Our Mid-Year Dividend Growth Portfolio Updates

Summary

• I manage the retirement portfolios for my wife and me.
• While there is some stock selection combined with ETFs, the consistent approach is very passive with no moves other than adding to existing holdings.
• I ignore the news and all market prognosticators. I will stick to the notion that they do not know the future.
• The portfolios continue to perform very well, taking full advantage of the rising market trends in Canada and the US.

After a lacklustre 2018, thanks to the December Santa Claus rally that turned upside down (Santa was very grumpy and stingy), the markets have rebounded in 2019 with a very robust rally. So much for sell in May and go away, as well.

Canadian stocks have attempted to keep pace with the US markets for the first time in a long time. We'd have to go back to 2016 to find a year when the Canadian Broad market indices (EWC) outperformed the US broad market (IVV). Thanks to portfoliovisualizer.com, here's the US market (IVV) vs. the Canadian market represented by the iShares Canadian Dollar ETF (XIC). The period is for 2019 to end of June 2019.

The Canadian dollar is up vs. the US dollar in 2019.

Portfolio 1 is IVV - US

Portfolio 2 is XIC - Canada

What's up with bonds?

Well up would be the operative word. Bonds have delivered a nice boost to the portfolios. While stocks and bonds can go down together, they can certainly go up together as well.

We hold three Canadian bond ETFs. Yes, I keep it simple by using Canadian bonds to manage the risks. There can certainly be many benefits with the additional diversification added by the US and international bonds. I'd have to admit to having a REIT shortage (portfolio hole) as well. Perhaps I should re-read my own articles such as The More 'Complete' U.S. And International Stock And REIT Growth Portfolio.

The three bond holdings are:

• 1-5 year corporate bond ladder - ETF ticker: CBO
• Broad based bond universe - ETF ticker: VAB
• Hybrid corporate bond ETF (investment-grade, higher-yield) - ticker: XHB

For the six months period:

• CBO offered total returns of 4.9%
• VAB offered total returns of 6.3%
• XHB offered total returns of 7.4%

The bond holdings which are largely VAB and XHB have contributed to portfolio gains in 2019. Of course, the chatter of a rising rate environment is over with rate cuts and holds dominating the conversations and messaging from the Fed and Bank of Canada. Yes, it appears most everyone got most everything wrong about the bond markets over the last several years. No one knows where the stock or bond markets or gold or oil will go. To guess is futile. To guess in the bond market would have made one "shorten up" and then in turn lessening the contribution of the bond component.

My Canadian Wide Moat 7 Dividend Portfolio

My readers will know that in my personal retirement portfolio, I hold a basket of just seven wide-moat/oligopoly Canadian stocks. For some background on that very concentrated (and some would say risky) approach, please have a read of The Dividend Growth Wide Moat 7 From Canada.

The oligopoly banking sector is "covered" by the Big 3 of Toronto-Dominion Bank (TD), Royal Bank of Canada (RBC) and Scotiabank (BNS).

The telco space is dominated by the Big 3: Bell Canada (BCE), Telus (TU) and Rogers (RCI). I hold Bell and Telus.

Canada's two big pipelines are Enbridge (ENB) and TransCanada Pipelines (TRP).

That basket of seven continues to outperform the benchmark Vanguard Canadian High Dividend Yield ETF. Here's the Wide Moat 7 vs. VDY for 2019 to end of June 2019.

The Wide Moat 7 is Portfolio 1

We see slightly better total returns with a lesser drawdown, though certainly it has been a smooth ride in 2019. If we look at the minor correction in 2018, we see that the Wide Moat 7 held up better than the benchmark.

But more important than the total return, or even the drawdown, is the dividend income received from those seven big dividend payers. I am in a transition stage as I left behind my pay cheque just over one year ago. At times, I will need those dividends for spending. You can read more on my one year look back, and this new life-work stage with Cut The Crap Investing - One Year Later.

The dividend growth has continued for all of the seven holdings. Here's a look back from 2014 to end of June 2019. The following is calculated with dividend reinvestment.

Portfolio 1 is the Wide Moat 7

Portfolio 2 is VDY

There is greater income and greater dividend growth with the Wide Moat 7. And in 2016 when VDY experienced a dividend reduction, the Wide Moat 7 offered some solid dividend growth. The concentrated portfolio is offering lesser drawdowns and greater dividend stability.

I do not expose my wife's portfolios to the concentration risk of the Wide Moat 7; she holds VDY and TSX 60, ticker XIU, in her personal and spousal accounts.

Total Returns For Our US Holdings

For our US holdings, I skimmed 15 Dividend Achievers (VIG) back in early 2015. I bought 'em without further evaluation, and I continue to hold 'em without any evaluation or guesswork. We'll trust the original portfolio construction, and we'll trust the management of those 15 companies.

