Q3 2018 Dividend Report

Summary

• I've made four stock purchases this quarter with one being a new addition to the portfolio.
• I have once again hit a new record for dividend income.
• I am in a solid position heading into the home stretch of the year.

My Background

Each investor faces a different set of circumstances. Now 31, I have been investing since I was 22 years old. My first investment in individual stocks was made in the heart of the financial crisis back in May of 2009. I purchased 40 shares (80, split-adjusted) of Toronto-Dominion Bank (TD). However, for years before making that purchase, I had been researching the best methods available for both wealth creation and preservation.

I don't believe in taking unnecessary risks and felt the whims of the stock market were too fickle as far as capital gains are concerned to base my aspirations of financial freedom on. Dividend growth investing stood out as it seemed far more predictable that a healthy company might increase its dividend by 6% than to make any sort of prediction about stock price volatility over the short term.

On this basis and from my initial foray into the markets with TD, I've built a portfolio of 24 cash flowing equities. My goal is ultimately to have a stock market portfolio which provides enough income to cover all of my expenses. While some feel that it only requires ten companies to achieve ultimate diversification, I believe there is room for a healthy level of redundancy to avoid the hiccups involved with company-specific performance. Regardless, I endeavour to always own the best of breed companies in their respective industries. I can live with a bit slower growth if it means greater security for my invested dollars.

This is a strategy I have researched over time and came to trust because it can work for me both as a young investor and likewise carry me through the decades to come. While it may not turn heads at a dinner party, it has proven its value over the past few hundred years and remains as relevant as ever today in our digital age.

Having noted the above, it is truly a great time to be a dividend growth investor. As I have let the dividends roll into my account since taking myself off of the DRiP at my discount broker, I have had ever-increasing amounts of cash flow to invest to further compound the snowball of wealth.

I made a grand total of five purchases of dividend-paying equities during the quarter - down by one from the previous quarter - which I will detail further below. Each of these will, over time, contribute further to the financial fortress I am building.

CAD Dividends

Company	CAD Dividends ($)	Div Increase (%)
Toronto-Dominion Bank (TD)	53.60
RioCan Real Estate Investment Trust (OTCPK:RIOCF)	93.96
The Coca-Cola Company (KO)	68.07
Johnson & Johnson (JNJ)	75.15
BCE Inc. (BCE)	166.10
Canadian Imperial Bank of Commerce (CM)	15.96
Corby Spirit and Wine Ltd. (OTCPK:CBYDF)	50.60
Bank of Nova Scotia (BNS)	65.60
TELUS Corporation (TU)	36.75	3.96
Rogers Communications Inc. (RCI)	26.40
Fortis Inc. (FTS)	68.00
Canadian Utilities Ltd. (OTCPK:CDUAF)	78.66
Canadian National Railway Company (CNI)	6.83
Canadian Pacific Railway Limited (CP)	3.90	15.56
Hydro One Ltd. (OTCPK:HRNNF)	59.80
Chartwell Retirement Residences (OTC:CWSRF)	14.70
Metro, Inc. (OTCPK:MTRAF)	3.60
Brookfield Renewable Partners L.P. (BEP)	35.18

Click to enlarge

USD Dividends

Company	USD Dividends ($)
Waste Management Inc. (WM)	19.77
McDonald's Corporation (MCD)	18.03
Yum! Brands (YUM)	11.94
Yum China (YUMC)	3.32
PepsiCo Inc. (PEP)	7.89
Walmart Inc. (WMT)	6.63
Visa Inc. (V)	1.79

Click to enlarge

Dividend Summary

The third quarter has shown grand totals of $992.83 CAD and $69.37 USD. Tipping the scales at $992.83 in currency-neutral terms, I have once again hit a new milestone and am just shy of a nice rounded four-figure sum. As tends to be the case for us dividend growth investors (DGI), money invested early continues to pay off in increasing amounts over time. Given the nature of these equities, I am confident that this sum will continue to increase routinely on quarterly increments.

Standouts

Though one of my smallest positions and despite its low yield, CP's 15.56% increase is a welcome sight. The company has firmly planted a stake in the sand and intends to demonstrate to investors that it fully intends to reward shareholders with payments that will increase over time. The two previous increases in 2016 and 2017 amounted to 42.86% and 12.50%, respectively.

