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 has lately. But I continue to enjoy cashing consistent and growing dividends despite that negative market action!
The Silent Voice Telling You It’s Going to Be Okay
During my latest portfolio update, I mentioned the stock market was on a slippery slope after seeing the NASDAQ go down by 5% on September 3rd and futures were heading down on September 4th. I was excited to write that update as I celebrated 3 years of portfolio updates. Even after a severe market drop the day before I wrote my update, my portfolio was at its highest value ever (considering the value published in my update of course).
As it has been the 2020 main narrative many uncertainties have been flooding the market. What changed in early October? Not much to be honest. The narrative of an uncertain economy continues to exist in our imagination. The latest news was that COVID-19 has done a pretty strong “back-to-school” comeback and even the President of the United States caught this virus. What’s the effect on the stock market and your portfolio?
As you can see on the previous graph, the impact of all this uncertainty has been nil. The market went up and down throughout the entire month of September and all those variations put together didn’t have a significant net impact.
During these times of volatility, there might be a voice whispering in your ear that you should sell. That “now is the time to protect your capital and sell before it gets ugly”. After all, you have a bunch of reasons to sell:
- COVID-19 is spreading faster than ever.
- Governments already borrowed/printed too much money to save the economy.
- The economy is clearly struggling.
- The U.S. election is coming up next month.
That voice is usually the loudest as it speaks the language of fear. We all know that it hurts a lot more to lose $1,000 than it feels good to find $1,000. Therefore, once again, you must turn the noise down and listen to your silent voice. The one telling you, it’s going to be okay.
I used the word “silent” because you will literally not hear it. Most financial sites and media ignore it. This is not the noise that attracts clicks and views. It’s a calm voice telling you what you already know: you have a plan; you have a strategy and all you must do is wait.
I’ve been stressing the importance of having an investment/retirement plan along with a clear investing strategy for many years now. If you have followed my advice (you can refer to the recession-proof portfolio workbook for a straight-to-the-point approach to manage your portfolio), you are confident entering the last quarter of this incredible year.
I haven’t done much modification to my portfolio for that very reason. My plan and strategy have been lined-up and did well in the past. If you are looking for a way to improve your portfolio, I’d like to do a quick refresh of what I wrote back in April.
As the market plummeted in March, I saw my own portfolio following the same trajectory. Dividend growth investing is not “end-of-the-world-market-crash-proof”. As we were all trying to understand the impact of this new virus on our portfolios, I divided my holdings into three categories. This exercise was done to help me understand where I should focus my attention and shutdown the noise. Here’s how I did this.
Identify my core companies
When the market started to tumble, I 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 businesses 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 for several more months.
In the Core segment, I found most of my holdings:
- Alimentation Couche-Tard (ATD.B.TO)
- Apple (AAPL)
- BlackRock (BLK)
- Disney (DIS)
- Fortis (FTS.TO)
- Gentex (GNTX)
- Microsoft (MSFT)
- Starbucks (SBUX)
- Sylogist (SVZ.V)
- Texas Instruments (TXN)
- UPS (UPS)
- Visa (V)
Source : Ycharts
As you can see from the graph, my core holdings did very well this year. While the XIU.TO shows year-to-date total return of -2.56% as of October 5th (around noon), my three Canadian holdings are showing total returns of 12.91% (ATD.B.TO), 11.38% (SYZ.V) and 5.22% (FTS.TO).
On the US side, the SPY shows a year-to-date total return of 6.58%. 6 out of 9 companies beat the index and three of them lagged with -14.89% (DIS), -7.85% (GNTX) and +1.56% (SBUX).
The idea of having “core holdings” was to identify companies that will not necessarily thrive during the pandemic but would rather find creative ways to survive and get stronger. As many of them have already proved to the market that they can survive, they attracted more money.
If I had to do the classification today, I would keep all those holdings as my “core” stocks.
Add a level of educated guesses
The educated guesses are companies that should do well but may 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)
- Enbridge (ENB.TO)
- Intertape Polymer (ITP.TO)
- Royal Bank (RY.TO)
- VF Corporation (VFC)
Interestingly enough, I had 4 Canadian companies classified as educated guesses and I added VFC to my portfolio during the crisis. Therefore, I picked VFC at $74.73 and not at its January price of $90/share.
Back in March 2020, we all knew it would be a difficult year for banks. There were lots of chatters about dividend freezes and then dividend cuts in that industry. My thesis on Canadian banks was that they would go through this crisis as they did back in 2008. They were well capitalized before the crisis and they were able to take the hit. As a plus, since banks are at the center of our economic system, the federal government couldn’t afford to let them down. We can’t live without our heart pumping blood in our system. Capitalism can’t function without banks making money available to all parties.
Enbridge had $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 throug this storm.
Finally, Intertape Polymer has two business segments that should grow through the pandemic: food packaging and e-commerce packaging solutions. This is pretty much what has happened and while ITP isn’t part of my top performers group, it reassured the market and has performed a great recovery.
You will notice that my educated guess’s performance on the stock market is well below that of my core holdings.
They all underperformed the market by a few points, but it’s not catastrophic. In fact, these are stocks I should have bought even more of during the drop. That’s the disadvantage of being fully invested. If I had money on the side, I would have purchased more Canadian banks. Instead, I have all my money working for me all the time. Watching great opportunities fly by under my nose was a compromise I had to make. In the meantime, I must remind myself that I cashed juicy dividends since 2017 instead of watching the parade.
