Recent Stock Purchase – August 2014

With the recent market gyrations from all time highs last month many new buying opportunities have presented themselves to dividend growth investors. Favorites of the dividend blogging community pointed to renewed interest in McDonald’s Corp. (MCD), AFLAC Inc. (AFL), Deere & Company (DE) and several energy plays as well as these stocks and oil have all fallen from all time highs giving these companies more attractive valuations than in months past.

 

If you have been following DivHut for a while now you know my affinity towards the financial sector as I believe in the current climate many of the companies in that sector appear to be fairly valued while offering decent current yield and future growth prospects. My recent trades over the past few months have seen me add shares to several financial names in my portfolio such as AFLAC Inc. (AFL), The Chubb Corporation (CB), Wells Fargo & Company (WFC) and General Electric Company (GE) prior to its divesting of Synchrony Financial (SYF).

 

Then, several weeks ago I wrote about Canadian stocks that have paid dividends for over 100 years and had my eyes opened to a whole new financial sector, the Canadian banking stocks. I found it interesting that all the “century club” dividend stocks in Canada are banks. Coincidence? Or perhaps more validation that the financial sector, through all its woes is still very robust and presents the best value overall in the market today.

 

Sticking to my August Stock Considerations blog post:

 

I have added to my ROTH account 14 shares at $65.87 for a total investment of $922.18 in The Bank of Nova Scotia (BNS). Currently yielding a generous 3.60% with a moderate payout ratio of 51.2% this stock has paid a dividend every year since 1832. A low valuation financial stock with a current PE of 13.44, BNS is a relatively cheap stock in todays mixed priced market.

 

I have added to my ROTH account 17 shares at $51.83 for a total investment of $881.11 in The Toronto-Dominion Bank (TD). TD has paid a dividend every year since 1857 and currently yields a favorable 3.40% with a payout ratio of 47.5%. Having a slightly higher PE than BNS, TD is still far less than its peers and the S&P at only 14.98.

 

Finally, I have added to my ROTH account 12 shares at $72.76 for a total investment of $873.12 in Royal Bank of Canada (RY). RY currently offers a 3.80% yield with a payout ratio of 51.4%. Paying out dividends since 1870, RY has a current PE of 13.67 also putting it below many of its peers and the S&P.

 

The above purchases reflect new holdings to my ROTH account. What do you think about my August stock buys? Is the financial sector an area you are looking to invest in this month as well? Please let me know below.

 

Disclosure: Long MCD, AFL, CB, WFC, GE, TD, RY, BNS

50 thoughts on “Recent Stock Purchase – August 2014

  1. DivHut,

    Nice buys! I’m a fellow shareholder in BNS and TD, and I’ve been very happy thus far.

    Some of those transactions are relatively small. I’m guessing you have pretty small commission fees?

    Keep up the great work.

    Best regards!
    Dividend Mantra recently posted…Recent BuyMy Profile

    • Hi DM,

      Thanks for the words of encouragement. I have been eyeing those Canadian banks for a little while now and just decided to go for it. Prior to this purchase my banking exposure was limited to WFC. Now with four banks in my holdings I might be content for the time being. Of course, Mr. Market may tempt me again if things go on sale.

      Regarding my transactions, I use Sharebuilder and one of the trades was $4 and the other two were free as I had some promotional trades in my account thus the relatively low amounts in each company. Typically, when my trades are on the smaller side I have commission free transactions, otherwise I invest about $1,000 at a time. Thanks for commenting and love your recent buy too!

  2. All very solid buys. RY, TD, and BNS are all in our dividend portfolio about 3-8% of the portfolio.

    Personally I’m looking to add some RY shares so we can DRIP 2 shares each dividend payout month but that would require adding ~$5000 of capital. Since our portfolio is already a bit heavy on financial sector, maybe that’s not a good idea since there are other attractive companies out there to invest too.
    Tawcan recently posted…3 key questions to ask before investingMy Profile

    • Hi Tawcan,

      I happen to think the Canadian banks are all pretty solid. Sure, there may be an issue with the Canadian real estate market dropping and other factors which might shake the financial sector but at its core I agree they are solid buys. Prior to the purchase I was very light in the banking sector which is why I started a position in these three banks. Thanks for commenting.

