Dividends are the “tried and true” investment focus these days (other than dollar cost averaging through indexing, of course) for those that say “screw off” to mutual funds and want to DIY invest.  Dividend paying stocks USUALLY have a proven track record and continue to give you dividend income even if the entire market isn’t doing so well in general.  However, they are not immune and are vulnerable to the huge market swings even if their dividend payout is strong.

Dividend Reinvestment Plans, also known widely as “DRIPS” essentially help you automatically take the dividend income you receive and reinvest it, usually without having to pay commissions or fees.  For example, the dividend income your receive may not be enough to purchase an entire share, but will allow you to purchase fractional shares.  Over time, these fractional shares add up to one share.

Usually these plans are offered directly by the company, and they will have their OWN brokerage they use for the DRiPs.  You can also choose to use your own brokerage (for me, that’s Questrade) but you won’t receive the discount of the 3-5% on the recent three closing prices of the stock.

Basically, with Dividend Reinvestment Plans, you can “set it and forget it”.  This option is especially alluring for those who have the “buy and hold” mentality, and actually rewards those who like to buy and hold.  Or in my case, prevents those who ideally WANT to buy and hold from panicking and selling their shares for a quick profit (I tend to suffer from that problem).

What Are the Benefits to DRIPping?

The benefits to DRIPing are numerous and I find that they do outweigh the cons.  That being said, I currently only have one DRiP for an individual stock going on right now (but my TD e-series funds are DRiP’d regularly), but I would like to add more (just needs some organization on my part!).

Currently I am DRIPing EIF.TO in my Questrade TFTA and I plan to add FTS.TO and perhaps HSE.TO to the list of DRIP’ing dividend stocks.

PROS:

• You’ll be investing and adding to your positions without having to pay fees or commissions
• Certain Canadian DRiPs give a discount of up to 5% on the price of the equity (usually 3-5% discount) on the average of the price in the previous five days the stock was traded on the TSX (basically you only pay 95-97% of the regular price)
• Compound interest is your friend over many years and much DRIPping
• Oftentimes you can designate the number of shares you want to DRiP
• Allows you to dollar cost average without having to put money in!

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Did I get your attention with the title of this post?  I sure hope so! 

I have seem many friendly stock pick contests between the big Canadian personal finance bloggers but was always too intimidated (or never asked lol) to participate.  Well, Financial Uproar apparently felt the same way too (I think he asked and was rejected) so he thought to create one of his own.  Financial Uproar asked if I wanted to participate in a Canadian underdog personal finance blogger stock picking competition.  His direct words were “because you all don’t suck, you’re all officially invited.”

I’m happy to participate and very interested to see how my picks go.  I just hope I don’t get the gag prize for finishing last (but knowing me, I probably will).  Coming from Financial Uproar, I have no idea what kind of gag prize he has in store.  If they’re chips, I’d be happy.  Though I highly doubt the gag prize will be something so benign as chips.

Here are my stock picks for 2012.  Lately, I’ve resigned (or more accurately, become smarter by choosing indexing) to indexing, but sometimes the gambler, speculator in me just enjoys the wild roller coaster ride of the Toronto Stock exchange.

Please be gentle regarding my picks! No judging lol!

You can also see Financial Uproar’s stock picks here.

Youngandthrifty’s 4 Stock Picks for 2012

Dollarama (DOL.TO)

Dollarama has 667 stores across Canada and they recently opened 57 new stores.  Dollarama became public in 2009, and since then, its stock has increased 93% and had a 25% increase through the first 9 months of 2011.  I know, because I’ve been watching it like a hawk.  I watched it at $30 and now it’s at $44.  I’m still watching it sadly, and kicking myself that I didn’t get in on the action.

It even started paying out a dividend of $0.09 per quarter.  Which makes the annual dividend yield 0.81%.  Small, I know, but hey, this company just came out in 2009.

I LOVE shopping at Dollarama.  It is my new favourite dollar store.  It has everything, I even bought my Christmas ornaments there.  If you need some weather stripping, they have it.  If you need a handsaw, they have it.  If you need some gift bags or birthday cards, they have it.

With the recent (and long drawn/ prolonged) economic downturn, everyone has been pinching their pennies and watching what they spend.  Frugal retailers and frugal fast food restaurants have done exceptionally well in these few years with everyone watching what they’re spending.  I see Dollarama continuing to do well even if the economy improves.  Once you shop here, you’ll not want to shop elsewhere because you can get so many things for so cheap.

Coastal Contacts (COA.TO)

Of course I wish to include a wild card, a growth stock.  If you haven’t heard of them before, they are Coastal Contacts and are also known as Clearly Contacts.  They are the largest and leading online retailer of contact lenses and glasses.  They were founded in 2000 (by Roger Hardy in a basement with one phone and a ping pong table apparently) and eliminated the need for people to pay an arm and a leg for glasses and contact lenses at the optician’s office or at expensive retailers.

In the first year of business, Coastal Contacts achieved $1 million in revenue.  They also have 2 million customers worldwide.

Most of the glasses you purchase at expensive stores are made in China anyway (like everything is) and Coastal Contacts eliminates the middle person, therefore you can get designer glasses or sunglasses at very reasonable prices.

