While having only recently come to the decision to document my efforts to retire early and comfortably, I have already frequently made mention of my investment methods designed to keep us from supporting these so-called advisors of the Financial Industrial Complex. Specifically the ones whose MERs exceed our returns; the ones who consistently under-perform the benchmark indices they reference in their glossy propaganda. And in my attempts to de-mystify – “alls you needs is a spreadsheet and a calculator” – and simplify, I have obscured reality somewhat; sometimes sh*t happens and you have to – as we say in Canada – just shoot the puck.
Case in point: TransAlta (TA). TransAlta is a power-generation company, engaged primarily in the sale of electricity, which they generate through a number of different ways, but, primarily coal and natural gas.
I have owned TA since my first implementation of the TSX Dogs methodology. With the exception of a brief period where TA doubled on take-over rumours, I have owned this stock. Recently I have found myself buying more and more on each subsequent anniversary re-balancing. Somewhere in there I lost sight of the rules, and bought more, even though TA should have been excluded as the highest yielding of the top 6.
In truth, I struggle with that last one: it seems arbitrary until it isn’t: eliminate BCE with a 5.34% yield when the next best issue yields 5.27%??? And that’s how trouble can develop.
On Thursday (19 Feb, 2014), TransAlta announced earnings and “a revised dividend” of CDN$0.72, down from CDN$1.16 – a 38% cut. Management cited an immediate improvement in cash-flow – duh – and dividend sustainability as their excuse, and while I can understand that, it is still a tough pill to swallow.
But, to the point of this particular overshare: in May I will come to that anniversary re-balancing event. Due to the schwacking (that’s a financial term) TransAlta sustained as a result of this bit of news, the dividend yields north of 5% again (still). Just barely ahead of the next best yielding BCE. I will have to weigh my current 30% loss, possible faith in management to “get it done”, or the rules.
And one final act of contrition, full disclosure, and overshare: this chart shows that the path to ~12% CAGR is not straight, or smooth. In fact, some years re-balancing requires selling at a loss and buying issues left bleeding by others. But, the rules, if followed, remove emotions from the decision, and allow for a certain level of control, or if you will, Quality Assurance.
For now, I’ve got until May …