In September 2017, I received slightly over $100K as a result of 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 portfolio during an all-time high market… and stay confident during a hectic one! In the meantime, I enjoy cashing some juicy and consistent dividends!
COVID-19 Portfolio Construction Guide
I’ve discussed how to review your portfolio and select interesting companies many times over the years here on that blog. The main strategy remains the same, but I wanted to bring you some specifics by using my own portfolio as an example.
Here’s the process I followed when I reviewed my own portfolio.
Sector allocation is key
Pull out any investment books, and they will tell you that asset allocation is one of the most crucial factors explaining your portfolio performance. The choices you make when you invest in specific assets or sectors will determine the fate of your money. Here’s my asset allocation as of March 18th (taken from my DSR PRO report):
As you will note, I have a strong concentration in financial services, consumer cyclicals and tech stocks. In fact, 74% of my portfolio is concentrated in those three sectors. I first looked at those sectors to determine if I wanted to keep the same allocation. Let’s look at them one by one.
Technology: I’ve mentioned it several times in the past 2 months: tech dividend stocks are among the safest plays in a recession. Apple and Microsoft show over $100B in cash or equivalent each while TXN has $5B in cash and only $2B in current liabilities. If there is one sector I would put more money in right now, it would be tech dividend stocks. Finally, Sylogist is a small player, but it has no debts and I’m not worried about this one.
Financial services: This sector includes banks (Royal Bank and National Bank), asset managers (BlackRock and Lazard) along with a half-tech half-financial company: Visa. Canadian banks will remain very strong as they are well capitalized and backed by the Federal Government. BlackRock is the world largest asset manager and ETF sponsor (iShares). Black Rock will thrive during the next economic boom. Lazard is a tricky play (currently representing 3.2% of my portfolio). It’s asset management segment (50% of revenue) will take a hit, but the company should get many contracts through its advisory segment (50% of revenue) for reconstruction and debt management advisory services. Finally, Visa operates the world largest payment network. In a time where trust is highly important and nobody wants to use physical money anymore, I don’t fear for Visa’s future.
Consumer cyclical: By definition, this is the most vulnerable sector in this crisis (along with Energy). The automobile industry is not doing to do well for a few years, but Magna International is a key player for all automakers while Gentex doesn’t even have any debt. Starbucks may get out of this economic lockdown faster than other restaurants as the economy in China is restarting now. Starbuck’s main growth region remains there. VF corporation is a long-term play on a world class portfolio brand manager. People will continue to need clothes down the line. Hasbro had it rough, but the company is sitting on a pile of cash ($1B excluding financing to purchase eOne). Finally, Intertape polymer announced their 2020 guidance on March 13th and management mentioned that the COVID-19 hasn’t affected their results to date. I’ll have to keep an eye on this one.
Other sectors: Since I’m not looking to generate immediate income, I have little interest in utilities and REITs. I have a small position in the consumer defensive sector since I don’t mind riding this crazy market. I could add more industrial companies as this sector shows plenty of great opportunities currently. At this point, it would not make a big difference in my overall allocation. I’m happy with most of my holdings anyway.
Identify your core companies
This brings us to the second step of the COVID-19 portfolio construction guide. When the market started to tumble, I’ve looked at each of my holdings and classified them into three categories:
Core: either super safe companies or simply victims of the market,
Educated guesses: companies with a higher level of risk, but could do well nonetheless,
Falling knives: risky business getting seriously hit by the economic lockdown.
This simple classification helped me assess the overall risk of my portfolio in the event the lockdown might last several months.
In the Core segment, I found most of my holdings:
- Alimentation Couche-Tard (ATD.B.TO)
- Fortis (FTS.TO)
- Apple (AAPL)
- BlackRock (BLK)
- Gentex (GNTX)
- Microsoft (MSFT)
- Starbucks (SBUX)
- Disney (DIS)
- Texas Instruments (TXN)
- UPS (UPS)
- Visa (V)
- Sylogist (SVZ.V)
Add a level of educated guesses
The educated guesses are companies that should do well but show a higher level of risk. This could include a dividend suspension for the time being. While Canadian Bank CEOs went on the media to claim they would not do it, I’d still put them in this category… just in case. Here are my educated guesses:
- National Bank (NA.TO)
- Royal Bank (RY.TO
- Enbridge (ENB.TO)
- Intertape Polymer (ITP.TO)
- VF Corporation (VFC)
Enbridge has $12 billion of unused capacity on its credit facilities. The current unused credit facility capacity would allow Enbridge to fund its 2020 capital plan more than two times. In other words; while the company continues to generate cash flow, it already has the financing in place to support its growth throughout this storm.