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 was willing to “bet” people would keep drinking wine and continue pilot training. 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)
Without any surprises, these holdings all underperformed. Besides Magna that seems to be on a good recovery, the other four companies continue to struggle with -40% (CAE), -18.6% (HAS), -15% (ADW.A.TO) and -8.42% (LAZ).
I bought more Andrew Peller not too long ago to do some cost averaging. In the event of another economic lockdown or if we don’t see any improvement of the situation in early 2021, I expect those companies to take another hit. Right now, I’m interested in adding more CAE to my portfolio. After all, they are a worldwide leader in flight simulators, and it is not true that we will stop flying. Sometimes, you must consider what will happen in 3-4 years from now to see where you will best put your money to work.
At this point, they have all become smaller positions in my portfolio. This will help mitigate any impact on my overall portfolio return.
One more thing you can do now to improve your portfolio
Once you have classified all your stocks into these three categories and you feel comfortable with the risks coming with each of them, there is one more thing you can do this fall to improve your portfolio: tax optimization.
I rarely discuss tax optimization as I have readers coming from various countries and dealing with various tax situations. In fact, before you do anything, I would strongly advise you to run your planned moves by a tax expert first. However, there is one thing common for most investors: you can write-off your losses in non-tax-sheltered accounts.
Since this portfolio is tax-sheltered, there is no advantage for me to sell my shares of CAE and write-off the loss. However, now is the time to trigger those capital losses. You can use those against past capital gains. In general, you can sell your shares and wait a specific amount of days before buying back the very same shares (I don’t disclose the number of days intentionally because I really want you to run this by a tax expert first).
If you don’t want your money to wait on the sideline in the meantime, you can always buy an ETF tracking the same sector. You should get similar results.
Now, let’s see how my portfolio did during the month of September.
Here’s my CDN portfolio now. Numbers are as of October 5th, 2020 (before the bell):
Canadian Portfolio (CAD)
|Company Name||Ticker||Market Value|
My account shows a variation of -$717.07 (-1.3%) since the last income report on September 4th.
As most companies already have declared their earnings, it was a relatively quiet month for me. It was only normal to see a small drop after such a surge in August. As mentioned earlier, I’d like to add a few shares of CAE to my portfolio. I might use dividends received this summer to do so. While the company doesn’t pay dividends at this time, I can see how CAE will thrive once the pandemic is over.
Here’s my US portfolio now. Numbers are as of October 5th, 2020 (before the bell):
U.S. Portfolio (USD)
|Company Name||Ticker||Market Value|
|United Parcel Services||UPS||6,177.52|
The US total value account shows a variation of -$1,633.68 (-1.9%) since the last income report September 4th.
A lot of investors cashed a part of their profit on tech stocks during September. While this sector was the hero of the day in August, this is what dragged me down behind the index this time. But what really caught my attention this month is my dividend milestone. As I said before, sometimes you must listen to the silent voice.
My entire portfolio updated for Q3 2020
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 October 2020.
Dividend Income: $551.98 CAD (+14.65% vs September 2019)
An interesting fact is that back in September 2019 I had Lassonde (LAS.A.TO) and CAE paying dividends. I sold my position in Lassonde (to buy more Sylogist) and CAE suspended its dividend amid the pandemic. Nonetheless, I show double-digit dividend growth vs. last year. As you can see in the following list, many of my companies show double-digit increases. It was not the doing of a single trade, but rather a team effort. This is what dividend growth investing looks like: all the companies are pushing in the same direction no matter what happens on the market.
Here’s the detail of my dividend payments.
Dividend growth (over the past 12 months):
- Fortis: +6.1%
- Enbridge: +9.75%
- Magna: +9%
- Sylogist: +165% (I added more shares)
- Alimentation Couche-Tard: +12%
- Intertape Polymer: -1% (currency fluctuation, ITP pays in USD)
- Visa: +20%
- UPS: +5.2%
- Microsoft: +10.9%
- VFC: (new addition)
- BlackRock: +10%
- Currency fluctuation: flat.
Canadian Holdings payouts: $551.98 CAD
- Fortis: $47.27
- Enbridge: $130.41
- Magna: $36.24
- Sylogist: $52.13
- Alimentation Couche-Tard: $12.04
- Intertape Polymer: $58.26
U.S. Holding payouts: $162.59 USD
- Visa: $15.00
- UPS: $37.37
- Microsoft: $30.60
- VFC: $28.80
- BlackRock: $50.82
Total payouts: $551.98 CAD
*I used a USD/CAD conversion rate of 1.3262
Since I started this portfolio in September 2017, I have received a total of $10,011.03 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 dividends. Therefore, all dividend growth is coming from the stocks and not from any additional capital.
After reviewing my portfolio once again, I feel comfortable with my current holdings. I know my portfolio will get hit if there is another crash, but I also know that most of those companies will survive and get stronger once the economy gets back on track. I think it may happen faster than we think. The human being is an incredible “beast” that always finds ways to adapt. I’m confident this will be the case once more.
I have a few stocks on my “potential sell list” though. When I bought Enbridge, I expected the pipeline company to surf on a strong economy (that was back in late 2018). At this point, I’m not worried about its dividend. However, I now see ENB more like a “deluxe bond”. This means, I’ll get a generous dividend, but I don’t expect much capital appreciation. This doesn’t fit with my overall investing strategy.
The other stock on my sell list is UPS. While the stock soared in 2020, I have a feeling this will be temporary. I expect a strong holiday period for them. Eventually UPS will face more competition from Amazon and the recession may eventually weigh on ecommerce business as well!
I’m not ready to pull the trigger yet, but I wanted to share my thoughts at this time. This way, you won’t be surprised if I make trades over the next few weeks.