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Smith Manoeuvre Portfolio – February 2013

For those of you just joining us, below is my portfolio that is leveraged with money borrowed from my home equity line of credit (HELOC). As the money borrowed is used to invest, the interest charged is tax deductible. I write an update every so often to show new positions added along with any market gains/losses. For more details on the strategy and procedure, check out my modified smith manoeuvre strategy and my comparison of online stock brokers.

It has been about six months since the last update (August 2012) with a bit of activity in the leveraged portfolio.  I didn’t add to any existing positions, but added a few new positions.    I started new positions in SNC Lavalin Group, Crescent Point Energy, Bird Construction, and Calian Technologies.

Since this portfolio is focused on dividend growth stocks, which dividend paying companies increased their distributions since the last update?  I’m happy to report that several companies did, particularly the bank stocks.  In my portfolio, dividend increases came from:

  • Royal Bank, CIBC, Scotia Bank, Fortis, TransCanada Corp, Bank of Montreal, TD Bank, Enbridge, Canadian Utilities, Ensign Energy, Mullen Group, Rogers Communications, George Westin, Pason Systems, Thompson Reuters, and Canadian Oil Sands.

My dividend watch list remains similar where I am looking to increase my position in BMO, TD, ENB, FCR and possibly add new positions in Canadian National Railway (CNR), Bell Aliant (BA), Potash Corp (POT), Shoppers Drug Mart (SC) and Indigo (IDG) when/if their valuations become attractive.

The Smith Manoeuvre Portfolio as of February 18, 2013 (prior to open) – note that any changes to the portfolio are indicated in bold.

StockSymbolSharesAvg Buy PriceTotalDiv/ShareYield
Royal BankRY.T100$48.39$4,838.99$2.404.96%
Power FinancialPWF.T105$35.14$3,689.65$1.403.98%
Scotia BankBNS.T105$41.91$4,400.52$2.285.44%
Manulife FinancialMFC.T125$33.12$4,139.48$0.521.57%
Fortis PropertiesFTS.T150$25.63$3,843.98$1.244.84%
TransCanada CorpTRP.T100$33.50$3,349.74$1.845.49%
AGF Management LimitedAGF.B.T50$22.71$1,135.49$1.084.76%
Bank of MontrealBMO.T25$44.17$1,104.24$2.886.52%
Husky EnergyHSE.T135$32.53$4,391.27$1.203.69%
TD BankTD.T50$48.24$2,412.23$3.086.38%
First Capital RealtyFCR.T160$9.71$1,555.20$0.848.65%
Canadian UtilitiesCU.T50$36.40$1,819.99$1.945.33%
Ensign Energy ServicesESI.T200$14.98$2,995.98$0.442.94%
Mullen GroupMTL.T100$14.54$1,453.98$1.208.25%
Rogers CommunicationsRCI.B.T100$34.39$3,439.48$1.745.06%
George Westin LtdWN.T50$68.64$3,441.99$1.522.21%
Pason SystemsPSI.T200$13.97$2,793.98$0.483.44%
Corus EntertainmentCJR.B.T100$19.87$1,996.99$0.964.81%
Thompson ReutersTRI.T90$33.40$3,006.18$1.303.89%
Brookfield PropertiesBPO.T150$16.01$2,401.23$0.563.50%
Canadian Pacific RailwayCP.T30$53.90$1,626.99$1.402.58%
Canadian Oil SandsCOS.T150$19.14$2,871.48$1.407.31%
Leons FurnitureLNF.T200$12.06$2,412.98$0.403.32%
Calfrac Well ServicesCFW.T50$23.00$1,149.99$1.004.35%
Baytex Energy Corp
Finning InternationalFTT.T100$24.10$2,409.99$0.562.32%
SNC Lavalin GroupSNC.T50$38.55$1,927.49$0.882.28%
Crescent Point EnergyCPG.T50$37.13$1,856.49$2.767.43%
Bird ConstructionBDT.T150$13.91$2,085.99$0.725.18%
Calian TechnologiesCTY.T100$20.88$2,087.99$1.125.36%

More Stats

  • Total Cost Base of Equities (inc. fees): $91,652.20 (vs. $79,921.26)
  • Market Value of Equities (not including dividends or cash):  $109,586.40 (vs. $87,749.55)
  • Total Dividends / Year: $4,212.34 (vs. $3,499.04)
  • Portfolio Dividend Yield: 4.60% (vs. 4.38%)

Sector Allocation (based on market value)

  • Financials:  26.42% (vs. 30.96%)
  • Utilities:  8.58% (vs. 8.43%)
  • Energy:  31.28% (vs.  29.89%)
  • Resources:  0.00% (vs. 0.00%)
  • Real Estate:  5.14% (vs. 4.95%)
  • Consumer/Telecom:  14.12% (vs. 14.13%)
  • Other: 14.45% (vs. 11.65%)

Common Questions:

Why the high concentration in financials and energy?

With regards to sector allocation, you may notice that this portfolio is fairly concentrated in financials and energy.  Note though that this is one of my accounts where I treat all of my accounts as one big portfolio.  In other words, my international and other sector equity exposure are in other accounts.

Why don’t you use a dividend ETF instead?

Couple of reasons, first, most Canadian dividend ETFs hold stocks that distribute return of capital which can affect the tax deductibility of the investment loan.  Second, the MER eats into the dividend.  I keep the expenses in this portfolio very low through buying but rarely selling.

Should I start the Smith Manoeuvre?

