The 50K Report – Market Volatility (Q1FY2016)

Q1 FY2016 (January, February, and March)

- $50,000 passive income target. (eg. $1,000,000 at 5% will yield $50,000 per year.)
- Calculation of Total Book Value Required: $50,000 / % yield = Book Value (eg. 4.31% = $1,160,092.81)
- Current Target Book Value @ 4.5572%: $1,097,164.925
- Next major update: End of Q2FY2016 (April, May, and June).

Investment Goals:

1. Add to higher quality large cap equities.
2. Looking for opportunities to slim down number of holdings within portfolio.
3. Conversely, looking to broaden portfolio by sector.
4. Focus on stocks that can be DRIP'd.
5. Concentrate existing holdings to achieve $1,000 dividend mark (1K Club)

Distribution Changes:

- Distribution income declined from Q42015's $15,176.50 to Q12016's $14,221.3584.(-$955.1416 or -6.2935%)
- Decrease reflects movements made in reaction to market volatility and in particular crashing oil prices.
- Major reduction occurred March as two separate strikes of BNS Calls were exercised; reducing BNS holdings by 500 shares and $350.
- Achievement of reaching the Minimum Wage Goal is now at 86.47% with $2,373.49 outstanding.
- Noticed increasing TRP dividend was not recorded since Q4 2014.

Progress for Q1 FY2016. (Values represent potential full year cash flow.):

Book Value	$312,057.64
Yearly Div	$14,221.36
Yield Total	4.56%

- 3 goal posts: $17,550 (Approximate Minimum Wage), $25,000 (Half-way), and $50,000.

Dividend Goal	% Completion	Remaining
$50,000	28.44%	$35,778.64
$25,000	56.89%	$10,778.64
$17,550	81.03%	$3,328.64

Holdings:

- Monthly Change:

January

Book Value: $329,129.20

Yearly Dividend: $15,264.9934

Yield Total: 4.637994%

February

Book Value: $339,061.66

Yearly Dividend: $15,978.06372

Yield Total: 4.712436%

March

Book Value: $312,057.64

Yearly Dividend: $14,221.3584

Yield Total: 4.557286%

Updates:

- Reduced: BNS, IPL, T, INN.UN, CAR.UN

- Added: SLF, WFC, MCBC, X, TRP

- Dividend Increased: BCE, GWO, MFC, TRP
- Removed: NA, HSE
- HSE eliminated its dividend

- TRP dividend increased and noticed record was not updated since Q4 2014.

Upcoming:

- I'm working on getting this 50K report in a more timely manner.

- Adding a new report called the 1K Club to show holdings that have crossed over the $1,000 dividend mark.
- Markets have risen since Q1, we'll see how the portfolio has changed by the end of June.

Boring... Slow and Steady Dividend Motivation $BCE

I wanted to get this post up for some time and alluded to dividend investing paying off big time in my other post One Night at the Fairmont Royal York Courtesy of $INN.UN. Since that post my INN.UN position was unloaded as it was a relatively small position, and I needed to shore up my cash levels for more long term purchases. Hopefully, INN.UN will be re-added to my portfolio when the price is right.

Back in December 16, 2008 the Ontario Teachers' Pension Plan discontinued its bid to takeover BCE at $42.75. Unsurprisingly, the stock cratered from 2007's high of around $41.74 to the December 12, 2009 low of $21.23. However, looking in context a few years later with the price now at $59.28, more than doubling, it made plenty of sense to buy into the shares.

A few months after the OTPP cancelled its deal, for some reason, I decided it was time to make a large investment (relative to my net worth back then) of 75 BCE shares at an average price of $24.0697. Perhaps I was seeking dividends and finally raised enough money to make the purchase. A couple days later on May 22, 2009 the stock plunged 4.773% from the opening price on news that OTPP closed out its position in BCE. I happened to take a screenshot at end of day and was very likely relieved to see the price recovering from the day's low of $22.94, $1.06/share loss, to a more palatable closing price of $23.91 with a $0.1597/share loss.

The dividend record date was June 15 and paying out $0.3850/quarter, which yielded me a wonderful 6.398%. As an added bonus the next dividend grew to $0.4050, an increase of 5.1948%, and yielding 6.7304%. A 5.19% increase in my income within a few months is always welcome. Even better, since owning it for the last 7 years there have been a total of 11 dividend increases. The last dividend paid of $0.6825 represents a total dividend increase of 77.2727% or an annualized 6.4393%!

