Re-examine our $115k dividend stock transactions in 2020

Back in January, I reviewed our 2020 dividend stock transactions and determined the winners and losers of our trades. I disclosed our average cost basis and the good and bad moves we made throughout last year.

2020 was an extremely weird year. The stock indices were firing on all cylinders in mid-February. Then the COVID-19 pandemic created a lot of uncertainties and quickly caused the global stock market to crash and hit the bottom in mid-March. Rather than a prolonged bear market, which many people had believed and feared, the global market recovered quickly and eventually went above the record highs of mid-February 2020. 

Would anyone have predicted such a market response last March when there were so many unknowns and lockdowns because of the pandemic? 

Probably not.  

It just shows that at best, even the financial analysts and stock gurus are only right 50% of the time. Therefore, it is important to ignore the herd and separate your emotions from investing. Time in the market is far more important than timing the market. 

Investing is a continuous learning process for me. There’s no way I will ever finish learning about all the investing-related topics. So as a learning process, I decided to re-examine our $115k dividend stock transactions in 2020 and go over lessons I have learned.

Dividend Stocks Sales

For the most part, once we purchase a dividend stock, we usually hold it forever, continue to add more shares as we see fit, and enroll in DRIP whenever we are eligible. However, there are times that we may sell dividend paying stocks because one of the following reasons:

  1. The stock price has stayed flat for the last few years
  2. No dividend increase or minimum payout increase
  3. Dividend cuts or suspensions
  4. Dividend cuts or suspensions are anticipated because of deteriorating revenues

We closed out the following positions throughout 2020:

TickerNameCost PriceSold PriceMarket PriceSold & Market Price Delta
D.UNDream Office REIT$ 23.10$32.94$22.18-48.5%
ET.TOEvertz Technologies$ 16.93$17.84$13.23-34.8%
CVXChevron$ 108.03$121.03$101.96-18.7%
GISGeneral Mills$ 50.97$52.87$59.8411.6%
UFS.TODomtar Corp$ 55.17$43.72$68.5636.2%
VentasVTR$ 66.42$27.84$57.0951.2%
MAL.TOMagellan Aerospace Corp$ 20.60$7.78$10.1623.4%
LB.TOLaurentian Bank$ 46.67$29.50$42.6830.9%
XTC.TOExco Technologies$ 12.38$6.99$10.2131.5%
PSK.TOPrairieSky Royalty Ltd.$ 24.94$4.96$13.8464.2%

We closed out all the positions listed above, except for Dream Office. It was tough mentally selling the likes of Domtar, Ventas, Magellan Aerospace, Laurentian, Exco, and PrairieSky and taking significant losses. But given these companies either cut their dividends or were expecting to cut dividends, we believed it would have been better to invest the money elsewhere. 

In highlight, we should have just closed out Dream Office when it was at its 5-year high in early 2020. Given the current working from home environment, I do not see Dream Office stock price going above $30 any time soon. If we had held on to Domtar, Ventas, Magellan, Laurentian, Exco, and PrairieSky, we would have recovered some money by now, but we would still be below our average cost basis (except for Domtar). 

Overall, I think we made the right decision by selling these dividend stocks and reinvesting the money elsewhere. The sales resulted in about $28,000 cash that allowed us to buy other better growth and profitability dividend paying stocks. 

Dividend Stock Purchases

Like other years, we maxed out our TFSAs and RRSPs in 2020. Once we maxed out the registered accounts, we contributed to our taxable accounts. 

We maxed out our TFSA contribution rooms in early January and purchased stocks throughout January and February. We also contributed a large amount of cash to our RRSPs in Q1, 2020. This meant we purchased some stocks at relatively high prices compared to the rest of 2020. 

When the stock market tumbled in March, we moved a lot of money from our Long Term Savings for Spending (LTTS) account to take advantage of the discounted stock prices. Our savings rates were higher than usual between March to June due to staying home, which allowed us to invest more money and take advantage of the volatile market.

