Beating the TSX in 2013

Back in March 2012 I performed an analysis of the Beating the TSX portfolio. I thought it might be time to take another look.  Here is the methodology:

  • Begin with the TSX60 stocks.
  • Remove any stocks with a dividend of less than 3%. This minimizes the number of stocks I need to analyze.
  • Remove any stocks that might have an unsustainable dividend. For this I remove any stock with a payout ratio above 1.2 (equivalent to a coverage of less than 83%). I also remove any former trusts.
  • Finally, select the ten stocks with the highest dividends.

The analysis looks like this:

Screen Shot 2013-02-07 at 7.52.59 PM

The resulting list is as follows.

  1. BCE Inc.
  2. Bank of Montreal
  3. Canadian Imperial Bank Of Commerce
  4. Power Corporation of Canada
  5. National Bank of Canada
  6. Shaw Communications Inc.
  7. Bank of Nova Scotia (The)
  8. Husky Energy Inc.
  9. Royal Bank of Canada
  10. TELUS Corporation

Interestingly, four of the companies on the earlier list have fallen off as they no longer have a sustainable payout ratio.  These decliners are:

  • Manulife Financial Corporation
  • Sun Life Financial Inc.
  • TransAlta Corporation
  • Thomson Reuters Corporation

Analysis of the Utilities Sector

Here is a quick assesment of the Utilities sector.  PE Ratios are high across the sector.  With the exception of TransAlta (TA.TO) earnings growth is poor (<7%), meaning that PEG Ratios are high (>3).

Image

TransAlta’s earnings growth is due primarily to a horrible 2012, wherein earnings fell 50%, meaning that things can only get better.  Even if you believe that TransAlta will recover and meet earnings expectations* of $0.89/share in 2013, this still offers only a PE Ratio of 17 (compared with 27 for 2012). Not much of a discount for a stock with a rocky earnings history.  Also, earnings are estimated* to fall again to $0.82/share in 2014.

I’m staying away from TransAlta and from the whole sector.

*Consensus earnings estimates for 2013 and 2014 from TD Waterhouse’s webbroker service.

Portfolio Update – Down 0.31% in September 2012

My portfolio balances at close of trading on 30th September were:

Ticker Price (C$) Price Change Percentage Industry
T.TO $ 62.01 -0.10% 4.7% Telecommunications
COS.TO $ 21.05 0.05% 4.1% Energy
PHY-U.TO $ 14.92 0.92% 5.8% Gold
POW.TO $ 23.90 1.66% 6.0% Financials
BMO.TO $ 58.10 n/a 6.3% Financials
TA.TO $ 15.05 1.07% 0.0% Utilities
AAPL $ 656.08 0.00% 4.2% Information Technology
INTC $ 22.29 -8.99% 6.6% Information Technology
IVV $ 142.01 n/a 8.8% US Equity Fund
XIU.TO $ 17.61 n/a 6.2% Canadian Equity Fund
S&P Fund $ 119.16 2.25% 10.1% US Equity Fund
EAFE Fund $ 86.33 n/a 10.1% Global Equity Fund
Bond Fund $ 224.15 0.67% 25.4% Bond Fund
Cash 1.8% Cash
Total 100.0%

Overall my portfolio is down 0.31% since last month. There we no cash contributions this month. For comparison my TI Index is up 1.55%, the DOW is up 2.65% and the TSX is up 3.08%.

My investments have done poorly compared with these indices. Winners this month include my S&P Fund up 2.25%. Losers include Intel (INTC) down a whopping 8.99%.

During the month I sold perennial loser TransAlta (TA.TO) and picked up a TSX fund (XIU.TO) and an S&P fund (IVV), which should stabilize my portfolio and bring performance closed to that of my IT Index.

My bond holdings are at 25.4%, which is acceptably close to my target of 25%. No rebalancing is required this month.

I put most of my cash to work this month so my cash is at 1.8%, which is fine.

I have been tracking my investments in this blog for 16 months.  Although my portfolio has handily beaten the TSX by 4% during that time, overall performance has been disappointing compared with US indices and my TI Index (see chart below).  I am hopeful that by adding two new index ETFs (XIU.TO and IVV) my portfolio will perform more strongly against the DOW.

Getting out of TransAlta

I have owned TransAlta (TA.TO) for some time and the stock has not performed well.  It has weighed heavily on my portfolio, especially in the last few months.  It is alway painful to sell for a loss (I keep hearing “it’s even cheaper now so you should keep it” in my mind) but I have disliked this stock for some time and wished I had sold earlier.  Better late than never.

SELL TA.TO @ $14.13

POSTMORTEM

Today, 4th October, this looks like a bad call.  TransAlta closed today at $15.40, up 9% since I sold it.  I was glad to get out of this stock and I would not buy it again now based on its fundamentals, but I sold at the bottom (at the time of most fear).  It is hard to judge a value trap versus a stock that is on sale (irrationally cheap).  Bottom line: I should have gotten out of this stock in March 2012, rather than doubling down.