The only other increase this quarter came from TU at 3.96% and, while minor on its own, the company tends to increase twice per annum. The January increase clocked in at 2.54% and so the overall increase in payment this year has grown from $1.97 annually to $2.10 or 6.6% in aggregate.

Quarterly Buys/Sells

BNS: I rounded out my position by picking up another 20 shares at a total cost of $1,521.95. Based on the current quarterly dividend of $0.85 CAD, I am looking for this purchase to bring in $17.00 or $68.00 annually.

HRNNF: On weakness as a result of the company's shake-up in terms of CEO and Board, I decided to purchase another 60 shares for a total cost of $1,166.75. On the current quarterly dividend of $0.23 CAD, I expect these purchases to generate $13.80 quarterly or $55.20 annually.

BEP: The only net new addition to my portfolio recently, I picked up 105 shares in two tranches for a total outlay of $4,217.35. On the quarterly dividend of $0.49 USD, I estimate this should bring in approximately $67.16 quarterly or $268.65 annually in CAD based on figures taken from the September 28 and with the understanding that there will be fluctuations based on foreign exchange.

While I provided a more detailed look at my reasons for purchasing BEP back in August, I was ultimately looking to diversify my energy and utility holdings. I feel renewables will continue to be an increasing source of energy generation and I enjoy having the opportunity to get ahead of this trend while also earning a substantial dividend payment from the solid infrastructure that the Brookfield companies represent.

Quarterly Dividend Increase: In light of these four purchases across three positions, I have increased my annualized dividend income on a forward basis by $391.84 based on the blended yield of 5.67%. I should note that the dividends paid by BEP in the "CAD Dividends" chart represent only cash flow from the initial 55 shares I purchased as I purchase the final 50 after the ex-dividend date.

Though I strayed somewhat from my Five-Year Plan in making the BEP purchase, I feel it was a solid addition to the portfolio. I do intend for this to be the last new addition for the foreseeable future as I have other companies within my portfolio I would like to increase my position in.

Q4 2018 Stock Considerations

My theme for the moment is really to capitalize on market weakness wherever it comes about. The beauty of owning individual equities within a DGI portfolio is that I can sharpshoot opportunities rather than needing to wait for overall market declines as might be the case if I owned mutual funds or ETFs. In this way, I can bulk up on my solid companies as their prices pull back despite the fact that other companies may have elevated prices.

The Canadian side of my portfolio has continued to grow and will likely remain the overall emphasis for me given that is where I am domiciled. However, the top U.S. stock I have on my mind at the moment is PEP. The company is in an interesting position with Indra Nooyi stepping down after 12 years of service as CEO (though she did serve prior to that as CFO). The company has been well managed over time and I expect it to continue executing well on its vision. I believe foods and beverages of all varieties will continue to be consumed in the manner in which PEP offers them. As they continue to innovate and find opportunities to increase prices, I hope to be a shareholder (and to an increasing extent) for decades to come.

Cash Position

I remain committed to holding as much as 30% of my portfolio in cash if opportunities do not present. At the moment, I am hovering around the 17% mark which is probably reasonable at this point in time. I suspect that will creep up a bit if no obvious home runs materialize any time soon.

I still earn 2.5% from my high-interest savings account and while the cash may be idle, it is not altogether stagnating.

Conclusion

Adding nearly $400 in forward annualized dividend income feels great for a single quarter. I look forward to continue compounding that over time as I fuel my growing dividend snowball.

With one quarter left on the books, my portfolio stands in a healthy position to exceed all expectations I had at the start of the year.

Thank you for reading and I look forward to continue sharing this journey with you.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I am/we are long TD, RIOCF, KO, JNJ, BCE, CM, CBYDF, BNS, TU, RCI, FTS, CDUAF, CNI, CP, WM, MCD, YUM, YUMC, PEP, WMT, V, TSE:CSH.UN, MTRAF, BEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

All Canadian companies owned in CAD on Canadian exchanges.

Comments

[duolibster]

I love to read stories like yours.......keep up the good work! I started investing 5 years ago and I also own TD, TU and another one I hold is BIP........my next purchase will be ECL on a pull back and a utility and a railroad.

[Get Rich Brothers]

Hey duolibster,

Glad you enjoyed the article. I definitely love sharing with people like yourself to hear about what you are also buying and how you're thinking about your portfolio; it's actually the reason I take the time to write at all.

