Let’s start the New Year with a friendly stock-picking contest. The idea is to build a fantasy portfolio using the 10 Canadian dividend paying stocks in this week’s Safer Dogs of the TSX list.
Each fantasy portfolio will start out with an equal amount of money in the Safer Dogs. The goal is to figure out one stock to sell and one stock to buy. After making that fateful choice, your fantasy portfolio will be fixed for the year with $20,000 in your favourite stock, nothing in the one you sold, and $10,000 in each of the remaining eight.
The 10 stocks to choose from are: the Bank of Montreal (BMO), the Bank of Nova Scotia (BNS), BCE (BCE), CIBC (CM), National Bank (NA), Power (POW), Royal Bank (RY), Shaw (SJR.B), TELUS (T), and TransCanada (TRP). (Additional data on each stock can be found in the table below.)
Which dividend stock would you move money from and which one would you move it to? When you come to a decision, enter the contest by sending an email with the stock you want to “buy” and the one you want to “sell” to firstname.lastname@example.org.
To be eligible for the prize, your email has to be delivered before January 11, 2016 and, please, only one entry per person. The person with the fantasy portfolio that gains the most from the close of January 8 through to the end of 2016 will be sent a modest mystery reward.
(If there is a tie, the winner will be determined by random draw. The winner will be contacted early in 2017 via email. If they don’t respond within 2 weeks, the prize will go to the next runner up under the same conditions. I reserve the right to make changes to the contest to preserve its integrity and light-hearted nature.)
Put your thinking cap on and pick a winner, and a loser, for 2016.
Safer Canadian Dogs
Investors following the Dogs of the Dow strategy want to buy the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), hold them for a year, and then move into the new list of top yielders.
The Dogs of the TSX works the same way but swaps the DJIA for the S&P/TSX 60, which contains 60 of the largest stocks in Canada.
My safer variant of the Dogs of the TSX tracks the 10 stocks in the index with the highest dividend yields provided they also pass a series of safety tests, such as having positive earnings. The idea is to weed out companies that might cut their dividends in the near term. Just be warned, it’s a task that’s easier said than done.
Here’s the updated Safer Dogs of the TSX, representing the top yielders as of December 28. The list is a good starting point for those who want to put some money to work this week. Just keep in mind, the idea is to hold the stocks for at least a year after purchase – barring some calamity.
|Name||Price||P/B||P/E||Earnings Yield||Dividend Yield|
|National Bank (NA)||$40.87||1.45||8.96||11.16%||5.29%|
|Bank of Nova Scotia (BNS)||$57.95||1.42||10.15||9.85%||4.83%|
|Bank of Montreal (BMO)||$78.68||1.4||11.92||8.39%||4.27%|
|Royal Bank (RY)||$75.57||1.91||11.21||8.92%||4.18%|
Source: Bloomberg, December 28, 2015
Price: Closing price per share
P/B: Price to Book Value Ratio
P/E: Price to Earnings Ratio
Earnings Yield: Earnings divided by Price, expressed as a percentage
Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage
As always, do your due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently. Remember, stocks can be risky. So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)
A Taxing Situation
Your tax profile can make a big difference on returns. Try to think in after-tax terms in 2016.