Dividend Growth Portfolio, May 2012 Update

As April comes to a close, it's that time of the month again. It is time for a review of my Dividend Growth Portfolio! Here is the May 2012 update for my Dividend Growth Portfolio.


New Purchases
There were no new purchases this month.


Sales
There were no equities divestitures this month.

Intrinsic Dividend Changes
Exxon Mobil - $50.00 (quarterly dividend raised from 47 to 57 cents)
Johnson & Johnson - $28.80 (quarterly div raised from 57 to 61 cents)

Incoming Dividend Hikes

I'm expecting dividend hikes from Dow behemoths Johnson and Johnson (JNJ) and Exxon Mobil (XOM) before the end of the week. In 2011 both companies raised their dividend around this time in April.

Most likely Exxon's dividend hike will be in tandem with its earnings release on Thursday, and J&J's dividend hike will be in tandem with its annual shareholder meeting, also on Thursday.

Market Turmoil

As the bad news continues to pour out of nearly every corner of the world, I believe we may be seeing a ray of light. China is finally stabilizing.

This morning we received the latest Germany PMI numbers, coming in at a shockingly low 46.3, the lowest since July 2009. The print didn't give us much to grasp at, with output, new orders, and employment, all coming in lower. Could this be a sign that the disease from the European periphery is finally spreading to the heart and soul of Europe?

Why Beat Yourself Up

I feel a lot of investors (and traders as well to some extent), sub-consciously take the more difficult road. Maybe for some, inflicting pain or making things difficult on one self is satisfyingly rewarding, but I've never been fond of doing things the difficult way when a simpler method is right in front of you.

I often have people asking me about some no-name stock, and what I think about the prospects of being able to flip it for a few bucks, or whether I think it will be worth a lot more.

More Buying Today

I made a decision a while back in the year (in January) when evaluating my shopping list to open a position for my managed portfolio in JNJ if the price dips under $64.

Today, I made the purchase in the mid to high 63s. The JNJ earnings were decent. Not spectacular, but better than people expected. International sales were quite good, led by Remicade, and management continues to expect $5.10s in earnings for FY2012.

Using a $5 earnings target for FY2012 and $64 price, JNJ is priced at just under 12.8x PE. A pretty attractive price for a world class business. Compared to 15x-20x for other consumer staples and defensives, I think JNJ should give investors a pretty good forward return at these valuations. JNJ also offers a 3.5-3.6% dividend yield, that should be raised in the next 2 weeks by 5-10%.

I didn't buy a lot, as I think the market could still correct down to 1340-1360, but I established an initial position.

Correction Underway

Its become pretty obvious a market correction is underway now.  The S&P 500 has pulled back from 1420 to 1370 in about a week and a half. The Canadian based TSX continues to consolidate and bounce around 12000. As someone who mostly invests, and sometimes trades, how do we play this from each aspect?

As a long term investor, I prefer to look at things from 3 different perspectives: fundamentals, macro, and technical.

Equity vs Debt

There are two ways a business can fund its operations (and thus, two ways someone can invest in the operations of a business). The first is debt, and the second is equity.



What is debt?


Debt is an obligation owed by one entity to another. When a business issues debt, it is borrowing assets from the lender now, and entering an agreement to repay the original assets at a future time, plus interest.

Thus, when we lend capital to a business, we are giving the business our money now, and in exchange, we will be paid back the same sum in the future (debt maturity), plus interest payments while the debt is outstanding. This is investing in the debt of a business.

Cash Is Not As Risk Free As People Think

TFSA is one of the best investment vehicles that exist in Canada. Contributions are made with after-tax money, but capital gains and income from investments inside a TFSA are completely tax free.

The TFSA program was started in 2009, and that was the year I started mine. Unfortunately, in what otherwise would have been a fantastic year to invest, I kept my TFSA in an interest bearing account for the first year. I remember I happily placed my $5k inside an ING TFSA account with a few months left in 2008, as there was a special offer at the time.

It turns out that would be one of the biggest mistakes I made in the last 4 years. While I didn't lose any money, I also missed out on opportunities in 2009. I probably could have transferred the account to an investment one, but the inter-institutional transfer would have been a hassle and potentially costly.

Good Ol' USA, Best House in a Bad Neighborhood

As the data continues to come out for February and March, we're continuing to see strength in the USA. This morning we saw two more pieces of information that give us some insight into the state of the US economy. One of the advantage of living on the east coast is you get to see these events live, observe market reactions as they happen, and make pre-market decisions based on them. Something you cant do while living in the west...unless you want to get up at 5am.

First at 8am was the ICSC Retail Store Sales report, which showed a 3.8% w/w increase and a 4.2% y/y increase. While some parts of this was likely due to warm weather and holidays, the trend in retail sales over the last half a year has been remarkable. As most investors know, consumer spending in general is one of the key drivers of GDP, and retail sales is a big component of consumer spending.


Around 10am this morning, we got the March ISM New York Report on Business, which showed 67.4 vs 63.1 in February. The report says "March marked the fifth straight month that the Current Business Conditions index grew faster than the prior month, unprecedented in the survey's 19-year history"

There are now more indicators telling us there is a storm brewing across the Atlantic as well, and not just in the debt troubled nations of the Mediterranean.

Dividend Growth Portfolio, April 2012 Update

As March wraps up, its time to do a monthly review of my Dividend Growth Portfolio.
Here is the April 2012 update for my Dividend Growth Portfolio.


New Purchases
There were no new purchases this month.


Sales
There were no equities divestitures this month.

Intrinsic Dividend Changes
Scotiabank - $26.76 (quarterly dividend raised from 52 to 55 cents)
JPMorgan Chase - $27 (quarterly dividend raised from 25 to 30 cents)