Thursday, January 23, 2014

Replaced INTC with TU

Intel held its dividend steady for the 7th straight quarter.  Folks, this is a dividend freeze if I've ever seen one.  I sold my remaining INTC shares today which will reduce my annual income by $82.80.  About 6 months ago I reduced my stake in the company when it became apparent investors would no longer enjoy increasing dividends.  That was a poor move, I should have sold the whole position.  I currently hold zero technology stocks and I'm completely fine with that.  I can only think of 2 tech stocks I'd like to own.  That would be Harris Corporation and ADP.  I own 39 stocks at the moment and plan to build up to portfolio of 50.  Of the remaining 11 slots, at least one will be reserved for a technology company.

I feel I was extremely lenient with INTC, probably more than I should have been.  Time to move on.

Telus (TU) is as sure of a bet as is possible when it comes to dividend growth.  This company announced plans to do multiple dividend increases per year for a combined total near 10% through 2016.  It is spelled out for all to see on its investor relations webpage.  They are letting us know exactly what they intend to do in advance, how awesome is that?  Double digit dividend growth coupled with a 4% yield seems like an arrangement that would be in my best interest.  Count me in.

I trust the management team here.  Telus's CEO has a salary of $0 per year, instead he is compensated exclusively via stock.  You have to be confident about the business you're running to do something like that.  I'd like to see more executive compensation plans setup in this fashion since the interest of the CEO is therefore 100% aligned with shareholders.  The payout ratio and debt levels are both reasonable for a telecom.  Analysts expect solid EPS growth.  The share price is in my buy zone.  It has a 9 year dividend growth streak.  People love their mobile phones and I don't see that trend changing any time soon.  TU seems like a better fit for my portfolio than Intel.

These shares will provide me with about $98.55 annual income.  Telus is Canadian and dividends are paid in Canadian dollars.  Exchange rates will alter the amount I actually receive.

Symbol: TU
Core Position: No
Speculative Position: No
Expectations: Steady income; 5% annual dividend growth in Canadian $
Automatic Sell: Frozen dividend; dividend cut
Consider Selling:  Business fundamentally changes, management becomes untrustworthy, fundamentals deteriorate, wildly over valued stock price, or position fails to meet expectations.


  1. IBM doesn't make the list?

    I've been mulling over the idea of selling out of INTC as well. I'm at a crossroads here so I've decided to let Mr. Market decide for me. I sold a call option that expires in February. If that expires then I'll keep the premium and wash/rinse/repeat until either the outlook for the company/dividend changes or the shares are called away from me. Might as well generate extra "dividends" along the way.

    1. Originally I planned to write covered calls till INTC was called away. I like your plan. I don't think Intel will actually cut dividends, but I don't think it will increase them either. At least not anytime soon. I owned a slice of INTC for 3 years, kind of sad it had to end. It was a nice holding at first..

      As for IBM, I can't get over the yield but the biggest deal breaker is that I don't understand how it makes money. I'm also concerned that the business is declining from a few articles I read, but I bet it's only temporary since Buffett seems to like it. Will have to look at IBM closely sometime to get a better feel. I'm not counting it out.

      I have an intimate understanding of Harris products since I'm a satellite technician. I once interviewed for a job at ADP and used to get payroll stubs that were processed by them. That is why I like HRS & ADP.

      I ought to own a couple positions from the technology sector for diversification purposes, but I must be comfortable with them first. No need to rush. It will happen.

    2. I recently did a review of IBM...
      1: They make their money from services. Hardly any from hardware and mainframes/servers these days.
      2: One thing to keep in mind with old tech companies losing revenue.... tech changes fast and tech companies like IBM will have old services and hardware decline as new products and technologies are developed. They can easily have overall revenues decline as their R&D takes time, then deploying the new tech and services, then have them grow big enough so the existing decline divisions loss isnt as big of an impact.
      IBM new products are growing at 20%+ a year.
      3: Their yield is rough no doubt about that :( However their DGR as been 20% the past 8 years and they are doing share buybacks of about 4.5% of the company a year. Plus they are historically undervalue right now.

    3. I have some time right now, I'll check out your review and snoop around IBM's website while I'm at it. "Services" can mean a lot of different things, I need to know exactly what they do to see if it makes sense. I have zero experience with IBM at this point. I don't use anything they sell in my personal life, the military doesn't use any IBM services that I'm aware of either either. Time to find out.

      IBM's buyback seems like the main selling point, and that concerns me. I'll read your review here in a just a minute to get started!

  2. That's interesting CI. I'm not familiar with TU, so I'll have to take a look. I don't see Intel cutting their dividend in the short term, but I don't know what their growth catalyst would be either. Have a great day


    1. If you're light on telecoms you may Telus appealing. It's a nice dividend growth stock that probably didn't make the CCC lists because of exchange rates. I personally count dividend growth streaks in native currency, I feel it's a fair approach. Canada has a couple dividend champions that didn't make the list due to methodology.

      I don't believe Intel will cut dividends either.

      Have a great day yourself!

  3. Nice buy. My family and relatives have been with Telus for over 15 years. The coverage is great and their customer service is good. The fact they have spelt out their dividend growth plans is fantastic. Because of the drop in the Canadian dollar (vs. USD), I've been on the hunt for Canadian dividend growth stocks. Telus, Rogers and Canadian Utilities are on my radar.

