Since 2011, Mrs. T and I have been working hard to grow our dividend portfolio so one day our dividend income and other passive income are greater or equal to our annual expenses. When this happens, we can call ourselves financially independent.
Back in 2011, we only received $675.21 in dividend income from a total of 4 dividend stocks. In 2012, we added a large amount of capital to our dividend portfolio as a result of matured GIC’s and selling a bunch mutual funds. We went from 4 dividend stocks to 26 dividend stocks and received a total of $2,484.37 in annual dividend income in 2012.
In 2013 we more than doubled our annual dividend income from $2,484.37 to $5,456.20. The number of dividend stocks in our portfolio also went from 26 to 34.
Every year, we have been consistently adding a large sum of money into our portfolio by having a high savings rate and striving for high efficiency. This has helped to grow our dividend portfolio and our dividend income.
The last 7 years looked something like this…
- 2011: $675.21, 4 dividend stocks
- 2012: $2,484.37, 26 dividend stocks
- 2013: $5,456.20, 34 dividend stocks
- 2014: $8,362.30, 53 dividend stocks
- 2015: $10,318.02, 61 dividend stocks (including 2 index ETFs)
- 2016: $12,559.74, 69 dividend stocks (including 2 index ETFs)
- 2017: $14,834.38, 74 dividend stocks (including 2 index ETFs)
- 2018: $4,133.71 so far, 72 dividend stocks (including 2 index ETFs)
So far in 2018, we have been breaking our all-time monthly dividend income every single month. Mrs. T and I are very pleased with such amazing progress. My guess is that our April dividend income will set another all-time record. Stay tuned for an updated!
Although we utilize a hybrid investing strategy by incorporating the best of dividend growth investing and index ETFs investing, lately, I have been wondering if we should consider trimming some of our dividend holdings. We’d then reinvest the money in stocks elsewhere to try to improve overall return and dividend income.
One important thing to note is that investing in dividend stocks does not mean you should only track dividend income and completely ignore the total return. Total return (i.e. stock price gain) is pretty important too.
Dividend stocks allocation for Canadians
Before we go any further, here’s a quick recap of how we allocate our dividend stocks so we can be as tax efficient as possible.
- We only own US dividend stocks and American depositary receipts (ADR) in RRSPs 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.
Every year, we always maximize our TFSAs and RRSPs before we start investing in taxable accounts.
Re-examine our dividend portfolio
If you look at our dividend portfolio, you can see that we currently own 69 companies and 2 index ETFs as of the end of April 2018.
The 69 individual dividend stocks are:
- Apple (APPL)
- Pure Industrial REIT (AAR.UN)
- AbbVie (ABBV)
- BCE (BCE.TO)
- Brookfield Renewable Energy (BEP.UN)
- Bank of Montreal (BMO.TO)
- Bank of Nova Scotia (BNS.TO)
- BP PLC (BP)
- CIBC (CM.TO)
- Canadian Natural Resources (CNQ.TO)
- Canadian National Railway (CNR.TO)
- ConocoPhillips (COP)
- Costco (COST)
- Canadian Tire (CTC.A)
- Canadian Utilities (CU.TO)
- Chevron (CVX)
- Dream Office REIT (D.UN
- Dream Industrial REIT (DIR.UN)
- Dream Global REIT (DRG.UN)
- Emera (EMA.TO)
- Enbridge (ENB.TO)
- Enbridge Income Fund (ENF.TO)
- Evertz Technologies (ET.TO)
- Fortis (FTS.TO)
- General Mills (GIS)
- Hydron One (H.TO)
- High Liner Foods (HLF.TO)
- H&R REIT (HR.UN)
- Intact Financial (IFC.TO)
- Intel (INTC)
- Johnson & Jonson (JNJ)
- Keg Royalties (KEG.UN)
- Coca-Cola (KO)
- Laurentian Bank of Canada (LB.TO)
- Magellan Aerospace Corp (MAL.TO)
- McDonald’s (MCD)
- Manulife Financial (MFC.TO)
- Magna International (MG.TO)
- MCAN Mortgage Corp (MKP.TO)
- Metro (MRU.TO)
- National Bank (NA.TO)
- Nutrien (TR.TO)
- Omega Healthcare (OHI)
- 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)
- Sabra Health Care (SBRA)
- Starbucks (SBUX)
- Smart REIT (SRU.UN)
- Suncor (SU.TO)
- AT&T (T)
- Telus (T.TO)
- TD Bank (TD.TO)
- Target (TGT)
- TranCanada Corp (TRP.TO)
- Domtar Corp (UFS.TO)
- Unilever PLC (IL)
- Visa (V)
- Vodafone Group (VOD)
- Ventas Inc (VTR)
- Verizon Wireless (VZ)
- WestJet (WJA.TO)
- Waste Management (WM)
- Wal-Mart (WMT)
- Exco Technologies (XTC.TO)
And 2 index ETFs:
- Vanguard Canada All Cap (VCN.TO)
- Vanguard Global Ex-Canada (VXC.TO)
A few notes regarding stocks that we own in our dividend portfolio…
- We received Verizon Wireless shares from Verizon Wireless buying out the percentage of Verizon business that Vodafone used to own.
- We received some Suncor shares from the Canadian Oil Sand acquisition.
- Nutrien shares were from owning Potash and Agrium shares. Potash and Agrium had merged to create a new company called Nutrien.
- Sabra Health Care shares were originally called Care Capital (CCP), which were obtained from the Ventas & CCP split. Care Capital renamed the business to Sabra Health Care in 2017.
- We received some shares of PrairieSky Royalty by owning Canadian Natural Resources.
