Archive for August, 2012

Passive Income Targets – August 2012

By: ispeculatornew | Date posted: 08.31.2012 (5:00 am)

Today, I decided to start a new segment that I will be updating every month. I talk a lot about the need accumulate different passive income flows. As time goes by, my objective is to be able to live entirely off of these new income streams. In many ways, that is what’s behind my interest in dividend income. For now, I prefer to avoid using actual numbers (might change later on) so what I will do is express all of this data in %. The objective of course eing for all of these flows to end up generating 100% of my current income. In terms of income, I will be using my gross household income. Counting the bonus would only make things more difficult to track and would not represent how I currently live on my finances.

For example, if my base salary is currently 100K, my objective is to make 100K of passive income on an annual basis. This could be done through a variety of methods which I will be exploring of course.

Why Am I Doing This?

I’m a strong believer in working with clear objectives but also holding myself accountable so writing about these objectives will without any doubt help me reach financial independence more quickly.

Current Passive Income Flows:

3.4% – Dividend/Investing Portfolio: I am currently generating a dividend yield of about 3.50%. This portfolio will be increasing over time, especially on year end bonuses. I use a bucket system which I will be writing more about but the main retirement components are a long term dividend portfolio (see the Ultimate Sustainable Dividend Portfolio) and an ETF portfolio (see BuildYourETFPortfolio for more details on how I build mine).

4.4% – Private Investment: I have discussed how my web company has been the best investment of my life so far. Currently, the company is paying back very little as it is focused on repaying debts (we acquired a few companies, see more on TheFinancialBlogger) and we are still very much focused on growth. This certainly has the potential to increase over the next few years but probably not until 2013.

Total: 7.8%

It’s not spectacular by any means yet. That being said, I am 31 years and do have a decent base (I could live with less easily).. I will continue to work on getting that total as close as I can do 100%:)

Passive Income Ideas

0% – Real Estate: One thing I’d certainly like to own at some point is real estate that would generate very diversified, consistent cash flows. The main challenge will be that I’d prefer not spending much time working on it but we’ll see what I can figure out. Some expenses such as the mortgage, insurance and others do make the idea less attractive.

0% – Other ideas – I could end up starting other businesses or proejcts will I’ll certainly keep you posted about.

What I Am Not/Will Not Include

Pensions: I do know that the government will be paying me a sum of money once I retire. However, given how poor government finances look like these days, I personally think it’s crazy to count on the government actually fulfilling its promises. It won’t happen. Yes, there will be money, but not anywhere what is currently being promised. Whatever I do end up getting will be a nice surprise.

Do you have any questions or comments? I’d love to hear any ideas or how you’ve been managing on your end as well!

Are Vanguard And Others Crazy To Exclude Apple ($AAPL) In Their Dividend Funds?

By: ispeculatornew | Date posted: 08.30.2012 (5:00 am)

Did you know that many of the top dividend ETF’s and other dividend funds do not hold Apple in their fund? You might think that’s normal since the tech giant just recently started paying dividends. What if I told you that the technology sector is now the highest paying dividend component of the S&P500?

Apple (AAPL) pays a fairly low dividend yield but it is still the top dividend payer in the US (in terms of money being paid out to investors). That seems like it would justify a place in most dividend ETF’s don’t you think? The problem of course is that many of these funds have pre-defined filters to determine what stocks to hold. In cases like Vanguard’s VIG, the fund looks for stocks that have long histories of paying and increasing their dividend payouts. Other funds track dividend aristocrats or other long time paying dividend stocks. Suppose that a fund like VIG only adds names that have been paying dividends for 5 or 10 years. By then, Apple might end up being the most successful dividend stock by very far. This is certainly a good example why building my own dividend portfolio (such as the USDP) is likely to do very well over the long term.

Why Are These Funds Doing This?

The fund managers try to make it easy for investors to understand what they’re buying, to be as assive as possible, etc. That’s all good and fine but it’s very imperfect. If you want stocks that have been paying and increasing dividends for long periods of time, that probably means that you’d like stocks that:

-Have solid underlying businesses
-Will be able to sustain long term dividend payouts and increase them over time

I can’t think of many companies that are in a better situation than Apple in those regards. The company has been doing extremely well, has bigger cash reserves than anyone in the street and could easily afford to pay those payout for years even if the business growth slowed down significantly. To give you an idea, Apple is currently paying a quarterly dividend of $2.65. The last time the company made less than that in a quarter was in 2009!! This year, earnings are expected to be lowest in the next quarter at an estimated $8.42 EPS. That is nearly 3 times as much. And I’m not even counting on the cash reserves of $100B…

As you could see, even if Apple increase that payout by 3-4% per year, it could likely afford to pay its dividend without any issues. This is without question another example why building your own dividend portfolio, when possible, can end up helping you a great deal. What are your thoughts? Would you include Apple in a dividend portfolio?

