As of Sept. 12, my model dividend portfolio was worth $79,748.23, for a total return – including dividends – of 59.5 per cent.
John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.
Wow. Time flies when you're counting your dividends.
It's been four years since The Globe and Mail launched Strategy Lab, and today I'm going to review how my model dividend portfolio has performed. I think you'll agree that the returns validate the dividend growth approach that I use, both in my Strategy Lab portfolio and in my personal investments.
First, we'll look at the big picture. Then we'll dig into the details.
When Strategy Lab kicked off on Sept. 13, 2012, my objective was simple: Build a portfolio of conservative, blue-chip stocks that will raise their dividends regularly and deliver few – if any – nasty surprises. As a buy-and-hold investor, I vowed to do very little trading and to let time, dividend reinvestment and compounding do most of the work. I've largely stuck to that script, having sold just two of my original holdings.
So far, my hands-off approach has produced some gratifying returns.
At inception, the four Strategy Lab participants each started with $50,000 in virtual cash. As of Sept. 12, my model dividend portfolio was worth $79,748.23, for a total return – including dividends – of 59.5 per cent. That equates to a total return of about 12.4 per cent on an annualized basis, topping the 7.4-per-cent total annual return – also including dividends – of the S&P/TSX composite index over the same period.
The portfolio's outperformance versus the index reflects a few factors. Many of the banks, utilities, pipelines and telecoms I own have surged in price. I've also benefited from avoiding oil and gas producers, and from holding a couple of U.S. stocks whose value in Canadian dollars has gotten a boost from the falling loonie.
As pleased as I am with these results, I'm still trailing the growth and value model portfolios managed by my fellow Strategy Lab participants Chris Umiastowski and Norman Rothery, respectively, although I'm ahead of Andrew Hallam's index portfolio. That said, my portfolio is doing exactly what I had expected it to do: Provide a rising income stream and solid capital growth with minimal volatility. And I have every reason to believe the gains will continue for years to come.
Many investors make the mistake of focusing on short-term performance – a habit that encourages frequent trading and emotional decision making. It's only when you step back and look at the longer-term picture that you can appreciate the power of a buy-and-hold dividend strategy. Although four years is still a relatively short period to evaluate an investing strategy, it does serve to illustrate how dividend growth can build wealth over time.
Here are a few numbers to chew on:
- Since Strategy Lab launched, I have received 218 dividends totalling nearly $9,400 (most of which has been reinvested in additional shares).
- My companies have announced 54 dividend increases in total – led by eight hikes from Telus, seven each from Bank of Montreal and Royal Bank of Canada and four each from Procter & Gamble, BCE, Canadian Utilities, Fortis, Enbridge and TransCanada.
- My annualized portfolio income has grown to $3,106.27 (based on current dividend and exchange rates) from $1,875.84 at inception – an increase of more than 65 per cent. The growth reflects three factors – dividend increases, dividend reinvestments and a tailwind from the falling Canadian dollar that has boosted the value of my U.S. dividends when converted to loonies.
- Eleven of the portfolio’s 12 securities are trading at higher prices than when I “bought” them. The exception is my sole exchange-traded fund – the iShares S&P/TSX REIT Index ETF – which is down slightly. Including distributions, however, it’s up about 16 per cent.
Capital gains are nice, of course, but one of the best things about dividend investing is that it allows me to focus on my portfolio's growing income instead of fixating on the market's daily fluctuations. Even as stock prices have bounced around – sometimes dramatically – my dividend income has continued to grow through good times and bad. This is a great source of comfort, particularly when the market is doing one of its occasional belly-flops.
Has everything gone right? Nope. Some of my stocks have underperformed the market, and I've sold at least one stock that, in hindsight, I probably should have kept – McDonald's.
But this year, in particular, the portfolio has performed exceptionally well. It posted a total return of 16.6 per cent through the first eight months of 2016 – about 10 percentage points higher than the next-best performer, Mr. Hallam's model indexing portfolio.
Next year, who knows? Interest rates could rise and dividend stocks could take a hit. So I'll enjoy this stretch of outperformance while it lasts.
What happens in the short run doesn't really matter much, anyway. Over the long run, if my dividends keep growing as I expect, I have no doubt that my portfolio will continue to build wealth – just as it's been doing over the past four years.
John Heinzl