I must warn you, I’m not the typical investor. I don’t pretend that my strategy is the best one and that anybody else should apply it to his/her portfolio. But, I like to share my thoughts on the matter and hope it will help you refine your strategy at the same time. There are three main “rules” I use when it comes to building a strong level of protection for my portfolio.
Those strategies weren’t in place back in 2008. My portfolio was 100% stocks, but it wasn’t focused on dividend growth. Back then, I saw my money shrink by 27%. I think this was a win. However, in 2018 while both the Canadian and U.S. markets ended in red ink, my portfolio was up by 5.5%. More recently in 2020, both markets hit 2017 levels while my pension portfolio was floating 8% above 2017 level at the bottom. Disclaimer: I had no gold during those periods! Here’s how I did it:
Focus on dividend growth – offense is often the best defense
Focusing on the dividend triangle and picking companies with strong dividend growth profiles has increased my chances of beating the market. As many ETF fans like to put it, dividend growers are characterized by several factors making them more solid companies (competitive advantages, robust balance sheets, strong margins, and cash flow generation abilities).
In this pandemic crisis, many of the stocks in my portfolio helped me weather this storm. First, tech stocks (AAPL, MSFT, SYZ.V), some financial (BLK, V) and a few “stable” companies (FTS.TO and ATD.B.TO) performed well in the early pandemic. They represent about 42% of my portfolio, and while the crisis is not over yet, I’m confident those strong dividend growers will continue to thrive over the next 10 years +.
I also value companies that took a solid hit but are still showing long-term positive returns. Companies like Starbucks (+36%), Gentex (+35%), and Disney (+12%) are all showing profits since I bought them in 2017. For obvious reasons, those three companies will have a down year in 2020 (and most likely a bad 2021 as well). But their business models are solid and their ability to grow past this pandemic is still intact. It’s just a matter of being patient.
Managing sectors like a king
I was fortunate to avoid the oil meltdown in 2020. I’ve never been a fan of basic materials and the energy sector. Companies involved in both industries have business models that are usually dependant on something they can’t control like commodity prices. For that reason, I have no interest in those sectors.
On the other hand, I do like the growth opportunities in the tech and consumer cyclical sectors. The latter has been hit by the pandemic (definitely the “blackest” of the black swan events). I can still count on steady dividends being paid by utilities (Fortis) and the Canadian Banks (National Bank and Royal Bank). I make sure I’m not over exposed (aiming at max 20%) to any single sector. While I have reached slightly over 20% for financials, techs and consumer cyclicals, they are all well diversified through sub-sectors.
Let the winners run and cut those who fail
My last rule is quite simple. When I pick a winner, I let it ride in my portfolio. I review each of my holdings quarterly and make sure it’s still in line with my investment thesis. No matter if they skyrocket or plummet, my hold or sell decisions will be based on my investment thesis. This methodology enables me to keep amazing companies in my portfolio for several years while they double or even triple my initial investment. The best examples are found in Apple (+134% since I bought it in 2017), Microsoft (+174%) and Visa (+80%). This magic can only be achieved if you are patient. There are no get rich quick shortcuts in my investing strategy. It’s boring most of the time, but results can be very sexy!
There are many ways to protect your portfolio against a market crisis (I’ll get to that subject in another essay). You can utilize options, real assets, stop losses, bonds, principal protected notes, etc. The key is not necessarily to pick the best shield, but rather to have a solid investing plan.
I was a financial planner during the 2008 financial crisis. I can tell you that one and only one of my clients lost money in that crisis. Unfortunately, this investor couldn’t stand the fluctuations anymore and decided to sell his portfolio and go into bonds and certificates of deposits. All the others stayed the course, followed their plan, and got their money back within 4-5 years. This wasn’t a great period for anyone, but what is 5 years in one person’s life?
