Long-time readers know that I have been writing monthly dividend income updates as a way to keep us honest and demonstrate that it is possible to build a sizable dividend portfolio. Like many dividend growth investors, our goal is to have our dividend portfolio generating sufficient dividend income to cover our expenses so that we can rely on dividend income without having to sell our principal. This gives us a higher margin of safety when we are living off our dividend income. Furthermore, we plan to pass down our dividend portfolio to future generations, so principal preservation is always something in the back of our minds.
While almost all dividend growth investors/bloggers provide dividend income updates regularly, myself included, one of the biggest complaints many people have is that we do not share information on how our dividend portfolio is growing. Is the dividend portfolio keeping up pace with the broad market performance? After all, stock price appreciation and dividend income are both important and cannot be ignored. If a dividend portfolio is yielding at 5% but does not appreciate its value at all for 10 years, it’s not attractive at all. Meanwhile, if a dividend portfolio yields 4% and appreciates in value by 15% per year, that looks super attractive!
Therefore, I thought it would be interesting to investigate the growth of our dividend portfolio and benchmark against the TSX Composite Index. Has our dividend portfolio been beating the TSX
Dividend portfolio growth over the years
A word of caution, since I don’t blog anonymously anymore, for privacy reasons, I need to be careful with how much information I share. For this exercise, I won’t be sharing the yearly portfolio values and how much money we contributed to our dividend portfolio each year.
Mrs. T and I have been tracking our net worth for over 10 years every quarter (we grew 250% in 5 years). As part of our net worth tracking exercise, we also track our dividend portfolio. Separately, we also keep track of how much fresh capital we contribute to our dividend portfolio each year.
As you may recall, we had our financial epiphany in 2011 and got very serious about dividend growth investing in 2012.
Below is the growth of our dividend portfolio over the last seven and a half years.
If we calculate the YoY growth it looks something like this:
Note: 1 For 2019, the portfolio value was taken on July 1, 2019.
Note 2: Portfolio value was recorded in CAD. Holdings in USD were converted to CAD at the time of portfolio recording.
How YoY growth was calculated:
Say at the beginning of 2012 the portfolio value was $10,000.
Then at the end of 2012, the portfolio value was $20,000.
Then 2012 YoY growth = (20,000-10,000) / 10,000 * 100 = 100%
YoY Growth Performance Analysis
We had some very big growth numbers over the years! One thing to keep in mind is that we have been contributing new capital to our dividend portfolio every single year. We do that by first maximizing our TFSA and RRSP contributions at the beginning of the year and using the money to purchase dividend paying stocks or index ETFs. Once our TFSA and RRSP are maximized, we contribute additional cash to our taxable accounts.
When we got serious with dividend growth investing in 2012, we moved a significant amount of cash from my work’s RRSP into my self-directed RRSP (in-kind transfer so there was no tax consequence). Since my work’s RRSP allows for a free in-kind transfer each year, I have been transferring my portion of the RRSP into my self-directed RRSP every year. Unfortunately, I can’t touch the company matched portion.
Removing annual cash contribution
What if we remove these annual cash contributions? What would our dividend portfolio growth look like?
For this calculation, I went in and subtracted our annual cash contributions from the end of the year portfolio values and plotted the following graph:
The revised YoY portfolio growth looks like this:
|Raw YoY Growth||Remove annual contributions|
Now, these YoY growth rates are looking more reasonable. From 2012 to mid-2019, our dividend portfolio had an average growth rate of 12.59%. Not too shabby.
How I calculated YoY growth without annual contribution:
Say beginning of 2012 the portfolio value was $10,000.
Then at the end of 2012, the portfolio value was $20,000. And throughout 2012 we contributed $8,000.
The 2012 YoY growth would then be: (20,000-8,000-10,000) / 10,000 * 100 = 20%.
Then say at the end of 2013 the portfolio value was $35,000 and throughout 2013 we contributed $10,000.
The 2013 YoY growth would be: (35,000-10,000-20,000) / 20,000 * 100 = 25%
How to get started with dividend growth investing
In case you’re wondering how to get started with dividend growth investing, look no further than these two articles:
One of the things that we do is owning shares of these best Canadian dividend stocks. By holding these dividend paying stocks in our portfolio, our portfolio has managed to beat the TSX over the last number of years as you can see from below.
Comparing YoY growth to TSX Performance
It’s great that our dividend portfolio had positive growth in six out of eight years. You are probably wondering, how does our dividend portfolio performance compare to the TSX Composite Index?
I thought you might ask, hence for the comparison below:
|Raw YoY Growth||TSX||Remove annual contributions|
TSX was growing by an average of 4.68% over the last seven years. Since the historical stock market rate of return is 8%, you can say that the TSX has performed poorly over the last number of years.
And for those of you that like a visual representation:
Dividend portfolio beating the TSX
When I ran this analysis, I thought it was quite interesting that we managed to outperform the TSX every single year since 2012, except for 2019. So far this year, we are over 4% behind when benchmarked against the TSX. Since there are still six months to go in 2019, I am not all that worried. Our poor performance this year probably has been mostly contributed by the stagnant price performance from Canadian stocks like Bank of Nova Scotia and CIBC. We also cleaned up our dividend portfolio recently by selling a number of underperforming stocks.
I’m not the next Warren Buffett. I was a little surprised that we managed to outperform the market. I do think we have been extremely lucky the last number of years. In addition, the calculation is not the most scientific since we are only subtracting the cash amount from the portfolio value at the end of the year. Obviously, whatever stocks we purchased with the new cash were growing and compounding throughout the year (I suppose it can go the opposite way too).
Considering the US market
One more thing to consider is that we own some US dividend paying stocks. US dividend paying stocks make up about 25% of our dividend portfolio (At 1:1.308 exchange rate). This is a simplistic view since I am not taking into account XAW at all. If we do a 25-75 performance mix between the TSX and the S&P 500 Index, then the overall broad market return looks like below, compared to our dividend portfolio’s YoY growth.
|Raw YoY Growth||TSX||DJI||25% S&P500 / 75% TSX Mix||Remove annual contributions|
And the visual chart:
With the exception of 2019, we managed to beat the two broad market indices mix. Again, I don’t claim to be the next Warren Buffett, and I certainly am not.
Remember, I am not considering XAW asset breakdown (or VXC as we used to hold this international ETF until a few months ago) and its overall performance. It is simply too complicated to take XAW performance into account.
In case you forgot, although we own over 60 dividend stocks, we also own two index ETFs: Vanguard Canada All Cap (VCN.TO) and iShares All Country ex-Canada (XAW.TO). We are doing a hybrid approach to take full benefits of the best of dividend growth investing and index investing.
There you have it, our dividend portfolio growth over the last seven and a half years. The raw YoY growth numbers are very high, caused by mostly from the additional of new capital. If we remove the new capital contributions, we find that our portfolio has been growing, on average, 12.59% since 2012. This is better than the 25% S&P 500 and 75% TSX mix average performance of 6.93%. Given the YoY performance numbers, I feel that we have been very lucky and fortunate with our dividend-paying stock selections. However, this better-than-market-performance may or may not continue.
Therefore, I continue to believe in a hybrid approach of dividend growth investing and index ETF investing to get the best of the two worlds – predictable dividend income and diversification.
If you have any questions on dividend growth investing or index ETF investing, please take a look at the following two FAQs I have put together:
Happy investing everyone!