We're coming up to a year and a half since the launch of my Strategy Lab model dividend portfolio, so this seems like an appropriate time to review its performance.
Before we dig into some numbers, I want to quickly clarify a few things. First, contrary to what some readers believe, the portfolio is not meant as a template to be copied exactly. The Strategy Lab rules limit each portfolio to a maximum of 12 securities, but in real life you would need two or three times as many stocks – plus some fixed-income exposure – for adequate diversification.
For some investors, exchange-traded dividend funds may be a better option than single stocks because ETFs provide added diversification and require less monitoring. I've written about dividend ETFs before.
Second, just because a stock is in the model portfolio doesn't mean you should necessarily go out and buy it. The portfolio is for illustrative purposes only and, while I also own all of the companies personally, your investing goals and risk tolerance may be different from mine. What's more, while I consider most of the stocks long-term holds, that doesn't mean I would necessarily buy them at current prices. I like adding to great stocks after they have fallen in price because of a temporary setback.
With those caveats out of the way, I'm pleased to report that the portfolio is performing as I had hoped.
My goal at the outset was to assemble a group of companies that would pay me a growing income stream, and that is precisely what has happened. At inception, the portfolio paid a projected $1,875.84 in dividends annually, for a yield of 3.75 per cent based on the hypothetical initial value of $50,000.
Since then, every one of the securities has raised its dividend – the vast majority more than once.
One stock (T) has raised its dividend three times, nine have raised it twice (BCE, BMO, CU, ENB, FTS, KO, MCD, RY, TRP) and one (PG) has raised it once, with a second increase expected in April. The remaining security, XRE, has raised and lowered its distribution a few times to match the cash flow of its underlying real estate investment trusts, but the good news is that the current payment is 14 per cent higher than it was when the portfolio was started.
My U.S. stocks – namely KO, MCD and PG – have also benefited from the tumbling loonie, which makes U.S. share prices and dividends worth more in Canadian dollars. Reinvesting all of my dividends has helped as well. As a result, my portfolio's annual cash flow has grown to $2,222.74 – up 18.5 per cent since inception.
I only wish my employer would give me a raise like that.
As for share prices, most of the stocks have risen, but there have also been a few minor disappointments. FTS and XRE are trading slightly below where I bought them, but I am holding on as I expect both to be fine in the long run. KO is also below where I bought it, but it's still higher in Canadian dollars. Despite coming off a rough quarter, KO this month raised its dividend by 8.9 per cent – its 52nd consecutive annual increase.
The rest of the stocks have gained in price, generating a total portfolio return – including dividends – of about 21 per cent since inception on Sept. 13, 2012. That compares with an 18.7-per-cent gain for the S&P/TSX composite index over the same period (all results are to Feb. 24).
As I mentioned off the top, the model dividend portfolio's 12-stock maximum is a significant limitation. However, I'm not about to start buying and selling securities frequently in the portfolio, because I believe that trading too much is the downfall of many investors. I designed the portfolio with a buy-and-hold philosophy in mind and I'm not about to deviate from that plan.
That said, I will continue to highlight other dividend stocks in my Yield Hog columns, because in the real world investors need to diversify and keep their eyes open for new opportunities.