In September of 2017, I received slightly over $100K from my former employer which represented the commuted value of my pension plan. I decided to invest 100% of this money into dividend growth stocks.
Each month, I publish my results. I don’t do this to brag. I do this to show you it is possible to build a lasting portfolio during an all-time highly valued market. The market will inevitably go down, as it did in 2020. But I continued to enjoy cashing consistent and growing dividends despite that negative market action! And, most importantly, I stayed fully invested in the market and have enjoyed the market recovery in 2020 that has continued into this new year of 2021.
Performance in Review
Let’s start with the numbers as of May 4th, 2021 (before the bell):
Original amount invested in September 2017 (no capital added): $108,760.02.
- Portfolio value: $209,220.70
- Dividends paid: $3,927.94 (TTM)
- Average yield: 1.88%
- 2020 performance: +20.3%
- SPY=18.17%, XIU.TO = 5.27%
- Dividend growth: +7.7%
Total return since inception (Sep 2017- May 2021): 92.37%
Annualized return (since September 2017): 19.53%
SPDR® S&P 500 ETF Trust (SPY) annualized return (since Sept 2017): 17.55% (total return 80.94%)
iShares S&P/TSX 60 ETF (XIU.TO) annualized return (since Sept 2017): 10.44% (total return 43.72%)
Sector allocation calculated by DSR PRO
A Look at Yield on Cost
When investors look at my portfolio, especially retirees, they often tell me that I do good, but that my yield sucks. They “couldn’t retire” on a 1.88% yield. Don’t worry, I don’t think I can retire on less than $4,000 per year either! But let’s get back to that yield. Do you know the problem when you look at this portfolio? It cannot produce a good yield because it grew “too much”.
Back in September 2017, I invested $108.7K. In 44 months, I’ve made about $100,000 from which, only $12,000 came from dividend payments. In other words, I show 88K in capital growth (+81%) and $12K in dividends earned (11%) for a total return of 92%.
Some say the 88K could disappear in the blink of an eye. After all, my April 2020 report shows a total value of $146.763, more than $62K lower than today’s value. Funny enough, many dividend payments also disappeared last year (how’s your Macerich (MAC) or Vermillion Energy (VET.TO) dividend income treating you?). Keep in mind that a dividend paid will affect the stock value by the same amount. Therefore, there is no difference between capital appreciation and dividend payments. They are two component of the same thing you should track: your total return.
A feel-good metric
If I want to go back to the yield discussion, I could argue that my portfolio shows a current dividend yield of 1.88%, but a yield on cost (current dividend paid dividend by original amount invested) of $3,927.94 / $108,760.02 = 3.6%.
A yield on cost of 3.6% is a lot better than 1.88%, right? To be honest, I feel good when I look at this metric. It’s useful to some extent as it shows the progression of my portfolio form the start. However, this metric would mean nothing if my portfolio value today was $90K.
I get the interest in focusing on income as it makes things so much easier for our brain. Let’s admit it, we are all a little bit lazy and our brain typically focuses on preserving calories for its own survival. But if you ignore your portfolio value, you also put your retirement at risk.
Investors who decided to focus on Macerich or Vermillion dividends (I know, they are easy targets) are now left with barely any dividend income while the companies destroyed more than 75% of their share price. Until the dividend was cut, those investors didn’t mind the stock price decline (“the money keeps coming in” they said). This is a brutal awakening.
While I like to calculate my yield on cost from time to time, I only use it to measure the impact of dividend growth on my portfolio. If I want to generate 3.6% on the current value of my portfolio, I would be forced to make important changes in my investment strategy. I’m not saying it would be a bad thing, but I’m just saying it wouldn’t be my strategy anymore. In that regard, to each their own, right? There are plenty of strategies that will help you reach your investing goals. Stick to the one that works for you.