Declaration date	Record date	Payment date	Amount of dividend	% Increase
2009-05-06	2009-06-15	2009-07-15	$0.3850
2009-08-05	2009-09-15	2009-10-15	$0.4050	5.19481%
2009-11-11	2009-12-15	2010-01-15	$0.4050
2010-02-03	2010-03-15	2010-04-15	$0.4350	7.40741%
2010-05-05	2010-06-15	2010-07-15	$0.4350
2010-08-04	2010-09-15	2010-10-15	$0.4575	5.17241%
2010-12-09	2010-12-15	2011-01-15	$0.4575
2011-02-09	2011-03-15	2011-04-15	$0.4925	7.65027%
2011-05-11	2011-06-15	2011-07-15	$0.5175	5.07614%
2011-08-03	2011-09-15	2011-10-15	$0.5175
2011-11-02	2011-12-15	2012-01-15	$0.5175
2012-02-08	2012-03-15	2012-04-15	$0.5425	4.83092%
2012-05-03	2012-06-15	2012-07-15	$0.5425
2012-08-07	2012-09-14	2012-10-15	$0.5675	4.60829%
2012-10-31	2012-12-14	2013-01-15	$0.5675
2013-02-06	2013-03-15	2013-04-15	$0.5825	2.64317%
2013-05-08	2013-06-14	2013-07-15	$0.5825
2013-08-07	2013-09-16	2013-10-15	$0.5825
2013-11-06	2013-12-16	2014-01-15	$0.5825
2014-02-05	2014-03-14	2014-04-15	$0.6175	6.00858%
2014-05-05	2014-06-16	2014-07-15	$0.6175
2014-08-06	2014-09-15	2014-10-15	$0.6175
2014-11-05	2014-12-15	2015-01-15	$0.6175
2015-02-04	2015-03-16	2015-04-15	$0.6500	5.26316%
2015-04-29	2015-06-15	2015-07-15	$0.6500
2015-08-05	2015-09-15	2015-10-15	$0.6500
2015-11-04	2015-12-15	2016-01-15	$0.6500
2016-02-03	2016-03-15	2016-04-15	$0.6825	5.00000%

I added more shares since that the initial purchase both from a synthetic Dividend Reinvestment Plan through my broker and additional purchases from the market. As a result the average cost has increased my yield has changed with the purchases. Looking at the original investment of 75 shares, by now they would have been yielding 11.342% and paying out $51.1875/quarter.

One rough final metric I like to use is my "Years to Freedom". This is roughly the number of years before the investment at the current dividend will pay off for itself by returning the principle paid. Everything afterwards starts generating funds in excess. The original investment's principle and dividend would have paid off in 15.63 years and with the current dividend that has now reduced to 8.82 years. Since the start the 75 shares have returned $1,149.5625 in dividends and the original principle $1,805.2275 leaving a deficit of $655.665. Based on the 75 shares' current quarterly return of $51.1875 then I've got about 13 quarters/3.2022 years to go.

While there is always a risk of a company cutting their dividend this risk is reduced (not eliminated) by purchasing quality companies with a track record of dividend increases. Hopefully, you can see the power of having patience and increasing dividends. There are many other examples of companies like BCE raising their dividend overtime and this increasing dividend is the basis of some long term dividend investment strategies.

Early Covered Call Assignment!!! $BNS April 1, 2016

I gave someone a lot of money!

April 1, 2016 Friday morning I noticed a voice mail from a Toll Free number on my cell phone, but ignored it thinking it was spam. Then when I tried signing into BMO Investorline it showed: "Account Suspended".

I gave them a call ASAP and was transferred to the Options Desk where I was told a Non-Scheduled Assignment occurred for my BNS Call expiring April 15, 2016 at $56. Normally, on option assignment date the transaction would flow through without notification, but with a non-standard assignment they need to call the client to clarify no trades can be done buy back the exercised Options.

It was obvious why the Call Options I wrote were assigned. With the stock price at $62.72 and strike price at $56 there was an immediate gain of $2,688.00 or $6.72/share for the option holder. This was implied by the end of day paper loss of -$2,173.85, -370.87%. The previous day's closing price $63.47, the spread was even higher.

I was confused why the assignment occurred on the ex-dividend date April 1st. The transaction summary revealed why as the holder requested the order to be executed on or before March 31st. As can be seen below the sale occurred March 31st. Unfortunately, this means I will not get the $0.72/share dividend, of which I was hoping to boost my returns.

The real pain point was the commissions that I paid for this one transaction: $53.10. This doesn't include all the other commissions paid as I manoeuvred to keep my BNS long term investment afloat. 

