Investing Pursuits: March 2017

Tuesday, March 28, 2017

Option Trades : Trade #2

      Earlier in the day, I placed second limit order to try to collect some option premium(s). You can read about the first trade form this morning, by clicking here. I

      I have owned 200 shares of Rogers Communications Class B stock for quite some time.  I decided to write covered calls at a $60 strike price and April 21, 2017 expiration date. The number of days to expiration is 25. The limit order was set for $0.30 per contract. I collected a premium of $48.05 including commissions.

Click to Enlarge

        This is a one year chart of RCI.B. Rogers has traded below $60 over the past year. Investors have been retreating from this stock at times. The stock has paid a quarterly dividend, but Rogers Communications has not raised its dividend for about 2 years and kept their dividend the same. A major reason for this was due to Rogers and its competitor Shaw coming together in a partnership with Shomi. Shomi was created to lure their customers to sign up with Shomi, instead of the titan Netflix. Shomi ended up not being successful and the 2 companies shut it down Nov 30, 2016. Both Shaw and Rogers took a huge write down as a result of shutting down Shomi.

      I decided to write covered calls on my position to collect some premium. I am slightly bearish on RCI.B at the moment.

Summary:

Scenario #1: Option Not Assigned

Premiums after commissions: $48.05
Strike Price = $60.00
Days to Expiration = 25
# of contracts = 2

  Scenario #1 : Option Not Assigned.

Total Return= $48.05/(2*100*$60.00)
                    = 0.40%

This return of 0.40% is for 25 days.

Annualized Return =[48.05 / (2*100*$60) ] * (365/25)
                                = 5.85%

Scenario #2:   Option Assigned

       If the covered called is assigned before or at expiration, my capital gain would be increased by the amount of net premium collected.

Conclusion:

     An investor in the capital markets can make money 3 ways from a cash flow perspective. These 3 ways are interest, dividends, and option premiums. An investor can sell a covered call when they are slightly bearish on the stock and want to make some extra income. Investors can also sell covered calls, as they would like to be paid for something they are willing to do (Sell at strike price) anyway.

Please Note: Rogers Communications trade on both the NYSE and the Toronto Stock Exchange. The stock trades on the NYSE under ticker symbol RCI. The stock trades on the Toronto Stock Exchange as RCI.A and RCI.B

   I will update my investment tab speadsheet in earlier April to reflect this transaction:

Disclosure: Long RCI.B, SJR.B

DISCLAIMER

I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.

Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk.

Option Trades : Trade #1

      Earlier in the day, I placed limit order to try to collect some option premium(s). Investors receives option premiums in the derivatives (aka options ) markets when he or she sells an option.  If an investor is bullish on a stock, the investor can reduce their risk by buying a call option or selling a put.  The investor will receive the premium minus commissions for only do the latter. If an investor is bearish on a stock, the investor can reduce their risk by buying a put or selling a call. Again, the investor receives option premiums for only the latter. Selling puts or calls are the basic ways an investor can receive option premiums.  There are also different types of option trades which are more advanced.

    I am going to talk about one of these trades below.

    Sometimes a stock falls in price a lot which can mean a buying opportunity if you previously researched a company. After careful research an investor can decide on a price they are willing to purchase shares of this company. Did I do this? No, I did not. I quickly glanced at the chart this morning. Prior to the opening bell this morning, Home Capital Group fired its CEO over night. The stock price fell a lot due to the recent past events of the company coupled with the firing of their CEO. The stock fell approximately 10% and then rebounded to finish down 9.60% to close at $25.06 per share.

      I set a limit order, after the markets opening, to sell 2 put option contracts with an April 21, 2017 expiration date and strike price of $25.00 strike price. I collected a total of $128.05 after commissions.

Summary:

Scenario #1:   Option Not Assigned

Premiums collected: $128.05
Strike Price : $25.00
# of contracts : 2
Days to expiration: 25 days

Total Return = $128.05 / (5000-$128.05)
                      = 2.63%

This return of 2.63% is for 25 days.

Annualized Return =[ $128.05 / ($5000-$128.05)] *[365/25]
                               = 38.4%

     Currently, the interest rate on my high interest savings account is 0.80% per year. The return on this option definitely is a lot better, plus more tax efficient. Of course, the low interest rate on my savings account is a lot less riskier to the downside. Can an investor protect his downside when selling a naked put option? An investor can BUY a put option for insurance at a lower premium and a strike price that is lower. The lower strike price would mean smaller premium out of pocket as it is more out of the money. Buying a put option for insurance with the premium collected from the short put, means an investor reduces risk if he or she is wrong. I have not done this, but will definitely consider it.

