A Few Lessons From the Past 12 Months – February Dividend Income Report

In September of 2017, I received slightly over $100K from my former employer which represented the commuted value of my pension plan. I decided to invest 100% of this money into dividend growth stocks.

Each month, I publish my results. I don’t do this to brag.  I do this to show you it is possible to build a lasting portfolio during an all-time highly valued market. The market will inevitably go down, as it did in 2020. But I continued to enjoy cashing consistent and growing dividends despite that negative market action! And, most importantly, I stayed fully invested in the market and have enjoyed the market recovery in 2020 that has continued into this new year of 2021.

Performance in Review

Let’s start with the numbers as of March 8^th, 2021 (before the bell):

• Portfolio value: $195,275.14 
• Dividends paid: $3,800.18 (TTM)
• Average yield: 1.95%
• 2020 performance: +20.3%
• SPY=18.17%, XIU.TO = 5.27%
• Dividend growth: +7.7%

Total return since inception (Sep 2017- Mar 2021): 79.75%

Annualized return (since September 2017): 18.24%

SPDR® S&P 500 ETF Trust (SPY) annualized return (since Sept 2017): 15.55%

iShares S&P/TSX 60 ETF (XIU.TO) annualized return (since Sept 2017): 9.46%

A Few Lessons from the Past 12 Months

Here are a few things you should have learned from the past 12 months:

#1 The stock market is like the Montreal Canadiens. They are not as good as they were in their first 10 games, but they are not as bad as their following ten games either. When the market goes up too fast, there is room for a correction. When the market crashes, there is room for recovery.

#2 Chasing shiny objects may generate more loss than profit. Those who finally decided to buy gold or gold stocks in April-June are quite disappointed right now. If investing in gold is part of your strategy, your money should have been allocated years ago. Watch my video about investing in gold here.

#3 Most of the time, doing nothing is the best thing you can do. Have faith in the process, trust your past judgment and focus on your strategy. There are particularly good reasons why you bought those stocks in the first place, and most of them will survive the pandemic.

#4 If you wait for the right opportunity now, you were likely waiting last year too. Many investors use the excuse of waiting to see what is going to happen to justify their inaction. The truth is that you had a great opportunity to invest between March and April. If you didn’t do it, you were using “waiting to see” as an excuse, not a strategy.

#5 Be ready when “winter is coming”. The latest market drop tested your risk tolerance (once again). If you felt uncomfortable, now is the time to prepare your portfolio for next time. Don’t let the recovery blind you that “it’s all good”. Try to remember how you felt back in March 2020. If you can’t stomach that, make sure it doesn’t happen again.

#6 Dividend growers are part of the best protection against any market crashes. Many will tell you that gold or bonds are the best store of value for your money. However, if you invest in robust companies increasing their dividend year after year, your chances of outperforming the market are good and you will likely do it with less volatility. An asset printing more money each year is a real store of value for your portfolio.

#7 Now that the market has more than recovered, the only thing left to do is to stick with your investment strategy. 12 months ago, 6 months ago, yesterday, the only thing you should be consistently doing is to stick with your investment strategy.

Personally, I haven’t done many trades recently (selling Apple, Lassonde Industries and buying VF Corp). In fact, I would have done the same trades regardless of the pandemic. That’s the beauty of having a clear strategy; you don’t have to worry about where we are in the market cycle as you simply follow your plan.

Now, let’s have a look at my portfolio!

Canadian Portfolio (CAD)

Company Name	Ticker	Market Value
Alimentation Couche-Tard	ATD.B.TO	14,478.47
Andrew Peller	ADW.A.TO	6,065.10
National Bank	NA.TO	6,680.80
Royal Bank	RY.TO	6,754.20
CAE	CAE.TO	7,740.00
Enbridge	ENB.TO	7,217.63
Fortis	FTS.TO	4,970.79
Intertape Polymer	ITP.TO	7,365.00
Magna International	MG.TO	7,770.70
Sylogist	SYZ.V	4,795.50
Cash		630.14
Total		$74,468.33

My account shows a variation of +$6,513.37 (+9.6%) since the last income report on February 1^st.

Last month, many of my US holdings reported their earnings. Canadian companies are always a bit late in the season. Here are some comments on solid performances from my Canadian stocks.

Royal Bank is doing well!

Royal Bank (RY) reported double-digit earnings growth as results across all businesses benefited from strong volume growth, increased client activity and constructive markets, partially offset by the impact of low interest rates and higher expenses largely due to variable and stock-based compensation commensurate with strong results. Record earnings in Capital Markets as well as positive earnings growth in Personal & Commercial Banking, Wealth Management and Insurance were partly offset by lower results in Investor & Treasury Services. Provision for credit losses is now back to pre-covid levels which is a good sign for coming quarters.

