Kids are getting their final grades this week, so this seems like an appropriate time to hand out Yield Hog’s report card, too.
Today, I’ll update the performance of my Yield Hog Model Dividend Growth Portfolio. Then I’ll discuss some other stocks I’ve written about in my Yield Hog column over the past year or so.
I launched my model portfolio in late September with $100,000 in virtual cash. As of Tuesday’s close, the portfolio’s value had grown - through share price gains and dividends - to $102,471.
That works out to a total return of about 2.5 per cent, which trails the S&P/TSX Composite Index’s total return of about 5.8 per cent over the same period. I’m not surprised, given that rising interest rates hurt many of the model portfolio’s stocks, particularly utilities and pipelines.
But here’s the good news: 19 of the 22 securities have raised their dividends at least once since the portfolio’s inception, validating its core mission: to generate steadily growing income.
Thanks to all those dividend increases - plus dividend reinvestments, a falling Canadian dollar and the acquisition of Canadian REIT by the higher-yielding Choice Properties REIT (CHP.UN) - the portfolio is now throwing off $4,600 in cash on an annualized basis, up more than 12 per cent from the $4,094 it was producing at inception.
I give the portfolio an A for dividend growth, but a C- for share price performance, for an overall grade of B. Bottom line: There’s definitely room for improvement here.
Now, let’s look at a small (but representative) sample of some other, non-model portfolio stocks I’ve profiled. I’ll grade each column based on how accurate the analysis turned out to be.
Restaurant Brands International Inc. (QSR-T)
- Profiled: Feb. 27, 2018
- Price then: $75.19
- Price now: $79.41
- Price return: 5.6 per cent
When I wrote about Restaurant Brands, the shares had been struggling amid weak sales at Tim Hortons and a continuing feud between the parent company and a group of Tims franchisees. But I argued that the beaten-down stock was attractive because the company still offered plenty of growth potential and the doubling of its dividend was a bullish sign. Since the column appeared, Tims’s same-store sales have remained sluggish, but Burger King and Popeyes both posted same-store sales growth of more than 3 per cent in the first quarter. That, in addition to positive analyst comments, has given the stock a modest lift. Grade: B+
Corus Entertainment Inc. (CJR.B-T)
- Profiled: Jan. 16, 2018
- Price then: $8.47
- Price now: $6.25
- Price return: negative 26.2 per cent
I warned investors that Corus’s outsized yield of more than 13 per cent was “a huge red flag” and that turned out to be true. Shares of the TV, radio and content company have continued to fall since the column appeared, pushing the yield up to more than 18 per cent. With Corus aiming to pay down debt, particularly after the Competition Bureau blocked its proposed sale of two French-language specialty channels to Bell Media Inc., analysts expect a hefty dividend cut soon. Investors who heeded my warning would have saved themselves some pain. Grade: A.
Dollarama Inc. (DOL)
- Profiled: Nov. 28, 2017
- Price then: $54.93 (split-adjusted)
- Price now: $51.76
- Price return: negative 5.8 per cent
I’m usually wary of stocks with high price-to-earnings multiples, because even a whiff of a slowdown in earnings growth can kill their momentum. I said as much in my column on Dollarama, then went on to highlight all the reasons its stock could keep defying gravity, including strong same-store sales growth and an expanding selection of higher-priced items. I should have been more skeptical: In a miss the company attributed to unfavourable April weather, Dollarama’s same-store sales grew just 2.6 per cent in the first quarter - a couple of percentage points below expectations - sparking a selloff in the shares. The stock has recovered some ground, but is still lower (adjusted for a recent three-for-one split) than when I wrote about it last fall. Grade: D.
InterRent REIT (IIP.UN)
- Profiled: Aug. 15, 2017
- Price then: $7.82
- Price now: $10.85
- Price Return: 38.7 per cent
All three of the apartment real estate investment trusts I wrote about last summer have posted double-digit gains, but InterRent’s stellar return leads the pack. On top of that, in November, the REIT hiked its distribution by 11 per cent. InterRent - which specializes in turning around dated properties and charging higher rents - has recently taken other positive steps, such as internalizing its property-management function and raising $98-million with an equity offering, with proceeds used to repay debt and fund future acquisitions. If only all of the stocks I profiled delivered such terrific returns. Grade: A+
Closing thoughts
I’ve said many times that the purpose of the model portfolio is to illustrate how dividend growth investing works - not to provide a template to be copied exactly. The positive returns of Restaurant Brands, InterRent and other stocks I’ve written about that aren’t in the model portfolio underline that point. Now that my report card is in, Yield Hog will be taking a few weeks off. See you later in the summer.
Disclosure: The author personally owns shares of QSR and IIP.UN, in addition to all of the stocks in the Yield Hog Model Dividend Growth Portfolio.
John Heinzl