If you keep on the road and just keep accuulating, you'll hit your goals and that diligence will pay off in all areas of your life... not just in money.

Take care,
Ryan

[Profitcripper]

Just my two cents. You are going down a wonderful road of investing that majority of human-beings don’t have the guts nor the patience to learn how to manage their own money.

The only stock tips you should know, are the ones you have done your own due diligence on. Keep diversifying over different sectors, avoid the ones you don’t understand or don’t like at all. But keep a open-mind to them.

Have patience, be patient on learning new financial strategies. That includes credit card use into your daisy chain of financial instruments. Know your balancing points. Test your debt levels. You have a job, right; see how long it will take you to pay off a credit card you use in obtaining more stocks for future advantage. The money has not gone no nowhere.....It’s just that you are using today dollars to obtain more future dollars.

Watch your capital gains taxes every year, do less selling and more buying for dividends relocation to other instruments. Watch out on selling any investments that are over $10,000 threshold on the US stocks, capital gains will be close to $1000 for taxes. For Canada, I have no idea on that topic.

And you will be managing a portfolio in the big numbers at the rate you are going. $100,000-1,000,000 Remember not to panic in a down market which is your best friend, continue to be humble with your money, avoid big purchases unless it’s going to put equity or money in your pocket. A windfall is easy to manage once you get a hang in putting money in every securities every single month.

Manage your debt properly, avoid paying them off in a swift swoop. Their will be debts!!!- everything from medical surgery to new cars, it depends how you handle it without selling your stocks to pay them off, manage your dividends around all of it.

Avoid friends who do not understand financial strategy of this type, it’s a waste of time to convince them to manage this way. Give no one an idea of your net worth!!! It’s a waste of time!!!

Continue obtaining “pipelines”. That’s dividend-investing stocks that can help your income growth. Those could be your beat-down stocks you have been watching for a while and you know that they can keep their dividends rate. I Love those!!!

Every stock that you own, continue to observe their behavior during good times and bad times - Economics 101..... that’s the way you will learn what works for you or don’t work for you.

Last!!! Avoid a lover, spouse or partner who loves to spend money!!! It will bleed your financial strategy dry, probably kill it. If they can contribute without they knowing the details great. Happiness is here for you. God Bless.

[Get Rich Brothers]

Hey Profitcripper,

Thank you for all if that incredible wisdom. There is plenty in there to reflect on and I will do exactly that. I can tell you are speaking with experience behind you and I appreciate you passing it on to me. I will carry it with me and I am sure other readers will as well.

Kind regards,
Ryan

[1988investor]

Where is the 2.5 percent savings account?

[Get Rich Brothers]

I have it at Tangerine, B F.

I believe they currently have a deal for 2.75% for six months on new accounts at the moment (in addition to a signing bonus). Hit me with a private message if you have more questions and I'd be happy to discuss.

Take care,
Ryan

[TaiPan]

KO and JNJ are on the Canadian dividend list. Yet these are US companies, and not listed on a Canadian stock exchange, I believe. Please correct me if I am wrong.

Even if these stocks WERE listed on a Canadian exchange, they would not be considered "qualified dividends", i.e. would not be eligible for the tax breaks available to Canadian investors for Canadian--company dividends, I believe.

[ActivBoisson]

Fair to assume it is a simply mistyped. As far as "eligible for the breaks", what does this even mean? Stock's are never eligible for tax breaks, the accounts their held in is what matters.

If you put U.S. stocks in an RRSP(retirement account), then you don't pay U.S. withholding tax, if you put U.S. stocks in a taxable, or TFSA then you will pay withholding tax on dividends/distributions.

Basically what this means is you should put U.S. dividends stocks in RRSP, and U.S. non-dividend stocks in TFSA(you don't pay U.S. tax on capital gains as a Canadian ever), or in a taxable if TFSA is full. There is never 'enough' room when it comes to RRSP/TFSA, but there is enough room to be pretty well diversified outside of Canada and never pay U.S. taxes if that is the desire.

[Get Rich Brothers]

Hi TaiPan,

I hold these in CAD despite them paying in USD and ththe currency being converted. I have them in my Tax-Free Savings Account (TFSA) which at the time did not allow for U.S. currency holdings, though I still wanted to own these companies (even though that meant foregoing the 15% withholding tax with no way to reclaim it). I have added a disclosure in previous articles but, to your point, I need to make that clearer in articles going forward.