Let’s look at my CDN portfolio. Numbers are as of May 4th, 2021 (before the bell):
Canadian Portfolio (CAD)
|Company Name||Ticker||Market Value|
|Algonquin Power & Utilities||AQN.TO||6,6702.03|
My account shows a variation of +$3,523.79 (+4.18%) since the last income report on April 7th. My portfolio did a lot better this month compared to the Canadian market. One key component was, again, Sylogist. The company continues to receive more love from the market, and it is up double-digits since April 7th. Some thought they missed the boat when the stock went from $11.50 to $15. They decided to stay on the sidelines as SYZ went over $17 not too long ago. I said it before, I’ll say it again; when you find a gem that you like, you invest. Since many US companies declared their earnings already, we’ll focus on those results in this report.
Here’s my US portfolio now. Numbers are as of May 4th, 2021 (before the bell):
U.S. Portfolio (USD)
|Company Name||Ticker||Market Value|
The US total value account shows a variation of +$1,760.81 (+1.82%) since the last income report on February 1st.
Apple’s massive share buyback
Growth, Growth, and more GROWTH! This is what this quarter was about. Revenues jumped nearly 54% to $89.6B, well ahead of the consensus for $77.3B. IPhones in particular topped expectations of $40.8B in revenues by logging $47.9B in net sales, and Mac net sales hit $9.1B vs. expectations for $6.9B. Services beat more narrowly, $16.9B vs. $15.5B. Sales by geography: Americas $34.3B (up 35%); Europe $22.3B (up 56%); Greater China $17.7B (up 88%); Japan $7.7B (up 49%); Rest of Asia Pacific $7.5B (up 94%). The company announced a massive share buyback program ($90B) along with a 7% dividend increase.
BlackRock is doing… What BlackRock is doing!
BLK reported a killer quarter with double-digit growth everywhere. The financial firm generated a record $172B of total net inflows in the quarter. It was their fourth consecutive quarter with over $100B of net inflows. Assets under management reached $9.01T vs. $8.68T on Dec. 31, 2020. Results were driven by continued momentum across the platform with positive flows across all regions, investment styles, and product types. Technology services revenue increased $32 million from the first quarter of 2020, primarily reflecting higher revenue from Aladdin. BLK also increased its dividend by 14%. Congratulations!
Gentex didn’t increase its dividend despite a strong quarter
Gentex reported a robust quarter considering the current state of the economy. Vehicle production levels were negatively impacted by electronics and other parts shortage issues. These shortages were the primary reason for the 12% reduction in North American light vehicle production compared to the beginning of the quarter forecasts. The gross margin improved significantly on a quarter over quarter basis, which was driven by the structural cost savings put in place in the second quarter of 2020, as well as product mix tailwinds related to exterior-auto dimming mirror unit shipment growth and Full Display Mirror unit shipment growth.
Lazard didn’t increase its dividend, but future looks bright
I was disappointed by Lazard’s quarter as it didn’t include a dividend increase. For now, its dividend safety score remains at 3, but it could decrease in the coming quarter. In the meantime, the financial firm reported solid growth supported by its financial advisory segment. During and since the first quarter of 2021, Lazard has been engaged in significant and complex M&A transactions and other advisory assignments globally, including Brookfield Property Partners (BPY), Dell’s $52.5 billion spin-off and Altice Europe in a $48.5 billion take-private offer. M&A activities should continue to support Lazard’s growth throughout 2021.
Microsoft… it’s never enough!
MSFT did everything it could, but it wasn’t enough to please the market. Since when is showing almost 20% in revenue growth and almost 40% in EPS increases not enough? Ah! The problem came from Azure going up by only 50%. From my perspective, I see a company showing multiple growth vectors. Here are their results per business segment: Productivity and Business Processes +15% (driven by LinkedIn at +25% and Dynamics products at +26%, intelligent Cloud +23% (driven by Azure), Personal Computing +19% (driven by Xbox at +34%). I’m satisfied with that.