However, I still managed to come out on top with this Covered Call with a $487.43 net profit. As well, my average cost back in August 12, 2015 was $57.4628. Since then, as the market declined, my average share cost has been reduced to $56.0965, a reduction of $1.3663, 2.3777%. Even better, my holdings of BNS have nearly doubled from last year and I've made additional profits from the manoeuvring.

This has definitely been a learning experience and I've now gone on to explore other ways of doing a Covered Call. My next investment is ENB.

$BAC $BNS $H Option Assignments and Expiry via BMO InvestorLine. (March 18, 2016)

March 18, 2016 was relatively exciting as it was option expiry day and I had written a few Puts and a Call. As you can see below. Ouch!!! However, this gave me an opportunity to see how BMO InvestorLine presents these transactions.

An underlying goal that I have been developing has been to hold options for longer and preferably to the expiry date. This is in hopes of reducing paperwork for my small transactions and just so I don't need to look at them as much. As with all Put options that I write the target stocks are companies that I actually DO want to own. The problem is as my portfolio evolves and risk levels change I feel my positions need to be cut at times.

It definitely hurt to see my BAC position get wrecked, but also doom on me for holding tight. I was saddened to see the reduced profits from BNS, but I grabbed a small profit and reduced my overall position size. $109.80+$47.34= $157.14 ($1.5714)/ $56.09 average cost = 2.80% profit. It will hurt more when my 4 Calls @ $56 potentially get assigned in April, but at least it is after ex-dividend. Assignment commissions are very high for BMO IL; if I added to the April Calls it would have spread out the pain.

One last thing is to figure out how to work the taxes and record keeping on the assignments as I always thought the premiums would be accounted for with the purchase and sale price. I will need to research further. Also, no confirmations are sent for Assignments; I'll need to remember it is recorded on my transactions spreadsheet.


1) Bank of America: 3 x PUT BAC 2016MAR18 18.00

- Wrote this last year thinking BAC would stay around the $17 level and potentially run for $18.

- BAC proceeded to collapse; at one point the shares hit $10.99.

- Put option loss at that time was over $1,400.

- Wrote an additional Put at $4.40 to average down the eventual buying price.

- Assignment Commission: $51.30

- Closing Price at Expiry: $13.79


2) Bank of Nova Scotia: 1 x CALL BNS 2016MAR18 57.00

- As part of hedge-lite I wrote three Covered Calls for BNS. The market turned and the value of the Puts increased significantly as they went "In The Money.

- As part of building inventory for writing Covered Calls I doubled my 500 share position of BNS to 1,000. Sold 100 to "slightly" manage risk and reduce margin debt.

- Stupidly, wrote another Put @ $57 for March instead of writing an additional April Put.

- Option position -514.75%. Missed out on approximately $565.20 additional profits.

- Assignment Commission: $43.00

- Closing Price at Expiry: $63.57 ($6.57 difference from the strike)



3) Hydro One: 2 x PUT H 2016MAR18 22.00

- Small position to dip my toe back into H.

- It's still got a major owner of the Ontario Government. It "can't" go down... right?

- Expiry meant the entire premium is mine!

- Calculated as a 703.2129% gain! $87.55. lol.

- No Commission for expiry.

- Closing Price at Expiry: $23.48

One Night at the Fairmont Royal York Courtesy of $INN.UN

InnVest REIT (INN.UN) owns a large portfolio of hotels throughout most of Canada.

The Fairmont Royal York is a fancy hotel found in the down town Toronto core; and as of my last search a one night booking for Friday March 11 will cost $171 CAD (taxes and fees not included).

The current monthly distribution is $0.0333 per share. Theoretically, with 5,136 shares you could earn one night's stay and at today's price of $5.29. 5,136 shares would require $27,169.44.

Ok, maybe not entirely reachable for all investors, but currently I hold 2,012 shares at an average cost of $5.148 and yielding 7.76%. This gives me a total monthly distribution of $67.00. At my present holding every three months I could book one nights stay. Of course I've set my INN.UN re-invest and over time as my holding increases my distributions will also increase.

It is interesting, fun, and tangible to see the possible ways one could make use of distributions. This is especially true if you use the products and services offered by the company in which you've invested.

Later I will post an example from my portfolio of how long term dividend investing starts to pay off big time.

