Hey there and welcome to my blog! Although I’ve been working on this site for a few months now, I only recently felt comfortable putting the word out… so it’s likely you’re new here. On that note, I obviously value any support and hope you find something interesting here – my goal, time permitting, is to have 2 posts a week. But enough with the social graces, let’s start the fun.
I’m fairly new to dividend investing. Up until a few months ago, I was buying stocks mainly for gains, while dividends were hardly even an afterthought. I had been investing like this for almost 8 years, and while I came out ahead, the effort was just too great. I decided sometime last year that I wanted something simpler that didn’t require that I look over my entire portfolio every few days to figure out the best time to sell. With the dividend growth method, I felt I could accomplish this. While the gains might not be as great, I felt the stress and effort would be considerably less. Since making this decision, I’ve gutted my former portfolio and put the money into a high interest account (which means pretty much no interest, lol) and have slowly built a new dividend growth portfolio. So far, I gotta say that I prefer this way of investing.
Here’s my new strategy in point form:
- Limit my exposure to $2000 per company.
- Find companies that have dividend yields of more than 2% but less than 6%.
- Make sure said companies have a history of increasing their dividends of at least 5 years.
- Look over financial statements for steady increases in revenues, profits, etc.
- Scour the media for opinions/POVs to get a general sense/consensus on the stock.
My Investing Philosophy
If nearly 8 years of investing has taught me anything, is that you can’t predict anything. I’ve bought popular stocks only to see them tank. I’ve also bought other stocks which everyone was saying were horrible buys, only to see them skyrocket. This usually doesn’t happen, but it just goes to show that nothing is certain. I don’t really care what anybody says, whatever your strategy is going to be, there’s always going to be an element of speculating. Unless you’re like Buffet, and can afford to buy enough of a company to directly influence its management, you’re stake in a company is completely beholden to those in charge of said company (which you have no influence over). Essentially your betting on management to make the right decisions. Consequently any day can bring about unpredictable news that will obliterate a stock in mere seconds (or vice versa). Volkswagen’s dieselgate fiasco is a perfect example of this. It’s just a fact of the game, and there’s really no point stressing out about it.
That being said there are things you can do that will put the odds in your favour. Obviously the more security you want, the more effort you’re going to have to put into it. However, I’m not terribly interested in spending hours scouring over balance sheets and income statements looking for clues. I also don’t want to spend my time following certain stocks trying to predict the best time to buy. My plan is to hold onto these positions for a long, long time. I mean who knows what will happen in a year, or five or maybe even twenty. My days scouring for deals and gains therefore are over. What I want now is a monthly (or quarterly) pay check. So long as it pays a decent dividend, and I can expect the company to continue paying a decent dividend, then I’m happy. Think of it this way, my stocks are like little employees going out into the world making money for me. Sometimes they get sick and are less valuable, other times they’re healthy and become worth more. Over time, everyone should average out.
Pizza Pizza might seem like an odd choice, but I really wanted a stock that met most of my points above, while also paying a monthly dividend. The reason being is that I thought it would be nice to have a more consistent income from month to month. This is purely psychological, obviously, but my theory is that you gotta do whatever it takes to keep yourself motivated. I also wanted to try something a little different than the norm to keep things a little more interesting. Although making money is nice, I also want to have a little fun while doing it and try things that most people wouldn’t consider. I might fall flat on my face; I might not.
As for RBC, there’s nothing really sexy about investing in a Canadian bank. Canadian banks have a reputation of being hyper-stable and have consistently paid dividends over the years with yields in the higher 3-5% range. They’re also fairly consistent in terms of increasing their dividends, sometimes doing so more than once in a year. But as some articles have pointed out, Canada’s current economic environment isn’t going to make things easy for banks, at least in the short term. But since I’m fairly certain that RBC isn’t going anywhere fast, and since I’m in it for the long haul, I figured I wouldn’t worry about it too much.
Gains / Losses
Although I don’t really worry about gains and losses anymore, since I’m in it for the long haul (and dividends), I still like to look at them every often to get a general sense of where the market is going. It’s also a great indicator on how well a company is doing. For example, if a company has lost 20% of its value in a week, while every other company has increased theirs, it’s usually a sign that something is amiss with said company. At that point, I’ll generally look into it. However, if every stock is down, then it’s an indicator of market wide problem, at which point there’s really nothing to be done other than to wait it out. My thinking in this kind of situation is that the market will either recover at some point in the future, or if it doesn’t, then the economy has failed and my portfolio will have become the least of my worries (cynical joke).
On that note, January and February’s losses fall into the “market-wide problems” category. For such a relatively new portfolio, I was doing alright (gain wise) until December came and everyone started to really worry about the oil glut, turmoil in the middle east and China’s growth woes. Here in Canada, where everyone seems to think that the only good thing going is the oil sands, the economy has essentially started to tank, bringing a lot of stocks down with it. Consequently, all of my gains were wiped out and instead of being ahead by 5%, I’m now in the red in the 5%-3% range. But to quote a well known Disney song, “hakuna matata”.
This isn’t necessarily true about my two worst performers, however, which are Shaw Communications and Telus. Both are Canadian companies that provide telephone, internet and cable services.
With respect to Shaw, my losses came about when the company announced that it was buying Wind Mobile. Shaw has been struggling to get a foothold in the Canadian mobile market, having left the sector entirely in 2011, only to get back into the game with this purchase. Some investors felt the move was too late or unlikely to succeed. They’ve also been losing cable subscribers in droves, which has partially been blamed on the fact that the company lacks the ability to bundle its cable services with mobile ones (like Rogers and other companies do). Although I’m pessimistic about Shaw in the short term, they sort of fall into the “too big to fail” category and I’ll wait and see what happens.
As for Telus, their problems seems less worrisome. According to this article, a big chunk of their business is concentrated in the western provinces, which for those of you who aren’t familiar with Canada’s geography, includes Alberta (the king of the oil sands). Unfortunately, Alberta is (predictably) reeling from the drop in oil prices, which is having a negative effect on other aspects of its economy. Furthermore, since both Telus and Shaw mostly compete in the western half of the country, Shaw’s buying Wind Mobile is seen as a direct threat to it’s core business.
Since starting my dividend income portfolio, three of the companies I have invested in have announced dividend hikes. Fortis increased their dividends by just over 10%, whereas both Bell Communications and Telus have increased theirs by about 5%. I’m also expecting other increases in the coming months from most of the other companies that I have in my portfolio. As of right now, however, these three increases amount to about $20 CAD per year in extra income. It may not seem like a lot, but at this rate, I’m essentially beating inflation, which in Canada hovers at around 2%. Seeing things through these optics, I’ve essentially given myself a raise — through no effort of my own!
January was also a milestone of sorts, since it was the first month I ever made more than $50 in dividends in a single month.
Based on my calculations, it looks like I’ll be repeating (to a lesser degree) the same thing again this month (Feb 2016) [correction: I missed the deadline for two of the scheduled dividends, so this won’t be the case]. My hope is to make more than $100 in a single month sometime in 2016. I’m pretty sure I’ll be able to achieve this.
So this concludes this month’s portfolio update. I’m pretty happy with how things are going, especially when you consider the rollercoaster ride that 2016 has been up until now. Sadly, I don’t think the ride is over, and things could potentially get worse in the coming months. There’s no way to really tell, however, and I’ll just wait and see what happens. In the meantime I’ll continue buying into one or two more companies every month and see where that takes me.
How about you? How is your portfolio doing? Are you worried about where 2016 is headed? Feel free to leave a comment below.
As always, thanks for reading!