  3. Nice buys DivHut. Good values are few and far between in the current market. I think your method of small frequent purchases is a great approach to build diversification. I don’t know anything particular about the soundness of the Canadian Banking system, but i understand it generally to be more conservative and stable than our own. Thanks for sharing
    -Bryan
    Income Surfer recently posted…My Updated Valuation of Proctor & GambleMy Profile

    • Hi IS,

      Thanks for your comment. As you know, despite the drop in the market recently, true values are still hard to come by. With cash sitting on the sideline you might be tempted to wait for valuations (PE, price to book, etc.) to come back down to Earth but in the meantime you wait months or years waiting for the pull-back and miss out on compounding dividend income. I have built my entire portfolio in small monthly purchases. Call it the conservative side in me but I’d rather always have cash on the sideline to take advantage of price drops and average down if need be.

      Like you, I was in the dark about the Canadian banking sector, and though the stocks are a bit pricey, they still present decent value and good yield in an otherwise expensive market.

    • Hi LAH,

      Funny. Who says DGI bloggers have no sense of humor. Let’s see how the Canadian bank stocks perform going forward. I know there are some potential pitfalls such as the real estate market over there and a potential bubble bursting, but I held on to my WFC through the 2008/9 sell off and am happy I did not sell. Should a major decline occur in Canada I’ll be around to buy more shares. Thanks for stopping by.

  4. Trying to take over the Canadian banking sector? Nice buys though. I used to own BNS but never kept up to date on the company and didn’t have any interest in doing so so I sold for a bit of a profit. In hindsight that was probably a bad move and I’ll probably get back into the Canadian banks again. Any concerns with the P/B for all three being over 2? I’m not sure of their typical ranges for P/B though. My biggest concern is what will happen if Canadian real estate is in bubble territory and could therefore suffer a major dip like the US did starting in 2008. If I remember correctly the Canadian real estate market barely even registered a dip during the financial crisis. Also the debt levels in Canada concern me although I think a lot of that is due to the housing market. Time to tap into some of the Canadian bloggers for some clarification.
    JC @ Passive-Income-Pursuit.com recently posted…Liebster Award NominationMy Profile

    • Hi PIP,

      In general, I think you will find many articles and bloggers favoring the large Canadian banks over many of the American banks. The large Canadian banks all have a very long history of dividend payments and are known for their conservative style when compared to many American banks. Regarding P/B for the banks purchased, I’m not too concerned that their ratios are all over 2. A low P/B ratio isn’t always indicative of an undervalued company just like a low PE either. As you know bargains do not exist in the market today and we are all looking for “relative” bargains where we can. I agree, that in historical terms the Canadian banks are expensive but so is pretty much everything else. The alternative is to keep cash on the sidelines indefinitely waiting for the massive correction that’s supposed to take place and lose out on compounding dividend income in the meantime. And if the Canadian real estate market is in a bubble and it bursts, I’ll still hold my Canadian bank stocks and average down if need be. I held onto my WFC through 2008/9 and am happy I did today. When holding high quality names for the long haul you must have conviction in all the purchases you make. DE has been quite popular among the dividend bloggers recently and sports a nice low PE and decent yield too but has a P/B of 2.9 and its 5 year average P/B is 4.6. Does this concern you as a DE investor?

      As always, I appreciate your comment and opinions. Please feel free to question my purchases and give me reason to think.

      • I was just bringing up P/B because for a lot of financial, i.e. asset based, companies book value is the better judge of value rather than earnings. Just wondering what your thoughts were on that. Completely agree though about putting capital to work at good relative values rather than staying on the sidelines waiting for a large pullback. I still like the Canadian banks because they’re more traditional and conservative which leads to more stable operations. The megabanks in the US are nightmares to analyze and even if that’s all you did you still won’t know everything about what they’re doing.
        JC @ Passive-Income-Pursuit.com recently posted…The Evidence for Dividend Growth InvestingMy Profile

        • Hi PIP,

          Historically, the large Canadian banks have traded in a P/B multiple range of about 1.5 to 3 over the past 15 years or so. While this metric alone would suggest an overvalued stock I feel that the figures are in line when discussing large Canadian banks specifically. To answer your question, regarding the Canadian banks I did not put much emphasis on the P/B instead looked at PE and current yield as my primary reasons for initiating a position. I admit, the big five Canadian banks are all relatively expensive compared to their stock prices over the last five years, however, I still feel that even near 52 week highs they still are better bargains than many other consumer or industrial stocks that are out there. Thank you for the reply.