They also run big promotions like giving away X number of glasses to the first X number of customers online.  Their major celebrity advertiser (at least here in Vancouver anyway) is Trevor Linden.

Its current price is $2.63 but unfortunately there isn’t much volume.  Its P/E is high, but this often seen with rapidly growing companies.

At this price, I don’t mind buying 1000 or even 100 shares (yeah, I know)  and anticipate future growth of the company.  They are also a Vancouver born and bred company, and many of you are well aware of my annoying allegiance to Vancouver!

Husky Energy (HSE.TO)

Some of you may remember that I have been keeping an eye on Husky Energy for a while.  It’s current price is $24.28 and its dividend yield is a healthy 4.94%.  It’s Price to Earnings ratio is 11.43. As you can see, its trading at a relatively low level compared to earlier in the year (though what investment isn’t I suppose).  The Price to Book ratio is also excellent.

Husky Energy is well diversified within the oil and gas industry, including involvement in exploration, upgrading crude oil, and retail gasoline.  Its headquarters is in Calgary and it is owned by the son of a multi-billionaire in Hong Kong, Li Ka Shing (eleventh richest person in the world).  So money isn’t really a concern in that regard.

In their website, they also talk about Aboriginal responsibility, and they train their staff to be sensitive to support and interactions with Aboriginal communities across Canada.  To me, that’s a plus one.  How this is actually enacted, I don’t know, but I hope they are as responsible in person as they appear on paper/ website.

 Bank of Montreal (BMO.TO)

Last but not least, I’m going to pick a bank stock.  Any Canadian bank would do, really, but I found that the price of BMO is more affordable for my stock portfolio budget than some of the other banks.  Canadian banks are notorious to be safe and probably the best in the world to invest in.

BMO’s current price is $54.95.  BMO’s 52 week low is $51.83  a has a 52 week high of $66.60.  Their Price to Earnings Ratio is 10.45.  Their dividend yield is 5.10% annually (which is better than any high interest savings account, IMO!).

However with the future being uncertain, I’m not sure how the big banks will fare in the coming year, to be honest.  As a long term pick (and I know that Financial Uproar is not looking for anything long term- lol did you get my little joke?), I think this is great.  For 2012, I’m not sure how it will do.

PS, are you proud of me readers?  I learned how to do a “picture shot” on my MacBook Pro! (yes, two years after owning it… told you I’m computer illiterate in some respects!)

Readers, what do you think of these picks?

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As you know, I sold off my Tax Free Trading Account portfolio (remember, it’s a “souped up” TFSA) and took the money out for the house down payment.  My portfolio was up about 20% Return on investment, but 2010 was such a great year for making gains on the stock market, I’m sure most people had similar returns (20% beats the 1.5% in a regular ol’ TFSA any day- though of course there is risk involved) .  I then transferred $5000 of my non-registered money (I sold a few loser stocks there as well) into the Tax Free Trading Account.  I will have $10,000 remaining that I can put in, and I plan to put my tax refund into my TFSA and RRSP this year too.

The reason why I sold off a lot of my TFSA portfolio was also because of the changes in terms of taxation on the income trusts I was holding- they had to convert to corporations and a lot of their distributions (read= 9-11% per year given back to you) were going to be slashed big time.

I thought I would share my picks for this year and give the reason why I chose the particular investment.  This year, it was more difficult to find bargains in terms of more bang for your buck because lots of stocks were trending at their 52 week highs.  Ideally, I would like for the stocks I pick to perform well (duh, who doesn’t?) but I would be happy if it stayed “status quo” too because they will pay me some juicy dividends anyway.

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In the previous post I blabbered on about how amazing dividends are.  They really are amazing- once you start investing in them you can’t stop!  They’re like Pringles Chips.  You can’t have just one.

I didn’t realize their potential until recently, and since then, my portfolio has been lookin’ pretty fine.  I’ve recouped all of my losses since I started investing in the first place about 5 years ago (the losses are thanks to the dreaded “other investments” )(NB: the best way to learn how to invest is to do it and learn from your own experience!), and am well in the glorious green.

A few months ago, I calculated the dividend yields of all the dividend producing stocks I own.  Doing this reinforces me  NOT SELL prematurely because of the dividend yield I will get per year.  It switches my mentality from: “sell this thing and take profit” to “if it dips, then I’m picking up more”.  My goal is to be able to increase my positions on dividend yielding stock, so that I can not only reinvest it to build my portfolio further, but hopefully one day it can replace my income (or a large portion of it) and I can retire early at 35.

Wishful thinking, huh?

I wrote the % return per annum and the resultant amount in $ that I would get per year with the number of stocks I own.

Without further delay, here’s a list of my annual yield from dividends (and income trust distributions):

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Do you like my camera skills?  I love the iPhone- its so easy- take a picture and send it to myself in an email and….voila! A picture for my blog is ready!  Anyway, I digress, we’re talking about dividends here.

So what are dividends?

They’re something magical.  They’re great. Win-win in terms of taxation. They’re tax efficient.

Dividends, according to Investopedia are profits from the company and they can be either reinvested into the company or paid out in the form of dividends:

“Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this.”

I like the words “secure” and “stable”.  Usually only big time companies (corporations) offer dividends to their stockholders.  High growth companies reinvest their earnings into the company to make the company grow bigger and faster.  High growth companies’ share prices may move more.

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