Starbucks is raising all expectations
SBUX reported a good quarter and raised its 2021 guidance. However, the stock price declined on earnings day. There are worries that Starbucks’ advantages as a go-to lockdown destination will fade in the second half of the year. In the meanwhile, global comparable store sales increased 15%, driven by a 19% increase in the average sales ticket, and a 4% decline in comparable transactions. China’s comparable store sales increased 91%, driven by a 93% increase in transactions, slightly offset by a 1% decline in average ticket. SBUX now shows 22.9M loyalty program members which is up 18%. This is what I call a great fan club!
Texas Instruments is doing great, but there are clouds gathering
TXN reported a robust quarter with double-digit EPS and revenue growth. Analog revenue was up 5% sequentially and 33% on the year, Embedded processing sales were up 7% Q/Q and 17% Y/Y. However, the market remains concerned about the global semiconductor shortage and inventories. After the first lockdown of 2020, car makers canceled many orders from chips and analog manufacturers (such as TXN). Now, they are moving full speed ahead which exposed the fragility of the global semiconductor supply chain. Growth could be difficult for the rest of the year, but it’s a materials supply issue.
Visa expects double-digit growth going forward
Visa did better than expected despite reporting declining revenue. The company is almost at pre-pandemic levels only a year later. Results were supported by a good performance of payment volume (+11%), but it was more than offset by cross-border volume (-11%). Management is optimistic for the coming quarter as it expects high teens revenue growth. Visa should continue to benefit from strong e-commerce sales, and it is obviously well positioned to capture cross-border transaction volume once countries reopen for traveling.
My Entire Portfolio Updated for Q1 2021
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 March 2021.
Dividend Income: $164.90 CAD (+24% vs April 2021)
I show a 24% dividend increase from April’s 2020 report. Don’t go crazy about this result. In fact, most of dividend jump comes from the addition of Algonquin shares that is already starting to pay dividends. Over the past 12 months, I’ve also added shares of Andrew Peller and Alimentation Couche-Tard (using the proceeds of previous sales since I can’t add new capital to this portfolio).
I want to highlight that Gentex didn’t increase its dividend as scheduled. I find this odd as the company reported a solid quarter and it is poised for more growth in the coming quarter. Maybe it’s just a small delay, but I’ll keep my eye on it!
Here’s the detail of my dividend payments.
Dividend growth (over the past 12 months):
- Andrew Peller: +48% (new shares were purchased)
- Alimentation Couche-Tard: +160% (new shares were purchased)
- Algonquin: new addition
- Gentex: no increase.
Canadian Holdings November payouts: $130.15 CAD
- Andrew Peller: $33.05
- Alimentation Couche-Tard: $31.41
- Algonquin: $65.69
U.S. Holding payouts: $28.20 USD
- Gentex: $28.20
Total payouts: $164.90 CAD
*I used a USD/CAD conversion rate of 1.2321
The USD vs CAD isn’t usually a big factor, but there is an important difference versus last year. Back in April-May 2020, one U.S. dollar was worth about $1.40 Canadian dollar. We are now down to $1.23. I’m not that worried, but just keep in mind that this also affects the overall performance of your portfolio.
Since I started this portfolio in September 2017, I have received a total of $12,054.10 CAD in dividends. Keep in mind that this is a “pure dividend growth portfolio” as no capital can be added into this account other than retained and/or reinvested dividends. Therefore, all dividend growth is coming from the stocks and not from any additional capital.
After reviewing the UPS most recent quarter’s performance, it looks like I did not properly time my sale of shares. I thought the stock was trading at peak value a few months before it reported another flabbergasting quarter and the shares jumped double-digits once again.
It’s a good lesson and I accept that I was wrong. However, I believe it is more important to trust the process and stick to your strategy than trying to be right all the time. When I look at my trading history, I try to look at it like a batting average in baseball. We all wish we could be close to a 1,000 average, but we all know it’s not possible. What matters most is to accumulate hits while avoiding double plays and strikeouts.
To piggy-back on this analogy, let’s say that I made a double with UPS, but I could have gone for a triple. It’s all good if I can hit the ball once again next time I pick up the bat!