Sunday, February 27, 2011

Know Your Score: Check Your Credit Report Regularly and Save Money.

It is important for Canadians to check their credit scores on a regular and periodic basis. The credit score is a numerical expression of a person's credit worthiness, or their reliability with regards to liability payments. This is determined by a number of factors, but most importantly, a borrower's propensity to pay their bills on time, and with regularity, increases their score over time. Likewise, a failure to pay one's creditors on time, results in the score declining. Other factors, such as how much credit you have outstanding, how many requests or inquiries one makes for loans, and how many times they have been declined, can also have an effect on their score.

Below is a a great illustration of how your score might be determined:

The reason the credit score is such an important piece of information for Canadians is because the higher the score, the better deal you will get from lenders. Loans are not merely made on a yes or no basis, there are other elements of a loan that banks use your credit score to help determine, such as the interest rate and other terms that might be attached to your loan. For instance, two individuals might be requesting a loan from the same bank. Individual A has a credit score of 650. This is a good score and he might get approved for the loan depending on other factors such as his income, employment, etc. Individual B has a credit score of 790, (750+ would be a likely approval and a best terms loan) and the same income etc. as individual A. Due to their differing credit scores, Individual B might get a loan at prime, or perhaps 3 %, and individual B might get the loan at prime + 2, or 5 %. Both have the same job and income, but the one with the better credit score gets the better deal. Thus, your credit score can save or cost you thousands of dollars over the course of a loan.

It is, therefore, very important for you to check your credit report and score on a regular basis to ensure you are managing it properly. Personally, I like to check it every six months to make sure that everything is in good standing and that there are no anomalies with my account. This can be done by contacting either TransUnion or Equifax in Canada. Both legally have to provide a paper copy of your report for free, so there is no reason why this should not be done by everyone at least on an annual basis.

  • To get your credit report, and read more information on this topic, I highly recommend that you check out the websites below:

Happy Investing : )

Saturday, February 26, 2011

Canadian Banks Generating Huge Profits: CIBC and National Bank Lead the Way.

Earnings season for the Canadian banks were off to a great start on Thursday when CIBC (TSE:CM) reported a $799 million profit. This was more than what industry experts were expecting and could bode very well for investors in Canada's other major banks as well.
Last year, the bank reported earnings of $652 million during the same three month period. This growth is an indication of an improved lending environment in Canada, as well as an improved environment for investment fund managers, of which CIBC Mutual Funds is a large player. When stock markets increase in value, the amount of money that CIBC charges its clients to manage money (usually around 2-2.5%) goes up as well. 
CIBC said it would maintain an 87 cent per share dividend, but investors were hoping that they would boost it, giving the other banks motivation to do the same. Currently CIBC is only paying out about 45 percent of its earnings to shareholders, which is a very reasonable number and a number that could be increased in the future. For the intelligent investor, the ability for CIBC to raise its dividend in the future is a sign of financial health and a good catalyst for a rise in the share price in the future. 
In addition, the company has more than enough capital on hand to make acquisitions or initiate share buybacks. Share buybacks are great for shareholders as they increase earnings per share by reducing the number of shares, which increases your share of the business pie.  
National Bank (TSE: NA) also reported a record profit of $312 million. Last year, quarterly profits came in at $215 million. This massive increase will surely bode well for shareholders when the company reviews its dividends and perhaps decides to increase the amount of money that they want to pay out to shareholders. 
Both National Bank and CIBC have provided an excellent window into the health of the Canadian financial landscape. As a Canadian investor, it is important to ensure that one of Canada's financial conglomerates, whether it be CIBC, National Bank, Royal Bank (TSE:RY), Scotiabank (TSE:BNS), TD (TSE:TD), or the Bank of Montreal (TSE:BMO), make up a portion of your investment portfolio. The balance sheets are healthy, business is booming, and dividend increases are sure to start coming down the road. Just be careful not to get too greedy and overpay for them on a day when other investors have bid up the share prices. Wait for a down day and gradually buy your way in.
Happy Investing : )
For more information on this topic check out:

Wednesday, February 23, 2011

Loblaws Brings Joe Fresh to Fifth Avenue: First Foray Into the United States in Years.