Scenario #2:

     The option could be assigned on or at expiration. My adjusted cost basis would be reduced in an amount equal to the premium collected minus commissions.  Therefore, my yield would be greater than if I just bought the stock at $25.00

Note: I will update my investing tab spreadsheet in early April to reflect this transaction

DISCLAIMER

Saturday, March 25, 2017

Company Summary : WestJet

On February 29th, 1996 a new airline in Canada took flight. This new airline was called WestJet based out of Calgary, Alberta. This company started small with only 3 planes, 5 destinations, and 220 employees. Most employees of WestJet (over 85%) own shares in WestJet though their employee stock purchase plan. As a result, WestJet refers to their employees as WestJetters because they are actual partial owners of WestJet.

WestJet is in it's 21th year of business. It had grown tremendous over that time.

Some of the highlights of 2016 are7 as follows:

12th consecutive year of profitability
The 4th Quarter of 2016 was the 47th consecutive profitable quarter.
Returned appromiately $193.2 million dollars to shareholders via dividends and buybacks.

Since 2010, WestJet has returned approximately $942.5 million to shareholders via dividends and stock buybacks. WestJet share price as of March 24 is $22.63 per share. The current annual dividend rate is $0.56 per share per year. Therefore, the current yield is 2.47%. The dividend payout ratio based on the previous 4 quarters of net income is 22.76%. With a dividend payout ratio low, I believe WestJet will continue to pay dividends and buyback shares in the foreseeable future.

WestJet has grown its revenue from $3.427 billion in 2012 to $4.123 billion in 2016. This represents a compound annual growth rate (CAGR) of approximately 4.73% over the last 5 years. Due to the nature of the airline industry and its related costs, is a good number.

WestJet available seat miles as grown over the last 5 years. Available seat miles (ASM) is a measure of an airline's passenger carrying capacity. ASM is equal to the number of seats available multiplied by the miles flown. WestJet's ASM has grown from approximately from 22.064 billion in 2012 to 29.298 billion in 2016. This represents a CAGR of 7.35% over the last 5 years. WestJet has added more planes to its fleet and added more destinations to its operations as it continues to grow.

WestJet has increased its diluted earning per share from $1.78 per share in 2012 to $2.45 per share in 2016. This represents a CAGR of 8.31%. A CAGR for EPS of 8.31% over the past 5 years is quite impressive, when you take into account the recession in its home province of Alberta. WestJet operates in 4 cities in Alberta which are Grande Prairie, Fort McMurray, Edmonton, and Calgary. Grande Prairie and Fort McMurray are smaller cities, so flights to and from these cities involved flying from bigger airport.

In 2016, WestJet had an operating margin of 10.7%. Their revenue increase 2.3% Y/Y. This increase was operating margin was driven by increase an increase in ancillary revenue which was partially offset by lower guest revenue resulting from downward pressure on their fares due to the economic downturn of the energy sector (Source: WestJet 2016 Annual Report).

Conclusion:

WestJet has remain profit despite their home based province of Alberta being in the worse recession since the company was founded in 1996. Alberta has been in a recession for over 2 years. My previous employer had approximately 98% of their business dealing with the energy industry. As the demand was not there, my company had several round of layoffs and eventually closed its doors in late 2016. Due to oil currently trading less than $50 per barrel, I foresee Alberta remaining in a recession in 2017. The government of Alberta recently tabled its budget in the past 2 weeks, and they predict the price of oil to remain below $60 into 2021.

WestJet has expanded its destinations both nationally and internationally over the past years. This means the company can reduce their flights in markets were the demand is not strong. People from all over Canada work in the oil patch in Alberta, in which most of them working in Fort McMurray. Although Alberta is in a recession, the rest of Canada is not. Therefore WestJet still has a lot of potential passengers to use their services.

On October 28, I purchased 140 shares of Westjet Airlines (WJA.TO) at $22.39 per share for a total cost of $3140.04 including commissions.

6 month chart

WestJet had traded between $20 and $24 over the last 6 months. I am possibly thinking taking profits if the stock rises a bit here and buying back in a lower price than $22.39.

I have never worked for WestJet, but I am happy to be a shareholder. I flew across Canada on WestJet and the their customer service was excellent.

