In September of 2017, I received slightly over $100K from my former employer, representing the commuted value of my pension plan. I decided to invest 100% of this money in dividend growth stocks.
Each month, I publish my results on those investments. I don’t do this to brag. I do this to show my readers that it is possible to build a lasting portfolio during all market conditions. Some months we might appear to underperform, but you must trust the process over the long term to evaluate our performance more accurately.
Performance in Review
Let’s start with the numbers as of October 5th, 2022 (before the bell):
Original amount invested in September 2017 (no additional capital added): $108,760.02.
- Portfolio value: $196,812.55
- Dividends paid: $4,476.13 (TTM)
- Average yield: 2.27%
- 2021 performance: +16.78%
- SPY= 28.75%, XIU.TO = 28.05%
- Dividend growth: +3.14%
Total return since inception (Sep 2017-Oct 2022): 80.96%
Annualized return (since September 2017 – 61 months): 12.38%
Sector allocation calculated by DSR PRO
Your Past Returns Are Your Protection Against Today’s Downturns
Let’s be honest; this year sucks for everybody. It’s hard to find peace in this market. Most stocks are down, regardless of what you have invested in Canada, in the U.S. or even in Europe! What worked very well in the past few years (such as tech stocks, bitcoins, growth stocks) all tumbled. You thought you were safe with bonds and preferred shares? Steep interest rate hikes crushed their value.
Why do preferred shares and bonds drop in value when interest rates go up? Simple math. Imagine you want to buy a government bond today. You have the choice to look at the secondary market and find existing bonds at $100 offering a 2% yield in a year or buy a brand-new bond at $100 with the same maturity date from the same government (therefore, same risk, same horizon) paying 4%. New bonds are issued at a higher interest rate due to the rate increase. Which bond will you pick? 2% or 4%? Since everybody will go for the 4% since it’s the same risk, the old bonds value will decrease from $100 to $98. Therefore, if you pick the old bond, you will gain 2% interest and receive $100 (therefore $2 profit) at the end of the year to show the same return as the new bond trading at $100 but paying 4%. The same logic applies to preferred shares.
Stocks aren’t working (dividend-paying ones or growth), bitcoins and cryptocurrencies are proven to be speculative plays (I warned you on this one a long time ago), gold hasn’t done anything to protect against inflation and fixed income is a dud if interest rates rise. What should you do?
Again, simple math: NOTHING!
It has been very hard to show positive returns in 2022 (unless you are massively investing in oil & gas), but you don’t accumulate, retire, and pass away in only 12 months. Therefore, why would you give so much importance to the last 12 months? Investing is an ultra-marathon in the mountains, not a 50-meter sprint on a flat track.
When I look at my portfolio, I usually focus on the dividend growth rate in my DSR PRO report. I can see my stats are solid:
Stats from my DSR PRO report. Discrepancy from current value is explained by the exchange rates. Dividend payment includes forward yield for all holdings.
With a 5-year dividend growth average of nearly 10%, I know immediately that most of my companies are in good shape. In general, it’s safe to assume that dividend growers will show the following characteristics:
- Robust balance sheet that does not carry so much debt as to put dividend growth in peril.
- Healthy margins that provide sufficient cash flow to grow the business and reward shareholders.
- Growing sales that allow for dividend growth.
- Highly profitable to allow for each dividend increase.
- Stable and predictable operations to be confident in increasing the dividends each year.
- Highly confident management team to manage dividend growth responsibly.
Obviously, some companies won’t show those 6 factors or have shown it in the past and reality has changed. As a dividend growth investor, I’ll make mistakes, I’ll have losers in my portfolio, but the bulk of my positions will remain amazing businesses generating steady and growing cash flows.
Considering most of my portfolio is safe and will continue to grow, I don’t have to look at what recently happened. When I zoom out, things are always good. Think about it: this portfolio was created when the market was at an all-time high (September 2017). I took 3 months to invest my money, but I still compare my returns as if I was fully invested on September 1st. Yet, my portfolio is doing a lot better than the U.S. and Canadian markets.
What explains that? The 6 factors I’ve lined-up means you can do it too; it doesn’t require some superpower abilities.
The outperformance of this portfolio, the double-digit returns I realized since 2017 is the protection against today’s market downturn.
This is valid if you are 30 or 41 like me, but it is also valid if you are 67 because you have been invested all that long. You have benefitted from a bull market to build a huge nest egg. I get that this year makes you worry about the future. But you should then remember what you went through in 2008 and 1999 (and probably even more crashes) and your portfolio always survived through the storm, especially if you stayed invested.
Today’s bad news is not dramatically different than yesterday’s bad news.
It’s always the end of the world somewhere.
You’re always about to lose a lot of money.
It’s always different this time.
Yet, we adapt, and we thrive.
Remember these realities the next time you look at your portfolio ?.
Now, to help you out, I have built a Stock Checklist that you can download for free and explained how it works below.
Smith Manoeuvre Update
So far, I’m almost breaking even with my strategy. I must admit that I didn’t expect much from this portfolio over the first few months. I still need to give it some time to perform (especially considering this crazy market).
I initiated a pause in my SM contributions. In the coming months, I will maintain my investment update, but I will not add another $500 monthly for a while. My trip to Africa got out of control and I must take a few months to recover financially. When you do a leveraged strategy, you should never invest money you don’t have. I’m following my own advice. I’ll resume my monthly investments shortly, but I would rather play it safe in the meantime.