    • Hi AFFJ,

      Would love to welcome you as a fellow shareholder in some Canadian banks. It’s a sector that seems to be quite popular among many of the dividend bloggers, especially the Canadian ones who seem to have a more intimate knowledge of their banking sector. To me, these banks seem to be relative bargains in an otherwise expensive market. Thank you for stopping by.

    • Hi DD,

      Thanks for stopping by and commenting. Prior to this purchase I only owned WFC which is why I wanted some more banking exposure and looked to Canada instead of the U.S. As everything in the market is expensive these days I feel that some of the best “relative bargains” can be found in the financial and energy sector. I have been buying a lot in the financial sector for several months now. Regarding banks, I like WFC, USB, TD, BNS, RY and maybe consider CM and BMO. In the insurance world of the financial sector I like AFL and CB.

      By the way I still have trouble commenting on your blog 🙁 I will try again when I have a chance on another computer.

    • Hi Charles,

      I have both a regular and ROTH account for my dividend stocks. I agree that it’s nice to have dividend grow every year without having to pay the tax man. SDRL and KMI are both very popular among the dividend bloggers as I have seen those stocks in many portfolios. For me, I only invest in dividend stocks. I am not interested in the wild gyrations of the social or tech stocks. I get enough excitement with my dividend paying companies plus I love getting paid to wait. Thank you for commenting.

  5. Hi Divhut,

    You recently suggested that I should buy Aflac and with the recent correction, there was a great opportunity to jump in at a good price so I initiated a position there. I also added to my MCD position. I loved MCD at 95$ and I love it even more at 93$ :). In august I also oppened a tax free saving account in which I will put canadian stocks (US dividends wouldn’t be elligible to the tax treaty in that account and uncle sam would keep 30% of them). With my growing portfolio I’m starting to see the obligation to be tax efficent. So I might add TD.to, RY.to and also FTS.to, ENB.to and CNR.to to that account eventually. These are all canadian companies I believe in. I will also add to my Tim Horton’s and Jean Coutu positions when prices go down a little. I recently bought Tim Horton’s shares at 59$ and they are already trading at 15% more…
    Allan recently posted…Monster list! All of Warren Buffett’s dividend growth stock listMy Profile

    • Hi Allan,

      When AFL dropped below $60 it got many dividend investors interested in the stock. AFL has a long history of dividend payouts, dividend raises and an annual dividend growth rate that exceeds the inflation rate by far. In fact, AFL is my largest holding. Good pick up with MCD too. Though in the near term they might still stumble a bit, you are getting a pretty nice yield while you wait. The list of Canadian companies you mention all seem pretty solid. I guess it’s good practice to diversify holdings from other countries. For now, I am content focusing on the Canadian banking sector and as you saw I added them to my ROTH. Might as well get as much tax advantage as they’ll give. Thank you for commenting.

  6. Keith,
    $4 in commissions to spread the risk over 3 banks is awesome. Having lived most of my 57 years in Michigan, and having a lot of family in Canada, the one thing that I see missing from the analysis of Canadian banks is currency fluctuation. It wasn’t that long ago that the Canadian dollar was only worth 69 cents U.S. It could go the other way, though, and the Canuck dollar could easily be worth more than the U.S. dollar. It probably doesn’t matter much if you are in it for the long haul.
    Good luck with you loonie investments,
    Keith

    • Hi KeithX,

      I used up some of my Sharebuilder free trades. I had a few that were expiring so I thought let’s start some small positions in those banks since I have been eyeing the Canadian banks for some time. Regarding currency fluctuation, it wasn’t even a thought for me in deciding whether to go with Canadian banks or not. Personally, I feel Canada has a brighter future than the U.S. regarding it’s currency and value. Canada seems to have more responsible fiscal policy than the U.S. and going forward I feel the Canada dollar will be on par or worth more than the U.S. dollar. The Canadian banking system is also a more conservative and traditional system when compared to the U.S. banks. Sure, there might be drops and pops along the way (many are calling for a real estate bubble burst in Canada) and their may be a lot of pain but the Canadian banks seem better suited to handle these drops. I appreciate your comment.

