What will stock markets do in 2020?
Beats me. They could rise, fall or tread water. Unlike Wall Street and Bay Street strategists that love to issue forecasts for the S&P 500 and the S&P/TSX Composite Index, I have never made market predictions, and this year will be no different.
With a U.S. election, trade negotiations and geopolitical turmoil in the Middle East all potentially contributing to volatility in 2020 – in addition to the usual wild cards of interest rates and corporate earnings – there’s even more reason not to guess.
But there is one thing I can say with a high degree of confidence. I’m so confident about this, in fact, that if I am wrong, I will eat my words. Literally. If a year from now my prediction has not come true, I will eat a paper copy of this column and upload the video to YouTube.
Here’s my prediction: Regardless of what happens on the stock market, most of the companies in my Yield Hog Dividend Growth Portfolio will raise their dividends in 2020.
As a dividend investor, I focus on income growth first. It’s not that I don’t care about capital gains. I do. But if a company’s revenue, earnings and dividends are growing, the share price will eventually follow. There will, however, be periods when stock prices go sideways or fall, and focusing on my growing income makes it easier to cope with such volatility.
Back in 2018, for example, markets had a rough year and my model dividend portfolio posted a total return, including dividends, of negative 4.4 per cent (compared with a total return, also including dividends, of negative 8.9 per cent for the S&P/TSX Composite Index). Yet, the vast majority of my stocks continued to raise their dividends that year. (View the model portfolio online at tgam.ca/dividendportfolio).
In 2019, markets rebounded, and my model portfolio posted a total return of 26.6 per cent (compared with a total return of 22.9 per cent for the S&P/TSX). And, just as they had done in 2018, my stocks continued to raise their dividends.
I have been reinvesting my dividends along the way, which has given the portfolio’s income a further boost. The impact of all those dividends, dividend increases and dividend reinvestments has been dramatic: My portfolio, which began with $100,000 in virtual cash on Sept. 30, 2017, is now generating a projected income of $5,206 annually (based on current dividend rates), up 27 per cent from income of $4,094 at inception. As of Dec. 31, the portfolio’s total value had grown by 26.2 per cent to $126,244.
That works out to a total return of about 10.9 per cent on an annualized basis. I’m very pleased with that performance, which easily tops the S&P/TSX’s annualized total return of 7.2 per cent over the same period.
Can I guarantee that such strong gains will continue? No. But, getting back to my original point, I feel very comfortable predicting that my dividends will continue to grow in 2020.
In fact, it’s already happening. On Jan. 9, Canadian Utilities Ltd. (CU) hiked its dividend by 3 per cent, extending its streak of consecutive annual increases to 48 years.
I expect that several other stocks in my model portfolio will follow suit in the coming weeks. Companies that have historically announced dividend increases in the first quarter include Brookfield Infrastructure Partners LP (BIP.UN), TC Energy Corp. (TRP), BCE Inc. (BCE), Restaurant Brands International Inc. (QSR) and several Canadian banks.
These companies had better come through, because I don’t want to see myself on YouTube this time next year.
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