Portfolio Swap.

portfolio swap
Portfolio Swap

Good morning, this morning I decided to switch things up a bit. One of my main goals this year is to create a better and more consistent dividend growth portfolio. Utilities have really pulled back recently on the rate hike news. I have really wanted to get into either fortis or Canadian utilities.

One of the biggest things I kept thinking about was I didn’t want to own 4 different utilities. I already own Hydro One, Algonquin power and Brookfield renewable. As you can see all three of those companies don’t have the track record of either fts or cu. So I decided to sell one position and reinvest that money into the new purchase.

Hydro One

For the 2nd time now, (yes I know, kinda dumb) I decided to sell hydro one. It really has had no growth, but is in the process of a nice acquisition. Could this add a bunch of growth to hydro one? Yeah I would think so. One of the main reasons I like hydro one is I’m a customer and they basically have a monopoly in Ontario. The biggest downfall (which I originally thought was a good thing) is the government. They own 47.4% of hydro one, with the goal of owning only 40%.

The problem is the public loves to complain about hydro rates. Since the government wants their votes, they generally force hydro one to lower rates. That’s a big reason hydro one wants to expand south of the border. I really started to hate the political aspect of this stock. Whats going to happen when the conservatives come into power? They were against the liberals selling hydro one.

Besides, I already am going to get a pay cheque from hydro one now. The solar panels are officially 100% done. The power generation hasn’t been that good though, with all this snow on them. 45 kw so far (which is only 13 bucks) – since December 27th.

I decided to sell our whole position in Hydro one for a loss of about 40 bucks. This wiped out $177.76 in forward dividends. Hydro one has a p/e ratio over 20 while cu and fts are around 17 after the recent dip.




So which stock did we start a new position in?

It was a hard debate between Fortis and Canadian Utility. Cu has a 46 year record of raising dividends while Fts is right behind at 44. Here’s some Comparisons of both currently.

Fortis
  • P/e 17.6
  • Yield – 3.87%
  • 8.02 % higher than 52 week low
  • 9.7% lower than 52 week high
  • 10 yr avg div growth rate – 7.1
  • Drip discount 2%
  • Market Cap – 18.47 billion
  • The stock price has went up 36.38% in the last 10 years
Canadian Utility
  • P/e 17.6
  • Yield – 4.38%
  • 0.64 % Above 52 week low
  • 15.62 % lower than 52 week high
  • 10 yr avg div growth rate – 8.6
  • Drip Discount 2%
  • Market Cap – 9.7 billion
  • The stock price has went up 60.97% in the last 10 years

The Purchase

Originally I had it in my head to buy Fortis, but as you can see Canadian Utilities currently seems like the better buy. They are better in almost every category. The 10 year stock price increase surprised me the most. Fortis averaged a return on investment of 7.5% a year, while cu was over 10% the last 10 years (based on stock appreciation and the dividend).

We purchased 153 shares of Canadian Utility with the proceeds of the sale and an additional $1000.

This purchase will add $240.69 in forward dividends, but since I sold Hydro one the difference is only $62.93. I’m happy to switch up the 2 companies, since Canadian Utilities has a fantastic track record and is basically a set it and forget it stock. While Hydro One tends to be a political chess piece at the moment.

This is my first move with our stocks to create a better dividend growth portfolio. I now think my 3 utilities are pretty solid with Canadian Utilities, Algonquin and Brookfield Renewable. While I don’t think you can really go wrong with either fortis or Canadian Utilities, I’m curious what your thoughts are. What do you think? Should I of bought fortis instead?

Cheers!

Hey I’m Rob, creator of Passive Canadian Income.

In 2011 me and my wife had almost $60,000 in debt and a negative $7,000 Net Worth. Through hard work and financial education we paid all that off. Now we are focusing on increasing our Passive Income Streams to make the money work for us. Feel Free to Follow along the Journey!

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23 Responses

  1. Hi, Canadian friend. Thank you for showing us your interesting purchases. you’re still one of my favorite blogs from my long list

  2. Wally says:

    PassiveCanadianIncome,

    Thanks for sharing your thoughts on these stocks! I have held Fortis for over a year now and it has done great and paid a nice dividend. But not you got me thinking about Canadian Utility…..hmmmn? Keep up the good work with the blog. I’ve started to work on one slowly too! Lots of work to do, but lots of fun too! šŸ™‚

    Thanks,
    Wally

  3. Mark says:

    Happy to own a few hundred shares of FTS and CU. Both DRIPing away until I need the cash.