Is Apple ($AAPL) Still Cheap?

By: ispeculatornew | Date posted: 08.29.2012 (5:00 am)

I know, I say that the media is obsessed about Apple but I am sometimes guilty of the same thing. I thought it was shocking that Apple was worth more than the sum of Google, Facebook, Amazon and Microsoft as I wrote about yesterday. I can’t imagine choosing Apple if I was offered the choice between the two. That would not necessarily mean that I think Apple is overvalued though. Clearly, I think Facebook is undervalued and that Google is a great value play. I’m a bit more hesitant about both Microsoft and Amazon but also tend to like both stocks. So it’s certainly very possible that Apple might be a great bargain.

Still Wouldn’t Be As Cheap As A Few Months Ago

When I wrote about being crazy to not own Apple, it was December, and the stock price has increased 60% since then, Clearly, the stock was much more of a deal back then. Apple has had a good year and is scheduled to announce both the iPhone 5 and a mini iPad in the next few weeks which should lead to record sales in the upcoming weeks.

Is Apple Still A Bargain?

The question is certainly intriguing and the best way for me to answer it is to look at earnings per share in recent quarters as well as what’s currently expected for company now led by Tim Cook.


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It’s P/E ratio currently stands at 15.86 with a forward P/E of 12.75. Let’s compare those numbers with a few competitors in the hardware and software industry by also including 5 year growth in earnings per share and revenues:

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I’m more than open to add aother relevant companies to the comparison (there are no perfect fits obviously here). Personally, when I look at these numbers, I can’t help but think that Apple looks like a great value play, even at these numbers.

Can The Growth Keep Up?

There’s no doubt, you could probably make a case that growth decelerate for Apple in the next few years. The company is so big that keeping up the growth seems impossible. It faces increased competition in its iPhone business from Android powered phones, it seems to be lacking leaderships since the early departue of Steve Jobs, etc.

On the other hand though, Apple is rumored to be a year or so away from launching an assault on TV’s which could be huge, it is a leader in two markets (smartphones and tablets) that are exploding, etc. The killer argument in my opinion is that even if things did slow down, Apple would still remain a value. I mean, look at its current P/E and companies that trade around that number and you’d have to agree that Apple’s stock floor isn’t very low in the short to medium term. Could it turn out to be the next RIMM? Sure, that’s possible, but it wouldn’t happen overnight. And I would certainly hope/expect to be able to spot that trend before the stock started tanking.

What are your thoughts? Is Apple still a great value at its current valuation?

Does Apple ($AAPL) > (Microsoft ($MSFT) + Google ($GOOG) + Amazon ($AMZN) + Facebook $FB) ?

By: ispeculatornew | Date posted: 08.28.2012 (5:00 am)

Believe me, I’m a huge fan of Apple (AAPL). Not just its amazing products (I own an iphone and ipad) but the stock. I called those who didn’t hold it crazy, put it at the top of my technology rankings, picked it several times in long & short tech stock picks and as one of my 4 picks for the stock picking contest (which I currently lead thanks to that pick). Still though, I can’t say that I feel as convinced when I see this:

AAPL > MSFT+GOOG+AMZN+FB

That is how those companies are being valued in the markets right now. Would you prefer owning Apple of all of those? In other words,

What group of products & teams would you prefer between these two:

Amazon.com, the world’ largest online store and emerging distribution powerhouse
Kindle tablets
Audible.com
Zappos
Windows Operating System
Office suite
xBox
Bing.com (2nd most popular search engine)
Google.com (top popular search engine)
Google docs software
Android mobile O/S
Motorola
Google+
Google’s vast projects
Facebook (top social network)
Instagram
Etc, Etc, Etc

Or

iPhone
iPad
Macbook
iPod
Etc

Don’t get me wrong, those Apple products are amazing, they dominate their markets for the most part, they continue to grow and there are projects for Apple to launch its anticipated Apple TV. All of that being said, simply looking at it, it’s difficult to imagine that I could pick Apple if I were given the choice between those 2.. How about you?

Take a look at the financials of these companies. First the data:

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Sales:

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Income:

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Then the charts:

Sales:

Income:

It’s quite interesting. In all but the last 2 quarters, the group has outperformed Apple in terms of income while Apple only beat on revenues once. So my question to you is quite simple. Which one would you pick. Would you buy Apple or Google+Microsoft+Facebook+Amazon. I personally could not pick Apple in such a case… does that mean Apple is overvalued? Or are some (or all) of the others undervalued?

