Soaring Highs for Wal-Mart Stores, Inc.

Something exciting happened this past week.

Incase you missed it, Walmart’s stock jumped approximately 10% to $ 99.6 US per share on November 16, 2017. According to online sources, this jump was most accurately connected to Walmart’s third-quarter press release which showed how the company has performed from August to November.

Wal-Mart Stores, Inc. employs approximately 2.3 million people across the globe through Walmart US, Walmart International and Sam’s Club. The company has certainly grown from its humble beginnings in Arkansas under the entrepreneurial direction of Sam Walton. Today, Wal-Mart Stores, Inc. earns well-over $400 billion USD in revenue annually through their stores and online platforms.

According to the company’s third-quarter annual report, the company earned over $100 billion USD over the course of three months. Compared to last year, this is a performance improvement of approximately 4.2%.

Should investors buy stocks in Wal-Mart Stores, Inc? Well, the traditional advice is to buy low and sell high. Is Wal-Mart at a ‘high price’? Probably, given that the recent 10% climb has brought Walmart to its highest stock price ever. However, the dollar-cost-averaging approach would encourage investors to buy the stock anyways, even though it is likely to correct. The company is probably a sound investment because it earns hundreds of billions of dollars each year and has increased its dividend payout each year since 2012.

Thanks for reading & happy investing,

Your team at CanadianDough.

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Choosing an ETF

I’ve been fortunate enough to have some extra spending money left over from a trip to New York City. I suppose I could cash the American dollars at the bank and receive Canadian dollars, or I could use the American dollars to buy American stocks. I like that option a lot because the greenback has been appreciating in value and American stocks continue to go strong.

I’m deciding on buying an ETF this time around. I think an ETF is great, especially one that tracks the S&P 500, because they would let me ride the wave that is the American stock market. Over at least the past 30 years, the S&P 500 has managed to grow at an average rate of 12% per year. Plus investing in an ETF that tracks this index is like investing in the whole stock market. I have faith in what major investors have said in the past, that the American stock market will continue to grow over time. I would expect some years to be better or worse than others, but if I can find a way to make extra money without having to touch my stock portfolio, it should pan out well.

I’ve narrowed my search of ETFs to three: OEF, SPY and IVV. I like OEF because it is the most affordable ETF out of the three, but it also has the highest expense ratio, which I think, means it actually costs the most to own. However, IVV and SPY are close in their price, but they’re expense ratios are slightly different even though they seem to have the same holdings. Also, they both pay dividends every three months (roughly $1 USD per share). The expense ratio of SPY is about 0.09% and the expense ratio of IVV is 0.04%. According to online sources, this means that 0.09% or 0.04% of the funds total assets will be used to cover expenses. So when you buy $100 worth of shares, a percentage of that will be used to cover expenses. If that’s accurate, I suppose that means an investor only pays the expense ratio when they buy their shares. Correct me if I am wrong.

Since the IVV and SPY seem very close but only differ in their expense ratios, I will likely move forward with IVV. Wish me luck!

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RBC Publishes 2016 Annual Report

Today I received Royal Bank’s 2016 Annual Report in the mail. I skimmed over the CEO’s letter to the shareholders, which seemed optimistic yet admitting to the various economic challenges the company faces.

Then I got to the financial reports. According to the financial highlights, RBC managed to earn roughly 8.7% more in 2016 than it did in 2015. Totalling $38.4 billion dollars in revenue, RBC can surely call itself an economic powerhouse. Of that $38.4 billion, RBC manages to retain $10.4 billion in profit, which is good news for shareholders. With profit increasing from 2015 to 2016 by 4.3%, investors can hope for a continuing increase in dividends in 2017. Impressive as their earning power is, their ability to attract and sustain wealth is even more impressive. As of 2016, RBC has $526 billion in assets under management.

Part of the reason why RBC is able to earn such an enormous amount of money is surely because of the people they employ. My own experience at RBC has always been pleasant, with courteous service at every branch I’ve visited. With 1,400 branches and 75,510 employees RBC is surely making a lasting impression on North America and beyond.

 Shrinking Our Canadian Dough!

Inflation is basically the rise of general prices across the country. In Canada, the inflation rate for 2016 was approximately 1.5%. Since our Canadian prices have risen by 1.5%, the purchasing power of each Canadian dollar has decreased; each dollar can buy a fewer amount of goods. Specifically, every product we would want to buy would require an additional $0.015 for every dollar spent. Not much, right? If something costs $100 last year, because of inflation, it would now cost an additional $1.50. For consumer products, inflation probably doesn’t seem to make a difference. For example,  you would only notice the price increase in a Tim Hortons coffee if you buy coffee often! Even big ticket items costing $1,000 would only increase by $15. Relatively speaking, inflation doesn’t make a big difference for consumer goods. Over time though, which is highlighted when we look at carton of eggs costing $0.31 in 1935 and now $2.94, the cost of our consumer goods are likely to increase drastically over the decades to come.

