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 four months since the last update (March 2014) with a very little activity in the leveraged portfolio. With valuations quite high right now, it’s difficult for me to buy in this market. However, I did manage to add one new position and received dividend raises along the way. Also note that the yield displayed below is the “yield on cost” which is the current dividend rate on my original cost. I display this to illustrate the power of dividend growth over time.
- 100 shares of Teck Resources. For those of you who have followed my updates for a while, you may recall that I used to own TCK in this portfolio but sold it when they dropped their dividend. However, they have since reinstated their dividend with a reasonable valuation. This stock is highly volatile, but gives the portfolio some exposure to the mining sector.
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:
- CIBC (CM) again, Bank of Montreal (BMO), George Westin (WN). Transcontinental (TCL.A), Baytex Energy (BTE), Finning International (FTT), and SNC Lavalin (SNC).
Calfrac Well Services (CFW) split their shares 2:1, which means existing shareholders double their units, but the stock price itself splits in half. The stock split did not change the dividend yield of the company.
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 $5,603 / year in Canadian eligible dividends, compared to around $5,000 at the end of 2013. In the near future, 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 August 4, 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||$3.12||5.68%|
|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||$1.68||2.44%|
|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||300||$12.12||$3,635.98||$0.50||4.13%|
|Baytex Energy Corp ||BTE.T||35||$42.98||$1,504.14||$2.88||6.70%|
|SNC Lavalin Group||SNC.T||50||$38.55||$1,927.49||$0.96||2.49%|
|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): $121,996 (vs. $119,428)
- Market Value of Equities (not including dividends or cash): $164,701 (vs. $154,535)
- Total Dividends / Year: $5,603.03 (vs. $5,462.43)
- Portfolio Dividend Yield on Cost: 4.59% (vs. 4.57%)
- Portfolio Dividend Yield: 3.40%
Sector Allocation (based on market value)
- Financials: 23.12% (vs. 22.93%)
- Utilities: 7.79% (vs. 8.16%)
- Energy: 30.38% (vs. 30.63%)
- Resources: 4.04% (vs. 2.55%)
- Real Estate: 2.56% (vs, 2.54%)
- Consumer/Telecom: 13.19% (vs. 14.04%)
- Other: 18.91% (vs. 19.15%)
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, I consider this account to be my Canadian exposure (which is mostly financials and energy) and my US, international and other sector equity exposure 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 occasional 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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