Re-evaluate & a deep dive our dividend portfolio

For those of you who are new here, we got really serious with dividend growth investing in 2011. That year, we moved some cash in our savings accounts to buy dividend paying stocks. Back then, we received $675.21 in dividend income from a total of four dividend stocks. In 2012, we more than doubled our dividend income thanks to moving a large amount of capital to our dividend portfolio as a result of matured GICs and getting out of high MER mutual funds completely. In 2013, we doubled our dividend income again by adding a large amount of new capital. The dividend income growth slowed down a little bit since 2013 but we have been growing our dividend income at an above 20% rate every year except for 2017. We have been able to enjoy a good year over year dividend income growth rate largely thanks to consistently having a high savings rate and striving for high efficiency

Since 2011, our annual dividend income looked like this:

  • 2011: $675.21, 4 dividend stocks
  • 2012: $2,484.37, 26 dividend stocks, 267.9% YoY growth
  • 2013: $5,456.20, 34 dividend stocks, 119.6% YoY growth
  • 2014: $8,362.30, 53 dividend stocks, 53.3% YoY growth
  • 2015: $10,318.02, 61 dividend stocks (including 2 index ETFs), 23.4% YoY growth
  • 2016: $12,559.74, 69 dividend stocks (including 2 index ETFs), 21.7% YoY growth
  • 2017: $14,834.38, 74 dividend stocks (including 2 index ETFs), 18.1% YoY growth
  • 2018: $18,734.29, 72 dividend stocks (including 2 index ETFs), 26.3% YoY growth
  • 2019: $23,049.16, 66 dividend stocks (including 2 index ETFs), 23.0% YoY growth
  • 2020: $9,050.30 so far, 62 dividend stocks (including 2 index ETFs)

About two years ago, I examined our dividend portfolio and went through my thoughts on dividend paying stocks that I wanted to add and remove from our dividend portfolio. I thought I’d do another deep dive of our dividend portfolio and see if there are any potential candidates that we should consider selling, given that we own a large number of dividend paying stocks. 

Reasons to Sell Dividend Paying Stocks

When it comes to dividend growth investing, an important thing to remember is that dividend stocks aren’t the holy grail of stocks. Companies can lose their competitiveness and can change their company strategies. Therefore, I believe it is important to track both dividend income and total return (i.e. price appreciation). 

With that in mind, there are several reasons that I may consider selling dividend paying stocks that we own.

  • Dividend is not growing: When the dividend payout stays flat for a long period of time (i.e. more than two years) and the dividend yield is low, it may be time to sell the dividend stock and look elsewhere. 
  • Dividend is cut or suspended: When a company cuts or suspends dividends, it may be time to look elsewhere. 
  • Price is not appreciating: If the stock price stays flat for an extended period of time, I may consider selling the stock and reinvest the money somewhere else, especially when dividends aren’t growing. 
  • Fundamental changes: If a company changes dramatically, it may be time to reconsider owning its shares. For example, if Telus decides to pivot and goes from a telecommunication company to an industrial equipment producer, it will certainly raise alarms and force me to consider selling Telus. 
  • Overpriced: If a stock is grossly overpriced it may give me the opportunity to sell and take some profits and use that profit to buy an undervalued dividend growth stock. 

Dividend Stock Allocation for Canadians

When it comes to dividend stock allocation, it is always important to strive for maximum tax efficiency. Therefore… 

  • We only own US dividend stocks and American depositary receipts (ADR) in RRSP to avoid the 15% withholding tax. 
  • We hold Real Estate Income Trusts (REITs) and other income trusts in our TFSAs and RRSPs.
  • We only hold dividend stocks that distribute Canadian eligible dividends in our taxable accounts.

Furthermore, every year we maximize our TFSAs and RRSPs before we start investing in taxable accounts. 

