FFJ Portfolio - June 2021 Report

This is my FFJ Portfolio - June 2021 Report.

During the month I initiated positions in Rollins (500 shares) and Viatris (400 shares). I also added 200 Vontier shares and 100 Heico shares to increase my exposure to these companies. Details about these purchases are found in articles within the FFJ Archives.

In addition to writing posts on this site, I wrote Emerson Electric and Walmart guest posts at Dividend Power.

FFJ Portfolio Holdings

Monthly FFJ Portfolio holdings from December 2018 to June 2021 are found here.

A new position within 2 'Core' accounts and 1 'Side' account have been initiated through Brookfield Asset Management's (BAM-a.to) spin-off of Brookfield Asset Management Reinsurance Partners Ltd. (BAMR.to). A comprehensive overview of this newly formed company and the rationale for its formation is found in the prospectus.

Following tax planning sessions with our tax accountant, I sold the following holdings on June 1st from one of the 'Side' accounts within the FFJ Portfolio.

  • Brookfield Asset Management (BAM-a.to) - 402 shares
  • The Royal Bank of Canada (RY.to) - 640 shares
  • E-L Financial (ELF.to) - 21 shares

Any decision to repurchase shares in these companies through the same investment account will depend on valuation levels and guidance from our tax accountant.

FFJ Portfolio - June 2021 Income

I track the dividend income generated from holdings within the accounts I keep confidential and those for which I disclose details (the FFJ Portfolio).

In my FFJ Portfolio - November 2020 Report I made the following 2021 FFJ Portfolio dividend income projections:

  • Core Accounts – CDN ~$17,600 and USD ~$23,500
  • Side Accounts – CDN ~$24,200 and USD ~$17,000

With half of 2021 behind us, my YTD dividend income (excludes accounts I keep confidential) is:

  • Core Accounts – CDN ~$8,904 and USD ~$13,289
  • Side Accounts – CDN ~$11,772 and USD ~$8,038

When I set my 2021 targets, I forecast the automatic reinvestment of dividend income. We no longer automatically reinvestment all our dividend income following tax planning discussions with our tax accountant. Going forward, the tax implications of my investment decisions will become increasingly important.

If my primary focus was to maximize dividend income, my dividend targets would be well in excess of those set in late 2020. However, I do not make investment decisions based primarily on dividend income. My focus is the overall potential investment return. This periodically leads me to invest in companies with marginal dividend yields or a 0% dividend yield (eg. Berkshire Hathaway).

In fact, I initiated a position in June in Rollins (ROL); this company sports a sub 1% dividend yield according to stock screeners. The company even cut its regular quarterly dividend in early March 2020! In my June 10, 2021 post I explain why making investment decisions on the basis of the output from stock screeners can lead to incorrect conclusions.

Skimming Additional Income With Covered Calls

I periodically try to skim additional income by writing short-term out-of-the-money covered calls but do not track this income; I disclose these trades in posts accessible through the FFJ Archives. The CME, Visa, and Mastercard trades are currently working in my favour. The Nike (NKE) covered call position, however, is not working out as well.

When I disclosed my NKE option trade I noted:

'The FY2022 adjusted diluted EPS projections from 34 brokers is a mean and low/high range of $3.96 and $3.42 - $4.99. This is a very wide range so if I use the $3.96 mean estimate versus the high estimate, the forward adjusted diluted PE is ~34.6. While this valuation is lower than the valuation using FY2021 estimates, I think NKE is still richly valued.'

On June 24th, NKE reported earnings well in excess of the company's guidance and broker forecasts. The share price jumped from the low $130s and shares currently trade at ~$157.30.

Now, the current adjusted diluted EPS guidance for FY2022 from 26 brokers and for FY2023 from 24 brokers is:

  • FY2022: $4.34 mean and low/high of $4.12 - $4.80
  • FY2023: $5.09 mean and low/high of $4.83 - $5.59

NKE's forward adjusted diluted PE on the basis of FY2022's mean estimate is ~36.24 and ~31 on the basis of FY2023's estimate.

NKE might be a great company but I view the valuation levels as being unrealistic. If my shares get called away I will receive ~$75,000 cash ($150 strike price x 5 contracts); I will patiently wait for a better valuation before reacquiring shares.

FFJ Portfolio - June 2021 Report - Final Thoughts

Even when I identify a company with an attractive valuation, I may 'pass' on it because there are far superior companies in which to invest. The Canadian Imperial Bank of Commerce (CM), about which I wrote this recent post, and The Bank of Montreal (BMO), for which I have written a guest post for Dividend Power which will be posted within the next couple of weeks, are two such examples. Even though CM and BMO might have some metrics that are superior to those of The Royal Bank of Canada (RY) and The Toronto-Dominion Bank (TD), I view RY and TD as far superior franchises: I intend to acquire additional RY and BMO shares within the next 72 hours.

Stay safe. Stay focused.

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

Note: Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I do not know your individual circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your own research and due diligence. Consult your financial advisor about your specific situation.