For those of you just joining us, listed 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 started this portfolio in 2008 (at the height of the market) and write updates every quarter (or so) 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 brokerages.
It has been about three months since the last update (Dec 2013) with a quite a bit of activity in the leveraged portfolio. I added to a few existing positions, added two new positions, and received dividend raises (and a drop) along the way.
Added to existing positions:
- 50 shares of TD Bank (TD) via 2:1 stock split;
- 25 shares of Rogers Communications (RCI.B);
- 50 shares of Corus Entertainment (CJR.B); and,
- 50 shares of Potash Corporation.
Added new positions:
- 450 shares of Major Drilling Group (MDI); and,
- 600 shares of Bombardier Inc (BBD.B).
I purchased MDI because it appeared to be undervalued, with decent financials and a dividend that has increased annually over the past five years. In addition, it gives the portfolio some exposure to the resource sector. BBD.B was also purchased because it appeared to be oversold and it pays a dividend. Bombardier is a bit out of place in this portfolio as it does not have history of increasing its dividend, but it does provide some diversification.
Since this portfolio is focused on dividend growth stocks, the portfolio did not disappoint where a number of dividend paying positions increased their distributions since the last update. The dividend increases came from:
- Royal Bank (RY), CIBC (CM), Scotia Bank (BNS), TransCanada Corp (TRP), TD Bank (TD), Canadian Utilities (CU), Rogers Communications (RCI.B), Pason Systems (PSI), Corus Entertainment (CJR.B), Thompson Reuters (TRI), and BCE Inc (BCE).
It doesn’t happen very often, but the portfolio held a small position that significantly decreased their dividend. TransAlta (TA) decreased their dividend from $1.16 to $0.72 but I will continue to hold for the time being.
My dividend watch list remains similar where I am looking to increase my positions in CU, IMO, SNC, TD and possibly add new positions in Cineplex (CGX), and Canadian National Railway (CNR) when/if their valuations become attractive (let me know if there are any ideas that I’m missing out on).
As of today, this portfolio generates about $5,462 / year in Canadian eligible dividends, compared to around $5,000 at the end of 2013. As an idea for a future article series, I may provide portfolio income updates based on all portfolios to get a better idea of our journey towards financial freedom.
The Smith Manoeuvre Portfolio as of March 24, 2014 (prior to open) – note that any changes to the portfolio are indicated in bold.
|Stock||Symbol||Shares||Avg Buy Price||Total||Div/Share||Yield|
|AGF Management Limited||AGF.B.T||50||$22.71||$1,135.49||$1.08||4.76%|
|Bank of Montreal||BMO.T||45||$54.97||$2,473.83||$3.04||5.53%|
|First Capital Realty||FCR.T||222||$11.72||$2,601.03||$0.84||7.17%|
|Ensign Energy Services||ESI.T||200||$14.98||$2,995.98||$0.47||3.14%|
|George Westin Ltd||WN.T||50||$68.64||$3,441.99||$1.66||2.41%|
|Canadian Pacific Railway||CP.T||30||$54.23||$1,626.99||$1.40||2.58%|
|Canadian Oil Sands||COS.T||150||$19.14||$2,871.48||$1.40||7.31%|
|Calfrac Well Services||CFW.T||150||$24.24||$3,635.98||$1.00||4.13%|
|Baytex Energy Corp
|SNC Lavalin Group||SNC.T||50||$38.55||$1,927.49||$0.92||2.39%|
|Crescent Point Energy||CPG.T||50||$37.13||$1,856.49||$2.76||7.43%|
|Major Drilling Group||MDI.T||450||$7.71||$3,467.98||$0.20||2.60%|
- Total Cost Base of Equities (inc. fees): $119,428 (vs. $108,341)
- Market Value of Equities (not including dividends or cash): $154,535 (vs. $135,090)
- Total Dividends / Year: $5,462.43 (vs. $5,008.58)
- Portfolio Dividend Yield: 4.57% (vs. 4.62%)
Sector Allocation (based on market value)
- Financials: 22.93% (vs. 24.55%)
- Utilities: 8.16% (vs. 8.73%)
- Energy: 30.63% (vs. 32.30%)
- Resources: 2.55% (vs. 0.00%)
- Real Estate: 2.54% (vs. 2.86%)
- Consumer/Telecom: 14.04% (vs. 14.11%)
- Other: 19.15% (vs. 17.45%)
Why the high concentration in financials and energy?
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.
Why don’t you use a dividend ETF instead?
Couple of reasons, first, most Canadian dividend ETFs hold stocks that distribute return of capital which can affect the tax deductibility of the investment loan. Second, the MER eats into the dividend. I keep the expenses in this portfolio very low through buying but rarely selling.
Should I start the Smith Manoeuvre?
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?”
Disclaimer: The securities mentioned in this post are not recommendations to buy or sell and should be used for informational purposes only.
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