Here’s my portfolio as of October 5th, 2022 (before the bell):
|Company Name||Ticker||Sector||Market Value|
|Canadian Net REIT||NET.UN. V||Real Estate||$401.14|
Let’s look at my CDN portfolio. Numbers are as of October 5th, 2022 (before the bell):
Canadian Portfolio (CAD)
|Company Name||Ticker||Sector||Market Value|
|Algonquin Power & Utilities||AQN.TO||Utilities||$6,613.62|
|Alimentation Couche-Tard||ATD.B.TO||Cons. Staples||$20,746.61|
|Granite REIT||GRT.UN.TO||Real Estate||$8,755.20|
|Magna International||MG.TO||Cons. Discre.||$4,890.20|
My account shows a variation of -$2,952.35 (-3.26%) since the last income report on September 2nd. I should consider never investing in September! It was a bad month in both markets, but I tried to get the best of it by allocating dividends paid into more shares of Sylogist. It’s not much (159 shares at $5.65), but I couldn’t let this opportunity pass me by. I consider Sylogist a speculative play, but the company has been beaten up with a viable growth plan on the table. Next quarterly earnings could be quite positive and help investors ease their minds. We shall see!
Here’s my US portfolio now. Numbers are as of October 5th, 2022 (before the bell):
U.S. Portfolio (USD)
|Company Name||Ticker||Sector||Market Value|
|Texas Instruments||TXN||Inf. Technology||$8,257.50|
|VF Corporation||VFC||Cons. Discret.||$2,572.56|
The US total value account shows a variation of -$5,014.43 (-5.89%) since the last income report on September 2nd. We are now all patiently (or impatiently) waiting for the earnings season to begin. BlackRock is the first of my holdings that will report their earnings. It will start the dance on October 13th, just before I go to press with this update. Therefore, all earnings will be covered in my next portfolio update.
In the meantime, I’ll take a quick look at my position weights across my portfolio.
Stats from my DSR PRO report, and weight of each stock considers currency exchange.
I’m comfortable in having so much invested in Alimentation Couche-Tard at this point. It’s a great defensive stock that will benefit from the rise of the U.S. dollar. The market is desperately expecting an acquisition by ATD. Whenever this happens, I think we will see the stock surge above $60. So far, ATD has proven to be quite resilient, compensating for my large exposure to tech stocks (MSFT, AAPL and V completing my top 4). We are still waiting to know what will happen with ATVI and the market has given a strong signal that it doesn’t believe Microsoft will complete the acquisition. We’ll have to wait until 2023 to know how this story ends. Finally, you can see how my small “growth/speculative” plays aren’t a big part of my portfolio. CAE, VFC and SYZ are all under 3% weight. The secret of keeping an overall strong portfolio is to stick to your strategy!
My Entire Portfolio Updated for Q3 2022
Each quarter, we run an exclusive report for Dividend Stocks Rock (DSR) members who subscribe to our very special additional service called DSR PRO. The PRO report includes a summary of each company’s earnings report for the period. We have been doing this for an entire year now and I wanted to share my own DSR PRO report for this portfolio. You can download the full PDF showing all the information about all my holdings. Results have been updated as of October 5th, 2022.
Download my portfolio Q3 2022 report.
Dividend Income: $595.23 CAD (+19.36% vs September 2021)
I wish the big dividend increase was only the result of generous dividend growth policies! However, the truth with numbers is always more complicated than a simple percentage. While some of my holdings show increases (Fortis +6%, Enbridge +3%, Visa +17%, etc.), I also made a few trades in the past 12 months which increased my dividend income.
Keep in mind I can’t add capital to this account. Therefore, I only count on reinvesting dividends and selling shares of existing positions to allocate cash to another stock. In the past 12 months, I bought more of Alimentation Couche-Tard and Brookfield Renewable, on top of adding Granite to my portfolio. Those additions boosted my income.
We’ll see the same with the dividends I reinvested in Sylogist not too long ago. Finally, the USD is getting stronger as the market is getting weaker (+10%).
Here’s the detail of my dividend payments.
Dividend growth (over the past 12 months):
- Fortis: +5.9%
- Enbridge: +3%
- Sylogist: 0%
- Granite: new
- Alimentation Couche-Tard: +25.7% (Added shares)
- Brookfield Renewable: N/A (Added shares)
- Visa: +17%
- Microsoft: +1.5% (dividend increase – shares I trimmed)
- VF Corp: +2%
- BlackRock: +18%
- Currency factor: +10%
Canadian Holding payouts: $375.28 CAD
- Fortis: $52.97
- Enbridge: $138.46
- Sylogist: $52.13
- Granite: $33.07
- Alimentation Couche-Tard: $39.49
- Brookfield Renewable: $59.16
U.S. Holding payouts: $161.67 USD
- Visa: $18.75
- Microsoft: $34.10
- VF Corp: $40.50
- BlackRock: $68.32
Total payouts: $595.23 CAD
*I used a USD/CAD conversion rate of 1.3605
Since I started this portfolio in September 2017, I have received a total of $18,347.37 CAD in dividends. Keep in mind that this is a “pure dividend growth portfolio” as no capital can be added to this account other than retained and/or reinvested dividends. Therefore, all dividend growth is coming from the stocks and not from any additional capital being added to the account.
The next quarter will be determinant for my position in Gentex (GNTX). IF the company doesn’t come up with great news like an acquisition (or being acquired), a dividend increase or any other material events, I’ll sell my shares and move that money on to Air Products & Chemicals (APD).
Now that I’ve lined up the reason to keep or sell GNTX, it will be easy to make the trade upon its next earnings announcement expected on October 28th. Having clear rules helps to invest with conviction and avoids paralysis by analysis.
The post Your Past Returns Are Your Protection Against Today’s Downturns – September Dividend Income Report appeared first on The Dividend Guy Blog.