  7. Great buys, DivHut. Cant go wrong with those banks. I have a DRIP with BNS and have been thinking of adding TD to my portfolio as well…although its a toss up between the three you’ve bought. The other two of the Big-Five are also good investments, just not as attractive as the three you have here.
    Regarding the housing bubble, there has been lots of talk about it – and yes, I feel that the housing market is crazy (we just bought our house this summer) and a bit of a correction will help the overall economy. The Bank of Canada governor is hoping for a soft landing as well…we’ll see how things go. But irrespectiev of what happens, the banks will come out fine on the other side and there probably wont be a rout like the US crisis.

    Best wishes
    R2R
    Roadmap2Retire recently posted…Kinder Morgan Inc (KMI) ConsolidationMy Profile

    • Hi R2R,

      Thank you for the comment. I happen to agree with you regarding the Canadian banks being fine after some pain if the housing market there bursts. Quite frankly, the historical performance of the Canadian banks through some of the darkest hours we experienced about 5 years ago has been amazing. I feel very confident with the large Canadian banks in my portfolio for the long term as resource rich Canada continues its financial ascent in a more traditional and conservative manner than many of the U.S. banks.

    • Hi DGJ,

      The financial sector is an industry, like insurance, that is extremely profitable and fairly predictable when looking at earnings, cash flow, etc. For my money, I wanted some exposure in the Canadian banking sector and went with three of the big five banks. Prior to this purchase my only exposure in banking was WFC. Now with four banks in my portfolio I might be content for a while. Thank you for stopping by.

  8. Divhut

    Nice buys this month, Canadian Banks are awesome! I’ve been eyeing BNS and RY for quite some time now, glad one of us pulled the trigger. As for TD I plan on holding them for many years to come. Thanks for sharing.

    Ace

    • Hi Ace,

      The Canadian banks are a favorite of many U.S. and Canadian bloggers. Despite being relatively expensive (though a relative bargain in the market as a whole) I feel the long term prospects for Canada and the banking system are bright. Other Canadian banks I have been considering are CM and BMO. Thanks for commenting.

    • Hi MSF,

      Like you, I have been waiting for a bigger pull-back for a few months, especially with the large Canadian banks since they were at all time highs but decided to finally take the plunge and start with a relatively small position in each so I can average down if there is a major drop. This way I at least get a start and I’m confident in the Canadian banking system long term. Thank you for stopping by.

  9. I don’t have much exposure to banking right now but I am looking in to some for future purchases. One that caught my eye recently is TMP, it’s not a canadian bank I know but it is very well run, profitable, and is a dividend champion with great dividend growth to boot.

    Also I’ve nominated your blog for a Liebster award – http://www.captaindividend.com/2014/08/liebster-award-nomination.html

    Grats on your new purchases and best of luck!
    CD
    Captain Dividend recently posted…Liebster Award NominationMy Profile

    • Hi CD,

      Thanks for sharing your thoughts on TMP. It does look interesting from a PE and yield standpoint but it sure is a very small bank. Generally I do not invest in any small cap stocks. I like my investments to have a market cap of several billion. Not that TMP is a bad choice, just too small for my taste.

      Thank you for the Liebster nomination as well. Much appreciated.

  10. DH, can you tell me how Canadians treat dividends? Do Canada skim off the top and then you apply for the foreign income credit in the US?

      • Hi IF,

        You should see my reply to The Broke Dividend Investor but in short there is a 0% tax withholding on Canadian dividends paid to U.S. investors as long as the stocks are held in retirement accounts such as a ROTH or IRA. In general, it’s best to keep foreign stocks, MLPs, and REITs in tax advantaged accounts as opposed to taxable accounts. Remember, every country has a different dividend tax rate policy and should be checked out prior to making an investment. If you are looking to invest in some great Canadian bank stocks you should read Canadian Century Club Dividend Stocks. Thank you for commenting.

    • Hi TBDI,

      A great question regarding foreign dividend paying stocks. There is a tax treaty between the U.S. and Canada that allows for a 0% tax withholding on dividends paid out by companies in Canada to U.S. investors for investments within a retirement account such as an IRA or ROTH. Hence, my addition of these Canadian bank stocks in my ROTH account. If you hold Canadian stocks in a regular taxable account there will be a 15% withholding tax than can be recouped as a foreign tax credit. Here is a great link that highlights withholding tax rates from various countries: http://ow.ly/AlQm1 Thanks for stopping by and asking a great question.

