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’s possible to build a portfolio during an all-time high market. The market will crash… eventually. In the meantime, I rather cash some juicy dividends!
The strength of dividend growth
A while back, I explained why I don’t understand the importance of tracking my dividend income. Here’s my thought in a simple paragraph:
“I don’t mean to offend anybody, but I simply don’t understand why it matters. Most investors use their money to build a nest egg that will insure a comfortable retirement. You can call it financial independence or financial freedom instead of retirement. It all comes down to the same thing: totally or partially living off your investments. Therefore, what truly matters at the very moment you are about to withdraw money from your portfolio is how much is there and what yield it generates.”
You can read the rest of the article here.
While I’ve been generating this income report since 2017, I’m still not a big fan of tracking down my dividend income on a monthly basis. The reason why I do it is more to build a real-life case study showing how a disciplined dividend growth investing strategy could help me reach my investing goals. This is my living proof that dividend growth investing works.
What I discovered along the process is how rapidly my portfolio bounces up and back while my dividend payment keeps increasing all the time. I used to rarely look at my portfolio value, now I do a monthly update. What is interesting is that over a longer period (12 month+), my portfolio consistently shows a higher value. But from one month to another, it’s a different story.
However, each month I calculate how much I receive from my holdings; I always end-up with a higher number. This shows you the strength of dividend growth investing: no matter what happens in the market; you still get a higher paycheck. Speaking of which, this month is 36% higher than last year. Let’s take a look, shall we?
Numbers are as at June 3rd 2019 after the bell:
Canadian portfolio (CAD)
|Company Name||Ticker||Market Value|
My account shows a variation of +$851.86 (+1.5%) since the last income report.
While Magna International (MG.TO) took another beating this month (more on that later), the rest of my portfolio did well. When I look at the past 12 months, I can say that I did okay with my Canadian portfolio. When I look at my portfolio value on June 1st 2018, I’m up 4.30%. I’m barely beating the iShares S&P/TSX 60 ETF (XIU.TO) (+0.05%), but I’m crushing iShares Canadian Select Dividend ETF (XDV.TO) (+3.02%). All that, with less fluctuations ?.
You can read about how I managed my portfolio as a Canadian (e.g. mixing both CDN and US investments): Investing the Canadian Way – Tricks I use to Boost My Returns. I discuss my sector allocation, how I manage currency fluctuations and my favorite sectors.
May was the month of Canadian Banks!
I own two of these beauties and they did very well.
RY posted another solid quarter. Personal & Commercial banking increased $90M or 6% from last year with average volume growth of 7%, including strong deposit growth of 9%. Wealth Management increased 9%, primarily attributable to higher net interest income. The insurance segment decreased 10% from a year ago, primarily reflecting lower favourable investment-related experience and increased disability and life retrocession claims costs. Treasury was hit as income decreased 29%, primarily due to lower funding and liquidity revenue, and lower client activity. Finally, Capital Markets increased 17%, primarily due to higher revenue in Global Markets.
For a while, National Bank results were greatly supported by its Financial markets segment. This quarter, it’s quite the opposite. Personal and Commercial was up 9%, Wealth Management up 5%, U.S. Specialty Finance and International up 14%, but Financial Markets was down 16%. The decrease is attributable mainly to lower revenues from the global markets revenue category. You can imagine what numbers would like if this segment performed this quarter! Rising 4% from a year ago, personal lending experienced growth, particularly due to mortgage lending, while commercial lending grew 9% from a year ago.
Magna in negative territories
After a quick rebound in early 2019, the last quarter put Magna International (MG.TO) on a serious nosedive. Once again, we are talking about the same issue over and over. Commercial trade war, tariffs and automobile market slowdown.
What’s worst than missing expectations during a quarter? Revising your guidance to lower numbers! Unfortunately, Magna did both and announced it expects full-year revenue of $39.1B to $41.3B vs. $40.2B to $42.2B prior view and $41.0B consensus. Net income of $1.9B to $2.1B seen vs. $2.1B to $2.3B prior. Revenue was hit by lower global light vehicle production (-7%). However, if you remain patient, Magna is in a solid financial position and will bounce back. The company expects to generate between $1.8 and $2 billion of free cash flow this year. It’s a great time to increase your position.
A Few Words about Lassonde (LAS.A.TO) “Dividend Cut”
I’ve been given some thought this week to Lassonde (I also hold it in my personal portfolio) since the company reduced its dividend from $0.81/share to $0.595/share. After additional digging, I realized that on page 12 of their latest Annual Management’s Discussion and Analysis, it states the company aims at paying 25% of its EPS from last year in dividend.
What I considered to be a general rule, more like a goal, was, in fact, a rule set in stone. This is why the company reduced its dividend to respect the 25% of 2018 EPS. What seems to be continuous dividend increases over the past 10 years was in fact a variable dividend paid in line with EPS fluctuations. What generated a mistake in my analysis was a continuous EPS growth during the same period. Considering LAS as a variable dividend payer will make me keep the stock in my portfolios (both personal and at DSR). This situation doesn’t qualify as a “true dividend cut” since management never intended to pay an ever increasing dividend. The last 10 years have lead me think otherwise about their dividend growth policy. On the other side, the fact that LAS keeps its payout ratio at 25% will ensure the business will always have lots of cash flow for other projects. However, we will review our DSR stock card to reflect the current situation.