New Trade: Long OpenTable ($OPEN) & Short Blue Nile ($NILE)

By: ispeculatornew | Date posted: 08.27.2012 (5:00 am)

Wow, the last long & short tech stock for the year today as I no longer trade late in the year as I also did last year. Clearly, 2012’s final returns won’t be anywhere near what I was expecting or what had been achieved in the past 2 years. I’ll certainly write more about  what went right and wrong in the next few weeks and will obviously be monitoring the 7 open trades to close them out when they’ll reach their stop gain or losses.

Let’s get right to it and look at the numbers:

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Long OpenTable (OPEN)

Going long OpenTable certainly feels a bit odd, it’s been trading at sky high P/E ratios and I’ve been very reluctant to go long even though the company continues to expand. There have been rumors that it would face a lot more competition from players such as Google but up to now, OpenTable has remained a leader and growth has remained very strong. Margins might come down a bit but I still think it’s a no-brainer considering its trading at a comparable P/E ratio as NILE.

 

 

 

Short Blue Nile (NILE)

It wasn’t by luck that I had Blue Nile at the last possible position in my 2012 Tech Stock Power Rankings. Despite spending a lot of time on this, I still remain unable to understand how NILE continues to trade at such a high P/E ratio despite no growth, low margins and very few encouraging signs. I really have to meet one of their shareholders at one point so they can explain what I’m missing here. I’ve gone short over and over on NILE with a lot of success. Getting burned is part of the game from time to time but this one has been a rather consistent play for me.

 

 

 

Disclosure: No positions on OpenTable (OPEN) or Blue Nile (NILE), this trade will be opened on Monday morning

Weekend Readings

By: ispeculatornew | Date posted: 08.25.2012 (7:31 pm)

I’m off to New York in a few days, can’t wait to get back there so I’m posting using a photo from the very talented Lisa Bettany🙂 Here are some readings that I recommend:)

General Readings

Are long term bonds still a good buy? @ BalanceJunkie
What percent are you? @ TheBigPicture
Wizard of ETF’s @ Barrons

Dividend Readings

Investing and cash flow strategies through insurance @ TheDividendGuyBlog
What are dividends?
@ Monevator
The Dividend Growth Index Update @ DividendNinja
How many dividend stocks are enough? @ MyOwnAdvisor

Tech Readings

Facebook evaluation, revisited @ LongTermReturns
Apple (AAPL) is 20% of the Nasdaq index? @ ZeroHedge
Facebook (FB) acquisition of Instagram moving ahead @ TechCrunch

There Is No Such Thing As A Free Lunch

By: ispeculatornew | Date posted: 08.24.2012 (5:00 am)

I feel like I’m repeating myself… over and over and over. There are hundreds of examples but I continue to hear questions and comments that ignore this. A few examples:

Covered Call ETF’s provide extra yield by selling insurance BUT they have more limited upside in rising markets
High dividend stocks provide more income BUT have greater risk and volatility
-Many structured products guarantee the invested capital BUT they also have less upside
Financial or insurance brokers that offer free consulting BUT they are likely receiving kickbacks which makes it difficult to get an objective opinion
Dividend stocks offer immediate income BUT under certain circumstances they will underperform
Raising taxes on the rich brings additional revenues BUT it decreases incentives for innovation/entrepeneurship and increases motivation to legally avoid taxes
-etc, etc, etc

It’s simple isn’t it? If something seems too good to be true, there is usually another side that you should consider:) Believe me, nothing comes free in this world, especially in the world of finance:)

Sorry for the rant today:)

Ultimate Sustainable Dividend Portfolio Trade

By: ispeculatornew | Date posted: 08.23.2012 (5:00 am)
Today, as discussed in last week’s update, I will be replacing Linear Technology Corp which in a few ways has fallen below the standard that I’m looking for in this portfolio. Members of our free mailing list got some insight this morning into the different things that I considered adding to the USDP. If you’re not yet a member, you can join here:


In the end, I decided to replace LLTC with Baxter International (BAX), a company in the medical products sector. The great thing of course is that no matter how the economy performs, health care, like insurance, will continue to be required by large portion of the population. If I compare the two names, as you can see below, I think it’s fairly obvious that BAX is not only a better fit and a better play for my income portfolio but it also provides better diversification to my portfolio which I absolutely love. Here is the BAX chart for this year:
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The trade will be done on the close today! With that and my decision to start using DRIP’s, I’m confident that I will be able to increase the overall performance of this portfolio.
For those asking, it’s not by luck that the dividend yield is almost identical to the one of the outgoing stock. All of the income/return assumptions that I have been doing on this blog depend on constant growth across the portfolio which is easier to reach if  you do not swap out high dividend stocks by lower ones.