    1. Good point about exchange rates. Most Canadian stocks indeed look attractive right now. I'm interested in a few banks and SJR seems appealing as well. I will continue to dig through Canadian stocks, quite a few gems slipped through the cracks.

      US dividend investors might be surprised that Fortis has a 39 year streak in Canadian currency. They recently purchased UNS Energy, a dividend contender in its own right.

      Best wishes

  4. Good move, CI.
    Intel really missed the boat on mobile, which is inexcusable for a company of that calibre. But if you are looking for more ideas in tech - have a look at Qualcomm and Broadcom. Their future is extremely bright but the current yields are low (both under 2%). I own QCOM and thinking of buying more.

    Telus is a great company to own. Thats another one on my watchlist. Good time to load up on Canadian stocks, with the loonie taking a dive.


    1. Thanks for the tips. Yes I will be looking at some additional tech stocks. I ought to have 1 or 2 to diversify. You are right about exchange rates, should have mentioned something about it.

      I hope all is well!

  5. This was the first thing I did today when i saw the news of the "freeze" - sold all of my remaining INTC shares. I'd been holding out hope like yourself since the fall, when it first looked like the freeze was on, but today did it.
    I put the money to work in TGT, since it's taken a beating recently. Have a bit more to deploy yet, and I'm leaning towards GE - I don't know enough about Canadian companies in general to start investing in Telus, but the best of luck with it!

    1. Same for me. When I came home for lunch I checked the market and noticed the bad news. I had been thinking about Telus the last month or two, but wanted to pick it up a little cheaper. It so happens that it was cheap enough today. I was thinking about GE, GIS, & UL as potential replacements since I figured there was about a 95% chance INTC's dividend wasn't going to be raised this quarter.

      I like your Target purchase and I have been thinking about GE a lot lately as well.

      Thanks for the comment

  6. Great move CI, and the exact same reason why I jumped out back in August. In building a DG portfolio, I have no need for a company that doesn't raise their dividend and my patience for those positions are limited. Best of luck with TU moving forward!

    1. You are smarter than me. INTC was a long time holding, I think that made it hard to let go. Oh well, I feel Telus will provide what Intel should have been doing all along. Talk to you later

  7. CI,

    Solid move with the sale. I didn't have time at work today to log onto my brokerage account, but I'm going to have to make some time tomorrow. I was going to give Intel another quarter, but I keep making excuses for them. The thing I have to remember is that I'm a dividend growth investor, not a dividend static investor.

    I'll see how INTC shares go tomorrow, but it looks like I might let it sail.

    Nice move on Telus. I looked at Canadian stocks early last year and BNS, TD and TU made my final three. They all had the greatest prospects for growth, in my opinion. However, BCE also looked interesting with a solid entry yield. Lower growth made it a bit unappealing; it is a lot like AT&T.

    I see some opportunities that I could invest the INTC capital in right away, so I'll have to see how things go tomorrow...

    Best wishes!

    1. I don't enjoy selling long time holdings, but enough is enough you know? The thing about Intel is that it does have potential. You could join me with Telus and get your dividend increases, plenty of shares left. At least you won't be left scratching your head wondering why dividend payments haven't changed in almost 2 years. Will INTC be increasing dividends double digits for the foreseeable future? If it does an increase, how big will it be? I asked myself those questions and scored a better yield too.

      BCE isn't bad, I like it and it's on my watch list. Plus it does have a higher credit rating than Telus. Being similar to AT&T isn't a bad thing imo. T has met my expectations. I think I'm done adding telecoms though, two is enough. I don't own VOD like many of you guys.

      Quite a few appealing options other than telecoms, I'll be interested to see what moves you make. Or are we just getting used to a stock market that is near all time highs? Are we letting our guard down?

  8. Well its easy for a CEO to take $0 in income that would be taxed at 43% vs taking shares of stock that yield 4% and is taxed at 15%. However I do agree with you that it aligns their interest with investors and that's good for us.

    I like how TU will be raising the div by 10% a year however they are at 65% payout ratio. So they have to grow the company to pay for those raises. Their 10 year EPS growth average 15% so they might be able to pull it off.

    1. Keep in mind this is a Canadian company and the CEO lives in Canada. Their laws aren't the same as ours. To be honest, I'm not familiar with Canadian tax laws. I'd imagine it would be higher than ours though.

      A 62% payout ratio is very reasonable for a telecom. EPS could be stagnant for the next 2 years, and even with 10% dividend growth the payout ratio will still be under 80%. It would be more like 75%. However Telus tends to pretty good at growing earnings as you pointed out. All that being said, I don't anticipate TU being able to maintain high dividend growth forever, I'm thinking more along the lines of 5% or so. The yield starts out at an attractive rate of over 4%.

      I have been looking for companies with 4% dividends growing double digits. We're mostly looking at tobacco stocks, select REITs (like OHI), and a few energy stocks (like KMI). This is the holy grail of dividend growth investing, something I had originally hoped INTC would achieve. It's nice to see that Telus will perform to this standard the next couple years, but it is subject to exchange rates. You won't find Telus on the CCC lists for that reason.