National Bank steals the show

National Bank (NA.TO) (NTIOF) posted an amazing quarter beating all expectations with double-digit earnings growth. Personal and Commercial income before provisions for credit losses and income taxes totalled $412M which was up 3%. Results were supported by strong loan portfolio growth, offset by lower interest rates. The growth came from Wealth Management (+20%), Capital Markets (+37%) and US & Intl (+60%). Wealth management results were driven mainly by growth in transaction-based and other revenues as well as in fee-based revenues while Capital Markets enjoyed strong trading volume and good performances from structured products and ETFs.

I’ve added more comments on Canadian Banks’ latest reports on my YouTube channel. You can watch the one about National Bank and Royal Bank right below.

Magna International is stronger than ever

MG (MG.TO) (MGA) posted robust results and shares went up on earnings day as the company beat both EPS and revenue growth expectations. The dividend has also been increased by 7.5%.  Global light vehicle production decreased 4% reflecting a decline of 5% in Europe and essentially level production in North America. Magna’s production for the first nine months of the year is down 25% Y/Y. Adjusted EBIT increased to $778M (+39% Y/Y), reflecting higher margin earned on sales, where adjusted EBIT margins stood at 8.5% vs. 6% in Q3 2019. The company generated $1.6B in cash from operating activities during the quarter. They raised their FY20 Outlook:  Sales projections of $31.5 to $32.5B, was up from the previous forecast of $30-$32B.

Sylogist is ready for more acquisitions

Sylogist (SYZ.V) (SYZLF) reported a good quarter with revenue growth of 7%. The company reported a profit before income tax of $2.8M vs a loss of $8.6M last year (due to a management compensation change). The payout ratio and PE ratio should get back in line now. Business activities continued in Q1 to strengthen Sylogist’s foundation for growth. In October, the company closed on a $40M credit facility that can be used for acquisitions, strategic initiatives, and general corporate purposes. Management is now looking for more acquisitions to bolster its business.

Sylogist is also part of my Top 3 Canadian Tech Stocks. I’ve discussed my top picks in the video below.

Fortis remains solid

For the fourth quarter of 2020, Fortis (FTS.TO) (FTS) net earnings attributable to common equity shareholders were $331M, compared to $346M for the same period in 2019. The decrease was due to the reversal of prior period liabilities of $83M in the fourth quarter of 2019 associated with the November 2019 FERC base ROE decision. On an adjusted basis, EPS jumped by 11%. The increase in adjusted quarterly earnings was due to the timing of earnings at ITC associated with the implementation of the November 2019 base ROE decision, rate base growth and higher earnings from Belize, partially offset by a higher weighted average number of common shares outstanding.

CAE feels the weight

The pandemic continues to weigh on CAE’s results as the company reported a revenue decline of 10%. At least, CAE (CAE.TO) (CAE) reported a sequential revenue increase of 18% vs. its second quarter of the fiscal year. Restructuring costs of $14.3 million were recorded this quarter whereas there were no restructuring costs in the third quarter of fiscal 2020.  Backlog remains solid at $7.8 billion. Civil training centre utilization is well below pre-pandemic levels, however it remains stable with the second quarter, which was already much-improved compared to the lows seen at the outset of the pandemic.

Not the best quarter for Enbridge.

Enbridge (ENB.TO) (ENB) disappointed the market with weaker results than expected and by raising its cost estimate for the Line 3 replacement project by US$1B. The good news is that your dividend is safe with Q4 distributable cash flow at $2.2B, up from $2.05B a year earlier. Enbridge raised its estimated capital costs for the Line 3 replacement project to $9.3B from $8.2B, reflecting the final costs for the Canadian segment and updated estimates for the U.S. segment, and says it is planning to put the project into service late this year. The company says it exited 2020 in a strong financial position with debt to EBITDA of 4.6x and expects to remain within its 4.5x-5x target range throughout 2021.

Enbridge is among the very few energy companies I like. I went through the whole company’s business model and growth perspectives in this YouTube video.

Here’s my US portfolio now. Numbers are as of March 8^th, 2021 (before the bell):

U.S. Portfolio (USD)

Company Name	Ticker	Market Value
Apple	AAPL	11,656.32
BlackRock	BLK	9,831.92
Disney	DIS	8,549.55
Gentex	GNTX	8,549.55
Hasbro	HAS	4,360.34
Lazard	LAZ	4,084.08
Microsoft	MSFT	13,896.00
Starbucks	SBUX	8,942.00
Texas Instruments	TXN	8,397.00
VF Corporation	VFC	6,380.37
Visa	V	10,770.50
Cash		260.44
Total		$95,424.02

The US total value account shows a variation of +$2,709.49 (+2.9%) since the last income report on February 1^st.

