The Dividend Lifestyle Portfolio Approach


A few weeks ago, a reader suggested that I write an article about buying dividend paying companies in line with one’s lifestyle. In other words, for each budget type of expense, you select a company that would “protect” you from potential inflation. While it will not replace any kind of serious portfolio-building models, the idea of having a company perform well when one of your expense area increases is not completely ridiculous either.

For example, the best way to protect your budget from grocery inflation (God knows how this has hurt my budget!) is to hold companies evolving in this area. If the company raises its dividend, your budget allocation for groceries may rise accordingly.

The ultimate downside of such a strategy (besides the lack of a global management perspective approach) is the amount required to be invested in each company to generate enough dividends to cover your budget. Keeping with my grocery example, if I spend $1,200 per month for food (keep in mind we are a family of 5!), this means $14,400 per year. If I find a company paying a 3% yield, I must invest $480,000 in this single stock to cover my expenses. This would create an important overweight in this sector (without taking into consideration that I don’t have half a million to invest in such a company!).

However, I like the idea of having a portfolio based on my lifestyle. Since this is a blog and we are always in for reading fun stuff, I decided to build my dividend lifestyle portfolio.

Telecom Bill – Telus (T.TO)

Funny enough, I’m not currently a client at Telus yet. During my trip, I bought a contract-free iPhone. Therefore, I’m sometimes with Claro (Central America), Telcel (Mexico) and will probably choose T Mobile once I reach the states. However, I think Telus is the strongest Canadian telecom. It shows a double-digit dividend growth over the past 5 years and the company still has room for future increases with a payout ratio under 80%. It’s annual yield over 4% makes it even more appealing for all investors.

Grocery Bill – Weston (WN.TO) & Lassonde Industries (LAS.A.TO)

Unfortunately, the dividend world is not well served by the grocery industry. I could have picked companies making processed foods or packaged food like Kraft-Heinz (KHC), Hormel Foods (HLF), General Mills (GIS) or Pepsi (PEP), but this doesn’t really reflect our grocery bills as most of it is vegetables, fruit, fish and some meat. For these reasons, I have chosen Weston (WN.TO) and Lassonde Industries (LAS.A.TO). Weston owns an important stake in Canada’s largest grocery store Loblaw (L.TO). Their yields are low, but they have successfully increased their payouts for several years now. Keep in mind that Lassonde’s stock surged 242% over the past 5 years. Eating healthy pays well!

Household Products – Procter & Gamble (PG), Colgate-Palmolive (CL)

For my household products, I’ve selected Procter & Gamble along with Colgate-Palmolive). These two companies are like mutual funds by themselves. PG owns over 20 billionaire brands while Colgate-Palmolive owns over 40% of the market share in the toothpaste market across the world. They are also both Dividend Kings with over 50 consecutive years with a dividend increase.

Healthcare – Johnson & Johnson (JNJ)

Because I have three children, I do have healthcare expenses in my budget! JNJ is one of my favorite dividend paying stocks in my personal portfolio and I would not hesitate to buy it for my lifestyle portfolio. Johnson & Johnson is also a Dividend King and shows growth potential through its pharmaceutical division.

Transportation – Helmerich & Payne (HP) & Exxon Mobil (XOM)

Ah… the price of gasoline! If there is one category where it would make sense to protect your budget besides food, this is probably the one! I’m going with two “safe” choice as both HP and XOM are dividend aristocrats. The first one is the leader of a fragmented market (drilling) and has built a solid reputation over the years. When oil prices bounce back, HP’s competitors will be fewer and this company will grow naturally. As for Exxon Mobil, I appreciate its full integration from the oil well to the pump. If there is anywhere to make profit in the oil supply chain, XOM is there.

Car Maintenance – Genuine Parts (GPC)

During my one year trip, I had to find replacement parts a few times for Freefall (my RV). Genuine Parts is always there for me through its wide network of UAP Napa part resellers. I even found a replacement for my fuel cap with a lock in the middle of the Rockies! Never forget your fuel cap at a gas station! Genuine Parts is another Dividend King with an impressive 60 year streak with a dividend increase! Each year, GPC is growing a little more through small acquisitions. They are the biggest fish in a grand ocean of auto part resellers.

