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For a retiree, do you think that 20 per cent in Canadian banks is a reasonable amount?

Yes, 20 per cent sounds reasonable. Canadian banks enjoy an oligopoly and their long-term returns have been excellent. To take one example, Royal Bank of Canada has posted an annualized total return of about 12.5 per cent over the past 20 years, assuming all dividends had been reinvested. Banks also have some of the strongest dividend growth records in Canada. Royal Bank – which hiked its dividend by 4 per cent when it announced first-quarter earnings on Friday – is now paying more than twice as much as it did in 2010. I only wish my salary had grown that much.

As we saw during the financial crisis, however, banks – which are leveraged by nature – can also get hammered when the environment turns sour. Fortunately, our banks bounced back – although they went a few years without raising their dividends at all – but I would not want to have excessive exposure to banks lest the next credit crisis, or some other unforeseen financial calamity, turns out to be even worse.

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In Canada, it’s easy to get carried away with banks. Some exchange-traded funds, for example, have 40 per cent or more of their assets in the sector. I have even heard from readers who have their entire portfolio in banks, which is just reckless. As always, diversification is the key. If you have 20 per cent of your portfolio in banks – which, incidentally, is a few percentage points below the bank weighting of the S&P/TSX Composite Index – you’ll control your risk while still having plenty of exposure should the banks continue to deliver outstanding results.

In a recent column, you mentioned a couple of different ways to compare one’s performance against the total return of the S&P/TSX Composite Index. What if I want to use a U.S. benchmark to judge the returns of the U.S. portion of my portfolio?

Just as you could use the S&P/TSX Composite Total Return Index as a benchmark for your Canadian returns, you could use the S&P 500 Total Return Index to see how the performance of your U.S. stock portfolio stacks up against the broader U.S. market. Unlike the regular S&P 500, which is based on price changes alone, the S&P 500 Total Return Index includes dividends and assumes they were reinvested. You can find this index on many financial websites, including Investing.com (use the ticker SPXTR).

An alternative is to compare your U.S. stock portfolio with the total return of a low-cost U.S index ETF such as the iShares Core S&P 500 ETF (IVV) or, if you want an even broader benchmark, the iShares Core S&P Total U.S. Stock Market ETF (ITOT). ETF provider websites publish total returns of their funds for various periods. Just be sure that, if you’re comparing the performance of your U.S. stocks in U.S. currency, you use a U.S. dollar ETF as the benchmark and not a Canadian-dollar version. Otherwise, you will be comparing apples and oranges.

Last week, you discussed ways to find Canadian stocks with a track record of raising their dividends. Where can I find a list of U.S. dividend growth stocks?

Google “U.S. dividend aristocrats” for a list of U.S. stocks that have raised their dividends for at least 25 consecutive years. Another option – which will also include stocks with shorter dividend growth records – is to check out the list of constituents in an ETF such as the Vanguard Dividend Appreciation ETF (VIG) or iShares Core Dividend Growth ETF (DGRO). I hold DGRO in my model Yield Hog Dividend Growth Portfolio (tgam.ca/dividendportfolio).

Another useful website is dividendhistory.org, where you can look up the dividend growth records of individual Canadian and U.S. companies.

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