Loblaws (TSE:L) announced that it is opening four Joe Fresh branded stores in the United States. Joseph Mimran, the brand's founder, declared that many Americans have been requesting the introduction of the clothing line into the United States and thinks it will be a success. The flagship store will be located on Fifth Avenue in Manhattan, adjacent to the New York Public Library.

Historically, Canadian firms are very hesitant to expand into the United States, where competition is steep and competitors are well-heeled and have deep pockets. Loblaws has attempted to expand into the northern United States before, but retreated in the late eighties and early nineties after they decided to focus on expanding and perfecting their Canadian operations. This turned out to be a very wise move, as Wal-Mart and others entered the American market en-masse and brought profit margins tumbling down in the grocery sector. This time, however, Loblaws is entering on a very small scale and in an industry with much higher profit margins than the grocery sector.

Undoubtedly, the rationale for expanding the Joe Fresh line into the United States has less to do with generating a profit on the U.S. stores than it does with simply exposing the brand and Loblaws to an extensive amount of publicity from more fashion conscious consumers. The company has declared that it wants to achieve 1 billion dollars in annual sales soon, and it now appears that it is bent on achieving that goal.

In reality, few Canadian merchants have ever had any success in the United States. Lululemon (TSE:LLL) has had some, as has Tim Horton's (TSE:THI) now, but Canadian Tire (TSE:CTC.A) tried and failed miserably, as have countless others. Loblaws' decision to enter the market again will bring some bad news in the future as sales at the American Joe Fresh stores are probably not what is expected, but the recognition and marketing advantages that they gain from having a store on Fifth Avenue will bode very well for the clothing line and its status in its customer's eyes. As an investment, however, be careful of Loblaws. Debt levels are creeping higher, and many stores are disorganized and under-staffed, which will make competition with Metro (TSE:MRU.A), Sobeys (TSE:EMP.A), and Wal-Mart (NYSE:WMT) more difficult as time goes on.

For some more information on this news:

Happy Investing Intelligent Investors : )

Canadian Tire Rewards: A New Plan Long Overdue.

Canadian Tire might finally be in the process of eliminating its iconic Canadian Tire rewards money. The company, listed as CTC.A on the Toronto Stock Exchange, announced that it will be introducing a pilot program for a new points reward card program.

Introduced in 1961, Canadian Tire's loyalty program has been extremely popular and a highly successful way of reinforcing its brand in the consumer's mind. Personally, I remember collecting Canadian Tire money in earnest when I was younger, and many people still have drawers with the loyalty money stored in it for some future purchase. Sometimes, Canadians abroad have even been known to use it in in place of Canadian currency to buy goods from unsuspecting vendors.

Canadian Tire's vice-president stated that the money will not be eliminated in the foreseeable future, but the writing seems to be on the wall now. Other highly successful loyalty programs like AirMiles, PC Points, Aeroplan Miles, Shoppers Optimum Points, and Petro-Points are all handled via Point-of-Sale terminals and plastic cards. Electronic rewards programs are far more effective for marketing purposes because the purchases and buying habits of each customer can be stored and analyzed to help the store serve and target-market each customer segment more effectively. With the current Canadian Tire loyalty program, this valuable information is lacking. In addition, the processing, production, and transportation of the paper loyalty program simply costs the company more to operate than an electronic system without the key benefits of a loyalty program like PC Points or Optimum Points.

As an intelligent investor, it is good to see your business developing better and more efficient methods of attracting and retaining customers. Shoppers Drug Mart (TSE: SC) and Loblaws (TSE: L) have already realized the benefits of an electronic loyalty program, it is about time that Canadian Tire decided to do the same. Other elements of Canadian Tire's business have also been doing well, in particular its finance business, which has grown a great deal in the last 5 years. In addition, it has largely been able to resist the Wal-Mart effect on its bottom-line and kept most other competitors at bay due to its strong association with seasonal activities like hockey and barbecuing in the eyes of the Canadian consumer, as well as an excellent automotive business. To be sure, as a limited element of a portfolio, Canadian Tire is a quality choice. It has very low debt levels and a fair amount of assets in the form of property and cash holdings.