Below are our purchases in 2020:

TickerSharesCost PriceMarket PriceGain/LossMarket vs. Cost Delta
AQN.TO378$19.16$19.54$143.641.9%
BEP100$45.85$38.44-$741.00-19.3%
BMO.TO57$77.63$128.73$2,912.7039.7%
BNS.TO102$53.26$80.97$2,826.4234.2%
BPY393$16.59$18.59$786.0010.8%
CM.TO116$75.62$149.13$8,527.1649.3%
CNR.TO12$118.29$134.50$194.5212.1%
CU.TO43$32.40$35.76$144.489.4%
ENB.TO374$38.72$49.05$3,863.4221.1%
ERE.UN450$4.69$4.64-$22.50-1.1%
GRT.UN27$67.11$89.19$596.1624.8%
IPL.TO453$22.53$19.95-$1,168.74-12.9%
NA.TO50$65.54$96.74$1,560.0032.3%
PEP20$135.94$156.52$411.6013.1%
RY.TO26$84.60$131.06$1,207.9635.4%
SRU.TO121$31.83$30.43-$169.40-4.6%
SU.TO118$30.63$24.02-$779.98-27.5%
TD.TO320$63.11$86.12$7,363.2026.7%
VCN.TO16$32.13$41.50$149.9222.6%
XAW.TO612$28.25$34.70$3,947.4018.6%

Before we go further, there are few things to point out:

  1. We closed out BPY, IPL.TO, and VCN.TO entirely in early 2021. We also sold most of our SU.TO shares in 2021.
  2. We closed out BPY because Brookfield Asset Management decided to acquire 100% of BPY units. We decided to not wait for the cash or BAM shares. So we sold everything and reinvested the cash elsewhere.
  3. I lost confidence in Inter Pipeline’s board and management after several companies had tried to acquire them. Although the IPL.TO’s share price was underpriced due to the Heartland project, I made the tough decision to move on.
  4. Since we hold many of the top 10 holdings of VCN.TO, we decided to close out VCN earlier this year and used that money to buy XAW.TO instead. 

At the time of writing, our 2020 purchases are up by almost $32,000, or about 26%. The return would have been higher if not for the poor performance in the renewable sector so far this year and dragged down the share price of AQN.TO and BEP. 

We would have done a lot better if we simply went all-in on the Canadian banks and not purchased the likes of Inter Pipeline and Suncor. But hindsight is always 20-20 right? Furthermore, the IPL and SU purchases were made at the beginning of 2020, before COVID-19. Who knew the oil and gas sector would get turned upside down by the pandemic?

Four Investing Lessons Learned

As a DIY investor that invests in both dividend paying and index ETFs, last year provided me with many valuable lessons. I am really glad that we went through a major downturn while we are still in the accumulating phase of our financial independence journey. Things could have been very different if we were living off dividends. Below are some lessons I have learned.

1. Be greedy when others are fearful

The famous Warren Buffett quote really resonated last year when things looked very bleak. When people were worried the sky was falling, and the market was down by 15% or more each day, we decided the market downturn was an excellent purchase opportunity. We took a calculated risk by using our long-term savings for international travels to buy stock and index ETFs and believed that in the long term, the market would recover and go higher. 

After less than a year, we had been rewarded handsomely. Sure, we didn’t time the market perfectly but at a 25% return, that ain’t too shabby!

2. Believe in the Canadian banks

Canadian banks are one of the better managed financial institutions in the world. The Big Five Canadian banks have been paying uninterrupted dividends since the late 1800s. During the financial crisis, although the Big Five didn’t raise dividends, they continued with the same dividend payouts. The same couldn’t be said for their American counterparts like Bank of America and JPMorgan Chase & Co.

In the midst of the financial crisis, one day during the daily water cooler chat, my ex-manager mentioned that he planned to sell a bunch of losing stocks and buy $150k worth of Royal Bank, TD, and Bank of Montreal shares. At the time, he thought the Canadian banks were greatly undervalued. He also thought that there was no way the Canadian government would let any of the Canadian banks go under. I thought he was gambling at the time and didn’t take the same action like him. Looking back, the financial crisis provided an excellent buying opportunity for Canadian banks and many solid dividend paying stocks

I took this lesson to heart and decided to buy a lot of Canadian bank shares last year during the downturn. I believed in the likes of Royal Bank, TD, Bank of Montreal, Bank of Nova Scotia, CIBC, and National Bank. I was convinced that all of them would come out of the pandemic just fine, if not stronger than before. At first, I was a bit worried that some of them would cut dividends. Loaded with cash, the Canadian banks set aside a lot of money in case of any loan losses. As it turned out, there weren’t as many loan defaults as anticipated. So major Canadian banks have been reporting expectation-beating quarters. The analysts now expect the Canadian banks to raise dividend payout by 13% on average when the regulator gives the OK

I can’t say that all of our Canadian bank purchases turned out well for us. Our purchase of Laurentian Bank didn’t work out. We purchased Laurentian Bank before 2020 and we were too focused on the dividend income and dividend growth streak. What we should have done was look at Laurentian Bank’s entire operation and the fact that a smaller regionalized bank wouldn’t have as much buffer and flexibility compared to its bigger counterparts. Laurentian Bank also faced a lot of operational challenges and the warnings were well written. I should have been more careful about these warning signs. 