As of the end of April 2018, our forward-looking dividend is close to $19,000. This is not considering USD to CAD exchange rate. If you have been reading our monthly dividend income report, you’ll know that we use a 1:1 exchange rate to keep the math simple. In reality, if we do convert dividend income received in USD to CAD, our forward dividend income would easily be over $20,000.
The current top 5 individual dividend stocks in our portfolio are (not in order): Royal Bank, Bank of Nova Scotia, Enbridge, TD, and National Bank. As you can see, we have a large exposure to Canadian banks and the Canadian banking sector. Generally speaking, I like Canadian banks as many of them have been paying dividends since the late 1800’s. Furthermore, Canadian banks are well regulated and make a large amount of money each quarter (cue Dr. Evil… billions!). Canadians also have a low tendency to switch their banks, so the customer loyalty is pretty high.
How much money does our dividend portfolio worth? Well, you can take a wild guess by using 2% dividend yield, 3% dividend yield, 4% dividend yield, or 5% dividend yield and calculate backward using our forward-looking dividend.
That’d put our dividend portfolio value somewhere between $950,000 to $380,000. Yup, that’s a pretty wide range but I like to be ambitious here for privacy season. Regardless what our actual portfolio value is, is a sizable chunk of money.
Owning 69 dividend stocks and 2 index ETFs does offer quite a bit of sector diversification and income diversification. But perhaps we are too diversified? Are there some stocks that we can potentially sell?
Selling some stocks that might not be performing as well and reinvest the money elsewhere may provide better dividend income and better overall return.
Shuffling the deck – Selling dividend stocks
Over the last couple of years, we actually exited from a number of stocks, such as Husky Energy (HSE.TO), Kinder Morgan (KMI), Royal Dutch Shell (RDS.B), General Electric (GE), and Corus Entertainment (CJR.B). Dividend reductions or suspensions was the key reason for selling these stocks and reinvest our money elsewhere.
Are there more stocks in our dividend portfolio we can potentially sell and reinvest the money elsewhere? Here are some potential candidates:
- Sabra Health Care: As mentioned, we obtained Sabra Health Care shares from the Ventas & CCP split. We have less than 10 shares so perhaps it is not worth holding on such a small amount of shares.
- PrairieSky Royalty: same deal as Sabra Health Care. We only have a few shares of PSK.TO. The tricky part is that we own these shares in our taxable account, so we will need to report the capital gain when filing for taxes if we were to sell the stock.
- BP PLC & Chevron: the crude price has recovered from the 2016 lows and seems to be going up. As a result, BP and Chevron stock prices have recovered. The oil sector is very cyclical so perhaps it makes sense to sell both BP and Chevron and reinvest money in other sectors.
- ConocoPhillips: Similar to BP and Chevron, the stock price of ConocoPhillips has recovered from the lows of 2016. ConocoPhillips cut its dividends in 2016 and the company has only increased dividends by a very small amount since. The overall dividend yield is pretty low as a result (below 2%). By reinvesting the money elsewhere, we should be able to get higher dividend yield quite easily.
- Dream Office REIT: Dream Office REIT stock price has been suffering due to the poor office rental market in Calgary. This was mostly a result of the crude price and many energy companies in Calgary have cut back on their office spaces. Dream Office has also cut its dividends a few times in the last few years. We continued to hold onto Dream Office shares during this time despite the dividend cuts. I had thought the stock price would eventually recover and dividends would get increased again. By ditching Dream Office and invest the money in another Canadian REIT, we can probably easily increase our overall dividend income.
- Target & Wal-Mart: With Amazon getting stronger and stronger each day, I’m not fully convinced that Target and Wal-Mart will continue to be profitable. Perhaps it may make sense to sell Target and Wal-Mart when the stock prices are near the 52-week high and reinvest the money elsewhere.
Dividend stocks to consider
If we are reshuffling our dividend portfolio by exiting some positions, we will have money to reinvest somewhere else. Here are some dividend stocks we may purchase. Now some of them we already own but a few of them we currently do not own. I suppose this kind of defeats the purpose of trimming the number of holdings in our portfolio.
- Procter & Gamble (PG): The stock price has retreated over the last 3 months. PG is an international brand with a consistent dividend raise streak. It may make sense to add some shares of PG to allow us to enroll in DRIP.
- General Mills (GIS): General Mills saw a similar price trend as Procter & Gamble so far in 2018. There seems to be a general weakness in the consumer stable sector currently. It may make sense to take advantage of this general weakness by adding some General Mills shares.
- PepsiCo (PEP), Kimberly Clark (KMB), 3M (MMM), Kraft Heinsz (KHC): The price of these four stocks have been tumbling so far this year. Given these companies are big international brands currently facing some headwinds, it may make sense to take advantage of this opportunity to invest in these companies and wait for the stock price to recover.
- Emera, Canadian Utilities: We have been buying more utility stocks in the little last while. We use gas and electricity every day, so investing in utility stocks makes sense to me based on my building a dividend city logic. Having said that, we plan to keep the utility sector a small portion of our dividend portfolio. We definitely want to limit our exposure to the utility sector.
- Metro & Saputo: Both of these stocks are in the consumer staple sector and we currently own both dividend stocks. As a way to lower our exposure in the financial sector, it may make sense to invest in Metro and Saputo. Both stocks are yielding about 1.5% which is quite low. However, both stocks have extremely low payout ratios and have very strong dividend payout history.
For some reasons, most of the stocks listed are US dividend stocks. We will have to consider whether it makes sense to convert CAD to USD, given the poor exchange rate.
We also plan to continue purchasing shares of VCN and VXC to take advantage of the commission-free ETF purchase that Questrade offers.
I hope this post gave you some perspectives 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 a close attention to any particular dividend stocks?