For every yin there is a yang.
When it comes to the markets, high unemployment, debt crises in Europe and low growth in the U.S., are all leading to higher risks and general declines of late. So if that is the ‘yin’, where is the ‘yang’?
It comes from those rare opportunities to generate higher income portfolios for life. We may be approaching one of those in the coming months.
Who cares if you don’t have a corporate pension. A weak market with strong dividend yields can be even better over the long term. Here is why:
• Today, you can buy Bank of Montreal shares for around $59, and it will pay a 4.8 per cent dividend yield (or $2.80 a share).
• If you bought Bank of Montreal shares in March, 2009, it cost $28 and paid $2.80 a share in dividends. This works out to a 10 per cent dividend yield.
• If you invested $100,000 in BMO today, you would receive $4,800 in income per year (assuming no change in dividend payout).
• If you invested $100,000 in BMO in March, 2009, you would receive $10,000 in income per year – more than doubling your "pension" income.
Of course, it is easy to invest in the rear view mirror, but the point is that if you built a retirement pension portfolio starting in March, 2009, it would change your income forever.
So where are we today? Can we find some examples of great stocks to build a pension portfolio?
As an example, below are six profitable, growing companies that have a dividend payout ratio of less than 80 per cent and whose dividend yield has grown over 25 per cent from six months ago:
Company Name, Dividend Yield
• Canfor Pulp Products , 10.5 per cent
• Genivar , 5.9 per cent
• Just Energy , 10.3 per cent
• Cellcom Israel (U.S.) 12.8 per cent
• Greif Inc. (U.S.) 5.4 per cent
• First Niagara Financial Group (U.S.) 6.1 per cent
All Canadian companies mentioned above have a market capitalization of at least $500-million, and the U.S. companies have a market capitalization of at least $1-billion.
What if we kept our eye on some larger cap Canadian companies that might be more recognizable? Here are four companies with a market cap of at least $15-billion, that could pay 5 per cent-plus at the following target price:
• Royal Bank $43 (now at $46)
• Telus $44 (now at $50)
• Thomson Reuters $24 (now at $29)
• BMO $56 (now at $59)
A U.S. name might be Merck . At a purchase price of $30, it pays over 5 per cent. It is currently at $32.
The point of all of these numbers is that if you are trying to build a retirement pension portfolio, you should have some extra cash or short-term bonds in these markets, and should be hoping for declines in the market.
It is a rare opportunity to be treasured, if you can build a retirement portfolio of strong companies with divided yields of 5 per cent or more. If you have had good advice or been smart yourself, you may just be able to take advantage of these investments in the coming weeks and months. If it is built right and timed right, you may just start your retirement with one of the best pensions around.
Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm. Follow Ted on his blog at The Canadian Financial Planner.