Portfolio Update – Up 0.44% in August 2012

My portfolio balances at close of trading on 31st August were:

Ticker Price (C$) Price Change Percentage Industry
T.TO $ 62.07 -0.88% 4.7% Telecommunications
COS.TO $ 21.04 4.26% 4.1% Energy
PHY-U.TO $ 14.78 4.59% 5.7% Gold
POW.TO $ 23.51 2.04% 5.9% Financials
TA.TO $ 14.89 -4.86% 7.0% Utilities
AAPL $ 656.06 6.85% 4.2% Information Technology
INTC $ 24.49 n/a 5.3% Information Technology
S&P Fund $ 116.53 0.66% 19.6% US Equity Fund
Bond Fund $ 222.66 -0.12% 25.1% Bond Fund
Cash 18.4% Cash
Total 100.0%

Overall my portfolio is up 0.44% since last month. There we no cash contributions this month.  For comparison my TI Index is up 2.30%, the DOW is up 0.63% and the TSX is up 2.44%.

My investments have done poorly compared with these comparators. Winners this month include Gold (PHY-U.TO) up 4.59%, and Apple (AAPL) up 6.85%. Losers include TransAlta (TA.TO) down 4.86% (terrible performance once again from TA.TO!).

My bond holdings are at 25.1%, which is acceptably close to my target of 25%. No rebalancing is required this month.

My cash is at 18.4%, which is lower than my target of 25%. I am OK with this level of cash and I still expect to put most of this cash to work after the summer.

Portfolio Update – Up 0.01% in July 2012

My portfolio balances at close of trading on 31st July were:

Ticker Price (C$) Price Change Percentage Industry
T.TO $ 62.62 4.16% 6.3% Telecommunications
COS.TO $ 20.18 0.45% 5.4% Energy
PHY-U.TO $ 14.13 3.03% 5.5% Gold
POW.TO $ 23.04 0.52% 5.8% Financials
TA.TO $ 15.65 -7.12% 7.4% Utilities
AAPL $ 614.01 2.88% 5.6% Information Technology
S&P Fund $ 115.77 2.14% 19.6% US Equity Fund
Bond Fund $ 222.93 0.67% 25.3% Bond Fund
Cash 19.2% Cash
Total 100.0%

Overall my portfolio is up 0.28% since last month, including cash contributions. Without these cash contributions the portfolio would be up 0.01%. For comparison my TI Index is up 1.20%, the DOW is up 1.00% and the TSX is up 0.59%.

My investments have done poorly compared with these comparators.  Winners this month include Telus (T.TO) up 2.42%, and Apple (AAPL) up 3.36%.  Losers include TransAlta (TA.TO), down 9.28%.

My bond holdings are at 25.3%, which is acceptably close to my target of 25%. No rebalancing is required this month.

My cash is at 19.2%, which is lower than my target of 25%.  I am OK with this level of cash and I still expect to put most of this cash to work after the summer.

Portfolio Update – Down 0.8% in May 2012

My portfolio balances at close of trading on 31st May were:

Ticker Price (C$) Price Change Percentage Industry
T.TO $ 60.12 1.37% 6.1% Telecommunications
COS.TO $ 20.09 -7.97% 4.4% Energy
PHY-U.TO $ 13.72 -2.19% 5.4% Gold
POW.TO $ 22.92 -16.20% 4.0% Financials
SJR-B.TO $ 19.75 -3.00% 3.7% Consumer Discretionary
TA.TO $ 16.85 2.87% 8.1% Utilities
AAPL $ 596.83 3.40% 5.6% Information Technology
S&P Fund $ 113.34 -1.47% 18.8% US Equity Fund
Bond Fund $ 221.45 2.12% 25.4% Bond Fund
Cash 18.5% Cash
Total 100.0%

Overall my portfolio is down 0.12% since last month, including cash contributions. Without these cash contributions the portfolio would be down 0.80%.  For comparison my TI Index is down 4.13%, the DOW is down 6.21% and the TSX is down 6.34%.

My investments have done very well compared with the TI Index, the TSX, and the DOW.  Winners this month include TransAlta (TA.TO) and bonds. Losers were Power Corp (POW.TO), Canadian Oil Sands (COS.TO) and Shaw (SJR-B.TO).

My bond holdings are at 25.4%, which is acceptably close to my target of 25%. No rebalancing is required this month.

My cash is at 18.5%, which is lower than my target of 25%.  This is because I purchased Apple (AAPL) today.  I am OK with this level of cash (i.e. I don’t want to sell anything right now) and I expect to put most of this cash to work after the summer (sell in May and…).