A lot of investors talk about trying to ‘beat the market’. I would encourage people to, at a minimum, beat inflation. If you can find a way to ‘beat’ the inflation rate than you have actually grown your money over time and maintained a purchasing power for the goods that you may end up needing to buy one day, for yourself or a loved one. For example, if you want to be able to buy a car in 15 years from now, inflation will likely cause the price of that car to increase each year. So a $10,000 car today could cost an additional $2,502.29 (assuming inflation stays at 1.5% each year) 15 years from now. One purpose for investing money is to ensure that your nest egg is able to buy the same bundle of goods in the future. How do we beat inflation?

You are sure to fail to beat inflation by keeping your money in a savings or checking account. For example, a High Interest eSavings Account at RBC yields approximately 0.5% per year. So, if you have a nest egg of $10,000 in a High Interest eSavings Account, your $10,000 would grow by approximately $50 at the end of the year! However, the price of everything else has risen by 1.5%. If you take the nominal interest rate, which is the 0.5% promised by the bank, and subtract the inflation rate (1.5%), which gives you a real rate of return, the value of your nest egg actually decreased by 1%! You’re $10,050 that you earned this year really be like having approximately $9,899.25 at the end of the next year. By ‘investing’ in a low yield account you are actually losing value each year. Imagine how much value you’re losing by keeping your money in a bank account that earns less than the High Interest eSavings account! What if you never start investing, there may be trouble.

Although the impact of inflation on consumer goods may not be major, it has a significant impact on investments! One way to look at inflation is as a decrease in our purchasing power. Since goods are costing 1.5% more each year, our Canadian dollar is buying 1.5% less of goods each year. This basically means the power of our money is falling by 1.5% per year. So, if you have $4,000 CDN in a basic savings account, the ‘value’ of that $4,000 is falling by ($4,000 x 0.015) $60 per year. If you buy Tim Hortons coffee everyday at $1.70, that’s like losing out on 35 medium double doubles every year! What’s worse is that inflation can fluctuate from year to year, but the Bank of Canada tries to keep inflation manageable at a rate of 1% to 3%. What should investors do?

One way to possibly beat inflation is to invest in index funds. An index fund is like a mutual fund at a fraction of the cost. It may seem penny pinching to compare high cost and low cost investments, but when it comes to percentages every penny counts! Another good place to start is a mutual fund, but there are better investments out there in Canada and abroad!

Remember, to protect the value of your Canadian Dough, you just need to beat inflation!

Dividends: Collect Your Canadian Dough!

If you’re thinking about investing in a particular stock, or just looking to get started and not too sure about what kind of stock to invest in, a stock that pays dividends may be the answer for you.

A dividend is a payment made to you, a shareholder, by the company that you bought shares from. Although you may not have bought your shares from the company itself, but instead from another shareholder, you may be eligible to collect a dividend. Collecting dividends are easy! You don’t need to sign up or register for them; they simply get transferred to you from that company you own!

Dividends can be paid monthly, quarterly (every 3 months), bi-annually (twice per year) or even annually. The amount you can collect depends on the number of shares that you own as a shareholder. For example, RBC pays a quarterly dividend. According to publicly available information on RBC’s website, their last dividend was $0.83 per share. This means for every share you own you would get paid $0.83. It doesn’t sound like much, but these small dividend payments may be enough to cover your transactions fees, plus more if you hold on to them long enough. Additionally, by continuing to contribute to your investment on a consistent basis, that dividend payment will grow, which will add to your overall cash flow. Ideally, it would be great to invest enough money to be able to survive off of dividend payments. On a smaller scale but still sizeable, if you own enough shares you may qualify for a DRIP, which is a direct reinvestment plan. The idea here is to buy shares with the dividends collected.

Using a hypothetical situation, if someone has invested approximately $3,300 in the stock market within dividend paying stocks and exchange traded funds, they would have collected approximately $46 in dividends after one year. This number is based on an investment portfolio invested in the following stocks and exchange traded funds: 7 shares of RBC, 17 shares of VRE, 17 shares of CDZ, 46 shares of XSP and 10 shares of ZDJ. Before buying a stock or exchange traded fund, it would be smart to look at how often a dividend is paid and in what amount when making your informed decision.