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investor clinic

I have a confession to make: Instead of dutifully reinvesting my dividends, I have slacked off and let more than $4,000 of cash accumulate in my model dividend portfolio.

I know, I know. Letting money sit there earning jack squat is precisely what I tell readers not to do. Guilty as charged, your honour.

Today, I am going to correct this egregious oversight.

Before I discuss how I’ll be reinvesting my cash, I’ll provide an update of the portfolio’s performance. Not surprisingly, high interest rates continue to exert a drag on many of the stocks. But, as you’ll see, the news isn’t all bad.

Some quick history: Back on Oct. 1, 2017, I launched the model Yield Hog Dividend Growth Portfolio with $100,000 of virtual cash. My goal was to identify companies with above-average yields, a history of dividend growth and a strong probability of continuing to increase their payouts. I vowed to do very little trading, apart from reinvesting my dividends when a stock looks attractive. (View the portfolio online.)

The model portfolio doesn’t use real money, but I own all of the same stocks personally (plus a few others), so I do have skin in the game.

Fast-forward to the present. As of Feb. 29, the portfolio was valued at $150,224, representing a total return – including dividends – of 50.2 per cent since inception, or about 6.5 per cent on a compound annual basis. That compares with an annual total return – also including dividends – of about 8.3 per cent for the S&P/TSX Composite Index over the same period.

So, I’ve trailed Canada’s benchmark index on a total return basis. The good news is that my dividends continue to rise, consistent with the portfolio’s primary goal of churning out a growing stream of income.

Last year, the vast majority of securities in the portfolio boosted their payouts, and 2024 is shaping up as another good year as seven companies have already announced increases – namely BCE Inc. BCE-T, Brookfield Infrastructure Partners LP BIP-UN-T, Canadian Utilities Ltd. CU-T, Manulife Financial Corp. MFC-T, Restaurant Brands International Inc. QSR-T, Choice Properties Real Estate Investment Trust CHP-UN-T and TC Energy Corp. TRP-T.

Most of the recent increases have been modest, but over time they really add up.

At inception, the portfolio was throwing off about $4,094 of cash annually, based on dividend rates at the time, for a yield of about 4.1 per cent. Now, thanks to scores of dividend increases and regular reinvestments of cash, the portfolio is generating annual income of $7,532 – an increase of 84 per cent. Because the dividend income has grown faster than the portfolio as a whole, the yield has risen to about 5 per cent.

Barring a global catastrophe of some sort, I’m confident that the 19 companies and two exchange-traded funds in the portfolio will continue to raise their payouts. This is what makes dividend growth investing so appealing to buy-and-hold investors like me: Regardless of what else is going on in the world, the dividend cheques keep coming. And they get bigger every year.

Is the strategy perfect? No. With interest rates still at elevated levels, the price returns of dividend stocks have paled next to the huge gains of technology companies, which is one reason I recommend investors supplement their core dividend holdings with broad index ETFs that hold tech and other stocks that don’t typically pay big dividends. But when the market is having a bad day – or a bad year – there’s nothing like a dividend landing in your account to remind that everything is going to be okay.

Now, it’s time to go shopping.

This week, shares of Bank of Montreal BMO-T dropped after Canada’s fourth-biggest bank by assets reported first-quarter earnings well below estimates, hit by higher loan-loss provisions and weak capital markets revenue.

“There is no way to sugarcoat this – it was a disappointing quarter,” Doug Young, an analyst with Desjardins Capital Markets, said in a note to clients. However, he added that, while the stock “might be in the penalty box for a quarter,” BMO management signalled that the first quarter “should be the low point” for results in fiscal 2024.

For dividend investors with money to spend, the silver lining is that BMO’s stock now yields nearly 5 per cent, with strong potential for continued dividend growth. With that in mind, I’ve decided to purchase an additional 15 BMO shares, bringing my total to 85 shares, which will consume close to half of the cash in the model portfolio.

With the remaining cash, I am picking up an additional 30 units of the iShares S&P/TSX 60 Index ETF XIU-T, for a total of 315 units. I’m also purchasing 15 units of the iShares Core Dividend Growth ETF DGRO-A, bringing my total to 140 units.

These purchases will be reflected in the next monthly portfolio update, to be published at the end of March or early in April.

E-mail your questions to I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 21/05/24 3:59pm EDT.

SymbolName% changeLast
Brookfield Infra Partners LP Units
Canadian Utilities Ltd Cl A NV
Manulife Fin
Restaurant Brands International Inc
Choice Properties REIT
TC Energy Corp
Bank of Montreal
Ishares S&P TSX 60 Index ETF
Dividend Growth Ishares Core ETF

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