:    0.00%
  • Real Estate:    5.23%
  • Other:     0.00%

What’s interesting is to see the dramatic change in equity value over the course of the year.  If you take a look at my Feb 2009 update, you’ll notice an equity value of about $20,670 with a cost base of $35,000.  Today, the equity value of my portfolio is $40,870 with a cost base of $39,821.  Even though capital growth was strong in 2009, dividend growth came to a halt.  I’m hoping that dividend growth will continue when the economy finds stronger footing.

With regards to sector allocation, you may notice that this portfolio is fairly concentrated in financials.  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.

Leveraged Investing 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 over 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.

If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).

15 Comments

  1. saveING.ca This is why I signed up with ING Direct on December 17, 2009 at 10:50 am

    I would think equities would be a relatively dangerous place to be, though Canada remains one of the safest places.

  2. 2 Cents on December 17, 2009 at 11:29 am

    I think it’s great that you share the details of your strategy with readers. We often hear about various financial planning techniques, but the nuts and bolts of the “how to” are usually a mystery. That keeps us from acting, as we assume that we’re not knowledgeable enough to pull it off on our own.

  3. FrugalTrader on December 17, 2009 at 11:41 am
  4. Finance Addict on December 17, 2009 at 12:01 pm

    BCE announces 7% common share dividend increase for 2010 and plans for the use of surplus cash – Includes $500 million share buyback and $500

    This is the one to pick.

  5. 2 Cents on December 17, 2009 at 12:47 pm

    FrugalTrader,

    Thanks for the links. I was already aware of some of that information, but there were some good things in there that I didn’t know about, namely the trend analysis site and the Excel add on. I have been out of the market for a bit, but I’m going to look into these things for when I’m ready to get back in. Many thanks.

  6. cannon_fodder on December 17, 2009 at 3:44 pm

    FT, like Finance Addict, I’ve added BCE to my portfolio. I bought it soon after the buyout failed and got it for $24.

    I am not expecting much in capital appreciation but this is the 3rd dividend increase and 2nd buyback they’ve announced in the last year.

  7. Nick on December 17, 2009 at 3:54 pm

    For a telecom suggestion, I have been watching Telus. Steady and healthy dividend increases (25% per year over five years), reasonable payout ratio (half of BCE!), and a current yield around 5.75%. Following your “when to buy dividend stocks” strategy I would jump in if it hits its historical yield high point around 6%. Plus, it has a DRIP with a 3% discount.

    Cheers

  8. Simon on December 17, 2009 at 5:36 pm

    I agree with Nick.I have bcenen wactching Telus for a few months now and I think it is a better pick than BCE if you go long-term. As long as they keep pumping out and periodically increasing the dividend payout, I will recommend to hold this stock. The newly announced 3% discounted DRIP is great too. The next quarter all those shares will just add to the umber of disounted new shares I will be getting the next quarter.

  9. Simon on December 17, 2009 at 5:37 pm

    I agree with Nick. I have been watching Telus for a few months now and I think it is a better pick than BCE if you go long-term. As long as they keep pumping out and periodically increasing the dividend payout, I will recommend to hold this stock. The newly announced 3% discounted DRIP is great too. The next quarter all those shares will just add to the umber of disounted new shares I will be getting the next quarter.

  10. Stuart on December 17, 2009 at 8:08 pm

    My first thought was that you are overweight in financials, but then you did explain that you have other accounts. It is good practice to create a consolidated portfolio view for all your accounts every year. Any good investment advisor will do this for you as well.

  11. Mark in Nepean on December 17, 2009 at 9:25 pm

    Well done!
    Frugal – No SLF?
    Great company, great dividends, and relatively inexpensive.

  12. Gerry on December 18, 2009 at 4:16 pm

    I’m in with Nick also. Telus has been on my watch (and buy) list for a while. The globallive news last week was great, a little drop in the price of Telus and increased chance that more foreign capital will be allowed into the arena. Heck, the 6% yield with a payout ratio of only about 50% looks great too.

  13. Canadian Dream on December 18, 2009 at 6:35 pm

    I’m seeing a lot of talk regarding the big names for telecom. Do any of you invest in any of the smaller players like MBT? Just wondering.

    Tim

  14. Financial Samurai on December 19, 2009 at 7:51 am

    Hi Smith, nice performance. Just wondering, do you have any positive anecdotal type evidences that the Canadian consumer is rebounding? I want to get a sense of whether this stock market rebound we’ve experienced is for real, and whether more liquidity will join in from the sidelines to keep the party alive.

    Thnx!

  15. cashback cards on December 23, 2009 at 2:51 pm

    Hey,

    this is great that your so open and honest with your readers like this. But can you help me to understand why you would hold 57.12% Financials? To me that just seems crazy!

    Thanks

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