October 2018 - Watch List / 1 Sale

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Includes: BNS, IPPLF, LRCDF, MFC
by: PassiveCanadianIncome

Originally published October 8, 2018

Thanksgiving

Hey, Hey, Hey

It's Monday Morning and here in Canada it's thanksgiving. So happy Thanksgiving! Life is pretty good and I have a lot to be thankful for.

  • I have a huge family now and generally everyone is in great health.
  • We have a boy and girl who do their best to wake us up early every day. To take advantage of the day?
  • My wife is absolutely solid, and she still likes me =)
  • Roof over our head, and clothes on our back
  • A great group of friends
  • This online community (all of you), for posting your financial thoughts/ buys, etc. Always letting me grow and learn something new. Also for encouraging me and keeping me motivated to keep creating posts on the website and grow our passive income.

Thanks, and I hope all of you are having / had a great weekend. On Saturday we had a typical thanksgiving meal with the wife's side of the family. Sunday my family decided to switch it up and save the turkeys. We went for a Mexican taco night theme. Was a sweet time. I love me a soft taco!

October 2018 - Watch list / 1 Sale

Every month we do our best to continue putting money into the market and grow our passive income. Sometimes things come up and we sell a stock. Generally, I will try to keep the same stocks and not sell them. (Last year I sold a bunch but they were beginner mistakes, and learning lessons)

Sale

On Friday, I decided to sell our whole position of Manulife Financial (NYSE:MFC). This was one of my original buys and I think I bought it 2 years ago for around $16-17. We sold at $22.50 a share and locked in roughly a 28% gain, not including the dividends.

What happened? Carson Block of Muddy Waters (a famous short seller) last week claimed he was shorting Manulife Financial. At first, I thought the dip would be a great time to add to our position. So I decided to look into why he was doing so.

Normally I would ignore short sellers as I'm investing for a long-term horizon. Carson stated he was shorting Manulife based on a court trial that just happened and most shareholders had no clue of. Essentially, some company with access to a tonne of money bought a policy from the 90s that clearly states the policyholder can put unlimited money into the policy whenever they want. Doing so will guarantee the holder a 4% interest rate on the funds as well as possibly more bonuses.

Here is the link to Caron's Interview about it.

Based on what Carson says, the contract is a sure thing in the US courts and could essentially destroy Manulife because we live in a lower interest rate environment compared to the 90s. He does state Canada courts are different though and they can bend for the company's well-being. If they did it would be business as usual.

I really doubt Manulife will go bankrupt and the courts may look at this and say this is a policy from the 90s and shouldn't apply to current times. By the sounds of it, the policy was poorly written at the time though. I have decided to cash out and take my profits off the table. We will see after the court's decision if I will return to be a shareholder.

October Watchlist

BNS - Bank of Nova Scotia (NYSE:BNS) - Typical…. This has been my go-to stock as of late. A top 5 Canadian bank that is making some great moves, and yet the stock price remains cheap, in my opinion. At its current price of 75.27 per share, It offers a P/E ratio of 11.2x and a dividend yield of 4.52%. Very nice. With rising interest rates, banks should do well!

IPL - Inter Pipeline Ltd (OTCPK:IPPLF) - At close to 52-week lows, IPL is a great dividend growth stock with a nice P/E ratio and dividend yield. At $22.39 a share, its P/E is 15.1 times and has a monthly dividend of 14 cents offering a solid 7.5% yield. If I recall right, its payout ratio is around 60% which is nice! I would sell my Altagas (OTCPK:ATGFF) shares if I did this as I'm wondering how safe their dividend is at the moment.

DRG.UN - Dream Global REIT - The stock has pulled back quite a bit this past week. Clearly, the notion of rising interest rates is hitting interest-sensitive stocks. I like this stock and the diversification it offers. Currently, it yields 5.88% which it pays out monthly.

LB - Laurentian Bank of Canada (OTCPK:LRCDF) - A regional bank that has just been killed this year. It had some bad loans and got called out about them. They have a good history of raising their dividend though. Currently, they offer a P/E of 7.8 times and a massive 6.07% yield! Morningstar has a 4 star rating on them and a fair value of just north of 47 bucks. Representing a 10% upside along with this massive yield. I don't like the name as much as TD, BMO, National (OTCPK:NTIOF) or BNS though (My other banks).

Conclusion

Well, there you have it, my current watch list as well as my recent sale. Within the last week the market has slid a bit and created some better opportunities for us investors. I think this month Canada will raise interest rates after the recent Nafta (or new name) deal. This will put more pressure on the utility, pipeline, REITs and telco sectors going forward. Rates will continue to rise slowly though, I think.

What are your thoughts? Are you buying anything? Manulife buying opportunity or get out?

Cheers

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.