Portfolio Update


Funny enough, I’m not the best guy around to update you on my own portfolio. I really like blogging about dividend investing, but I don’t talk too much about my own stuff. Once in awhile, I think it makes sense to share my portfolio with you (my portfolio page is currently up-to-date, yeah!).

Instead of simply telling you how much I received in dividends, I’ll do a complete portfolio review with you.

Investment Context

An investment strategy is only good for a person if it meets its investment goal and respects the risk tolerance (both at the same time!). This is what is so marvelous about investing; you and I may disagree on an investment strategy and yet we can be both right! Starting from this premise, I have to tell you a little bit more about how I see things.

First, I’m young (34 now) and have a defined benefit pension plan at work. This means that if I work until the age of 65, I will then receive 70% of the average of my 5 best years ever at work. In other words; I really don’t need to worry about my financial future once retired. This is why my portfolio is 100% invested in equities (62% in US stocks and 38% in Canadian stocks at the moment). This is also why my portfolio is fairly small (currently valued at $65,000). I value life and living experiences more than saving plus a good part of my income already goes into my pension plan which is managed by my employer. My pension plan alone is worth around 90-100K but I have no control over it whatsoever.

Second, I’m Canadian. This explains that all my returns and holdings are translated into Canadian dollars. I made a good move back in 2012 to start buying US stocks. It helped me diversify my portfolio and the currency exchange rate was near even back then.

Third, I started to seriously build a dividend growth portfolio back in 2012. During this year, I had “leftovers” from aggressive trading that didn’t go well. For the record, I lost a few thousand in a trade on BlackBerry (BBRY) previously known as Research in Motion (RIM). This trade alone killed my investment return back in 2012. Since then, things have gone a lot better!

Fourth, my investing goal is to make money with my investments (duh). I choose dividend growth investing as my strategy because I believe it is one of the most effective investment methods that will help me achieve my goal (making money investing). Past research has proven dividend growth investing works and this is why I decided to make the switch. However, I haven’t been blinded by my dividend yield or how much I receive in dividend payments each year. I don’t expect to use this money in a near future and I would rather see it grow globally with both strong capital appreciation and strong dividend growth. This is why you will not find high yielding companies (KMI’s of this world don’t interest me at all) in my portfolio. In fact, you will probably find that I don’t generate much yield for a dividend investor even though every company in my portfolio pays dividends.

Dividend Holdings

Let’s start by the entire holding in my portfolio:

Company Name Ticker Sector Market Value Current Dividend Yield (%)
Agrium AGU.TO Basic Material $1,541.41 4.04%
Apple AAPL Techno $8,272.60 1.97%
Canadian National Railway CNR.TO Industrial $3,379.32 1.86%
Coca-Cola KO Consumer, defensive $8,225.29 3.07%
Walt Disney DIS Consumer, cyclical $5,805.05 1.46%
Gluskin & Sheff GS.TO Financial $2,692.80 5.35%
Helmerich & Payne HP Energy $2,312.78 4.73%
Johnson & Johnson JNJ Healthcare $5,604.94 2.77%
SNC Lavalin SNC.TO Industrial $3,827.95 2.25%
Lockheed Martin LMT Industrial $6,363.81 3.03%
Telus T.TO Telecom $7,163.80 4.23%
Wal Mart WMT Consumer, defensive $3,970.08 2.94%
National Bank NA.TO Financial $5,781.29 5.20%
Cash $213.28 0.00%
Total $65,154.40 3.12%

The dividend yield mentioned here is the current dividend yield. The yield based on cost of purchase is about 4.20%. Not bad for someone who started to built his dividend growth portfolio about 4 years ago!

With no surprise, my four best performing stocks are all US (AAPL, DIS, LMT, KO). Note that besides KO, they are not the most conservative dividend stocks ;-). This is because I didn’t build my portfolio like many other dividend investors that start by looking at the yield. I preferred building a set of 7 investing rules that use dividend growth as the first stepping stone of my portfolio. If you look at the dividend growth metric for these four companies, you will notice that the “worst” (this is a big word) performer is Coca-Cola with 3 year and 5 year dividend growth of 7%. Lockheed Martin shows 12% and 14% while Disney is a champion at 41% and 36%. Apple stands alone at 66% for the past 3 years, but it’s obvious it won’t keep up such an increase rate.

Asset Allocation

divguy portfolio

Source: author’s chart

Even though I have a relatively small portfolio, it is important for me to maintain a good balance. My portfolio shows 13 companies split among 9 different sectors with 7 of them showing between 9% and 21% of my total portfolio. You will notice that highly volatile sectors such as basic materials and energy are the other 2 small sectors closing the list with 2% and 3%. I don’t need to take speculative risk with my portfolio as I have my two feet well established on solid ground. This makes a great difference when picking my next purchase!

Investment Returns

Now that the theory has been shared, it’s time to show if this has been a successful strategy, right? Here are my past 4 year’s results as at March 25th:

2012 2013 2014 2015 YTD
My portfolio 1.90% 21.70% 16.40% 8.80% 0.80%
VIG 10.42% 26.20% 11.07% -1.77% 5.07%
XDV 7.59% 18.68% 6.69% -13.40% 5.29%

Source: author’s chart (Total returns for my portfolio and VIG and XDV)

As previously mentioned, 2012 isn’t really representative of my dividend growth strategy, but still, it is part of my investment return. Overall, I’m quite proud of my results. If I had invested $100 in 2012 in my portfolio, it would worth $158.31 today. If I had invested in the VIG, I would have $159.90 and if I had invested in the XDV, the result would have been $124.21. Therefore, I’m doing better than my benchmark indexes. Or, if you prefer, I should continue spending time to do my own research instead of index investing ;-).

I’ve applied the same rule I use for my portfolio to manage our 12 DSR portfolios. Our results since October 2013 are even better. You can check them out here.

Dividend Payments

As you already know, I’m not a big fan of tracking my dividend income.  However, what really interests me is my dividend income growth rate. It is important not just looking at the dividend income, but to look at how much you increased the capital at the same time. For example, if your dividend payment went from $1,000/year to $2,000/year within a period of 5 years this looks very good. However, if you had $30,000 invested on year one (generating a 3.33% dividend yield) and you keep saving money and add another $30,000 of savings over the next 5 years, you still generate the same dividend yield. Therefore;  you are not doing very good at dividend growth investing. You are just doing great at saving money (but really, any type of investment would do since your strength is in saving money, not investing it).

Here’s how both my dividend income and savings grew over the past 4 years:

2012 2013 2014 2015
Dividend Growth Rate N/A 28.48% 28.35% 15.32%
Capital Growth Rate N/A 17.81% 12.51% 1.90%

Source: author’s chart

As you can see, I was able to save more money in 2013 and 2014. This helped boost my dividend growth rate by nearly 30%. But the dividend growth rate of 2015 is most interesting in my opinion since it has been generated almost exclusively by my current holdings and not by additional contributions to my investment account. This is where I see the “true” power of dividend growth investing; the dividend income grew by itself!

Thoughts on my portfolio?

At the moment, I’m fairly happy with my portfolio and the past years’ results. The only bad thing about investing is that your investment strategy takes years to be proven. Having success over the past 4 years is not enough to claim that my system is flawless. It is just enough to claim that it works… at the moment ????

I’d like to read what you think of my portfolio or investing style? Do we share similar holdings?

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