Entertainment – Disney (DIS)

I think you have figured out my love for Disney (DIS) by now if you follow this blog. Disney is probably one of the most productive dividend payers in the past decade. However, even if its stock price surged 224% over the past 10 years and its dividend went from $0.35 to $1.56 per share during the same period, DIS is ignored by many dividend investors due to its low 1%-1.5% yield. Still, this company has done wonders for my portfolio.

Banking Fees / Mortgage – Royal Bank (RY.TO), BlackRock (BLK)

Is there anything more frustrating than paying interest and banking fees to those rich corporations? As I wrote not to long ago, I like when banks make money. But it doesn’t make me happier to pay fees! I’ve selected Royal Bank, the largest Canadian bank for its size and revenue diversification. They show about 40% of their revenue coming from outside Canada while about 50% is coming from sources other than personal and commercial banking (wealth management, capital market and insurance). The second pick in this category is the world’s largest investment product manufacturer; BlackRock (BLK). Through its ETF iShares brand, BLK generates important cash flow and has an interesting growth potential.

Techno Spending – Apple (AAPL), Microsoft (MSFT)

Being a blogger and having a son playing Call of Duty, I had to add Apple and Microsoft to this portfolio. Apple is an amazing company, I don’t have to tell you that. However, beyond its great products and impressive creativity, there is a strong dividend machine slowly being acknowledged by the market. Apple’s ability to generate cash combined with the relatively recent will from management to distribute a portion of its earnings make it an obvious dividend pick. As for Microsoft, they have once again found another growth vector through the cloud business. This segment is growing fast and the company generates steady cash flow from its software suites and business support segments. Expect many years of dividend growth ahead from these 2 techno giants.

Home Renovation – Lowe’s (LOW)

I decided to take Lowe’s in this portfolio because I own it already. However, I must confess I’m more a Home Depot (HD) client as there is one within 3km of my home! Lowe’s completed the acquisition of Rona (RON.TO) in order to establish its presence in the Canadian landscape. Through this acquisition, I expect LOW to gain enough expertise to make additional acquisitions in the future. LOW shows a good business model and has been more than generous with their shareholders with solid dividend hikes in the past 5 years.

Utility Bill – Emera (EMA.TO)

If I could, I would definitely buy shares of Hydro-Quebec, the Government-owned utility in my province. This is a true money making machine paying over $2 billion in dividends per year… to the Government of Quebec, darn! Still, Emera is a very interesting pick in this industry. EMA has increased its presence in the U.S. last year through the acquisition of TECO energy for $10.4 billion. With a solid yield of 4.45% and the potential of steady increases through the years to come, EMA is a great choice to protect you from utility inflation.

Insurance Bill – Intact (IFC.TO)

I have my home and house insured through Intact insurance. This is Canada’s largest insurer. They have not only built a solid reputation, they have also gained lots of expertise in niche insurance due to their size. This enables stronger underwriting leading to better pricing for customers with fewer losses for the company.

Wine – Andrew Peller (ADW.A.TO)

Ah… this post wouldn’t be complete with a company to cover my wine expenses, hahaha! ADW.A probably flies under the radar of many dividend investors because it yield is now a meager 1.50%. But this is mainly because the stock surged 232% in the past 5 years. Can you really blame the company for that? Wine from the Niagara peninsula along with British Columbia are gaining popularity.

Overall Portfolio Look

I was surprised to see the final result of this fantasy dividend portfolio. In fact, it looks to me like it would be a pretty strong one with several companies placing on the dividend aristocrats or dividend kings list. The downside of such a portfolio is probably the low dividend it would generate mainly due to positions in companies like AAPL, DIS, WN.TO, ADW.A.TO, LAS.A.TO, LOW, etc. However, the growth potential is definitely there!

Which company is not part of this list that you need to add to cover your budget expenses? Would you invest in a lifestyle dividend portfolio?


Disclaimer: all the companies mentioned above besides Andrew Peller are part of our DSR portfolios.


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