Sunday, March 19, 2006

Is it a Bull or a Bear?

Along the lines of the post this week by The Dividend Guy, yet another analyst quote (this one from Financial Sense Online) - we almost need a meme/contest for bizarre analyst quotes - that has you scratching your head for meaning:
The second year of the Presidential Cycle is usually bearish close to 50% of the time.
Nice form. I suppose its bullish close to the other 50% of the time, no :)?

Friday, March 17, 2006

The Manulife DRIP Plan

Unlike in the US, where there are over 1800 companies that offer Dividend Re-Investment Plans (DRIPs) and related Optional Cash Purchase (OCP) plans, the number in Canada has arguably flat lined or is on a decline. Due to mergers and acquisitions Canadian DRIP investors have recently seen plans for Terasen (formerly B.C. Gas) and Dofasco effectively end.

And so it was with great anticipation (and dare I say excitement) that the DRIP community eagerly awaited details of the Manulife DRIP plan, due out months following an original announcement late last year. Manulife has shown tremendous growth with solid financials, has initiated a global expansion, and is quite literally flush with cash.

Needless to say, once the details were announced yesterday, there was a collective sigh of disappointment. Here are the areas of the plan that are so troubling:
Optional Cash Purchase Fee: $15
Dividend Re-Investment Fee: 5% to a maximum of 6$
Share Sale Fee: $20 + $0.06/share
The fee structure runs contrary to one of the fundamental reasons I personally have really come to value DRIPs. Not only are fees alien to the exceeding majority of Canadian plans, some actually offer discounts on the share price for reinvestment. Also, charging investors a fee to reinvest their dividends into the distributing company is a little shaky morally. From an investor’s perspective, this is comparatively the worst DRIP plan in North America. Too bad.

(Note: Compared to the DRIP, buying Manulife would even be significantly cheaper via Canadian ShareOwner – i.e. CSO would only charge $9.00 for a purchase, dividend reinvestment is free, and a sale costs $15 + 3¢ per share.)

Wednesday, March 15, 2006

The RRSP Debate

Canadian Capitalist has posted a very thought- (and discussion) provoking piece on the continuing debate between RRSP and non-registered investing. I actually read end-to-end the report by research group Philip, Hager and North he included as a link.

The report, authored in August 2005, notes as one of its conclusions that "Changes in the progressive tax rates could impact which savings scenario provides the most after-tax capital. If the capital gains inclusion rate is further reduced, the benefits of holding equities within a registered plan will also be further reduced." [emphasis added].

The publication of this report preceeds two potentially important events - the November 2005 announcment by the former Liberal government regarding changes to taxation for dividend income and the yet-unrealized election promise by the new Conservative government to allow capital gains to be eliminated for individuals on the sale of assets when the proceeds are reinvested within six months (see the official Conservative platfom). If anyone has seen published research on the impacts these have on RRSP/non-registered investing, inclusive of these two factors I would be very interested. I admit openly I'm still an agnostic on the issue - I maintain both a registered and non-registered account. My RRSP benefits from employer contributions, while my non-registered investments are (will be) mostly Canadian companies with long histories of (supportable) dividend increases that I DRIP invest.

Wednesday, March 08, 2006

The Utilitization of Wireless Internet Service

With Toronto Hydro's recent announcement that it will be blanketing downtown Toronto with WiFi service (free of charge for six months, but then ...), I wonder how long it will be until Internet service becomes truly commoditized/utilitized - sold, offered and serviced not too differently than we think of water, gas or electricity. No more fancy promotions, jazzy packaging, etc., just another municipal service we tend to regard as a staple for each and every household.

Besides the obvious business impact to the existing providers (wasn't running water once considered a premium service?), health issues are still a factor, and not just to typical conspiracy theorist types. The president of Lakehead University, for example, won’t allow campus-wide WiFi until he’s satisfied EMF (electric and magnetic fields) exposure doesn’t pose a health risk, particularly to young people. Other schools, including Concordia and Carleton University are also debating these risks, as described in a recent Canadian IT Business article.

Tuesday, March 07, 2006

Compounding Returns and Very Large Numbers

Since coming across a post on, the topic of discussion has remained with me for the last few days like - if you will excuse a cliche analogy - a splinter in my mind.