I realized that the best portfolio protection strategy was not to invest in gold, options, real assets or stay in cash. The best strategy is to have a plan, understand it fully and stick to it. If you haven’t done your financial plan yet, you can start by building a strong investing strategy with the recession proof portfolio workbook. Now let’s take a look at my portfolio and see what happened in June!
Here’s my CDN portfolio now. Numbers are as of July 1st, 2020 (before the bell):
Canadian Portfolio (CAD)
|Company Name||Ticker||Market Value|
My account shows a variation of -$1,990.55 (-3.8%) since the last income report on June 4th.
This wasn’t a good month on the TSX in general as the XIU.TO was down 2.1% between June 5th and July 1st. I’m lagging a bit behind, but it’s not too bad. One company seriously gaining momentum is Andrew Peller (-1.24% between Jan 1st and July 2nd, and +46% over the past 3 months). Their latest results weren’t that bad (flat revenue growth for this fiscal year) and management confirmed their dividend payment. I hope Andrew Peller will continue this trend for the second half of 2020!
Here’s my US portfolio now. Numbers are as of July 1st, 2020 (before the bell):
U.S. Portfolio (USD)
|Company Name||Ticker||Market Value|
|United Parcel Services||UPS||4,113.66|
The US total value account shows a variation of +$330.82 (0.04%) since the last income report June 4th.
While I didn’t do much this month, the SPY went down by 2.72% for the same period. Therefore, I guess I shouldn’t complain. Once again, a strong performance from AAPL and MSFT is saving the portfolio. UPS has also gained some momentum recently. FedEx’s (FDX) positive results on July 1st definitely helped!
FDX beat both EPS and revenue expectations. The company says virtually all revenue and expense line items were affected by the COVID-19 pandemic. While commercial volumes were down significantly due to business closures across the globe, surges in residential deliveries at FedEx Ground and in transpacific and charter flights at FedEx Express provided an offset. No guidance was issued by the company for FY21. Looking ahead, FedEx says it will continue to manage network capacity, making adjustments as needed to align with volumes and operating conditions. FedEx indicates that it also remains focused on last-mile optimization.
My entire portfolio updated for 2nd Quarter!
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 reports 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 revealing all the information about my holdings. Results have been updated as of April 2020. The Q2 report will be available during my July update.
Dividend Income: $541.73 CAD (+22% vs June 2019)
Total dividends paid in June increased significantly (22%) this month as the increase came from 2 new stocks (SYZ and VFC) along with several dividend increases over the past 12 months. It’s fun to see the power of dividend growth working even during a market crisis! The growth is compared to June 2019.
Dividend growth (over the past 12 months):
- Fortis: +6%
- Enbridge: +9.75%
- Magna International: +9.4%
- Sylogist: new addition
- Visa: +20%
- UPS: +5.2%
- Microsoft: +10.9%
- VFC: new addition
- BLK: +10%
- Intertape Polymer: +7.5% (currency fluctuation)
- Currency factor: +6%
Canadian Holdings payouts: $320.77 CAD
- Fortis: $47.27
- Enbridge: $130.41
- Magna International: $37.09
- Sylogist: $45.87
- Intertape Polymer: $60.13
U.S. Holding payouts: $162.59 USD
- Visa: $15.00
- UPS: $37.37
- Microsoft: $30.60
- VFC: $28.80
- BLK: $50.82
Total payouts: $541.73 CAD
*I used a USD/CAD conversion rate of 1.359
Since I started this portfolio in September 2017, I have received a total of $9,031.20 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 its dividends. Therefore, all dividend growth is coming from the stocks and not from any additional capital.
When I looked at my latest DSR PRO report, I noticed my portfolio was getting heavier toward the technology sector (28% of my portfolio). I would normally be tempted to trim some shares and diversify toward other sectors (possibly more utilities, industrial or healthcare).
Considering how the pandemic affects our economy (forcing lockdowns / quarantine), I think this exposure to the tech sector is probably my best protection in the case of a second wave. Therefore, I’m not going to touch my portfolio for the time being.