Our Dividend Portfolio 

As of the date of writing, our dividend portfolio consists of 60 individual dividend paying stocks and 2 index ETFs. We used to own Vanguard Ex-Canada Index ETF (VXC) for international exposure but we decided to switch to iShares Core MSCI All Country World ex Canada Index ETF (XAW) due to its lower fees

The 60 dividend paying stocks and 2 index ETFs in our dividend portfolio are:

  • Apple (AAPL)
  • AbbVie (ABBV)
  • BCE Inc (BCE.TO)
  • Brookfield Renewable Energy (BEP.UN)
  • Bank of Montreal (BMO.TO)
  • Bank of Nova Scotia (BNS.TO)
  • Brookfield Property Partners (BPY)
  • CIBC (CM.TO)
  • Canadian Natural Resources (CNQ.TO)
  • Canadian National Railway (CNR.TO)
  • Costco (COST)
  • Canadian Tire (CTC.A)
  • Canadian Utilities (CU.TO)
  • Dream Office REIT (D.UN)
  • Dream Industrial REIT (DIR.UN)
  • Emera (EMA.TO)
  • Enbridge (ENB.TO)
  • European Residential REIT (ERE.UN)
  • Fortis (FTS.TO)
  • Hydro One (H.TO)
  • H&R REIT (HR.UN)
  • Intact Financial (IFC.TO)
  • Intel (INTC)
  • Inter Pipeline (IPL.TO)
  • Johnson & Johnson (JNJ)
  • KEG Royalties (KEG.TO)
  • Coca-Cola (KO)
  • Laurentian Bank (LA.TO)
  • Magellan Aerospace Corp (MAL.TO)
  • McDonald’s (MCD)
  • Manulife Financial (MFC.TO)
  • Magna International (MG.TO)
  • Metro (MRU.TO)
  • National Bank (NA.TO)
  • Nutrien (NTR.TO)
  • Omega Healthcare (OHI)
  • Pepsi Co (PEP)
  • Procter & Gamble (PG)
  • PrairieSky Royalty Ltd (PSK.TO)
  • Qualcomm (QCOM)
  • Rogers Communication (RCI.B)
  • RioCan REIT (REI.UN)
  • Royal Bank (RY.TO)
  • Saputo (SAP.TO)
  • Starbucks (SBUX)
  • SmartCentre REIT (SRU.UN)
  • Suncor (SU.TO)
  • AT&T (T)
  • Telus (T.TO)
  • TD Bank (TD.TO)
  • Target (TGT)
  • TC Energy Corp (TRP.TO)
  • Domtar Corp (UFS.TO)
  • Unilever PLC (UL)
  • Visa (V)
  • Ventas (VTR)
  • Verizon Wireless (VZ)
  • Waste Management (WM)
  • Wal-Mart (WMT)
  • Exco Technologies (XTC.TO)
  • Vanguard Canada All Cap (VCN.TO)
  • iShares ex-Canada (XAW.TO)

A few things to note about some of the stocks that we own:

  1. We received Verizon Wireless shares when Verizon Wireless bought out the percentage of Verizon business that Vodafone used to own. We closed out our Vodafone position a few years ago. 
  2. We received some Suncor shares from the Canadian Oil Sand acquisition.
  3. Nutrien shares were from owning Potash and Agrium shares. Potash and Agrium merged to create a new company called Nutrien.
  4. We received two shares of PrairieSky Royalty by owning Canadian Natural Resources. I have been wanting to sell PSK.TO shares but stopped myself because the transaction fee would be a stupidly large percentage of the overall transaction cost.  

Top 10 Holdings

Looking at the market value, the current top 10 largest holdings are:

  1. Enbridge (ENB.TO)
  2. Royal Bank (RY.TO)
  3. Apple (AAPL)
  4. TD Bank (TD.TO)
  5. Bank of Nova Scotia (BNS.TO)
  6. iShares Core MSCI All Country World ex Canada Index ETF (XAW) 
  7. Canadian Imperial Bank of Commerce (CM.TO)
  8. Inter Pipeline (IPL.TO)
  9. National Bank (NA.TO)
  10. A tie Intel (INTC) and Procter & Gamble (PG) 

As you can see, the Canadian banks make up a good percentage of our dividend portfolio. Pipeline companies like Enbridge and Inter Pipeline also make up a large percentage. It’s interesting to note that Apple, Intel, and Procter & Gamble are in our top 10 list, mostly because of stock price appreciation. 