Executed My First Covered Call Roll Forward (TransCanada Corporation $TRP)

Not long ago I added a "Covered Call" component to my investing strategy. Then as the markets tanked further I found this tool to be useful as a "Hedge-Lite". The markets have been riding up lately and as outlined before as a risk; the hedges turned to "Sellers Remorse". I sought to preserve my position as the price of TransCanada Corporation ($TRP) rose above my Covered Call's Strike Price.

January 22:

- Original holdings of 244 shares + waiting for another 2 shares from DRIP.
- Wrote 2 March 18 Covered Calls $49 for $0.85 premium per contract.
- Average premium net of commissions: $0.78775
- Total Premium: $157.55
- TRP continued on its upwards trajectory.
- TRP Closing Price: $46.89

January 28:

- TRP rose within range of $48 and hence I became fearful of a quick climb towards $49.
- Added 54 shares @ $47.89.
- Average share price: $39.2530537
- Wrote a final 3rd Call @ $49 for $1.60 premium per contract.
- Average premium net of commissions: $1.021166667
- Total Premium: $306.35
- TRP Closing Price: $48.57

Feb 4:
- TRP Closed above Strike Price: $49.02

February 5:

- DRIP executed, purchased 2 shares @ $47.77
- Average share price: $39.3098
- TRP Closing Price: $49.40

February 22:

- TRP Closing Price: $50.80
- In The Money Calls meant I would be more likely to be assigned and lose the shares.
- Sellers Remorse kicked in and a bit of attachment as I've owned TRP since February 18, 2009. (Literally, 7 years!!!!)
- Wanted higher compensation for my shares, but buying back the Calls would be costly.
- Closing price of the Calls: $2.53.

The solution to my Seller's remorse was relatively simple: Do a Roll Forward. Ok, maybe not THAT simple, but the concept is to buy back the options then write a new set of options to garner a higher premium that can offset the difference in prices.

However, the only way to make up for the losses would be to write a further out Premium. I found my target looking out to the May 20 expiry and a higher Strike price of $52.

Here's how the Roll Forward was executed:

- Bought To Close the 3 outstanding March 18 Calls $49 @ $2.14.
- $655.70 (Closing Premium Paid) - $306.35 (Original Premium Received) = $349.35 loss upfront.
- Wrote 3 new May 20 Calls $52 @ $1.45.
- New Premium: $421.30
- $421.30 - $349.35 = $71.95 Premium Offset and Gain.

End result:

- Covered losses with new money.
- Removed the obligation to sell my shares at a lower than current market price.
- Added a new potential obligation to sell my shares, but at an increased sell price from $49 to $52.
- Extended the Covered Call's "Hedge-Lite" from March to May (two months).
- Maintained dividend potential for the ex-dividend date March 27, but not June 26.
- The extended time gives me an opportunity to re-assess whether I will need the hedge.
- I'm still quite emotional about my stocks and a sense of 7 year long ownership that TRP has given me (Yea, guess I'm old school). Letting go will/would be difficult.

A Distracted Investor's Journey: Investment Goals for 2016

Wow, I've had this post sitting around for quite some time. Better late than never :) I won't polish it too much as quite a bit of time has passed and this post will become less relevant.

When first starting to invest, the idea came from a friend to trade; buy the stock low when it went down then sell higher when it recovered. Sounds simple and it is... when it works. That didn't pan out to riches mostly because my available cash was too small and commissions would eat up most of the gains. Even when my available cash increased I still wasn't successful at trading. Frustrated, I turned to a story about my grandfather who had "millions" in stocks that paid out dividends. That opened my eyes: Passive Income. To this day the majority of my portfolio is geared towards this capital intensive slow and steady strategy. My goals aside from $50k a year in distributions is to continue expanding my investor tool kit and learning different ways to use money to make money. (Another lesson about my grandfather.)

2015 was very interesting as I drifted from different tools and jumped into two major firsts that surprised even myself:

- Using margin (borrowing) to invest for the long term.
- Write options.

Now that I've taken those steps there are more things to learn and hopefully execute upon:

- Explore how to use various Options strategies.
- Understand charting
- Short Selling
- Hedging strategies
- Learn and develop performance metrics.
- Earn an additional $10/Day or $3600/yr from Options. (Work towards the challenge my friend proposed last year)
- Explore and develop more revenue streams.
- Increase Passive Income from stocks.
- Diversify portfolio by sector and geography.
- Keep discipline and increase cash savings.
- Add Real Estate to my assets, ie. buy my own place.

Some of these goals may be somewhat conflicting with one another such as increasing cash savings while both increasing passive income and buying my own place. Definitely, something that would pull me in too many directions and strain resources.