Thank you for bringing this back to my attention.

Ryan

[Get Rich Brothers]

Hi ActivBoisson,

I think TaiPan was referring to the dividend tax credit for eligible Canadian companies (which KO and JNJ wouldn't qualify for).

There are definitely many tax considerations to consider between TFSA, RRSP, and non-registered. When I started out, I had no where near the amount of income I would need to hit all the limits and really didn't need the shelter of a RRSP). As such, TFSA was really where I wanted to focus and which explains how I've structured things. When having to choose, from a philosophical perspective I like to pay now and be in line for zero taxes later as with the TFSA.

Thanks for adding your perspective.

Ryan

[dividendchamp]

Nice article. Check ENB should be right up your alley and pay a nice yield with no K1!!! They have been experiencing some-temporary weakness last several weeks. I hopped in at ~33. I will a year from now this price point will be long gone. 😀

[Get Rich Brothers]

Hey dividendchamp,

ENB is definitely on my radar. I do love the business model of charging for a service rather than dealing directly in a commodity.

Glad you enjoyed the article.

Ryan

[schizoidmantoo]

I am not familiar with the Canadian stocks in your portfolio for the most part. Your US portfolio, however seems to be a little overloaded in food, PEP, YUM, YUMC, MCD. Also, V seems like an odd choice given your investment strategy. It's yield is only 0.56% and it's dividend growth rate, while is looks pretty good, has been slowing. (10 year average growth was 30%, but over the last 3 years it has dropped to 18%.)

[Get Rich Brothers]

Hi schizoidmantoo,

V has a low dividend but is one of the best companies in the world in my view. To be honest, I feel my only mistake with it was waiting too damn long to get in. I kept waiting for a real pullback that never came. Low yield but everything else in a company I could really want.

Canada doesnt't have food service companies of the ilk that I have on my USD side and so I found my diversification in this manner. There are areas I feel Canadians need to go foreign (including U.S.) to get what they need.

I appreciate the insight.

Ryan

[schizoidmantoo]

One of my best performing stocks is FDX. It has a dividend yield of only 1.09%, but the payout ratio is only 16.72% and has a high dividend growth rate that I suspect will continue for quite some time. Compared to UPS with a higher yield, but only because it has a much higher payout ratio. UPS dividend growth rate is much slower as well. If UPS dropped their payout ratio to 16.72%, their dividend yield would drop to 0.84%. Since the author is young FDX would be a good option. If you need current income now, UPS may be the better choice.

[JDoe20]

Great advice! Too many younger jumping into higher yielding slow growers and think dripping will make you wealthy. Not so, as you point out.

Those big increases (and cap gains) from growth & income stocks over 20-30 years are what will make you wealthy. I also own fdx but just recently on the pullbacks.

[Get Rich Brothers]

Definitely a company on my radar. Over time as companies like AMZN grow (and just with the secular changes happenfing), these service companies will be like those who sold shovels and overalls during thr Klondike Gold Rush.

Thanks,
Ryan

[Get Rich Brothers]

Hi JDoe20,

I agree that DRIPing on its own isn't necessarily the answer. I believe there is room in a portfolio for both low yield/high growth and high yield/low growth companies. I've been working to achieve just such a healthy balance by taking Mr. Market's opportunities.

Thanks for taking the time to weigh in.

Ryan

[dunnhaupt]

Good solid portfolio. I would suggest you add the Canadian pipelines ENB and TRP which pay high and safe dividends. Remember they are not pulling the stuff out of the ground. They are just moving it which protects them from fluctuations in the oil and gas prices.

[Get Rich Brothers]

This has absolutely been on my mind, dunnhaupt. I have quite a few friends working on the pipelines and they seem to have plenty of work to keep them busy. Anecdotally, that is inded an encouraging sign.

Thank you for reading and offering the recommendation.

Ryan

[ludsjr]

Ah those lazy, entitled millennials earning dividends and increasing their net worth by doing absolutely nothing but intense research into profitable investments that will provide financial security for decades to come for themselves and their future generations. Darn millennials ;-)

[Get Rich Brothers]

Haha ludsjr,

I love it. I'm of the opinion that people of all generations have had options available to them. We all decide what to do with our time and energy each day when we wake up and look in the mirror.

I appreciate your humour.

Take care,
Ryan