New Purchase: Magna International (MG.TO)

Today I picked up 32 shares of auto parts giant Magna International (MG.TO) at $54 per share. This purchase will increase my yearly dividend income by $32.

About the Company

Magna is a leading global automotive supplier with 305 manufacturing operations and 93 product development, engineering and sales centres in 29 countries. Its product capabilities include chassis, interior, exterior, seating, powertrain, electronic, vision, closure and roof systems and modules and complete vehicle engineering and contract manufacturing.

Automotive Exposure
I believe Magna is the best company for the automotive exposure. This is a new position for me and I plan to hold those shares for a very long time. I bet my bottom dollar that this company will double in 10 years. Prior to this purchase I had zero exposure in auto parts industry. Now I have a whopping 6% exposure through Magna.

Magna is cheap
The shares are currently trading at 8.8 P/E ratio compared to its 5 years average of 10.34. Magna is cheap and it has a pristine balance sheet with $2 billion in cash compared to $1.6 billion in total debt.

Dividend grown potential
The company has a massive dividend growth potential. Magna has been a terrific dividend grower since the financial crisis of 2008-09. It started paying 4.5 cents quarterly dividend in 2010 and has increased its payouts annually each year since. They just announced a 14% dividend increase from 22 to 25 cents per share. This works out to a current dividend yield of 2.5%. Magna’s payout ratio is just under 20% meaning it has lots of room for dividend growth.



Recent Sale: PSK, FRU, IPL, and PPL.

The above-mentioned is not a mistake. I reduced my energy exposure to the minimum due to the recent price appreciation in oil and energy stocks. Within the last two weeks I sold four energy stocks: PSK, FRU, IPL, and PPL. Luckily all for a profit!

I bought those companies a few months ago because they were severely punished by the market.

From October 2015 to December 2015 I invested $3,154 in PSK, FRU, IPL, and PPL.

During the month of February 2016 and March 2016 I sold my energy stocks for $3,375. My capital gain was $221 and my dividend income was $50.41, resulting in a total return of $271 or 8.5 percent.

I might get back into IPL and PPL sometime in the future because they released good earnings and maintained the dividend. However, PSK and FRU reduced their dividend so I won’t touch them until they start raising the dividend again.

Most of the capital from sale already redeployed into RUF.UN, DR.TO and AD.TO. I have $940 cash to think about the next investment. I will keep looking for a bargain.

Dividend Portfolio Update - February 2016

Dividend Portfolio Value
By the end of February 29, 2016, my dividend portfolio balance was at $26,770.88. That’s an increase of $2,455 from the previous month.

The increase in portfolio value is attributable to a multitude of factors including the dividends, stock appreciation and additional fresh funds. And speaking of stock appreciation, there are two main stocks that shoot up in value in February which helped my portfolio value to climb higher.


Students Transportation is up by 50% from its low.



Dream Office REIT is up by 40% from its low.





Also, I finally reached a new milestone of $25K by mid-February. I hope that the next 25K threshold will be reached much quicker because the compound effect of the monthly dividends.
Usually I add $800 per month of fresh capital, combine that with monthly dividends of $150, my purchasing power now becomes $950 per month towards new stocks. Because of this compound effect of dividend reinvesting, my portfolio is growing 18% faster compared to previous years.

Dividends
Dividend income is a passive income for which I don’t have to work for. In February, I received a total of $158.33 in dividends vs $105.38 for the same period a year ago. That's an increase of $52.95 or 50% on year-over-year basis. My total Year-to-Date dividend income for 2016 is $330.67. Based on my forecast I should get around $2,000 in dividends in 2016. It doesn't sound like a big amount but it’s growing every year. All dividends are reinvested into dividend paying stocks.

Contributions
In February, I added $800 of fresh capital to my TFSA account. The maximum amount that I can contribute in 2016 is $5,500. Since I have contribution room from prior years I will continue to add $800 per month until I reach my maximum contribution.

My Investment Account (Tax Free Savings Account)
My portfolio consists of 25 Canadian dividend paying stocks. Most of my stocks pay dividends on monthly basis. This allows me to collect dividends and reinvest them into dividend paying stocks more rapidly.

Transactions
Usually I make one purchase each month, but this time things were different. In February I took a closer look at my portfolio and realised that a big portion of dividends were coming from the oil sector. So I decided to diversify my dividend income into different sectors. So here’s what I did.


I sold two pipelines stocks that I bought in December 2015 and booked about 10% capital gain. Inter Pipeline (IPL.TO) was sold for $22.43 and Pembina Pipeline (PPL.TO) was sold for $32.88. I sold both companies before the earning reports which were pretty solid. I like the pipelines and I will probably own them in the future, but there’s only one thing that I’m concerned about. The big chunk of revenue of these companies come from oil sands transportation. Oil sands companies don’t make money in this low oil environment meaning that if there will be less oil flowing through their pipes than their cash flow will decline to the levels where they won’t be able to cover the dividend. Since the dividend income is important to me I decided to relocate the money into other sectors.


The cash from IPL.TO sale was relocated into Pure Multi Family REIT (RFU.UN.V). I bought 115 shares at $6.62 per share. This is a new position in my portfolio. I have been following this company for some time and decided to take advantage while they were still in correction mode.

 

The cash from PPL.TO sale was relocated into Medical Facilities (DR.TO). I bought 45 shares at $14.34 per share. Medical Facilities is a cyclical stock for me. I buy it when it’s trading below $15 and I sell it when it’s trading near $20 level. It’s range bound and also pays a good dividend while I wait.


This stock flip will not affect my dividend income since all four companies have relatively the same dividend yield. The fresh capital was used to buy 60 shares of Morneau Shepell (MSI.TO) at $14.85 per share. This is a well-run company. They are in the human resources consulting and outsourcing business. Dividend yield is 5.4% paid monthly and there’s more room for dividend growth since their payout ratio is dropping consistently. I owned them in the past but sold them a few years at higher price. I think they are cheap now and represent a good buying opportunity for long term hold.