For more information on this topic, just go to:

Below is Canadian Tire's Assets and Debt Levels, Excellent for a Retailer:

Friday, February 18, 2011

Competition is Bad for Business. Search for Monopolies.

Monopolies are bad for consumers but good for businesses. As an intelligent investor it is always important to be careful to watch the competition that exists in your industries. Investors should think of themselves as owners, and as owners, you do not want your customers to have too much choice in whether or not they buy your products or services.

Ideally, you would be the owner of a business that is the sole provider of the product or service. For instance, in most of the areas in which it operates, CN Rail (TSE:CNR) is the only choice for rail transport. In the same token, CP Rail (TSE:CP) is the only choice where it operates. Why would the two companies choose to split the market in this manner and divide the territory into monopolistic segments? Because it ensures that they can garner enough pricing power, or the ability to raise prices, to ensure that they maintain healthy profits.

The reverse side of this is an industry with lots of competition, which as an owner, makes it difficult to ensure with any degree of certainty that you will continue to generate healthy profit margins in the future. Clothing retail and consumer goods, such as electronics, often fit into this category. A recent article in the Globe and Mail indicated that Sears Canada (TSE:SCC) is suffering under intense competition from Wal-Mart (NYSE:WMT), clothing retailers, appliance and furniture distributors, such as Leon's (TSE:LNF), and soon Target (NYSE:TGT). Customers of Sears can easily go elsewhere to find products similar to what they sell. This creates an inability for Sears to raise prices when their own costs increase. Also, it makes it very difficult for Sears to be sure that its customers will keep coming back. They need to be innovative and change with current tastes and trends in order to remain profitable.

In Canada, our banking industry has ensured itself healthy profit margins by not competing on any large-scale, as have our telecommunications companies, which have really split the country up into a number of key markets where they chooses to operate. Telus (TSE:T), Rogers (TSE:RCI.B), and Bell (TSE:BCE), dominate the wireless market, and through their brands, such as Koodo, Fido, Virgin, Solo, PC Telecom etc., they make it seem like the public has a choice, but really all of the profits are largely split between the three of them. New wireless entrants like Wind Mobile and Mobilicity are already finding it very difficult to crack into the market.

Thus, be careful not to invest in companies or industries with too much competition. As an owner, competition is bad and the ability to raise prices is good. If someone could easily sell a similar product or service without too much start-up investment and costs associated with doing so, it might not bode too well for your fortune.

Thursday, February 17, 2011

A Lesson in Diversification, Precious Metals, and Insurance.

On February 9th, $750,000 in silver bars were stolen from a 52 year old man's home in British Columbia. The man said that the silver stored in his house constituted the majority of his life's savings and that he attributes the fault of the theft to one of his friend's or family members who he says must have told the robbers about his stash. 

Clearly, this man needed a lesson in diversification, precious metals investing, and insurance:

  • One single commodity, whether it is gold, silver, oil, corn, etc. should never constitute the majority of your life savings and investment portfolio. One speculative commodity, ie. commodities that do not produce an income stream, should ideally not be more than five to ten percent of your portfolio. Their prices are historically very volatile and investors can get burnt quite easily.
  • There are also other ways to own precious metals than possessing the physical hard asset, which requires both storage space and an increased level of security to ensure no theft. Numerous exchange traded funds such as the Gold ETF (NYSE:GLD) or Silver ETF (NYSE:SLV) enable the intelligent investor to efficiently buy and sell commodities at a moment's notice and without the hassle of transportation and storage. In addition, since they are exchange traded funds, close to the current market price of the commodity can be obtained without too much hassle, just with the click of a mouse or a telephone call to your broker. 
  • Remember to NEVER have a large amount of savings or valuables stored at your residence. Not only are you risking the loss of your money, but you are clearly risking your own, and your family's, safety should an undesirable ever choose to try and take them. Banks and other institutions will hold your valuables for a fee, and they are on the hook if anything goes missing.
  • Lastly, if for whatever reason you choose to store valuables in your home, get the appropriate insurance coverage. The man in the above mentioned story neglected to get any coverage because he thought that it was too expensive to protect his investment. If something is so important to you that if you lost it your material welfare would greatly decline, it should be protected!
To read more about this story, or to look at how you can buy some gold and silver efficiently, intelligent investors please follow the links below : )


Saturday, February 12, 2011

Are You Diversified? How Can You Tell?