Disclosure: Long WJA.TO

DISCLAIMER

Wednesday, March 15, 2017

How Oil Prices Affect The Economy

     We all use petroleum products in our daily lives in one form or another. This consists of things such as products made out of plastic, gasoline for your vehicle, heating oil or natural gas to heat your place of residence,

     Crude oil prices of been mentioned more frequently as of late due to the fall in oil prices latterly.
As indicated in the following 1 hour chart, the price of a barrel of crude oil for WTI crude oil has falling a lot.

Click to expand

    This chart shows the price of oil fell approximately $7.00 per barrel over a 15 day period. The price fell to a low of around $47.10 per barrel before heading upwards to around $48.50 at the time of the screen capture. This massive decrease is due to oversupply in the market as the United States has increased their production, although OPEC has cut production.

    A commercial vessel carrying oil has been hijacked in the past views days off the coast of Somalia. This has happen in the past couple of days, so this event is likely what has caused the upward movement for the price per barrel after hitting a low of approximately $47.10.

     In the past week, Royal Dutch Shell sold out of their oil sands assets in northern Alberta. The buyer of these assets was Canadian Natural Resources Ltd. The value of this transaction is approximately 8.5 billion dollars.

      As of the previous week, the utilization of drilling rigs is down across the 4 provinces stretching from BC to Manitoba. Most of the drillings rights are located in Alberta, which is currently at 35% utilization. The Canadian Association of Oilfield Drilling Contractors states that each operating rig corresponds to approximately 135 jobs in the communities. With the price of oil, companies are very hesitant to hire extra staff or even to operate at all. This has effected the lives of lots of people in western Canada. Also, the people from across the country are not able to fly in or out of the Prairies, which means less money circulating in the eastern provinces.

     The optimism in the western Canadian oil patch has subsided. This will keep investors and potential oil patch workers returning to the industry. The oil patch affects the western Canadian provinces, with the greatest impact felt in Alberta. When the price of oil remains low, the amount of oil patch workers is reduced. This results in hotels, restaurants, and tourist destinations to cut back on staff.

    I had investments in the oil industry.  Enerplus, is an oil and gas producer with assets in the United States and Canada. Enerplus (Ticker Symbol ERF) trades on both the Toronto Stock Exchange and NYSE.  Enbridge, is an energy supplier that has assets in both Canada and United States. Enbridge (ENB) transports energy through their pipelines, solar panels, wind turbines etc. ENB trades on both sides of the border.

EDIT: A major component of the oilfield is oilfield service companies. These companies service the entire oilfield in different types of services and processes required when drilling oil. A previous company I worked for has closed down during the last few months after layoffs over a 18 month span. The company made parts for the oilfield. I am unable to name the company that I work for, due to privacy issues.

Disclosure: I do not own shares in Royal Dutch Shell or Canadian Natural Resources Ltd. I   have never owned shares in either of these companies.

Disclosure: Long ERF and ENB

DISCLAIMER

Friday, March 10, 2017

Lawsuit? What Does This Have to Do With Investing?

    A stock that I recently purchased and wrote a covered call in was the topic of a report by CBC. CBC, or Canadian Broadcasting Corporation, released a report about TD and their practices of their employees. This report in the news shows what effect a report or any news, besides supply and demand, can affect the price of a stock. Whether the things mentioned were true or not, caused TD stock to fall dramatically. This was the largest one day drop of TD since 2009.

    My covered called with a $70.00 strike price expired worthless. For 10 days, my return on the covered call was 0.415%. This was weekly option.

    I will continue to write covered calls if the premium is reasonable.

Disclosure: Long TD

DISCLAIMER

Sunday, March 5, 2017

Recent Purchase

I was looking to put some money to work. A stock that I owned was trading below my purchase price of $19.99 per share over the past while.

A 3 month chart shows the stock has stock is down 9.74% from 3 months ago. This is after a huge share price drop prior to my initial purchase.

Click to Enlarge

A 5 day chart of HLF shows the stock is down about 2.22% over the last 5 days.

Click to Enlarge

I added to my position in HLF in my margin account by purchasing 50 shares at $17.03 on March 3. The total cost of purchase is $856.62 including commissions. The stock currently pays an annual dividend of $0.56 per share. This purchase adds $28.00 to my annual dividend income with a yield on cost for this purchase of 3.27%.

I now own 100 shares of HLF. People are paying more attention and looking to make better choices about the food they put into their bodies. People have been choosing to eat less red meat due to health reasons and the cost. One of these choices is seafood. Nowadays, individuals and families are more busier than ever and tend to deviate towards quick meals and restaurants. With choosing to eat at home, families reduce their food costs and one of these ways can be eating ready to cook products from Highliner Foods. Highliner Foods products are also used in restaurants.