  11. Hey DivHut, im definitely for those buys, we’re now fellow shareholders of those 3 banks 🙂 I also recently added to my TD shares as well. They are all solid companies and from what I read today BNS/RY may be raising their dividends again soon!
    Dividend Wisp recently posted…Recent Buy!My Profile

    • Hi DW,

      Great to be a new fellow shareholder with you in those bank stocks. Canada has some pretty solid financial institutions that are very dividend friendly. Unfortunately in the U.S. many great foreign companies do not get the attention they deserve. I am also interested in BMO and CM as potential additions to my portfolio but these three might satisfy me for now. I enjoy many of the Canadian and U.K. and other European blogs that exist as they highlight many great foreign stocks that should be in many portfolios. Thank you for stopping by.

  12. I like these buys! I also picked up some more AFL last week on the stock’s dip. I like AFL and love getting a dividend champion at a discount. Also added to my position in GE in July and will probably be adding more shares of MCD soon.

    • Hi GMS,

      AFL, GE and MCD have been picked up by me as well the past several months. With the August purchase I decided to enter the Canadian banking world as my only bank owned was WFC. Solid picks all around. Of course, with the market on edge we’ll see if more attractive buying opportunities present themselves. Thanks for commenting.

  13. My last investment in the finance industry was (BAC) that was like almost 2 year ago when I wasn’t focusing on dividend stock. I did notice that (BAC) plan on raising their dividend though, but I’m planning to keep it for long term. Seem like you purchase some nice Canadian stock, I might add those to my watch list.

    • Hi J,

      Prior the the crash of five years ago many U.S. banks and investment banks appeared to be on solid footing. BAC and C were thought of as rock solid just like Wachovia and Washington Mutual and we all know what happened to them. For my money, I’d only invest in WFC or USB in the U.S. and now I am into the large Canadian banks such as BNS, BMO, TD, CM and RY. Of course, I realize that these banks are all expensive these days and may drop significantly if a real estate bubble bursts in Canada, but like WFC, I do not plan to sell into weakness, instead I’d buy. I appreciate your comment.

  14. These yields are great. 3.6% yield is meeting my requirements and I have no exposure to banks whatsoever. I was thinking recently on what should be my next purchase – addition of a new DG stock or add to existing positions? I think you answered my question. I like BNS and TD quite a lot.
    Martin recently posted…To Catch A TraderMy Profile

    • Hi Martin,

      The Canadian banks seem very popular among many of the DGI bloggers. Like you, I asked myself the same question about whether I should add to my existing positions or initiate new ones. I admit that the Canadian banks are all expensive relative to recent years but they all trade at very low PEs and have great current yield. I was considering TD, BNS, RY, BMO and CM and as you can see went with the first three. This brings my banking exposure to four stocks including WFC which might suffice my current portfolio. Thanks for commenting.

  15. DivHut,

    Long Live Canadian Banks! In all seriousness — they are great plays, strong dividend payers and their financial structure didn’t have the shakedown we went through during our financial crisis. I proudly own CM and I know any of the ones that you have purchased are strong and have strong dividend metrics as well. Congrats on the ownership of the Canadian slice of dividend happiness, talk soon!

    -Lanny
    Dividend Diplomats recently posted…Scotts Miracle Gro Dividend Hike & $2.00 Special Dividend!My Profile

    • Hi DD,

      Your enthusiasm for the Canadian banks seems to mirror many of the DGI bloggers I read. As you mentioned, the Canadian banks seem to have a stronger footing than many of the American banks and seem better prepared to handle the inevitable correction in the Canadian real estate market, etc. CM along with BMO were also considerations for my purchase. For now, with four banks in my portfolio I do not plan to add any new ones for quite some time. Look forward to your updates and CM adventures. Thanks for commenting.

  16. Great picks.

    Canadian banks are much more regulated than US banks. The mortgage market is not an issue mainly because all mortgage without a sufficient cash down are insure by the Canadian Mortgage and Housing (CMAH). So if the owner stop payment, the CMAH will pay back the bank… No real risk.

    Major risks is from international exposure so I consider that each bank taking individually represent a risk but that the Canadian banking system is well secured. I don’t take any chance and I got shares of Royal Bank, BMO, CIBC, National Bank and Laurentian Bank. Only missing TD and Scotia.

    • Hi Hemgi,

      That’s one of the main reasons I decided to invest in the Canadian banking sector… their ability to have potential mortgage losses stopped by the CMAH. BMO and CM are also on my watch list but with four bank stocks already in my portfolio I feel pretty content for now. Thanks for stopping by and commenting. Look forward to more of your insights.

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