Catch falling knives only if you can afford it
In this section, I put companies that lost a substantial percentage of their value over the past 3 months. They lost between 30% and 55% of their value. They are all falling for different reasons. Andrew Peller is getting smacked for its lack of growth while the market thinks CAE will crumble as their civil aviation simulators won’t be of much use. I’m willing to “bet” people will keep drinking wine and follow pilot training (not necessarily at the same time!). The money is either lost for good or it will bounce back once uncertainties clear up. This will only come with more financial data. I will read their next quarterly earnings with great interest.
- Magna International (MG.TO)
- Hasbro (HAS)
- Andrew Peller (ADW.A.TO)
- Lazard (LAZ)
- CAE (CAE.TO)
Here’s my CDN portfolio now. Numbers are as of April 6th, 2020 (before the bell):
Canadian Portfolio (CAD)
|Company Name||Ticker||Market Value|
My account shows a variation of -$13,892.22 (-25%) since the last income report.
Here’s my US portfolio now. Numbers are as at April 6th, 2020 (before the bell):
U.S. Portfolio (USD)
|Company Name||Ticker||Market Value|
|United Parcel Services||UPS||$3,330.00|
The US total value account shows a variation of -$11,601.94 (-16.3%) since the last income report.
My entire portfolio updated for 1st 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 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 giving all the information about all my holdings. Results have been updated as of April 2020.
Download my portfolio Q1 2020 report.
Dividend Income: $587.11 CAD (+1.1%)
A 1.1% growth in dividend income for the month seems low. However, you must remember that Lazard (LAZ) has a peculiar habit of sometimes paying its dividend in February… sometimes on March 1st. Last year, Lazard paid a regular dividend and a special dividend totaling $95.88 USD. This was recorded in March. This year, the payment was recorded in February (see the purple spike in the graph above).
In fact, the summary of my dividend payment shows several double-digit increases compared to last year. Two recent acquisitions (Sylogist and VF Corp) are also paying their dividend this month. I’ve just established a new record of dividends paid this month thanks to a mix of strong dividend growth, new additions and favorable currency movement.
Here is the dividend growth detail. The growth is compared to March 2019 (not necessarily a recent dividend increase):
- Fortis: +6.1%
- Enbridge: +9.75%
- Sylogist: New
- Lassonde: -26.5%
- Magna International: +15.6%
- Intertape Polymer: +13.2% (paid in USD)
- CAE: +10%
- Visa: +20%
- UPS: +5.2%
- Microsoft: +10.9%
- VFC: New
- BlackRock: +10%
Canadian Holdings payouts: $356.92 CAD
- Fortis: $47.27
- Enbridge: $130.41
- Sylogist: $41.70
- Lassonde: $12.50
- Magna International: $39.47
- Intertape Polymer: $63.57
- CAE: $22.00
U.S. Holding payouts: $162.59 USD
- Visa: $15.00
- UPS: $37.37
- Microsoft: $30.60
- VFC: $28.80
- BlackRock: $50.82
Total payouts: $587.11 CAD
*I used a USD/CAD conversion rate of 1.4158
Since I started this portfolio in September 2017, I have received a total of $8,052.63 CAD in dividends. Keep in mind that this is a “pure dividend growth portfolio” as no capital can be added into this account besides its dividend. Therefore, all dividend growth is coming from stocks and not from additional capital.
I have also explained my results and some of my tricks in on my YouTube channel.
I know you are probably very frustrated to see the thousands of dollars that have disappeared from your portfolio over the past few weeks. Nobody likes to lose money even if it is on paper only. Keep in mind, though, that if you have a strong portfolio and you have revised your holdings, you should emerge from this storm in good shape. Stop your brain from trying to find trends when there are none at the moment. Trust the plan you developed at one point; it must be good!
You are an inspiration. One can only appreciate the value of money when has not being given an handout. To make wealth takes guidance and learning the right way. Save, learn the tax system and invest the correct way maximizing the the end result. The coming generation out of high schools should be our target.
Buy, Hold Long
Awesome stuff. Thanks for all the detail in this.
I really like how you’ve broken it up into 3 sections of “safety”. I should really do that as well.
Thanks for sharing.
It helps to understand why our portfolio perform in various situations. You can also take action to modify your sector allocation accordingly. It’s part of my quarterly routine 🙂
Very awesome Mike. Love how much details you provide in your monthly dividend report. We did pretty decent ourselves by receiving over $2,300 in dividend income in March.
Great to see a positive outlook on the situation. Thanks for this!