NOTE: Highliner Foods trades on the Toronto Stock Exchange under the symbol HLF.

I will update my investing tab spreadsheet in early April to reflect this purchase.

Disclosure: Long HLF

DISCLAIMER

Saturday, March 4, 2017

Recent Dividend Increase

I recently wrote about purchasing 100 shares of TD and then selling a covered call for that stock. At the time of purchase the annual dividend rate was $2.20 per share. The purchase was during earnings releases for a majority of companies.

All the big 5 banks have now released their earnings. On March 2, TD released their earnings for the recent quarter. They announced an increase in the annual dividend rate from $2.20 to $2.40 per share. This represents an increase of 9.09%, which far greater than the rate of inflation. For the past couple of years TD increases their dividend once a year, whereas the other banks of been increasing their dividend twice a year. The dividend raises of the other big banks over the span of 4 quarters usually represents an yearly increase between 7% to 10%.

Prior to TD increasing their dividend, my annual dividend income was increase $220.00.

Since I own 100 shares of TD, the dividend increase has raised my annual dividend income by $20.00. If I was to invest my own money and assuming a 3.5%, it would mean I would have to invest roughly $571.43 of my own money.

Please Note: My shares were purchased on the Toronto Stock Exchange. TD trades on both the Toronto Stock Exchange and NYSE.

Disclosure: Long TD

DISCLAIMER

Recent Purchase and Option Trade

      I recently purchased a major Canadian bank, which you can read about here. TD bank (Ticker TD) is one of the 5 big banks in Canada. They have banks in Canada and the United States. TD trades on both the NYSE and the Toronto Stock Exchange.

          After my purchase of 100 shares of TD on February 27, I wrote a cover call on TD with a strike price of $70.00 Mar 10, 2017 expiration date. I collected a net premium $29.05 after commissions for this covered call. The total cost of the purchasing of 100 shares was $6966.95 including commissions.

           I have owned TD in the past, but my 100 shares were "called" away as the call option was assigned. The stock has risen a lot since that time.

Summary

Cost of purchase = $6966.95
Premium collected = $29.05
Strike Price = $70.00
Days until expiration = 10 days
Option Assigned Fee - $24.95

Scenario #1:   Option is not Assigned

Return on option: = ($29.05/$7000)*100%
                             =   0.415%

This return is for 10 days. The annual interest rate on my high interest savings account is 0.80%.

Annualized Return =[ ($29.05/$7000)*(365/10)]*100%
                                = 15.15%

Scenario #2 : Option Assigned

Profit = Proceeds of Sale + Premium Collected - Option Assignment Fee - Initial Cost
          = 1*100*$70.00+ 29.05 - $24.95 - $6966.95
          = $37.15

Total Return = Profit / Initial Cost
                      = $37.15 / $6966.95
                     = 0.533%

What is the return if we sold $7000.00 through the normal way? The commission on the sale would be $4.95

Total Return =[ $7000-$4.95 - $6966.95] / $6966.95
                      = 0.403%

Disclosure: Long TD

DISCLAIMER

Friday, March 3, 2017

Dividend Income Update - February 2017

The month of February is another month of dividend income landing in my accounts. This money is used to help pay my expenses if it is needed. If the money is not needed, it is ALL used to purchase new investments to further increase my cash flow.

The markets continue to go higher in the month of February. The price of barrel of crude oil continues to trade over $50.00 per barrel and is currently around $52.00 per barrel. With the price of oil seeming to remain above $50.00, the drilling activity in western Canada has begun to pick up. It is no where near it was about 3 years ago, but certainly a big increase in activity over the last year and a half. Donald Trump gave his first speech to congress recently, which had a major impact on the markets the following day.

One thing for sure, is that I was paid dividends and distributions for being a shareholder or unit holder in various companies or funds. In Sept 2016, the Dream Office REIT in the margin account will be counted as dividend income for the first time.