For the most part, I am comfortable with the top 10 breakdown. Dividends should remain pretty safe for the Canadian banks given their long dividend paying history. Enbridge has been raising dividends for 25 years so it’s unlikely for them to cut the dividends. Apple is loaded with money so the company should continue to raise dividends. Procter & Gamble has long years of dividend streak so I am not concerned at all. The only company on the top 10 list that has recently cut its dividend is Inter Pipeline. 

Forward Dividend Income

As of the date of writing, our forward looking dividend income is over $26,000. This amount would have been over $28,000 if the likes of Inter Pipeline, KEG Royalties, Suncor, etc. didn’t cut their dividends. Please note, we use a 1:1 USD to CAD exchange rate to keep the math simple. So if we were to convert USD dividends to CAD dividends, the total amount in CAD would be higher. 

Given that our dividend income goal for 2020 is to receive over $30,000 in dividend income, this goal is definitely looking more and more challenging. But I knew this goal was extremely challenging and ambitious when I set it back in early January, so I won’t sweat it if we were to miss this goal by the end of the year. 

Portfolio Value

Oftentimes, the first thing a reader asks me is how much our dividend portfolio worth. Given that I’m not an anonymous blogger anymore, I do not disclose our dividend portfolio value for privacy reasons.

Having said that, you can take a wild guess by using a dividend yield ranging from 3% to 6%. Using the forward dividend income of $26,000 that I just provided above, that will give you a portfolio value of anywhere from $433.3k to $866.7k. The true portfolio value lies somewhere between these two numbers. Whatever the actual number is, we have invested a sizable amount of money in our dividend portfolio.

Re-evaluation and a deep dive of Our Dividend Portfolio

Our dividend portfolio consists of different sectors: Financial, Energy, REITs, Utilities, Consumer Staples, Consumer Discretionary, Materials, Industrial, Healthcare, Telecommunications, and IT. In this section I will take a deeper examination of each sector.

The Financial Sector

For the most part, I feel pretty good about the holdings we have in the financial sector. Although the share price of all Big Six Canadian Banks have dropped quite a bit due to COVID-19, I believe the share price will recover and that all the dividends are safe. Visa should continue to make sizable profits. Due to the low interest rates, Intact Financial and Manulife may face some headwinds, but I think both companies have enough cash flow to continue paying dividends and possibly raising dividend payouts.

The only holding I am a bit concerned about is Laurentian Bank. I will be the first one to admit that when we purchased Laurentian Bank, I was focusing too much on the dividend growth rate and dividend streak, rather than examine the macro market condition and its financials. Laurentian Bank operates primarily in Quebec and has faced some growth problems outside of Quebec. Then last Friday, Laurentian Bank surprised the public and announced a 40% dividend cut. I think it’s probably time to take the loss and closeout Laurentian Bank.

The Energy Sector

Since my previous re-examine dividend portfolio piece, we have been closing out numerous oil producers, for example, BP plc, Chevron, and ConocoPhillips. Given the current low crude price, getting out of the oil producer companies has been a good move. The only oil & gas producers that we own are Canadian Natural Resources and Suncor. Unfortunately we have seen both Suncor and Inter Pipeline cutting their dividends. Both of these dividend cuts made sense given the ultra low crude price. After a significant dividend cut, I think Inter Pipeline’s financials look much better. The dividend cut was definitely something that was necessary to keep the company profitable. Even though IPL’s share price has dropped significantly and the dividends were cut, I plan to continue holding onto IPL and wait for the share price and dividends to recover while adding more shares via dividend reinvestment plan (DRIP). Similarly, I think the Suncor dividend cut was justified. We plan to continue to hold Suncor and continue to add more share via DRIP as well.

For the other two pipeline companies that we own, Enbrige and TC Energy Corp, I am optimistic that dividends for both will remain safe.

Currently, we have no plan to add more new companies to the Energy Sector. We may continue to add to our existing positions by investing new capital or reinvesting dividends (DRIP). 

The REITs Sector

All of our REIT holdings took a hit over the COVID-19 pandemic, especially retail REITs like H&R, RioCan, SmartCentre, and Brookfield Property Partners. Healthcare REITs like Omega Healthcare and Ventas didn’t fare all that well either. For the most part, the REIT holdings are in the red but I am not too concerned. I think all of these REITs will eventually recover once the lock-downs are eased and life slowly goes back to normal. 