Consider this:

How large is too big? Can a company like a GE or an XOM [Exxon Mobil] ($345B and $372B in market cap, respectively) grow at 10-15% for a year? Five years? Twenty? At 12% we're talking about 3.5 trillion in market cap. Is there a point where growth past a certain size becomes too difficult to sustain? At twenty five years we're now up to 7 trillion ... and that's only assuming 'market average performance'.

I wonder whether we look at 'trillions' today as earlier generations gasped at the thought of 'billions' (or even 'milions'). Otherwise, is there a natural limit to growth akin to the way we are currently seeing Moore's Law, otherwise true since 1965, being tested by the physical limits of chip size? Just food for thought ...

Update March 9: Newsweek's Karen Miller also comments on this 'law of large numbers' and other challenges faces by large caps in "Too Big To Grow".

Monday, March 06, 2006

Resource Site - Dividend Based Investing

I found another great resource site yesterday - Dividend Based Investing (at With an emphasis on Canadian companies the author, who spent 16 years in the investment industry, promotes dividend growth investing, a practise that combines growth and value approaches by looking for stocks that are undervalued but which have high and sustainble growth rates. Citing work by other analysts and theorists, the author maintains that growth of yield is the single best piece of information an investor can have since it implies:
  • A company is financially strong enough to raise its dividend.
  • There are sufficient earnings to support a dividend increase.
  • Management has a clear commitment to grow the company.
  • Management is confident enough about future cash flows to share current prosperity with share holders.
The author performs quite a bit of stock analysis, which he distributes free on charge via a monthly email newsletter (archives and the current version are available on the site). He also petforms rigourous due dilligence on prospective purchases - here is a sample he worked on for Great-West Life. His approach to measuring value is, again, to look at dividend yield, suggesting that stocks that are currently higher in yield than their historic levels are undervalued/oversold, while those that are historically low may be overvalued/undersold.

Sunday, March 05, 2006

Interac Email Money Transfers

Through the share exchange board at I recently secured single shares in Aliant (AIT), Suncor (SU), Fortis (FTS), Enbridge (ENB) and RioCan REIT (REI.UN). A single share of each allows me to register for the respective Dividend/Distribution Re-investment and optional cash purchase plans for these companies - all without fees of any kind.

So with the sale price determined by the close of trading last Friday, the seller emailed me a total for the handsome lot. If I was to pay by cheque, Canada Post would have to truck my mail across the country and the seller would then deposit the cheque and wait for clearance - quite possibly an agonizing two-week process. Another factor - though I would like to be as trusting as I can, a cheque payment would also effectively disclose my bank information and signature to what is ultimately a total stranger.

So instead, I opted for my first ever Interac Email Money Transfer. After setting up the recipient's name and email address through my online banking system, completing the transfer took all of 15 minutes with the recipient enjoying cleared funds in his account right away. While there was a small service charge, less the cost of the stamp I would have used to mail a cheque, this was only 99 cents - well worth the time it saved both parties.

I should note that this wasn't available via my (new) PC Financial account. As others pointed out, keeping my old TD Canada Trust saving account alive for these and other types of in-bank services is a good idea.

Thursday, March 02, 2006

Canadian Telcos

Some would argue that as a whole, the telco 'sector' - BCE, Manitoba Telecom, etc. - is facing its twilight, with a glut of competition for their traditional and internet services from smaller regional providers and a new-but-growing roster of voice over IP (VOIP) services. Even the discussion here about widespread flight to cheaper long distance is indicative of the kind of pressure these companies face to continue to increase shareholder value.

In this context, I came across an interesting discussion on the Financial Webring Forum, a site I like to visit now and then. While the regulars are predictable is their positions, the quality of the research that goes into preparing responses and topic postings is impressive.

The post looked at Aliant (AIT), and one of the most striking observations was that though this wasn't a high growth stock, the company has managed to increase its dividend at more than twice the rate of inflation for the last five years. Interesting, no?

Further, another post highlighted the fact that:
...there will be two documents released in March [2006] that have the potential to move the share prices of all telecom companies in Canada, and Aliant in particular.

First, the CRTC is expected to release a decision on "local forbearance", i.e. deregulation of local telephone services. The decision will set out general criteria for deregulation, applicable to all telcos. However, in the case of Aliant, they will actually rule on whether telephone service in Halifax Charlottetown and environs should be deregulated NOW. If the answer is yes, expect a boost to Aliant share price. If the answer is no....

Second, the Telecommunications Policy Review Panel will release its report on changes to the regulatory framework. Again, there is a potential for share price movements, not just of the telcos, but for the cablecos as well.

