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Monday, October 6, 2014

Investments in Potash (POT.TO) and Finning International (FTT.TO)

Today I invested almost 3K in my Tax Free Savings Account (TFSA). I'm doing it aggressively lately as I'm trying to max out the contribution room available in that account (equivalent to a Roth IRA in the US). Starting this year I had $31,332.58 of room. I had already started investing in October 2013 but using an Individual Taxable account as Questrade doesn't open TFSA accounts for non-Canadian citizens. But I recently became a Canadian citizen, opened my TFSA account with Questrade and continued my investing activity prioritizing this account where all the growth you get is tax free.

I'm only investing in Canadian companies to avoid the Non-resident withholding tax applied to dividends received from American companies. My philosophy is simple: invest in established businesses with a history of paying and increasing dividends every year. Buy during swings down, ideally below the 200 Day Moving Average.

Finning International Inc (FTT.TO)

Taken from Google Finance:
"Finning International Inc. provides sales, rental, parts and support services for Caterpillar Inc. (Caterpillar) equipment and engines and equipment on three continents. The Company operating segments includes Canadian operations, South American operations, the United Kingdom and Ireland operations, and Other. The Company offers products and services through four principal lines of business: new equipment sales, product support, equipment rental and used equipment sales."

Today I purchased 50 shares at $29.88. Finning is not the typical dividend payer where I like to invest as I prefer a yearly dividend above 3% while Finning is only paying 2.34% as of this writing. However, the company has shown a clear commitment to shareholders to increase dividends every year as seen here and the current payout ratio is only 32.76%, leaving plenty of room to keep growing those dividends. P/E ratio just above 15 where the 5 year range has been 12 to 25, so definitely on the cheap side.

Here's the chart of FTT.TO
(Click on image to enlarge)
If it keeps falling, I will purchase more shares around $27 bucks.

Potash Corp. of Saskatchewan (POT.TO)

Potash is a producer of fertilizers. The Company operates in three segments: potash, phosphate and nitrogen. This is a large 30 billion cap baby. I don't think it will go down to zero any time soon.

I was already invested in Potash. I had purchased 45 shares at $33.65 on October 4 last year. This first year as a shareholder has been a good one. The stock appreciated from $33.65 to $36.92 (today's closing price) for a decent +9.72% return. In addition to that, I have received 5 dividend payments which have represented 4.46% of my initial investment. Therefore, my total return for the year is a solid +14.18%. That's the nice thing with dividend payers. Those little dividends boost your returns significantly and if you choose to reinvest them every three months the compounding effect just accelerates.

Well, today I bought 40 shares at $37.00. I now own 85 shares.
Here's the chart.
(Click on image to enlarge)
I will be very tempted to buy more shares if it falls to the $35 area.

I always like to include the charts reflecting how hypothetical investments made 20 years ago would have fared. Although past performance is never indicative of the future, these charts do prove that value investing has its merit if you have a sufficiently long time horizon. Even including the market crashes of 2000 and 2008, all the companies I am currently invested in have delivered superior returns that could be the envy of any active trader. In addition to that, the total reduction of trading costs, plus the preferential tax treatment on both dividends and long term capital gains, makes value investing a very viable approach in my opinion, in  spite of how much active traders hate Buy & Hold. I used to hate long term investing myself. Too boring, too vulnerable to market crashes etc. Trading Forex and Options for a few years; learning first hand how hard it is; has made me reconsider that initial bias.

Here's how investments in FTT and POT would have performed in almost 20 years. This is assuming you never added a single penny of fresh capital to the initial investment.

FTT has returned 10.67% per year on average:

POT has returned 12.69% per year on average:
These are two pretty volatile stocks as evidenced in those charts. Thankfully, I'm invested in a total of 15 Canadian companies and 8 American ones which provides the portfolio with some diversification to smooth out those wild swings.

With these two investments my projected yearly dividend income is now $1476.38 Canadian Dollars plus $409.28 USD.

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