    Dumping H was a good call in favour of these stocks. Don’t forget EMA and AQN for juicy dividends. AQN should raise their dividend again soon!!

    Mark

  4. Frankie says:

    Both sound like decent business with fair valuations and good yields – sounds like you couldn’t go too wrong either way. That yield on Canadian Utility of nearly 4.4% sounds great though – do you guys get a partial imputation benefit on all dividends in Canada? Does that yield take that into account?
    Frankie recently posted…Fully-Franked Fund Investment #3: Prime Financial Group (PFG)My Profile

  5. Jordan says:

    I’ve owned AQN for a while now- once I dump my mutual funds and buy individual stocks ill look at adding either FTS or CU(or maybe both).
    I dont think you can really go wrong with either of them. Good buy !

  6. Cris says:

    Indeed Hydro One’s fundamentals are getting worse and the political factor has to be considered, special with Liberals in power. Better to work for Hydro One then to be an investor.

    Last weekend (today I updated my spread) I analyzed most of the utilities and here are my results:

    Stock Price 1 y Change % 1 y Ttl Return % 5 y Ttl Return% Dividend Yield % P/E P/B Debt/ Equity BV & Div value Expected return DCF value DCF expected return Average value Average expected return %
    ACO 43.86 -4.15 -1.29 3.14 3.43 17.2 0.69 1.22 66 6.80% 25 6.90% 45.5 6.85
    ALA 29.03 -10.48 -3.96 2.29 7.54 61.77 1.48 0.78 26 1.40% 11 5.60% 18.5 3.5
    AQN 13.75 21.79 26.93 16.98 4.22 27.5 1.56 1.23 11.7 0.80% 13.2 9.80% 12.45 5.3
    CU 35.56 -4.95 -0.96 2.18 4.42 17.43 1.91 1.76 35.8 2.60% 30 9.00% 32.9 5.8
    EMA 46.12 0.28 4.92 8.75 4.9 17.21 1.65 2.27 63.3 5.90% 54.5 11.00% 58.9 8.45
    ENB 49.5 -13.94 -9.73 5.72 5.45 25.13 1.32 0.96 108 10.60% 22.3 6.50% 65.15 8.55
    FTS 43.84 -4.92 10.16 8.1 3.88 17.61 1.2 1.28 61.6 6.10% 42.1 9.80% 51.85 7.95
    H 21.92 -9.57 -5.98 N/A 4.01 20.49 1.33 1.18 18 2.00% 15.7 7.50% 16.85 4.75
    TRP 59.82 -4.33 -0.34 7.56 4.18 29.61 2.34 1.66 40.4 0.20% 20.4 5.50% 30.4 2.85
    VNR 22.19 6.68 12.16 11.53 5.23 15.74 1.11 0.14 51 11.00% 22 10.00% 36.5 10.5

    Hope that the info can be read…

    Here are my opinions:
    -If you do not own Enbridge, I will still consider buying at this level
    -All the big utility stock should be considered but my preference goes for Fortis, Emera, CU, ATCO… in this order
    -Also, I will consider Valener and Tidewater from the small players.
    I own a few utilities (AQN, FTS, ENB, EMA, BEP, TWM), and thinking adding to Fortis, and adding to either CU or ATCO (ATCO is around half of CU)
    Also, I own Tidewater (is not in the list) and if Valener is getting close to $20 I will buy it.

    As a conclusion, many of the utilities seems to be in a good position to get in… I was looking to buy an Utility ETF but all have a high MER, which I don’t like.

    • Hey cris. Nice breakdown, its hard to read yeah. But it can be done! Enbridge is a energy stock isnt it? Its classified that for me. Either way if it wasnt my biggest holding i would be adding to them. Im a big fan. Never heard of tidewater before.

      Thanks again for your wisdom.
      Cheers
      Rob

  7. May says:

    I have also bought some utility stocks recently. aqn, aco.x, fts and ema. I already have some cu, maybe adding more.

  8. PCI, I think portfolio re-engineering like this is a good activity. One can accomplish a lot: increase yield, increase dividend growth rate, consolidate positions, reduce risk, etc. Good thinking and good work. Tom
    Tom @ Dividends Diversify recently posted…O My! Now Iā€™m a Real Estate Guy.My Profile

  9. Pellrider says:

    Funny that I also bought CU this month. You are doing a great job in studying the stocks. I was always reluctant to buy H because of the politics.

    • Rob says:

      Hey Pell sounds like a good buy on your part… ahhh i could be better. Ive taken a beating on corus entertainment lately. Lomg term ill be ok though!
      Cheers

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