Overall, the six big Canadian banks remain solid investments. Many retirement funds invest in these banks. So, it would be a national disaster if any of these banks were to go bankrupt or suspend their dividends entirely. 

3. Don’t get too attracted to high yield stocks

We lost a lot of money with Inter Pipeline. As mentioned in my original review, we added Inter Pipeline at the beginning of 2020 purely because of the around 8% dividend yield at the time. I knew the company’s debt level was high, but I thought that the dividend payout was sustainable. 

Then COVID-19 was declared as a global pandemic, people stayed home to protect themselves, crude oil price tanked, and Inter Pipeline’s cash flow was dramatically reduced as a result. This led to the dividend cut. 

Like many investors, I thought Suncor’s dividend payout was solid and Suncor would never consider cutting its dividends and lose its highly desirable dividend increase streak. 

Boy, was I ever wrong!

Rather than getting too attracted to high-yield stocks, I should have purchased stocks with a lower payout ratio and healthier free cash flow. 

An important lesson learned here!

4. Focus on long term

The most important lesson I learned is to focus on the long term and ignore the short term volatility and noises. The broad stock market has a historical return of 8%. But you can’t get that long term return if you sell all your stocks or index ETFs due to a knee-jerking reaction. 

This is why I believe investors should only invest with money that you do not need for at least the next three years (longer if possible).

Remember, a paper loss isn’t the same as a real loss!

Summary – Re-examine our $115k dividend stock transactions in 2020

We invested a larger than usual amount of money in 2020 and it paid off for us well. Hopefully these purchases will expedite our financial independence journey. 

Market timing would have worked well if we could predict the future. Since we can’t predict the future, the best thing to do is to continue to create a large savings gap, invest the money saved, and continue to buy more dividend paying stocks and index ETFs. This is even more important to take advantage of any market downturns and purchase things at a discount. 

Looking back, I think we made mostly the right selling and purchasing decisions. Obviously, we didn’t get everything right and made some incorrect decisions. But we have an above 50% batting average, which is pretty good in my books. 

For most investors, to keep things simple, it is probably best to stick with a broad market index ETF like VEQT, or XEQT. If you want to have some exposures in both stocks and bonds, one of the all-in-one ETFs is a great choice. Develop a core investment strategy and don’t switch back and forth between different investing strategies.

Most importantly, ignore short term volatility and focus on long term. 

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16 thoughts on “Re-examine our $115k dividend stock transactions in 2020”

  1. Good summary and insights!
    I did similar exercise back around early 2019 to get rid of some stocks that were not performing and the companies business models were unclear.
    There were two points I like to share here in my personal experience which I had to change for better results or clarity.
    1) I was captivated by high yields and income investing including monthly dividend stocks, some reits, mics, etc. The attraction of regular money/income flowing in kind of concealed the other issues like negative or no capital appreciation and the need to keep putting more capital and not achieving growth. Later I realized dividend growth, capital appreciation as well as dividend income all should be in balance.
    2) I usually have a small number of stocks. Couple of years ago it was 15 or more, which seems small but thats too much for me (considering one portfolio). Similar to point 1 I thought that having more will give me more dividend flows (monthly, weekly,etc). But that was too simplistic assumption, and later I cut it down to 10/11 with high conviction and medium conviction ideas. Having small number of companies helped me track them closely including results, con calls, latest news, etc. Also I could hold a sizable quality and value which moved the needle. However, year 2020 was not a great time and I got nervous but by end of 2020 and early 2021 I could add more stocks at lower levels, which provides scope for long-term appreciation. This is not to brag because I have both gains and losses and its still a learning exercise.
    Lastly, I did not lean to any particular style/method like value/growth/income, etc instead have a mix of everything so I dont need to time or chase the next trend. Simplification and focus on high-conviction helped me personally but I understand everyone has their own style/tolerance levels and goals.