There have been a lot of readers who have mentioned that they are interested in a leveraged portfolio.  Over the long term it may be lucrative.  However, over the short term, equities are volatile and can put the portfolio deep in the red.  My portfolio during 2008 is a prime example of what can happen.  If you can’t stomach losing 20-30% in the portfolio in any given year, then your risk tolerance isn’t suited for leveraged investing.  Here is an article I wrote answering a reader question “Should I Start the Smith Manoeuvre?”

Disclaimer: The securities mentioned in this post are not recommendations to buy or sell and should be used for informational purposes only.

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 16 comments… add one }
  • Avatar Jungle February 18, 2013, 11:04 am

    After you own the banks, a railway, telecom and pipeline, maybe some oil, I find it hard to keep adding new Canadian companies because we don’t have the selection and other companies, like the us does.

    I recently added THI and TD for dividend growth, but really I am going to stop adding new Canadian companies and start adding US ones in our rsp.

    BTW do you not drip? You can easily get another 1-3% in annual dividend growth, with most shares.

  • Avatar Echo February 18, 2013, 12:10 pm

    @Jungle – In the grand scheme of things these positions are rather small so rather than continuing to search under rocks for Canadian dividend payers I would add to the existing positions as they become more attractively priced. Sometimes that means waiting awhile.

  • Avatar Sarlock February 18, 2013, 1:43 pm

    When the main purpose is tax deductibility, you want the Canadian dividend stocks for this purpose unfortunately. Do as Echo says, just increase your holdings of companies that you already have.
    As for a drip approach, that can work… but you can just as easily turn your dividend income over in to new purchases as well and accomplish the same thing. And perhaps better because you can optimize your purchases with price swings.

  • FT FrugalTrader February 18, 2013, 2:16 pm

    @Jungle, Yes, I agree about the lack of selection of Canadian stocks. I keep my US dividend payers in my RRSP. I do not DRIP simply for the fact of the paperwork involved for tax time (if i sell). I would need to track the adjusted cost base for every DRIP, which means every quarter.

    @Echo @Sarlock, yes, i’ve also come to the conclusion that adding is likely a better bet at this point. However, it’s difficult to find value in this market!

  • Avatar Value Indexer February 18, 2013, 4:11 pm

    You’ve mentioned before that you have a watchlist and you buy in when those stocks look good – what are you looking for before you buy? A specific dividend yield?

  • Avatar Canadian Dividend Blogger February 18, 2013, 5:04 pm

    Do you feel that 35 positions is becoming over diversified? Have you thought about trimming the herd? Some of these companies have great value (Banks, Bird, Shoppers, Thomson Reuters) but some are definitely potential dogs, like AGF and Transalta.

  • Avatar Danielle February 18, 2013, 7:04 pm

    I noticed an average price of $53 for CP Rail – well done! It is close to $119 now and is expected to go north of $120

  • Avatar Sarlock February 18, 2013, 8:17 pm

    The oil sands stocks are suffering right now due to lack of pipeline space to reach markets and get a higher price for their product. I expect these problems to be resolved over the next 2-3 years and as projects get approved and constructed the prices will react accordingly. Could be a good buying opportunity at these prices and yields.

  • Avatar Investor2 February 19, 2013, 6:43 pm


    I noticed that this portfolio is not exposed to the materials sector, but is overweight utilities and telecom relative to the TSX sector makeup. What was your motivation for leaving the materials sector out of this portfolio?


  • Avatar Sensei February 20, 2013, 5:14 pm

    Might be a silly question, but, when you say “buying and rarely selling”, are you by any chance automating your investment by buying a fixed amount at a set frequency?


  • Avatar Doug Willson February 21, 2013, 6:14 pm

    I can’t believe you still don’t have Computer Modelling Group which is on the brink of hitting $1B and it is 25th largest software company in Canada.

    Spectacular growth in the stock, profit and the dividend!

  • Avatar Jim February 22, 2013, 10:24 pm

    Hi ….thanks for the great information….but why no BCE ? thx again,Jim

  • Avatar Michael March 18, 2013, 10:01 pm

    Hi FT.

    Maybe a stupid question but for instance.

    I can currently get a HELOC @ prime (3.00%).
    And then i create a portfolio similar to yours which yields 4.6% dividend.
    Then next year, they raise the prime rate to 4.00% (hypothetically), and the unfortunately dividend yield decreases to below prime, then you’d be negative right?

    this is ignoring any capital gain or loss that might have occurred on the leverage portfolio.

    have this ever happened to you?



    • FT FrugalTrader March 18, 2013, 10:23 pm

      @Michael, you’ll need to calculate your after tax interest rate, and the rate that you’ll pay on your dividends. Even if you are negative, the spread between those two rates will buffer the loss. My portfolio hasn’t gone negative “yet”, as rates have been low over the past several years. However, if rates do spike, then I’ll likely start paying down the investment loan with savings.

  • Avatar Michael March 18, 2013, 10:33 pm

    Thanks FT, i forgot about the tax rebate on the interest. since my marginal interest rate is 46.41%, my real interest paid after the tax credit is actually only 1.6077% on a 3% HELOC!

  • Avatar Joe May 28, 2013, 8:06 pm

    I have been reading about the manuver and they advocate monthly dividends and reinvesting the dividend after paying off the interest mthly. Are you not missing out by going quarterly? Also have you looked at the Quadrainvest products? Especially PDV? Are these returns on capital as well?

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