What a year 2020 has been so far. Due to COVID-19, we have been social distancing since mid-March by staying at home as much as possible. The stock market started sliding in late February due to uncertainties and unknowns associated with the pandemic. The global stock market then hit rock bottom in late March before slowly bouncing back since. As the COVID-19 cases continue to spike globally, the stock market has stayed volatile. As a Canada dividend investor that believes in time in the market rather than timing the market, I have been regularly adding capital to our investment accounts and buying US and Canadian dividend stocks throughout 2020. For those of you that are new to this blog and not aware of how we started with dividend growth investing, Mrs. T and I have been working hard to grow our dividend portfolio since 2011. Our goal is to have to life off dividends when we are financially independent.
In 1H of 2020, a few things happened. First, we reached an all-time monthly dividend income record three out of six months. We also hit a monthly dividend income record of over $2,500 and an amazing year over year growth of over 33%. However, due to the COVID-19 pandemic, we also saw a bunch of dividend cuts and suspensions which have hurt our forward-looking dividend income.
We feel very fortunate that our dividend portfolio is generating money and working hard for us, so we don’t have to. Our dividend portfolio is generating money for us at $3.04 per hour with $2.20 of that (72.4%) completely tax-free (via TFSA and RRSP. I’m ignoring that we need to pay back taxes in RRSP when we make withdrawals, but this can be avoided completely). Our monthly dividend income can now cover more than 50% of our monthly expenses. We are very pleased with this progress.
After re-evaluating and doing a deep dive of our portfolio earlier this year, I figured I’d take the time to review our purchases of dividend stocks in the 1H of 2020 and consider what we need to do moving forward.
Closing out dividend stocks
Before I get into the 1H 2020 purchases, I just want to point out that we decided to close out eight dividend stocks in 2020. I decided to close out these positions mostly because of these reasons:
- Stock price has stayed flat for the last few years
- No dividend increase or minimum payout increase
- Dividend cuts or suspensions in 2020
- Dividend cuts or suspension is anticipated due to deteriorating revenues
With these in mind, we closed out the following positions in 1H 2020:
- Evertz Technologies (ET.TO)
- Chevron (CVX)
- General Mills (GIS)
- Domtar Corp (UFS.TO)
- Ventas (VTS)
- Magellan Aerospace Corp (MAL.TO)
- Laurentian Bank (LB.TO)
- Exco Technologies (XTC.TO)
All of these dividend paying stocks, except General Mills, have continued to trend down in price since we sold all of our shares. In June, Evertz Technologies announced a 50% dividend reduction, so I was happy that we closed out the position with a small profit before the dividend cut announcement.
Closing out these eight stocks gave us around $15,000 in cash (note, I’m not converting USD to CAD, using 1:1 exchange rate here). We then re-invested this amount by purchasing other dividend-paying stocks.
1H 2020 Dividend Stock Purchases
Since the beginning of 2020, we have purchased US and Canadian dividend paying stocks each month. We made a significant amount of purchases in January and February when we maxed out our TFSA and RRSP contribution rooms. Ironically, the market was firing on all cylinders in January and February, so we purchased some of these stocks at high prices.
Below are the dividend-paying stocks that we have purchased in 1H 2020 and our cost basis:
- 12 shares of CNR.TO at $117.71
- 450 shares of ERE.TO at $4.67
- 260 shares of BPY at $18.22
- 52 shares of BPY.UN at $12.14
- 100 shares of BEP at $45.85
- 20 shares of PEP at $135.94
- 57 shares of BMO.TO at 71.99
- 105 shares of TD.TO at $67.84
- 450 shares of IPL.TO at $22.51
- 116 shares of CM.TO at $78.98
- 72 shares of T.TO at $26.07 (split adjusted)
- 118 shares of SU.TO at $30.63
- 75 shares of ENB.TO at $40
- 26 shares of RY.TO at $84.60
- 43 shares of CU.TO at $32.24
- 52 shares of BNS.TO at $51.69
- 378 shares of AQN.TO at $19.16
- 27 shares of GRT.UN at $67.11
As you can see, some of these purchases reflect our beliefs in the top 13 Canadian dividend stocks that I selected. We are regularly adding more shares to these top dividend stocks.
In addition to these transactions, whenever we have a few hundred dollars in our Questrade account, we’d purchase some shares of VCN and XAW to take advantage of Questrade’s commission-free ETF trading. I continue to like investing in index ETFs for asset and geographical diversification reasons.
In case you’re curious, for our RESPs, we went from a multi-ETF approach to holding one of the all-in-one ETFs. This is purely for simplicity reasons. By doing so we can leave the RESPs on autopilot.
All these transactions added up to over $70,000 and added around $3,450 to our annual dividend income. This corresponds to about a 4.9% yield. We would have gotten more dividend income and a higher yield if the likes of IPL.TO and SU.TO didn’t cut dividends. Please note, all these numbers exclude distributions from VCN and XAW, since distributions from these funds vary at each payout.
If we took out the $15,000 that came from closing out of the eight stocks, it meant that we have added over $56,000 of new capital toward buying dividend-paying stocks. One thing to note is that we are DRIPing with all eligible stocks and reinvesting dividends received, so the actual “new” capital amount is a bit lower than $56,000. Regardless, it is still a lot of money! I will be the first one to admit that I was pleasantly surprised about over $70,000 (or $56,000) invested when I was reviewing our purchases.
In case you’re wondering, no, we are not eating instant noodles every day and saving money that way. In fact, we are eating quite well by purchasing organic food whenever possible. And no, we don’t make crazy amounts of income like over $250k as a household. We simply pay close attention to what we spend money on and remind ourselves to have the right balance between saving for the future and spending money to enjoy the present moment.