    Reply
  2. I’ve been following your site for a year now and am very happy with the information and results I am applying, thank you. I have a question and hope you can help with an answer. I have a small position, 121 shares, in CIBC that I have held for years. Its been a great performer and I am currently up 128% with a growth of $10,000.00. I’m not sure if I should sell half of my position to reinvest in another div stock or just sit on it. I would have to ensure that the new stock would make up and exceed the $400.00 yearly dividend I would be giving up in selling a portion of this stock. I’m curious about your thoughts and what you would consider doing??

    Thank you

    Reply
    • I think you need to determine why and what you’re investing for to answer whether to take some profit or not. If you take some profit and in 10 years, CIBC stock price has gone up 50% what’s your reaction? What’s your reaction if you take some profit and in 10 years, CIBC stock price has gone down by 50%?

      Reply
  3. “3. Don’t get too attracted to high yield stocks”. Agree.

    Just some note, given current low interest rate environment, each high yield stock must have some “weakness” agreed by a majority of traders in the market. If one can’t figure out why the consensus of the “weakness” not make sense, it is probably better to avoid them. In fact, experience showed that perennial low yield stocks such as MA, V, NKE, AAPL ( 0.5% – 1% yield all the time) often become long term winner. Even from dividend perspective, the dividend on cost of these current low yield stock often beat high yield stock 10 years ago. If one has 10 to 20 years time horizon in investing, it probably make more sense to accumulate low yield stocks in current interest rate environment.

    Reply
    • Good point, that’s why in your portfolio you need a mix of high yield low growth and low yield high growth dividend paying stocks. Also, some people only care about dividend income where as I focus on both dividend income and capital gain (i.e. total return).

      Reply
  4. Very enlightening, thanks for sharing this review.

    I am envious to see how low you guys were able to buy BNS, BMO, CM and TD shares. Those Canadian banks have been amazing this year in terms of apreciation and stability.

    One thing to keep in mind for the Laurentian Bank is that they really do most of their business catering to regional small businesses. So the shares tend to dip sharply when uncertainty such as we’ve experienced with the pandemic affect those small businesses bottom lines. So you have to look at LB in a different light than most diversified Canadian banks.

    Reply
  5. Would be curious on your thoughts on Enbridge. I feel like management would never cut it, but i did see some research reports indicating the sustainability was at risk. Could they be another inter pipeline? (linking it to your lessons learned 🙂 ).

    I now have built positions in enbridge in both my taxable, RSP and US$ account and some days i get more worried than others.

    Reply
    • From what I can see Enbridge’s free cash flow should sustain the current dividend payout, plus the company seems to be better operated compared to Inter Pipeline. But yes, it’s a potential yield trap. 🙂

      Reply
  6. I used the same strategy you did of investing funds set aside for travel to buy on the dip, and it’s paid off well so far.

    Very astute observation regarding the Inter Pipeline. That’s a great example of knowing what you own and deciding when to get out.

    The first stock I purchased was McDonald’s, a dividend aristocrat, even though I knew nothing about dividends at the time. You’re right that time in the market is more important than timing the market – my MCD has taught me that. Now I’m looking to add another dividend paying stock.

    Nice job!

    Reply
  7. Hi Bob,
    Mr Trudeau announced in his recent election campaign that he will increase the taxes on the banks’ profits.
    Do you think this will has a negative impact on the Canadian banks’ shares prices or not?
    Moreover, I intend to buy some Canadian banks shares such as: RY, BNS, CM, TD, and NA.
    Do you think that the current prices are acceptable to buy at, or should I wait for a dip?!
    I appreciate your opinion, knowing that I take full responsibility for my decisions.
    Thanks and kind regards
    Ali B.

    Reply
    • IMO this is a very short sighted policy announcement. Corporations don’t just hand over extra cash to the government because of the new policy. If this does happen, banks and insurance companies will be passing down this increase to their customers. In other words, bank service fees will go up, insurance will go up, mortgage rate could also go up. Overall we Canadians will probably face higher costs over time.

      Whether the current prices are acceptable to buy at or not, that’s something you need to make the decision yourself, because it completely depends on your investment timeline. You also can’t just look at the stock price alone as there are so many factors to determine whether a stock is attractive or not.

      Reply

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