Non-registered Account

Bank of Montreal (BMO) - $30.80
Emera Inc. (EMA) - $52.25
Enerplus (ERF) -$ 5.58
Dream Office REIT (D.UN) - $ 76.38
Potash Corporation of Saskatchewan (POT) - $25.77
Shaw Communications (SJR.B) - $19.75

TFSA

Boston Pizza Royalties Fund (BPF.UN) - $26.91
iShares 1-5 yr Laddered Canadian Corporate Bond ETF (CBO) - $0.62
Cominar REIT (CUF.UN) - $20.83
Dream Office REIT (D.UN) - $ 17.63
Horizons Natural Gas Yield ETF (HNY) - $4.43
Killam Properties REIT (KMP.UN) - $ 15.10

Total = $296.05

As the amount of distribution from D.UN inside my margin account, will have a large impact on the comparison of dividend income from 12 months ago. This dividend income total of $296.05 represents an increase of 2.181% increase over 3 months ago.

Dream REIT has reduced the amount of distribution they pay monthly which was announced in February 2016. Recently, I wrote about purchasing more units of D.UN inside a margin account. Starting in September, the distribution from this D.UN inside the margin account will be included in my dividend income.

I received $58.10 in options premiums in February.

I will update my dividend income tab with the new amount I will include my option premium income also. It is great to see money from passive income sources deposited into my brokerage account every single month.

How was your dividend income for February?

Disclosure : Long all securities above.

Photo Credit: www.mipaq,co.za

DISCLAIMER

Thursday, March 2, 2017

Portfolio Update : February 2017

       The month of February 2017 is now behind us. The price of a barrel of crude oil trades between $53 to $54 a barrel for WTI crude oil. The first day of March saw the S&P 500 and DJIA hit all highs. This March 1 rally was first trading day after Donald Trump's first speech to congress.

     I had 3 dividend raises since last Portfolio update.   The Bank of Nova Scotia (BNS) announced a dividend increase on February 28 of $0.08 annually to $3.04 per share, representing a 2.70% increase. This increase adds $4.23 to my annual dividend income. The Canadian Imperial Bank of Commerce (CM) announced a dividend increase on February 23 of $0.12 annual to $5.08 per share, representing a dividend increase of 2.42%. This increase adds $3.36 to my annual dividend income. Although the increases seem small by percentage, the big 5 Canadian banks have been raising there dividend twice on an annualized basis the past several years. The third dividend raise came via Killiam Properties REIT (KMP.UN) of 3.3% came on February 14th, which you can read about here. KMP.UN did convert Jan 1 2016 to a REIT from a corporation. The KMP.UN distribution increase increases my annual dividend income by $6.04.

      KMP.UN dividend increase will take effect with the April 15th payment date.

     These 3 dividend increases add a total of $13.63 to my annual dividend income. I did not have to show up to work at given location or put in any effort on my part. Based on a 3.5% yield, this is equivalent to investing $389.43 of my own money.

     On February 13, I wrote about the High Yield in Savings account method I started with. As of the time of that post I owned 14 units of HNY. During the past week I added to this position with the purchase of 12 shares units of $13.25. This will not be on my investing tab spreadsheet.

     On February 16, I wrote about the selling of a put option in Telus Corporation (T), which you can read about here. Telus is one of the Big 3 in the communications industry in Canada. The other 2 of the Big 3 are Rogers Communications and Bell Canada Enterprises.

   On February 22, I wrote about my purchase of units of A&W Royalties Income Fund inside my TFSA, You can read about this transaction here.

   I sold a put option contract in TD Bank (TD) with a strike price of $65.50 with a February 17 expiration day. This option expired on February 17, so therefore I get to keep the premium of $24.05 that I collected. Keeping with the theme of TD, On February 27, I purchased 100 shares of TD for a total cost of $6966.95 including commissions. On February 28, I sold a covered call on the 100 shares of TD that I currently own. I received a premium of $29.05 on this option, which has an expiration day of Mar 10, 2017.

Shares Acquired Through DRIP

3 Unit of D.UN.TO @ $20.08797 for a total cost of $60.26 (Margin Account)

1 units  of CUF.UN @ $14.61278 for a total cost of $14.61 (TFSA)

Please note, that the DRIPs inside my margin account and TFSA are synthetic drips which indicate the distribution or dividend must be enough to purchase whole shares.

As of February 2, the value of the portfolio is $102782.60. This is a 0.029% increase over last month's total. The spreadsheet in the investment tab above has been updated.

Disclosure:   all stocks mentioned.

Please Note: All stocks are from the Toronto Stock Exchange.

DISCLAIMER

Pages

Tuesday, March 28, 2017

Saturday, March 25, 2017

Wednesday, March 15, 2017

Friday, March 10, 2017

Sunday, March 5, 2017

Saturday, March 4, 2017

Friday, March 3, 2017

Thursday, March 2, 2017

DISCLAIMER