Wednesday, June 12, 2013

Banks, Energy and Utilities

I currently have a back log of blog entries for this site. So, I will start to publish 3 times a week instead of just twice to try to use up this backlog. I will now publish Mondays, Wednesdays and Fridays.

I have lately started buying stocks that I usually do not buy. I have recently done some investing in energy companies. Specially, I have bought Canadian Natural Resources (TSX-CNQ). I first bought CNQ in September 2012 because the dividend yield was relatively high. The 5 and 10 year median dividend yields were 0.73% and 0.75%. The current one was at 1.31% and I got it with a yield of 1.32%.

Another stock I bought was Ensign Energy Services (TSX-ESI). Until recently the dividend yield was less than 2% and generally running under 1.5%. Currently the dividend yield on this stock is running at 2.7%.

There is a school of thought on buying dividend paying stocks which thinks that you should use the dividend yield to guide your purchases. I generally look at the 5 year dividend yield compared to the current dividend yield. However, I often have yields going back further and I look also at these.

Generally, I only want to buy a stock which has a current dividend yield higher than the 5 year median dividend. Also, the higher the current dividend yield is above the 5 year median dividend yield the better the stock price.

The thing is I have a lot of utility stocks and I have done well with them, but any I have looked at in the last few years have been overpriced. They have not such a high price that I would sell them, but what you pay for a stock greatly affects the long term return you get. You do not want to pay more than a reasonable price for a stock. I have found no good utility stock at a reasonable prices for a while. The price of utility stocks has come down recently, but they are still pricey.

The Banks are different as they are selling at historically relatively reasonable prices. I did an article about the dividend yield on original purchase price of stocks. I made a spreadsheet and I have put it on my site. The original article is here. The conclusion was that nothing beats the banks on good dividends and good increases over the long term.

My study, of course, looked at the past and the past does not always reflect the future. All our major banks kept dividend level for a time after 2008. They are back to increasing their dividends, but not at the same rate as in the past. However, I think that given a bit more time they will get back to what they were.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

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