We are taking the following actions for the Dividend Champions portfolio today.

• Sell Royal Bank of Canada (TSX:RBC, NYSE: RY). We are becoming increasingly concerned about the possibility of a sharp correction in the Canadian housing market and especially in Toronto and Vancouver. Royal Bank holds a C$274 billion residential mortgage book which makes up 52% of their total loan book. Sixty percent of this book is loaned to borrowers in Ontario and British Columbia and one can safely assume that the bulk of the loans are extended to homeowners in Toronto and Vancouver. The book is conservatively managed and 39% is insured by external parties but there will be no place to hide if the housing market undergoes a sharp correction. In addition, the mortgage business has provided secure income growth in the past but will create a negative impact on the bank’s profit growth should the mortgage book starts to shrink. Other headwinds that the bank is currently facing is declining net interest margins in the low interest rate environment and an C$8 billion drawn exposure to energy companies. Therefore, despite a reasonable valuation of 11 times profits and a 4.3% dividend yield, we have decided to sell the holding.

• Buy K Bro Linen (TSX:KBL): The share price of K Bro declined by 26% since the peak in June 2015 and now offers a much more reasonable valuation. We first included a small holding in the portfolio in September 2015 and extended the holding to 2.5% in March of 2016 when the valuation became more appealing. This will now be our third purchase in this high quality operator which is currently out of favor as the commissioning of the Regina processing plant is temporarily putting profits under pressure. A word of caution – investors may wish to see the first quarter results on 11 May deliver before making a commitment.