1H 2020 Purchase Overall Analysis
At the time of writing, we are down about 6% with our 1H 2020 purchases. This shouldn’t come as a surprise since the market is still down around 9% from the February high. Hopefully we will see the -6% turning into a positive number soon…
1H 2020 Losers
Since the bulk of our purchases were made in January and February when the market was firing on all cylinders, it shouldn’t come as a surprise that some of our purchase prices were high. So, out of the 18 dividend-paying stocks and 2 index ETF purchases, there were a handful of clear losers so far…
Brookfield Property Partners
Due to the pandemic, many retail stores were closed for a number of months as health officials placed voluntary or mandatory stay-at-home orders. As a result, the retail/mall space has faced increasing pressure as stores face closures and bankruptcies and consumers do more online shopping. The stock price of Brookfield Property Partners suffered because of this. At the time of the writing, we are more than 35% in the red. One fortunate aspect is that BPY has continued to pay the same amount of dividends and has not cut the dividends (knock on wood).
BPY has a widely diversified asset list and is owned by a well-managed parent company, Brookfield Asset Management Inc (BAM). Just recently BAM has announced that it would be buying more shares in BPY and increasing its ownership stake by purchasing more than 74 million units of BPY at a premium price.
As long as the dividends remain the same and no cuts, I am not worried about BPY. I believe once cities start to open up slowly and effective treatments or vaccines are found, BPY’s share price will eventually recover.
I’ll be the first one to admit that I fell for the yield trap when it came to Inter Pipeline. I was putting too much focus on our $30,000 dividend income goal for 2020 that I ignored some warning signs that Inter Pipeline had. When crude oil prices started to drop, so did Inter Pipeline’s share price. To add insult to injury, Inter Pipeline then announced a 72% dividend reduction.
The 450 shares of Inter Pipeline is in a deep beet-colour-like red loss. In fact, all of our Inter Pipeline shares look that way. Originally when the stock price started to decline, I was planning to hold on and cost average via DRIP. With the dividend reduction, we are only dripping two or three shares each month instead of a dozen.
I have been debating whether to continue holding onto Inter Pipeline or to just take the loss all together. But at more than $15,000 in the red, it is difficult for me to just close out our Inter Pipeline position and take that significant amount of loss.
So for now, we’ll continue holding onto Inter Pipeline and hope for the best.
Our purchase of Suncor shared a similar storyline as Inter Pipeline. I purchased 67 Suncor shares early in the year, before the pandemic gong show started. When Suncor’s share price was below $20 and the dividend yield was close to 5% in March, I took a calculated risk and purchased another 51 shares, thinking that Suncor wouldn’t cut dividends. Unfortunately Suncor surprised all dividend growth investors and announced a dividend reduction.
Suncor’s price has recovered slightly since but still a bit away from $40’s that we saw in February. For now, I plan to continue holding Suncor and maybe sell some when the share price goes above $31 and reinvest the money elsewhere (i.e. not in the oil & gas sector).
1H 2020 Winners
Despite having purchased some poor performing stocks that are in the red, I managed to buy a few stocks that have performed well. This is just to show that you lose some and you win some when it comes to buying individual dividend-paying stocks. For most investors, it may be easier to stick with one or two index ETFs.
Brookfield Property Partners
It’s funny that BPY is both the loser and winner. After the initial purchase of BPY in January, I then purchased a small amount of BPY.UN in March when the stock price was around 52-week low. This was a calculated gamble that has paid off so far as we’re sitting at more than 25% gain (although the dollar amount is tiny).
Brookfield Renewable Energy
Because Mrs. T and I believe renewable energy is the future, we decided to increase our stake in Brookfield Renewable Energy. The utilities sector has continued to hold up nicely compared to the other sectors and BEP has benefited from this. Since the purchase, we are looking at a profit of more than 15%. We plan to continue to monitor BEP’s share price and may add more shares in the second half of the year.
CIBC & Royal Bank
The Canadian banks have seen better days. I really like Canadian banks’ dividend track records as the Big Fives have been paying uninterrupted dividends since the late 1800’s. When both CIBC and Royal Bank were yielding at above their historical yield averages, I knew it was too hard to pass up the opportunity. After the initial purchase, I then continued to purchase more CIBC shares to try to cost average down some more.
As the share price of Canadian banks slowly starts to recover, we have benefited from this. Both of our CM.TO and RY.TO purchases are seeing +10% returns currently.
As mentioned at the beginning of this post, I continue to believe in time in the market rather than timing the market. Don’t quibble over eighths and quarters, think long term. If you happen to purchase a stock and the share price goes down, you can always cost average it down—as long as the company’s fundamentals have not changed and the company continues with its core business strategies.
Now more than ever, it is important to maintain a dividend scorecard so you can quickly evaluate your stock holdings.
The collapse in crude oil price and the price downtrend of Suncor and Inter Pipeline just reminded me yet again to stay away from the oil sector and cyclical stocks. I originally thought that pipeline companies aren’t as prone to the crude oil price as oil producers but I have learned my lesson. Moving forward, I plan to slowly reduce our exposure in the oil & gas sector, including pipeline companies.
The retail and office REITs are suffering due to the pandemic. While people will return to retail stores, more and more people will be shopping online. How we work and how offices are utilized will also change once we are out of the pandemic. I believe more companies will allow employees to work from home and reduce their operation costs. Some offices may also get turned into residential usage. As a result, I think we need to take a closer look at our REIT holdings and possibly reduce our exposure in retail and office REITs. We can probably increase our exposure in residential and industrial REITs.
Dear readers, how have your 2020 stock purchases performed so far?