My original purchase thesis for European Residential REIT is to have the REIT grow for an eventual acquisition. So far, like the rest of the REITs, the stock price hasn’t gone up. Hopefully my thesis will hold true in the future. 

We plan to continue to hold all the REITs and continue to DRIP additional shares and dollar-cost average our book price. Even though H&R REIT has cut its dividends by 50%, we do not plan to sell the stock at this time. The only holding we may consider selling is Ventas.

The Utilities Sector

The Utilities Sector has fared relatively well during the current crazy pandemic period. I am quite pleased that we hold a number of solid Canadian utility companies. The likes of Fortis, Emera, Canadian Utilities have a long dividend increase streak and should continue to increase dividend payout despite the current tough economic conditions. We have come to like Brookfield Renewable Energy as we try to shift away from the traditional oil & gas producers. In the last few years, I began to consider the utilities sector as a core holding. Therefore, we probably will continue to add shares of these utility companies throughout 2020. 

The Consumer Staples Sector

Just like the Utilities Sector, the Consumer Staples Sector has fared relatively well during this COVID-19 pandemic. If anything, the hoarding mentality has helped the likes of Costco, Target, Metro, and Wal-Mart. Procter & Gamble and Unilever plc have both benefited from the pandemic as well. Beverage companies like Coca-Cola and Pepsi should continue to do well even if a recession were to happen. 

One unfortunate thing about being a Canadian is that there aren’t many Canadian consumer staple companies. Therefore, we Canadians are forced to look to purchase in the US. 

As you may recall, earlier this year we added Pepsico in our dividend portfolio. As we collect more dividends in USD, we may decide to add more Pepsico shares. 

The Consumer Discretionary Sector

Our holdings in this sector have suffered a bit lately. We already saw KEG.UN cutting its dividends. The share price of Canadian Tire has dropped a lot due to store closures. Both Starbucks and McDonald’s, however, appear to continue chugging along. 

Given all the store closures and the tough economic conditions, we currently do not plan to add more to this sector. I have had my doubt about Canadian Tire so I will continue to monitor this stock and determine whether the company has a wide moat to justify holding the stock or not. 

The Materials Sector

This sector has been performing poorly even before the COVID-19 lockdowns. I thought Nutrien would be performing quite strongly due to the growing population but the share price certainly didn’t show this belief. Domtar Corp’s price performance has been a big disappointment and the company has suspended its dividend in May. Maybe I am just not good at analyzing the materials sector? The Materials Sector consists of a very small percentage of our dividend portfolio currently. We may need to look at closing out a number of positions in this sector.

The Industrial Sector

Our performance is this sector has been a bit of a mixed bag. Canadian National Railway and Waste Management have both performed well. Exco Technologies and Magellan Aerospace, on the other hand, continued to perform poorly. I don’t expect either Exco and Magellan to turn around any time soon. Fortunately, both of these stocks are less than 0.5% of our portfolio value so we will just continue to hold them and see what happens. It makes absolutely no sense to sell them now (i.e. sell low). Hopefully the Exco and Magellan’s prices will recover in the next little while so we can close out these positions. 

The Healthcare Sector

Both Johnson & Johnson and AbbVie have performed quite well since our original purchase. I am certainly pleased that we decided to add more JNJ and ABB shares since the original purchase. We may add more JNJ and ABB as we collect more USD cash through dividends. 

I have always been interested in a number of healthcare stocks including Pfizer, Gilead Sciences, Amgen, Merck, and Novartis. However, given most of these companies are drug companies, there are definitely inherent risks as new drugs can take a very long time to get approved. Moving forward, we may consider adding Merck or Pfizer in our dividend portfolio to increase our exposure in the Healthcare Sector.  

The Telecommunications Sector

I see our telecommunication holdings as one of the core holdings for our dividend portfolio. Given that people are addicted to smartphones and the internet, telecommunication companies should continue to rack in profits. All the telecommunication companies we hold have pretty decent dividend yields, although the dividend growth rates aren’t high. Moving forward, we may continue to add more shares of Telus and BCE in our dividend portfolio. Given the current merge between Sprint and T-Mobile, we may look into buying T-Mobile stock (although it doesn’t pay any dividends). 