One of the most common questions investors have is whether or not they are diversified. For most, the answer is no. But how can you tell if you are diversified so that you can avoid your portfolio imploding during the next stock market bust?

To truly be diversified an investor must own a broad range of securities and businesses that generate income in many different ways, and in many different places.

  • Firstly, your businesses or investments must be located in a number of different places. This means that your portfolio should be generating income across the country, and around the world. As Canadians, most of our investments generate their income in Canada, but it is important for us to remember that this is a VERY small part of the world economy. We must also include businesses from the United States, Europe, and the developing world. Initially, the best way to do this might be to own a business like Coca-Cola (NYSE: KO) or Proctor and Gamble (NYSE: PG), which generate profits all around the world.

  • Secondly, the intelligent investor should ensure that they own different asset classes of securities. This means that they should own bonds, real estate, and stocks... in addition to perhaps gold, silver, etc. in a larger portfolio. One should not own simply businesses listed on the stock exchange and not any bonds or something that will provide a more steady stream of income. But be careful, DO NOT own too much real estate, this is a very common mistake in the current investment climate. 

  • Lastly, the intelligent investor must own a number of businesses that generate their income in different areas of the economy. For instance, Scotiabank (TSE: BNS) generates its income via banking, Suncor (TSE: SU) generates its income in the oil and gas industry, and Metro (TSE: MRU.A) generates its income in the grocery retail businesses. Together, these three businesses would provide the investor with a broader and more steady stream of income than if they owned just one. When one part of the economy is declining, another might very well be increasing.
Disclosure: The author of this article has an ownership interest in Metro and Suncor.

Be sure to e-mail me with any of your questions : )

Monday, February 7, 2011

Coffee in the Desert: Tim Horton's Expanding to Middle East.

Canada's very own Tim Horton's (TSE: THI) will be commencing some rather large expansion plans into the Middle East beginning this year.

There will be as many as 120 multi-format Tim Horton's restaurants opening up in association with Dubai-based Apparel Group. Five of the restaurants will be started in 2011. The 120 possible locations will be opening in the United Arab Emirates, Qatar, Bahrain, Kuwait, and Oman.

For shareholders of Tim Horton's this should be a good thing because the company will not actually be using its own capital or cash for the expansion. Apparel Group of Dubai will be financing the expansion and Tim Horton's will be receiving a royalty, or percentage of sales, in return for their branding and products. Essentially, it is a low risk, potentially high-reward scenario for Tim Horton's.

Of course, Tim's has plenty of room for expansion in the United States, where they have already been experiencing some troubles as stiff competition from Dunkin Doughnuts and McDonald's gives them a run for their money. But nonetheless, as a low-risk way to expand into a diverse market, it is a good strategy. The company will, however, have to make some definite adjustments if they hope to succeed in a very different culture. Apparel Group thinks that they can provide Tim Horton's with this needed expertise.

More on this story:

Wednesday, February 2, 2011

How to Select Dividend Paying Stocks for Your Portfolio.

