May 2018 Portfolio Update

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Includes: JCOUF, MTRAF
by: Get Rich Brothers
Summary

My sale of the Jean Coutu Group provided a surplus of available funds.

I was able to redeploy capital to earn a higher forward dividend income total.

May proved to be one of my most active months to date.

As a dividend growth investor (DGI), I am driven to keep track of both my inflows and outflows. Increases in investment income represent one measure to assess whether I am winning or losing the game of money. While I have been diligent to track my progress on a quarterly and annual basis over the past few years, through 2018, I have also been providing monthly income updates.

Please note that all Canadian stocks are owned in CAD on Canadian exchanges.

CAD Dividends

Company CAD Payments ($)
RioCan Real Estate Investment Trust (OTCPK:RIOCF) 31.32
The Jean Coutu Group (PJC) Inc. (OTCPK:JCOUF) 42.15
Chartwell Retirement Residence (TSE:CSH.UN) 4.90

Dividend Summary

The month of May has generated $78.37CAD in dividend income. As noted previously the Feb.-May-Aug.-Nov. quarterly payment schedule is my slowest in terms of income generated. While I have entertained the notion of targeting a dividend growth company which makes payments on this schedule just to even out my passive income, I have at this stage rejected the idea as it makes most sense to focus first and foremost on quality.

It would be much easier in retirement to be disciplined and spread the income out on my own than to have to deal with a dividend reduction based on owning a subpar company simply because of the months in which it makes payments to shareholders. Being able to make such a decision is known as a good money problem.

Goodbye to Jean Coutu

After JCOUF made two dividend payments in May. The first was May 4 and represented the quarterly dividend which the company would normally make toward the end of May. The second, paid May 10, was a special dividend and was a nice parting gift as the company was thereafter amalgamated into Metro, Inc. (OTCPK:MTRAF). While MTRAF is best known for its grocery business, it did compete with JCOUF, primarily in the Quebec market, and now should be able to find some synergies between the operations.

MTRAF primarily operates within Ontario and Quebec with ~950 grocery operations and ~250 pharmaceutically-minded operations. Generally speaking, consolidation of this sort can lead to improved operations as competition is decreased and opportunities to scale are increased both in terms of achieving better deals with suppliers and reaching more consumers with a wider product offering. That said, it ultimately comes down to execution as there is never a guarantee that two merged cultures will interact harmoniously.

My relationship with JCOUF was a positive one overall, though less successful as I had hoped from the outset. I purchased my initial shares in November of 2014 and continued averaging down through three additional purchases between 2015 and 2016. I ultimately made a capital gain of ~6.5% and raked in $333.53 in dividends. The sale of my shares left me with $5,561.50 in working capital.

Investing the Cash Surplus

While I do not view the overall market as particularly attractive at the moment, I decided that I would be better off to deploy the cash than to park it in my high interest savings account to earn the 2.5% I am currently netting. As a result, I took a look through my portfolio to see where I could find some attractive yields with solid dividend growth to boot.

I eventually settled on two names I already own and one new addition.

1) I picked up 25 shares of Bank of Nova Scotia (BNS) at ~$81 per share for a cost of ~$2,025CAD on the Toronto Stock Exchange. On the current $0.82CAD quarterly dividend, I expect this to generate $20.50 quarterly or $82.00 annually.

2) My second purchase was for 50 shares of Fortis, Inc. (FTS) at ~$41.75 per share for a cost of $2,087.50CAD on the Toronto Stock Exchange. With the current $0.425CAD quarterly dividend, this should bring in $21.25 quarterly or $85.00 annually.

3) My third purchase with the proceeds was for 20 shares of MTRAF at ~$13 per share for a cost of ~$860CAD on the Toronto Stock Exchange. With the $0.18CAD quarterly dividend, I have this marked for $3.60 quarterly or $14.40 annually. I likely would not have considered MTRAF initially due to its low dividend yield, despite its high dividend growth rate. However, given that JCOUF was amalgamated into it, I decided to keep a bit of exposure both because I believe there is opportunity for growth and possibly to satisfy a sense of nostalgia as well.

In aggregate, these purchases cost $4,972.50 and will produce $181.40 annually for a blended yield of ~3.65%. Conversely, JCOUF was bringing in $118.04 annually and as a result I am realizing an immediate $63.36 annualized bump in my forward dividend income. Further, when deducing the total cost from the sale of JCOUF shares, the above also left me with $589 extra to invest elsewhere.

4) A fourth purchase for the month came by way of 65 shares of Canadian Utilities Ltd. (OTCPK:CDUAF) at ~$31.00 per share for a total cost of $2,024.95CAD on the Toronto Stock Exchange. With the current $0.3933CAD quarterly dividend, this will bring in $25.56 quarterly or $102.24 annually.

Conclusion

May is always a slow month in my portfolio for dividend payments. That is unlikely to change any time soon as I have been focusing on reinvesting in business I already own and should remain heavily weighted on the other two dividend payment schedules (Jan-Apr-Jul-Oct and Mar-Jun-Sept-Dec) for the foreseeable future.

The sale of JCOUF this month offered me an opportunity to rebalance my portfolio into higher dividend yielding equities and provide an immediate boon to my forward dividend income. I am pleased to add MTRAF to my portfolio, even if only with a small and rather token investment.

I have built plenty of momentum as I look forward to June.

Thank you for reading.

Disclosure: I am/we are long CDUAF, FTS, MTRAF, BNS, RIOCF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.