To be completely honest with you, I have been interested in dividend investing for a while but only switched my portfolio towards this approach back in January 2011. Why did I take so long? Simply because I had a lot of success by trading more aggressively in the past. From 2003 to 2006, I made enough money to build up a $50,000 down payment to buy my first house. Then, I started in 2008 to trade the way I had previously (by taking a lot of risks!) and I got hit brutally by bad trades such as RIM, Paladin (PDN) and Com Dev (CDV). I guess the good news is that I sold each of these stocks at higher prices than today’s market ;-).
All that to say that I made some major trades (e.g. selling all my non dividend paying stocks) back in January and started buying dividend stocks (except for one bet I’m making on VNP but that’s another story 😉 ).
Since the market has been quite rock ’n roll since the beginning of the year, I thought of producing a recap of my trades and adding the dividend payouts I have received in my account so far to see if the strategy is working in a “bear market”. I’ve also compared my performance to the S&P 500 (US Index) and the S&P TSX60 (Canadian Index). I used the total returns from Standard & Poors (a chart is provided at the end of this post)( Please note that I’m only showing the stocks I bought in 2011 and not showing my overall returns in this current article).
I Beat the US Market While Crushing the Canadian Market
The first thing I did while building the table is to compare my dividend holdings to the indexes. I was pleased to see that my picks are at -3.43% since the beginning of the year compared to -5.90% for the S&P 500 and -11.91% for the S&P TSX 60. I was quite happy to see that my portfolio was doing much better ;-).
The other interesting thing is that I received 1.47% of my current portfolio in dividend payouts while I only started investing in January and added a big chunk ($10,000) in August (I should have waited until September, but heh! It’s hard to catch the perfect market bottom!).
Ticker Quantity Average Price Book Value Current Price Current Book Value Yield Dividend Paid Yield (with Div)
JNJ-US 25 64.93 $ 1 623.25 $ 65.51 $ 1 637.75 $ 0.89% 41.21 $ 3.43%
CVX-US 25 92.85 $ 2 321.25 $ 98.68 $ 2 467.00 $ 6.28% 55.82 $ 8.68%
HSE-CDN 100 27.90 $ 2 790.00 $ 22.63 $ 2 263.00 $ -18.89% 90.00 $ -15.66%
BNS-CDN 50 60.32 $ 3 016.00 $ 52.49 $ 2 624.50 $ -12.98% 52.00 $ -11.26%
ZWB-CDN 125 16.43 $ 2 053.75 $ 13.83 $ 1 728.75 $ -15.82% 61.76 $ -12.82%
T-CDN 86 54.27 $ 4 667.22 $ 52.05 $ 4 476.30 $ -4.09% 47.30 $ -3.08%
K-US 68 67.75 $ 4 607.00 $ 68.20 $ 4 637.60 $ 0.66% 33.36 $ 1.39%
INTC-US 85 21.15 $ 1 797.75 $ 22.97 $ 1 952.45 $ 8.61% 0.00 $ 8.61%
Total 22 876.22 $ 21 787.35 $ -4.76% 381.45 $ -3.09%
TSX60 N/A -11.91%
SPY N/A -5.90%
A Few Points as to Why I Beat the Market so far in 2011
The point I need to make is that I did time a few of my trades. This portfolio is showing almost $26,000 in book value and $10,000 of it was added in August. I made my RRSP contribution early this year as I thought it would be smart to invest when the market had almost lost 20% since its peak in April. Unfortunately, the market kept going down and my strategy didn’t put too much money on the table yet. However, since I bought in August and not in January, this timing will provide a few more % to my portfolio.
The second point is that I decided not to hedge my portfolio against currency fluctuations. I thought that buying US stocks with my Canadian money was a great idea since the Loonie was quite valuable at the beginning of the year. This is how I got a few more % in my pocket as my US stocks are worth more in Canadian dollars ;-). I think that over time, our currency will go back down (maybe in a few years but I’m only retiring in 30 years so I can wait ;-). This why buying US stocks is such a good idea at the moment.
The last point I wanted to mention is that if I take my only non-dividend trade this year (buying more of VNP), I would be -3.09% instead of -3.43%. This can show you how dividend stocks are great in a bear market and they protect your capital as compared to regular stocks. I still like VNP a lot as they are making a lot of money and I’m sure that once all the reasons to panic on the market are gone, it will surge back to $9-10 range (right before being bought by a bigger company… I hope!).
This is Only The Beginning
While the results of my portfolio are already satisfying, I know that the best is yet to come. Since all these stocks will keep increasing their dividends over time, I’ll eventually receive way more than 1,47% in dividend ;-). The average dividend yield of my portfolio should reach 4% in 2012… which is already very good compared to any bonds, right?
I’m slowly building some cash in my account from the dividends and I should be able to buy an index fund shortly with it. Since there are no transaction fees, as soon as I get the minimum required ($500), I’ll jump in the overall market. Since I’m in Canada, I’ll definitely buy a US index fund with no hedge against the currency.
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Way to go, Mike! Although I personally prefer aggressive trading (or investing).
I have been very happy with Intel which I bought solely for the dividend yield. It has held up very well especially in September considering the overall market.
@Tony,
I know, I always feel that I leave something on the table… but I spend less time on looking at financial statements 😉
@Cashflowmantra,
Intel seems to be a very good pick after all. Great company, great profit and great dividend… you can’t really ask for more 😉
@ Mike. I guess you’re right. I recently read The 4 Hour Workweek, and he said that one should eliminate the things that are eliminating 80% of the time and giving 20% of the results.
@Tony,
the 80-20 rules is apply on everything in my life 😉
Are those dividends “year to date” returns? (The $381.45 figure)
The reason I ask is, lets take your Book value total $21,787.00 and simply purchase the BMO monthly income fund using that value. It returns $0.06 cents a unit every month to you. (for many years now steadily)
So at todays unit value of $7.62/unit I would get 2859 units that pay out $171.55/month to me. Or i can simply Drip that return every month for a rising return each month. All with no load / brokerage costs. The MER is in there of course, but that return even with that cost, the monthly return looks pretty good. This is why I ask what your dividend returns time period is.
I struggle with investing this way vs. buying individual securities all the time. Can someone explain to me how my logic is wrong here or the dangers of this. The fund is composed of all the best dividend paying stocks itself one would purchase on their own, with bond components as well.
Hey Paul,
the $381.45 is what I have earned in “real life” in my account. So it is exactly how much I got from those company so far. This is why I didn’t get the equivalent of a full dividend yield in any cases.
Investing in funds is not a bad idea per se. The main disadvantages are:
#1 MER
#2 You don’t decide what you do with your dividende
#3 You have no control of which stock you own in your portfolio
main advantages:
#1 you don’t have to manage your money and spend time on your investment
#2 DRIP and buying/selling transaction costs are minimal (read $0 in several cases)
I’ll write more about this topic next week as I think I can give you more thoughts.
cheers,
Mike
Thank you. I will be looking forward to that!
I would like to point out regarding your # 2 point under disadvantages :
I DO actually get to decide what i do with those distributions. From the position in that fund I have about $200.00/month paid into my TD Waterhouse cash portion (mid month). Then I take that just before the distribution date of another fund I have – which has an almost 8% yield every month from TD – and use it to buy that fund and drip it’s unit dividends within it as well. Sort of giving it an extra cash injection every month. (All those transactions are free)
A little unorthadox – yes.