Numbers are as at June 3rd 2019 after the bell:
U.S. portfolio (USD)
|Company Name||Ticker||Market Value|
|United Parcel Services||UPS||$3,482.81|
The US total value account shows a variation of -$4,758.06 USD (-7%) since the last income report.
For my US portfolio, it looks like I’m practicing some country dance (one step forward, two steps backwards). While my overall performance over the past 12 months was good, I just lost pretty much everything I made last month.
For my US portfolio, I easily beat the SPDR S&P 500 ETF (SPY) (+3.26%), but I lagged Vanguard Dividend Appreciation ETF (VIG) (-1.89%).
In order to manage my portfolio, I use a few simple tricks:
#1 I track my portfolio quarterly (and publish a monthly report too!)
#2 I make sure I get rid of all non-dividend growers (so far so good)
#3 I focus on quality, not quantity (dividend growth vs dividend yield)
#4 I make sure my sector allocation is well balanced
Now let’s take a look at what went well… and not so well in the past few weeks.
Lazard… oh man…
LAZ is the perfect example of a company not doing great in a quarter, but the stock surged since the results weren’t as bad as expected. Q1 adjusted EPS of 87 cents, though down from $1.26 in the year-ago quarter, beat the average analyst estimate of 69 cents. Assets under management of $235B, rose 9% from the end of 2018. Operating revenue of $620M, exceeding consensus estimate by $21M, declined 14% Y/Y. Financial Advisory operating revenue of $330M fell 15% Y/Y, reflecting lower operating revenue in Europe and Asia, partly offset by higher operating revenue in the Americas. Asset Management operating revenue of $284M declined by 14% Y/Y. Management also increased its dividend by 7%.
Visa is on a roll
Visa’s CEO is a man of a few words (for this press release anyway!), but there isn’t much to say except that V just did it again this quarter. Q1 net revenue of $5.49B rose 8% from $5.07B a year ago as payments volume rose 8%, cross-border volume increased 4%, and processed transactions rose 11%. Exchange rate shifts hurt net revenue growth by ~1.5 percentage points and a new revenue accounting standard increased net revenue growth by 0.8 pp. Adjusted EPS should be at high end of mid-teens for the full year of 2019 including 1.5% of negative forex impact.
Better than expected for Texas Instruments
TXN was able to avoid the worst in this quarter. While both EPS and revenue growth weren’t “really good”, the market expected weaker results. Revenue breakdown: Analog, $2.52B (consensus: $2.44B); Embedded Processing, $796M (consensus: $778M); Other, $280M (consensus: $270.3M). Gross margin was 62.9% (consensus: 63.4%) and operating margin came in at 38.4% (consensus: 37.4%). Unfortunatley, the CEO’s comments tempered the market’s enthusiasm after reading results. He mentioned that typical cyclical downturns have about four to five quarters of Y/Y declines and TI just completed its second shrinking quarter. You will have to be patient in 2019.
My entire portfolio quarterly updated!
Each quarter, we run an exclusive report for Dividend Stocks Rock (DSR) members 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.
Dividend income: $344.71 CAD (+36%)
The growth is compared to May 2018 (not a necessarily a recent dividend increase):
- Royal Bank: +8.5%
- Hasbro: +8%
- Apple: +5.5%
- Lazard: +6.8%
- Texas Instruments: +24%
- Starbucks: +20%
- Currency: +4.2% gain on US dividends
When you combine both dividend growth and capital growth in this portfolio, you get great results! I have never been looking for high yielding stocks. I think the balance between dividend growth and capital growth is important in one’s portfolio.
Canadian Holdings payouts: $113.20 CAD
- National Bank: $52.00
- Royal Bank: $61.20
U.S. Holding payouts: $172.19 USD
- Hasbro: $31.28
- Apple: $23.87
- Lazard: $32.23 + $15.71
- Texas Instruments: $38.50
- Starbucks: $30.60
Total payouts: $344.71 CAD
*I used a USD/CAD conversion rate of 1.3445
This is not only my largest dividend month, but also my largest quarter so far. This is quite exciting to see dividends increasing at such rapid pace.
Since I started this portfolio in September 2017, I have received a total of $4,696.87 CAD in dividend. Keep in mind that this is a “pure dividend growth portfolio” as no capital can be added into this account (it’s a LIRA). Therefore, all dividend growth is coming from stocks and not from additional capital.
My portfolio has had a great ride so far in 2019. This recovery is so strong that I can now take a 25% hit on my portfolio I would still be a few hundreds over my original amount. This shows you how it’s impossible to know when and by how much the market will crash.
If you are worried it will happen, I suggest you read “Sell Now – It’s About Time Someone Tell You This”. This article will tell you what you should toss in your portfolio and what you should keep.