An Overview Of The Insurance Sector

By: ispeculatornew | Date posted: 08.22.2012 (5:50 am)

Today I decided to do an analysis of the top Canadian and US insurance stocks. Why insurance? The first part of the reason is the fact that a fellow blogger, Jeff from GoodFinancialCents created an insurance movement which means that over a hundred blogs are writing about the subject today. Personally I’ve been a big fan of insurance companies for years now and it wasn’t a big surprise that I added Aflac (AFL) to the Ultimate Sustainable Portfolio a few months ago.

Why Insurance?

Investing in insurance companies brings many important benefits along with a couple of drawbacks. I personally think the main drawback is that their balance sheets and activities are more complex than the average large cap company. That being said, it remains much easier than trying to figure out many financials/banks. (There are a few corporate tax software platforms to choose from that are specific to certain countries which does make it a bit simpler.)

There are several interesting benefits though both for dividend and other fundamental investors.

Stable Business (companies generally have reinsurance for larger events so these companies typically perform well no matter how the economy fares)

Patterns: the big danger for insurance companies is to sell policies too agressively and when that happens, profitability can decline. It’s important for these companies to accept losing business or market share if the competition is too agressive. Therefore I try to look at historical performance as a very good indicator of the management’s

Dividends: Because insurance company profits and cash flows are typically so reliable, they are able to pay out decent portions out to their shareholders as dividends.

Top Insurance Plays

Obviously, I consider Alfac to be a very solid dividend play but there are many others. Here are the biggest insurance names in Canada and the US. As you can imagine, a few of the names are traded in both countries:

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.

Canada:

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I personally have a preference for a few of these names such as:

Prudential (PRU): Earnings per share growth, dividends and sales have all increased signifciantly over the past 5 years, the stock is trading at a decent P/E ratio and while the return has not been spectacular by any means, it remains reasonable given the context

Aflac (AFL): No doubt about, this has been my top name with all important metrics increasing by 10% or so or more per year in the past 5, an attractive P/E, international exposure and the stock has done fairly well. From a dividend perspective, this has been a winner.

Power Financial (PWF.TO): Very strong dividend yield with a reasonable payout ratio, this is one of the better looking Canadian stocks without any doubt.

Other Stocks Worth Looking Into

-Power Corp (POW.TO)
-Industrielle Alliance (IAG.TO)

Insurance As The Basis Of Your Portfolio?

Having a heavy weighting in insurance stocks would provide you with important cash flows that can be used to increase assets in your other holdings.

Don’t laugh! That is pretty much what Warren Buffett’s Berkshire (BRK/B) has been doing for years now. The incredible success story has been able to build its investments book thanks mainly to the cash flows generated by its insurance businesses such as Geico.

 

Top International Dividend Stocks: August 2012 Edition..Which Country Dominates?

By: ispeculatornew | Date posted: 08.21.2012 (5:00 am)

There is no doubt at this point that dividend investing is not only a viable solution but also one that works very well as a source of passive income. As part of running the Ultimate Sustainable Dividend Portfolio, I did look into the benefits of adding international stocks and since I will be adding a new stock this week, I thought it might be interesting to look into some of the leading international stocks. Today, I started off my quest by looking for some stocks that:

-trade on US markets
-have headquarters outside of the US
-have a dividend yield over 4%
-have a price over $5

I did choose to exclude pink sheet stocks such as Nestle. I do know that some of those stocks can turn out to be good purchases but they are complicated and more expensive to trade and you might get burned given the different set of rules that apply to pink sheet stocks. I ended up getting a list of 37 stocks that I felt could be worked with. As was the case last month, it’s very important to always keep in mind where in the world you are investing. It’s very likely that any company in Greece or Spain might have a high dividend yield but is likely to decrease its payout following a general slowdown and difficulties in renewing debt obligations.

For example, seeing 3 of the top 5 spots occupied by Greek companies does not give me much of a temptation. However, the two others seem like potentially good ones. Also worth noting is the fact that many of the top companies in the chart are Canadian ones! I will be looking into most of these names in a newsletter within a day or two so don’t be surprised if one of these stocks ends up being part of the updated USDP portfolio. If you’re considering joining our free newsletter, be sure to sign up here:

Here is the list that I was working on today:

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