The IT Sector

I am glad to have closed out our position in Evertz Technologies earlier this year. The company failed to raise its dividends since 2017 (although it did have a special dividend in 2019) and the share price hasn’t really gone anywhere for a number of years. 

The three companies that we own now, Apple, Intel, and Qualcomm are all juggernauts in the IT sector. Qualcomm has been one company that I have been keeping a close eye on. Since Qualcomm currently has a competitive edge with their 5G chipsets, I am hoping Qualcomm’s share price will jump as 5G devices start to roll out in the market. 

A couple of IT stocks I would love to own are Microsoft and Cisco but Microsoft is quite overpriced right now and I’m not 100% convinced with Cisco’s new software strategy. 

The ETFs

We are happy to hold VCN and XAW to help us diversify. We plan to continue to add VCN and XAW periodically by taking advantage of Questrade’s commission free ETF purchases. Ideally, it would be nice to have XAW as one of the top five holdings in our portfolio (it’s currently at #6, so we’re close). 

Final Thoughts 

It has been interesting taking a closer look at our dividend portfolio. We plan and hope to continue to reduce the number of holdings in our dividend portfolio. I think the ideal number of individual dividend paying stocks is around 50. As I may have mentioned, some of the stocks that we may eventually close out included Laurentian Bank, KEG Royalties, Ventas, Canadian Tire, Domtar Corp, Exco Technologies, Magellan Aerospace, and Qualcomm. We plan to keep a close eye on these stocks moving forward to see whether it makes sense to close out these positions and invest our money elsewhere. 

I hope this post gave you some perspective on what our dividend portfolio looks like and some of the things we are considering. Please remember, I am not a professional licensed investment advisor. What I have written in this post is simply personal opinions. Please do your own research and consult with a professional before you make a stock purchase.

Dear readers, do you have any thoughts on our dividend portfolio? Are you paying close attention to any particular dividend stocks?

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7 thoughts on “Re-evaluate & a deep dive our dividend portfolio”

  1. Thank you Bob for sharing this information – very insightful!

    My question, with the impact of COVID 19, are companies that focus more on on-line business models (such as Shopify, Amazon, etc.) something we should be considering? Would love to hear your thoughts.

    Reply
    • I wish I had bought some Amazon years ago. I can’t bring myself buying Shopify when their numbers still do not make any sense for me as an investor.

      Reply
  2. Thanks Bob for all the details, I love seeing how others are doing it even if we’re exact polar opposites haha. VUN and VDU index funds all day in our Canadian funds. You can throw in VAB if you want some bonds too and bam you’re done. Let the beast of the market do it’s thing and allow the top performers to continually have more weight of the portfolio and the let the losers drop off. Personally, from what I can gather, I think your portfolio sounds way too heavy in Canadian funds so I hope XAW continues to climb for you. I also would not be in oil & gas as the future is renewables. The sole individual stock I own is for my previous employer who is North America’s leader in generation from the wind and sun. Since I started working for them in 2009 they’ve seen growth of 459%. Crazy impressive and I’m glad it makes up a portion of my portfolio.

    Reply
    • Nothing wrong with index funds. In fact, if you just want to keep it simple, I think that’s the best way to do. Yes, we are heavy in Canadians funds, that’s why we are trying hard to diversify internationally. And totally agree with invest in more renewable energy. 🙂

      Reply
  3. Nice work!

    I’m doing something similar with my son’s and daughter’s accounts (much, much smaller amounts though). Currently, mostly, I’m in REITs and Utilities, but I want more growth, so I’ll probably go with something Techie like AAPL… AWK has been a great growth stock, but with a small dividend.

    You are both much younger than I am, and have a much higher dividend income stream! Congrats!

    Reply
  4. Hi Bob,

    No cuts to Canadian Tire yet, so even though it’s a small percentage of our taxable portfolio, I’ll be hanging in there to see what happens moving forward.

    IPL I still haven’t decided ever since management cut the dividend. I don’t seem to be in any rush.

    As I get older, instead of selling, perhaps it’s getting more and more like Robert Kirby’s “Coffee Can Portfolio” every day. We’ll see. Time will tell.

    Reply

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