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A deeper dive into my Strategy Lab dividend portfolio

John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.

Strategy Lab is approaching its fifth birthday in September, and over the years I've received plenty of comments and questions about my model dividend portfolio.

That's great. It shows people are interested in managing their own money and learning more about dividend investing. Today, I'll answer some of the most common questions from readers.

How has the portfolio performed on a year-to-year basis?

I started my model dividend portfolio on Sept. 13, 2012, with $50,000 in virtual cash. As of May 31, the portfolio was valued at $88,343.48, for a total return – including dividends – of 76.7 per cent.

That's equivalent to a compound annual total return of 12.8 per cent, which topped the S&P/TSX composite index's annualized total return – assuming all dividends were reinvested – of 7.9 per cent over the same period. (It's not a strictly apples-to-apples comparison, as my portfolio holds a couple of U.S. stocks that benefited from the falling loonie.)

By calendar year (including the two partial years of 2012 and 2017), the model portfolio's total returns were as follows: 2012: 4 per cent; 2013: 13.1 per cent; 2014: 19.5 per cent; 2015: minus 3.6 per cent; 2016: 21.5 per cent; 2017: 7.3 per cent.

So far, I'm very pleased with the portfolio's performance.

Why does your portfolio have only 12 securities?

That was the rule when Strategy Lab started. The idea was to give the four Strategy Lab participants an opportunity for reasonable diversification while also encouraging them to focus on their best ideas. There was also a practical consideration: tracking returns of four portfolios (dividend, growth, value and index) requires a fair bit of work. If the portfolios contained, say, 30, 40 or 50 securities each, the job would have become unwieldy.

That said, for a real-life portfolio one would probably need more than 12 securities for adequate diversification.

In my personal portfolio I hold about double that number, including several low-cost exchange-traded funds and mutual funds.

I should also stress that my dividend portfolio is not meant to be copied exactly. Rather, it is intended to serve as a source of investing ideas, and also to illustrate the general strategy and decisions involved in managing a largely buy-and-hold dividend portfolio.

Why don't you use a DRIP with your stocks?

Don't get me wrong: I think dividend reinvestment plans are great. They make reinvesting dividends – one of the keys to building wealth – automatic. I just prefer to have more control over the process, which is why I let cash accumulate and then choose how to invest it. This allows me to purchase shares of companies that I find especially attractive because they've dropped in price, for example, or announced news that I expect will be positive for the stock over the long run.

Who tracks the portfolios' returns?

Returns are calculated independently by a retired accountant. In some cases – when I want to calculate my portfolio's annual dividend income or yield, for example – I will crunch the numbers myself.

What is your portfolio's annual income? How much has it grown?

Based on current dividend rates, the portfolio's annual income is $3,469. That represents an increase of about 85 per cent since inception, when the portfolio's annualized income was $1,876. As of May 31, the portfolio yielded about 3.9 per cent.

How many of your stocks have raised their dividends in 2017?

Of the 12 securities, 10 have raised their dividend at least once this year – namely BCE Inc., Bank of Montreal, Brookfield Infrastructure Partners LP, Canadian Utilities Ltd., Enbridge Inc., Johnson & Johnson, Procter & Gamble Co., Royal Bank of Canada, Telus Corp. and TransCanada Corp. I fully expect that Fortis Inc. will raise its dividend later this year. I also hold one exchange-traded fund – the iShares S&P/TSX Capped REIT Index ETF – whose monthly distribution fluctuates but is about 11-per-cent higher now than it was at the portfolio's inception.

Don't you think you should have some growth stocks in your portfolio, too? Some have done extremely well.

Trust me, I know. The runaway leader in Strategy Lab is Chris Umiastowski, who manages the growth portfolio. But my mandate is to invest in dividend stocks, and that's what I'll stick to in Strategy Lab. I also focus almost exclusively on dividend stocks – specifically those with growing dividends – in my personal portfolio, because it imposes discipline on my stock selections. However, I also get exposure to other stocks and sectors through the ETFs and mutual funds I own. I would never suggest dividend investing is the only strategy that works – but it fits my conservative personality, rewards me regularly with dividend payments and dividend increases and has produced some nice returns. I have no plans to switch.

Strategy Lab model dividend portfolio

Four Strategy Lab experts started with a hypothetical $50,000 portfolio on Sept. 13, 2012. They can each hold five to 12 Canadian or U.S. securities and trade as often or as little as they wish. Here are dividend investor John Heinzl's current model portfolio holdings.

CompanyTickerClose $ (June 13)Dividend yield
BCEBCE-T$59.45 4.8%
Bank of MontrealBMO-T$93.15 3.9%
Brookfield InfrastructureBIP.UN-T$52.84 4.3%
Canadian UtilitiesCU-T$40.79 3.5%
EnbridgeENB-T$51.15 4.8%
FortisFTS-T$45.24 3.5%
Johnson & JohnsonJNJ-N$132.02 (U.S.) 2.6%
Procter & GamblePG-N$88.06 (U.S.) 3.1%
Royal BankRY-T$93.89 3.7%
TelusT-T$44.87 4.4%
TransCanadaTRP-T$63.86 3.9%
S&P/TSX REIT ETFXRE-T$16.52 4.9%

Note: Securities shown here are also in John Heinzl's personal portfolio.

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