My Portfolio's Diversification Just Improved

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Includes: BPY, ENB, IPPLF
by: PassiveCanadianIncome
Summary

I have been continuing working on what I was trying to achieve at the end of last year.

We wanted to improve the overall diversification of our portfolio.

I had a bunch of holdings quite a bit over 5% of my portfolio.

At the end of December, I lowered some positions and put the money right back to work in new companies.

Hope everyone is having a great 2019 so far. I have been continuing working on what I was trying to achieve at the end of last year. We wanted to improve the overall diversification of our portfolio. I had a bunch of holdings quite a bit over 5% of my portfolio. At the end of December, I lowered some positions and put the money right back to work in new companies. You can read about those Moves here, But overall and long term, I think it was a great move.

I had one HUGE holding though….

I mean huge, it was Enbridge (NYSE:ENB). We love the company and feel they are a solid dividend growth stock that could be a nice cornerstone to every portfolio. But for some reason, when I started investing they were the main thing I bought, and I had enough holdings in each account to drip shares. The total weight of Enbridge was over 13% of my portfolio and brought in roughly 20% of my total forward dividends.

It was too big of a position but with the 10% dividend increase last month would I sell off?

Well, I decided to. It was just too massive of a position and a rookie move on my part. Now I know some of you mentioned, just holding them and eventually with new cash being deposited the percentage would drop. I was getting over a thousand bucks a year from them and the drips themselves, kept adding to those positions. Unfortunately, RBC offers drips on all stocks or none in each account and since I had a holding in every account, this wasn't really an option.

Now I'd like to mention that I know the purchases probably don't offer the same type of dividend growth as Enbridge but the diversification is definitely nice.

Alright so what did I do?

First, I did the math on my accounts and noticed that I could sell 40 shares in our resp account and still get a drip from Enbridge a quarter. So I sold 40 shares at around 41 bucks each. This sale cost me $118.08 in forward dividend income and lowered my exposure to Enbridge by a little bit.

Inter Pipeline

At the end of November, we started a position in Inter Pipeline (OTCPK:IPPLF) in our kids' resp account. We had 56 shares (not enough to drip). So with the proceeds of the Enbridge sale, we bought an additional 87 shares of Inter Pipeline. We now will bring in $20.37 a month from them and hopefully drip them. As of writing the price has popped up so maybe I will need to add a little more to this holding to ensure the drip.

I wrote about Inter Pipeline on our last purchase. No point getting into them too much (you can read about them in the link) but considering I bought these shares just under 20 bucks each. We lowered our cost basis and increased our yield on cost.

Overall this move kept the money in the same sector (Energy) and actually added $30.69 to our forward income.

Still too much Enbridge

Now the one problem I have here is that I will be lowering my quarter ending dividend month's income. I know it's minor but it is something to consider. Enbridge at this point was still way too overweight in our portfolio.

I looked at one of our accounts that held 106 shares of Enbridge and had a value of roughly $4500. If I sold this off, Enbridge would now be just north of 7% of our portfolio. I could live with that and would be happy with that percentage. So I wanted a stock that paid in quarter ending months and also was in one of my lowest sectors.

Brookfield Property Partners (NYSE:BPY)

This is a stock I have been watching for a while now. I'm a big fan of the Brookfield companies and what they have been doing. BPY has dropped in price so much since the acquisition of GGP (one of the biggest mall owners in North America). I actually love this purchase. They have the same mindset of Riocan (OTCPK:RIOCF). Build residential units on their commercial units.

This is absolutely huge in my opinion. Do you remember SimCity 2000? The map is full and there is nowhere else to build houses, commercial or industrial plots. Then you get offered launch arcos!

An all in one solution for your city. It houses people and offers jobs and creates food. It's the ideal building for a city. Now, I doubt we will ever see industrial in residential areas but wouldn't it be cool to live so close to where you work and shop? What if you're a retailer? That would be incredible - having your clients right above your business.

Well, this is what BPY is planning on doing to some of the malls. But that's not all. Brookfield already owns some of the best office and retail properties in the world. The company is very well diversified globally.

Rida Morwa did an absolutely incredible write-up about Brookfield Property on Seeking Alpha. I suggest you just read his post if you want to learn more about Brookfield Property Partners.

Metrics

The company offers a yield north of 7% and targets to increase it by 5-8% per year going forward. The current dividend payout ratio is approximately 65%. Its parent company Brookfield Asset Management (NYSE:BAM), believes BPY is undervalued and has been buying up shares lately at these prices.

The stock has popped since we bought them and at a current price of 22.95 it has a P/E ratio of 8.6 and a yield of %5.46. Since the dividend is paid in US dollars though, after the conversion it's at 7.37%. Very nice! Morningstar has a fair value price of $29.02. This would suggest a 26.44% increase to get to fair value plus that nice dividend...

We bought 204 shares at $21.93 per share all in costs. This purchase will add $257.04 USD per year, slightly lower than the $312.91 we lost from the Enbridge shares. If we do the dollar conversion currently though we will get $342.10. A little bit higher.

Conclusion

Well, this is it, the end of all my selling. Well, unless my losers rebound or something else changes.. Having such a large holding in one stock was a rookie move. But I feel good to have corrected it now. Again, I'd like to state I'm a huge fan of Enbridge, but just wanted to improve my overall portfolio diversification. I think these moves definitely do that both globally and also sector-wise. I still have 6 holdings between 5-7% of my portfolio unfortunately, (Enbridge, TD (NYSE:TD), Shaw (NYSE:SJR), Cisco (NASDAQ:CSCO), General Mills (NYSE:GIS) and CNR (NYSE:CNI)) but with the influx of new cash, I hope to lower these holdings organically.

I'd love to hear your thoughts on these moves.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.