The rest of my U.S. companies have reported their earnings in February. I can say that I was pleasantly surprised by the performance of my “laggards”.

And another surprise by Disney!

Diney (DIS) surprised the market with a profit for the quarter. Assuming most parks and movie theaters were closed, the market expected a loss for the quarter. The results are the first since a divisional reorganization, which makes clear that softer declines in media and entertainment helped mitigate a huge drop in the parks/products business. DIS was also supported by ongoing streaming success (it said paid subscribers for Disney Plus hit 94.9M, vs. consensus for 90.7M). Revenue by segment: Disney Media and Entertainment Distribution, $12.66B (down 5%); Disney Parks, Experiences and Products, $3.59B (down 53%).

It’s not over for Hasbro

Hasbro (HAS) surprised the market with better results than expected. The company reported U.S. and Canadian segment revenues up by 16% in Q4 and eOne segment revenues were up 10%. Revenues were up 21% for the Hasbro Gaming segment and 27% across the total gaming category, 20% in TV/Film/Entertainment and 7% in Franchise Brands. Hasbro also developed toy and game lines for their valuable preschool brands PEPPA PIG and PJ MASKS which will launch later this year. The company ended with $1.45B in cash on its balance sheet. We were disappointed by the fact that there wasn’t a dividend increase.

Nice surprise by Lazard

Lazard (LAZ) surprised the market with strong numbers as the firm reaped advisory fees for several high-profile deals such as Fiat Chrysler’s $28.6B merger with Peugeot. Financial advisory revenue of $509M rose from $307M in Q3 and $395M in the year-ago quarter. Included in the group’s M&A assignments were the Fiat Chrysler/Peugeot merger, Gilead’s $21B acquisition of Immunomedics, and Teladoc Health’s $18.5B merger with Livongo. Asset management revenue of $336M rose 14% from $261M in Q3, driven by $25.4B of market appreciation and $5.8B of forex appreciation which was partly offset by $286M of net outflows.

My entire portfolio updated for Q4 2020

Each quarter, we run an exclusive report for Dividend Stocks Rock (DSR) members who subscribe to our very special additional service called DSR PRO. The PRO report includes a summary of each company’s earnings report for the period. We have been doing this for an entire year now and I wanted to share my own DSR PRO report for this portfolio. You can download the full PDF giving all the information about all my holdings. Results have been updated as of December 2020.

Download my portfolio Q4 2020 report.

Dividend Income: $250.68 CAD (-28.6% vs February 2020)

I show an important drop in the dividends this month as several factors negatively affected my portfolio income. First, there is a big lack of dividend growth. National Bank didn’t increase its dividend due to the pandemic and Royal Bank increased its only once (it usually increases it twice a year). Finally, Hasbro has failed to increase its dividend for the past 6 quarters. That’s a red flag right there.

The second factor was linked to a transaction I made of selling a few shares of Apple to buy VFC Corporation. I was making “too much” money on Apple and had to rebalance my portfolio.

The third factor was a massive drop in the USD vs the CAD. Last year, $1USD equalled $1.3416. As the oil prices keep surging, so does the Canadian dollar. Finally, Lazard’s dividend payment was recorded in February last year ($47.94 USD), and I received it in March this year.

Here’s the detail of my dividend payments.

Dividend growth (over the past 12 months):

• National Bank: 0%
• Royal Bank: +2.9%
• Texas Instruments: +13.3%
• Apple: -17.6%
• Hasbro: 0%
• Currency factor: -7.6%

Canadian Holdings November payouts: $121.60 CAD

• National Bank: $56.80
• Royal Bank: $64.80

U.S. Holding payouts: $101.96 USD

• Texas Instruments: $51.00
• Apple: $19.68
• Hasbro: $31.28

Total payouts (December): $250.68 CAD

*I used a USD/CAD conversion rate of 1.266

Final Thoughts

This monthly recap highlighted one of my weakest positions: Hasbro (HAS). The company failed to increase its dividend in 2020 and now shows almost two years without dividend growth. While several factors explain this situation (notably the acquisition of eOne, the Toys’R’Us bankruptcy and the pandemic), my investing strategy is built on acquiring dividend growers.

I believe each investor shouldn’t be trigger happy and patience is the best quality we can have. While management expects to reach double-digit growth in 2021, Hasbro must face several challenges going forward. It must successfully integrate eOne into its activities, manage through various headwinds hurting brick & mortar retailers, and the shift from boardgames to online games.

Do I really want to be part of this adventure? I’m starting to have doubts. Don’t be surprised if you see me selling those HAS shares in the coming months.

Cheers,

Mike.

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