Despite being on overly relax mode for a while, we are
still glad to bring you our latest DIY Portfolio developments. As it has been the case for the last
few years, you can expert our next update in about 12 weeks, in early November
2019.
You can also access our earlier portfolio updates
here:
Granting things have
been somewhat quiet on the markets since our last report, we’ve still
experienced the usual ups and downs. In fact, it was more down followed by up
this time around, as after a rough patch around May, most stocks resumed their
climb up on a slightly slower yet steady pace.
As we eluded to on our
last report, we are in a cleanup mode and high market values were a good fit, at
least sell wise. Buying replacements was more difficult to accomplish as
interesting opportunities rarely materialized. As some of you may have
predicted, we adopted a decisive yet patient approach in that context. To sum
it up in a few words: decisive to sell and patient to buy.
You will note that even
with the remaining concerning suspects, as usual, our DIY Portfolio
has been doing just fine.
Once more, I’ll remind you that I
am not an investment or tax professional of any kind. The intent of this blog
is not to give specific investing advice. Before investing yourself, we suggest
you do all necessary research and consult a licensed financial professional if
need be.
Once more, I’ll remind you that I
am not an investment or tax professional of any kind. The intent of this blog
is not to give specific investing advice. Before investing yourself, we suggest
you do all necessary research and consult a licensed financial professional if
need be.
Rejuvenated Confidence in Dividend Growth Stocks
When we started to
learn about investing, we instinctively leaned towards dividends. And thru the
years, we are constantly getting back to it. At the time, we did not know how
it was called. But now, all our research and experience point us that way, the
dividend growth investing way.
Dividend growth
investing is more about income (dividend) than capital appreciation. It focuses
on stocks that grow their income or dividend. Successful dividend growth
investors usually look for constant and sustained dividend growth. It is the
secret ingredient to their investing recipe.
As we experienced with
different stocks during our DIY investing career, we were always more
comfortable and inclined towards solid more conservative stocks that provide
steady growth. We also had and still have more success with these prudent
investments. Dividend growth stocks precisely fit that bill.
It’s kind of strange
that for the majority of our investments, without knowing it, we were almost
perfectly choosing stocks that precisely fit in the dividend growth mold.
Indubitably, our perfect stock or perfect stock trend hunt also follows the
dividend growth scheme. Most of the time, our perfect stocks are also perfect
dividend growers. In tune with their dividend, the value of those strong stocks
grows steadily and surely, providing their owners great results over the years.
In the past, we also had
some success with other stocks. But dividend growth stocks somewhat safely ensure
us the most sustainable results. That’s why we’ve decided to focus more on
them.
As we stated earlier,
the key to profitable dividend growth investing is regular improvement in
dividend payments. Dividend growth is good but, steady regular dividend growth
is even better. So, don’t just look for growth, look for regular growth.
We like to validate
potential stock candidates looking at how steadily they increased their
dividend in the last 10 years. That type of data can easily be obtained on the
web.
To qualify, we accept yearly
dividend growth averages of at least 6-7%. You may be surprised when you
realize the dividend amount of many of those stocks would have doubled over the
last decade. As a 7% yearly dividend growth nearly represents a 100% increase
for 10 years (about 70% with 6%).
But remember that substantial
absolute increases are not enough. The regularity condition must also be met,
as it is as important. Spikes in dividend payments may be more exciting or look
more appealing. But we know our boring steady-growing dividend payments have a
much better chance to be sustainable. In fact, they even have a better
likelihood to increase more in the long-term. Again, the key here is steady
improvement.
From scratch, a dividend
achievers list may be a good point to start. By definition, dividend achievers
have raised their dividend for at least 10 consecutive years. For US stocks,
although more restrictive, the shorter dividend champions list (the 25 year +
variety) can also be an interesting place to begin.
It’s quite funny that
our Excel investment document is still named «Dividend Achievers» as it is
where we initiated our DIY investing career a little more than 12 years ago.
Avoid Overdiversification
Proper diversification
is desirable to ensure that underperformance from one stock or one sector won’t
weigh down too much on your entire portfolio.
But in reality, all
stocks will suffer during major downturns. There’s no way to completely get
around it. Your only recourse is to select stocks that will survive the best
and get thru it all. Many dividend growth stocks give you exactly that.
On this topic, our view
kind of goes against financial advices in vogue these days. Simply put, we are
afraid of overdiversification and are timid about blindly embracing indexing.
The popular indexing
way gives you all, the good but also the ugly. We prefer to tilt odds in our
favor by filtering out as much bad apples as possible, giving us a less acidic
mix. Dividend growth stocks can still provide adequate diversification. The
overdiversification of indexing only guarantees you will catch up bad
candidates along the way.
Many indexing advocates
will also invoke simplicity. But we don’t consider selecting a few good
dividend growth stocks a complicated process. With a little time, a dozen or
two should do the trick.
The same goes with the
international stocks frenzy. Many investors feel oblige to include
international representation in their holdings in the name of diversification.
We feel most international stocks will just get you into more volatility. We
prefer to stick to solid proven north American companies that we can better
understand. Besides, many of those US and Canadian multi-nationals can
indirectly give you international exposure.
Furthermore, we feel
our good old stocks can provide more robust results in the long run. To some
extant, we like having control and understanding in what we invest. Dividend
growth stocks can precisely give us that.
Recent Transactions and Remaining Candidates
Our cleanup frame of
mind has not changed. Some starting details were already provided in our May Report.
So far, we managed to
liquidate our positions not only in lagging stocks like AT&T (T), RioCan
REIT (REI.UN), Coca-Cola (KO) and Fairfax Financial Holdings (FFH), but also in
others that provided us strong results over the years like CGI Group (GIB.A),
Merck (MRK), American Express (AXP) and Walmart (WMT).
Only a few remain on
our sell list: Manulife (MFC), Nutrien (NTR), iShares CDN S&P/TSX 60 (XIU)
and Pfizer (PFE).
Like we said, buys have
been rare, but we’ve still added to our existing positions in Canadian Tire
(CTC.A) and 3M (MMM). On a side note, to simplify things, we’ve substituted
Atco shares (ACO.X) for its parent, Canadian Utilities (CU).
Have a peek at our Watch List Page
to see which candidates are at the top of our selective buy list.
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