How to select a quality dividend stock is a necessary skill for enterprising investors. There are a number of key characteristics to look for before investing in a dividend-paying company.
Firstly, the intelligent investor should begin by looking at company's that have strong brand names. These brand names keep customers coming back in good times and bad, and they provide a moat that keeps new competitors at bay. A strong brand name also provides the company with the ability to generate higher profit margins than its competitors for the same goods. 
The textbook example of a company that can generate healthy and steady profits due to its brand name is Coca-Cola (NYSE:KO). Coke's products are known worldwide and the company's ability to charge higher prices than its generic competitors, such as President's Choice, Cott, and RC Cola, is proof that the public perceives the brand itself as something worth shelling out money for. To be sure, Coke's operating margin (or profit generated on each dollar in revenue before taxes) is consistently about 25%! This means that after all expenses, the company nets 25 cents in profit from every dollar it takes in. That leaves a lot of room for error before the company would start losing money on its over-priced sugar water. 
Coke's Operating Margin. 
Another key characteristic to look for in a company is one that consistently raises its dividend. Coke, for instance, has raised the amount of money that it pays out to shareholders for 48 years in a row. That means that as a shareholder, you have gotten a raise every year for almost 5 decades! Not bad for essentially selling the same product over and over again. 
In order for a company to continually raise its dividend, it has to either be able to raise the price it charges for its products, sell its product to more customers, or reduce expenses. Ideally, price increases and higher sales would be great. When it comes to price increases, tobacco companies have been among the leaders throughout the years. Philip Morris International (NYSE:PM) sells cigarettes in international markets outside of North America. Almost every year, the company is able to raise prices and maintain its customer base. Cigarettes are what economists call an "inelastic" product, which means that customers are NOT very sensitive to increases in price. As the owner of a company, being able to raise prices is a good thing, especially if there is a steady or declining market for your product. 
If you are buying a company for its dividend payments it is important to ensure that the company is not giving its shareholders more than it can afford. Johnson & Johnson (NYSE:JNJ), for instance, has raised its dividend for almost 50 years in a row and it still generates far more income than it pays out. In 2010 the company paid out 1.93 per share in earnings, but it generated 4.70 in earnings. That leaves plenty of room for it to grow its dividends in the future. 
And most importantly, never over-pay for any business. If you are looking to generate a steady stream of income payments, look for healthy yields above current 10 year bond rates, otherwise owning the company might not be worth the extra risk. 

Tuesday, February 1, 2011

Avoid TFSA Penalties and Shelter Your Largest Gains From Taxes.

TFSA's, or tax-free savings accounts, are a great option for Canadian investors. With the ability to contribute $5000 every calendar year, they are fantastic ways for young Canadians to begin saving for retirement, or large purchases that they may make in the future. It is important, however, to use them wisely. 

Remember not to violate the rules governing the accounts that have been placed there by the government. 72,000 Canadians have already been hit this year with tax penalties for violating one basic rule... you can NOT put money in, take it out, and then put it in again in the same year. Many people, because of the titles of the accounts, are using them for plain vanilla savings, but that is not what they are designed for. If money is going in, you should leave it there for the year... unless you are sure you are not going to put it back in again.

Basically, TFSA's allow account holders to invest up to $5,000 a year in the accounts, and the gains therein can grow tax-free. They have been very popular, with more than five million opened since 2009. But the average penalty for those who "over-contributed" to the accounts by taking money out and then putting it back in again was $179.10. The Federal Government's Revenue Minister Keith Ashfield said in a statement last June that "We understand that it may take time for some Canadians to learn about the program and for some financial institutions to properly inform their clients about this product. ... We have taken the decision to be as flexible as possible in cases where a genuine misunderstanding of the TFSA contribution rules occurred." And thus the government has granted relief to most of those who complained about the penalty.

To be sure, the rules are not being explained to most Canadians when they open the accounts. The information is located in the fine print of most of the account opening documents. For Scotiabank it states; "The amount you withdraw can be put back in your TFSA starting the following year without impacting your contribution room." It also notes that a one per cent per month over-contribution penalty will be levied by the CRA to any excess contributions, similar to the rules for an RRSP.

In addition, the major banks are advertising the TFSA's as savings accounts, when in actuality they are more like Tax-Free Investment Accounts. Money should not be taken in and out like with a conventional savings account. Rather, since stocks and other investments may be held within them, the TFSA's should be used to generate longer-term income through the use of dividend paying stocks or mutual funds. A couple high-quality long-term stocks, such as Imperial Oil (TSE:IMO) and Scotiabank(TSE:BNS), would be great names for inclusion in a Canadian's TFSA. The intelligent investor will put something in their TFSA that they might otherwise have had to actually pay tax on... and since most banks do not pay you enough interest on your GIC's or cash savings, you will often not need to shelter that income from taxation. You want to shelter your largest potential gains from taxation, and most often those gains will arise from high-quality, dividend paying stocks. So take a look at your TFSA and ensure that it has the right investments inside it because, more often than not, the banks have been not giving the best advice on these accounts.