FFJ Portfolio - March 2019 Update

This is my July 2019 FFJ Portfolio update. The portfolio was created in January 2017 for the purpose of demonstrating how investing in high quality companies with competitive advantages and with a record of consistently increasing dividends can assist investors in reaching their long-term financial goals without the need to speculate or to chase dividend yield.

The month-end holdings within the FFJ Portfolio’s Core and Side accounts can be viewed here.

I have become increasingly cautious over the last several months and subsequent to January 2019 I have made very few purchases. In fact, excluding the automatic reinvestment of dividends I only made one additional investment in July.

On July 5th I acquired additional units in Brookfield Infrastructure Partners L.P. (BIP-UN.TO) and wrote this article. I like all the companies within the Brookfield family and view my holdings in the various entities as my way of investing in alternative assets. The reason I added to the existing BIP-UN.TO position with the ‘side accounts’ of the FFJ Portfolio is because of its intent to acquire Genesee & Wyoming (GWR), a high quality Class II railroad.

I like the rail industry from an investment perspective as the barriers to entry are high. I wish to increase my exposure to this industry with my top 2 targets being Canadian Pacific Railway Limited (CP.TO) and Union Pacific Corporation (UNP); I currently hold shares of Canadian National Railway Company (CNR.TO) in the ‘core accounts’ and the ‘side accounts’ within the FFJ Portfolio. My hesitancy to acquire shares in CP.TO and UNP is that I do not view them as attractively valued.

Given my interest in increasing my exposure to the rail industry and my opinion on the valuation of my top two rail targets I viewed BIP-UN.TO’s intent to acquire GWR as somewhat of a consolation prize.

My thinking is that the brains at Brookfield know a good deal when they see one. The Brookfield companies step in when they can acquire a company and then weave their magic so as to generate attractive returns for themselves and their sophisticated investors.

I have no idea of BIP-UN.TO’s plans with GWR but bolt-on rail acquisitions over the next few years would not surprise me. Whatever the case may be, my experience with the Brookfield companies is that the GWR investment will likely be far more valuable a decade from now.

Dividend Income

The monthly dividend income reports for all of 2018 and YTD2019 can be accessed here.

The holdings within the portfolio are of high quality and thus I view the risk of a dividend cut from any one of the holdings as being unlikely; the dividends continue to come in like clockwork.

I continue to be cautiously optimistic the following targets I set at the outset of the year are attainable.

Core Accounts - CDN $15,000 (~$14,000 in 2018) and USD $18,000 (~$17,000 in 2018)

Side Accounts - CDN $19,000 (~$7,400 in 2018) and USD $11,000 (~$3,400 in 2018)

When I set these targets I was hoping I would be presented with opportunities to acquire fairly valued shares in high quality companies during the course of 2019. As noted earlier, this has been a challenge but I am not about to start acquiring overvalued shares just for the sake of trying to generate additional dividend income to reach a target I set at the outset of the year.

Final Thoughts

On July 31st the Federal Reserve voted to reduce its benchmark lending rate a quarter point to a range of 2% to 2.25%; it was the first cut in the benchmark funds rate since December 2008.

Following this announcement, stock prices dropped, the dollar hit a more than two-year high and bond yields ripped higher. This reaction to the rate cut is because Fed Chairman Jerome Powell suggested that policymakers were not embarking on a new cycle of rate cutting and that the Fed’s action was a “midcycle adjustment to policy”.

The reaction from the bond market to today’s announcement was one of confusion, and strategists are likely now looking for Fed officials to clarify the message in coming days.

I have no idea how stock prices are going to behave in the short-term following this Fed announcement. My hope is for today’s stock market weakness to be the beginning of at least a 10% broad market pullback which would provide investors with the opportunity to acquire shares in high quality companies at more favorable valuations.

That’s my roundup for July.

I wish you much success on your journey to financial freedom!

Note: Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.

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