The impacts of the second are much less immediate, but could potentially be much more profound.
I will be watching for these ...

FD: I own a single share of BCE.

Wednesday, March 01, 2006

A Frugal Focus Monthly Recap - February 2006

Budget Summary
It was a woeful month for savings – only $280.88 in February against a plan of $695, which, relative to my earnings represented a savings rate of only 5.9%. The biggest hit was a bit of unexpected car repairs, though I also paid down some additional debt and was over budget most noticeably in gifts and books and magazines. On the positive side, my employer renegotiated new long-term disability rates and my net pay is about $20/month more as a result.

Here's my saving plan YTD:

Investment Summary
I allocated $351 to my non-registered account and made semi-monthly RRSP contributions. I’m somewhat irked the order I placed with my Canadian ShareOwner account for Johnson and Johnson (JNJ) wasn’t filled this month and I am now going to have to wait until the fourth Wednesday in March (i.e. March 22) for another buy opportunity according to their co-op trading schedule.

As a result of contributions this month, my accounts look like:
  • RRSP:
    • $761.76 (including a YTD gain of 0.3%)

  • Non-registered:
    • $1010.00 - Cash (Canadian ShareOwner Account)
    • $27.25 – Equity (1 Share of BCE I registered with the transfer agent to start to DRIP invest)
Frugal Focus Savings this Month$12.95/month
One of my stated goals for January was an investigation into new everyday banking options, and I am grateful for the feedback I received as I weighed in on the choices. My change to PC Financial will help me realize a great recurring cost reduction.

Goals for March
My goals this month really revolve around planning my DRIP investments. I will need to develop some planning tools (i.e. spreadsheets, calendars) to keep track of purchase windows, track reinvestments, etc. as well as basic stuff like deciding how to organize and file the paperwork. Specifically, this month I aim to:
  1. Make one optional cash purchase with BCE.
  2. Register the single share of TransCanada Corp. (TRP) I am expecting.
  3. Send payment for 4 new ‘singles’ I was fortunate to arrange to buy from another DRIP investor – Fortis (FTS), Enbridge (ENB), Suncor (SU) and RioCan REIT (REI.UN). With BCE (telco) and TransCanada (pipeline), these offer additional sector diversity (electricity, energy, real estate) and with DRIP and share-purchase programs. Enbridge and Fortis are also members of Mergent's list of Canadian Dividend Achievers.
  4. If time permits, register these as well.
I will also need to spend at least half of any savings this month on some needed home furnishings, so there certainly isn’t a lot of room in March for many slips!

Tuesday, February 28, 2006

Book Review - The Investment Zoo by Stephen Jarislowsky

The fact that there are so few investment books written with a Canadian focus of the caliber of The Investment Zoo is in no small part a fair reflection of the fact that there are correspondingly few Canadian investor-authors that compare not only to Jarislowsky’s financial success but also his emphasis on corporate ethics, shareholder interest and responsible philanthropy. Sadly, I have found that there are, of late, few investment books that are, in themselves, investments, and I was quite pleased to count this book among the exceptions. Not only was his investment advice valuable, but the experience he conveyed through numerous real-life examples - entirely without ego – also made for a very enlightening read. With 50+ years working as an analyst, advisor and investor, there are few ‘insiders’ as ‘inside’ as the author in question, who paces the work in a very engaging style. Arguably, some of the earlier sections, covering his background and political views could have been trimmed, though again, these passages speak as much to the author’s outlook as do his financial successes.

As much as Jarislowsky’s charisma shines through the work, its value as a practical investment guide cannot be overstated. He advocates purchasing large (if not global) industry leading companies in stable, non-cyclical industries and prefers those that pay rising dividends, and provides numerous examples of such companies (as well as those he suggests one avoid) There were many passages I bookmarked as particularly noteworthy, and hope to revisit them often and with reflection. Here’s a sample:
The beauty of the high-quality, worldwide, non-cyclical approach is that it gives a good reward while being low-risk, simple, non-commission intensive, and exposed to few surprises…. It adapts well to a do-it-yourself approach because there is no need for constant, high-quality security analysis to support it.
Others have also commented on this book. If interested in more than one view, please have a look at:

Thomas Connelly’s Review
Canadian Capitalist’s Review

Disclaimer: These articles are for information only, and are not to be construed as financial advice, legal advice, or a solicitation to buy or sell securities.