Here are those 15 Achievers vs. the benchmark VIG from 2015 through to the end of June 2019. The Achievers are not rebalanced from an equal weight start. We let the winners run.

We see that the 15 companies essentially track the total index. It is mostly in a period of outperformance, but every now and then, a few of the holdings get hit hard, and being a concentrated portfolio, it can revert back to the index line. The strategy or goal is to have a portfolio that will deliver greater performance (less drawdown) in a major market correction. We have not seen any real test for the portfolio and US markets over the last five years.

In the first half of 2019, the Achievers 15 is greatly underperforming VIG at a rate of 12.8% vs. 18.6%. Walgreens (WBA) and CVS (CVS) continue to put pressure on the portfolio. Here are the returns of individual assets for 2019 to the end of June.

We see former loser Qualcomm (QCOM) now enjoying some better days. I need our last two losers of WBA and CVS join the party. I am sticking with those two even though CVS is in a dividend hold state. Walgreens has just increased its dividend for the 44th year of such wonderful behaviour, and perhaps that company is on its way to Dividend King status. CVS and Qualcomm have been removed from VIG. Remember this is a smart beta fund.

On the income front, the Achiever 15 (Portfolio 1) has offered greater income and dividend growth. Though once again, this is a total return approach and shares will also be harvested when the time comes.

We also have three picks by way of Apple (AAPL), BlackRock (BLK) and Berkshire Hathaway (BRK.A) (BRK.B). Berkshire is a generous position in my wife's spousal retirement account.

Apple has had a good 2019 delivering 26.5%, BlackRock at 21.3%, while Berkshire struggles with a 4.4% return. I hold Apple and BlackRock in my main RRSP retirement account.

The total returns

My personal retirement account has delivered 11.8% for the year to end of June and 13.2% to date. Once again there are some bonds in the mix that will lessen the overall returns, but I am certainly in that Balanced Growth Sweet Spot. These are time-weighted returns; I have shaved a few .00%'s with the cashing in of a few dividends. And given the robust rally, I certainly could have taken more of the gift that the markets offered.

And for my personal account, the big Canadian Dividends are the main focus. Though at some point, I am prepared to also harvest shares from the Wide Moat 7.

For my wife's combined retirement accounts, to end of June, the returns are 8.3%, and to date 10%. Her accounts are being weighed down in 2019 by that Berkshire holding and by Walgreens. She also has a more generous bond allocation. Sizeable moves in either direction can occur of course with more concentrated portfolios. No worries, the performance of her accounts offer a generous beat of blended benchmarks over the last three, four and five years and beyond. Many of the growth Achievers are concentrated in her main retirement account. Have a read of My Wife's Freaky Concentrated Market-Beating US Dividend Growth Portfolio.

It's been a very boring and solid year. How was your first half of 2019?

Author's note: Thanks for reading. Please always know and invest within your risk tolerance level. Always know all tax implications and consequences. If you liked this article, please hit that "Like" button. Hit "Follow" to receive notices of future articles.

Analyst’s Disclosure: I am/we are long BNS, TD, RY, AAPL, BCE, TU, ENB, TRP, CVS, WBA, MSFT, MMM, CL, JNJ, QCOM, MDT, BRK.B, ABT, BLK, WMT, UTX, LOW, NKE, PEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[Dale Roberts]

And here's our 2019 personal portfolio returns updates article. Just published.

seekingalpha.com/...

Please drop by, comments are more than welcome of course :) It's been a robust year.

Dale

[Dale Roberts]

And more on asset returns for 2019 from Cut The Crap Investing. This is the first post on my new host and new loo - I had to purchase a new template for this host.

Please have a look, read and share …

cutthecrapinvesting.com/...

Onwards and upwards on CTCI and on Seeking Alpha, my two main areas of focus moving forward.

Dale

[SCJN]

Dale- take a look at PRWCx June YTD

[Dale Roberts]

@SCJN thanks.

Dale

[Tsettles]

Love the Canadian div stocks and your coverage of them! I really don't understand why more SA investors aren't looking and buying them. The larger Canadian companies have moats that USA companies only dream of. I will be adding some more Canadian div stocks in the next couple weeks.

[Dale Roberts]

Thanks @Tsettles yes Canada is unique in the creation of oligopoly situations. Seems quite simple and obvious.

Dale

[Tsettles]

Dale - do you like the Invesco SPHD High Yield Low Volatility ETF ?

[Dale Roberts]

@Tsettles I don't know that fund intimately but I've read some good things on that, and the low volatility factor is known to produce better risk adjusted returns. You can likely check Ploutos and Kurtus Hemmerling for factor combination styles.

Dale

[2Reb]

Do age and experience improve our abilities as investors? I very much doubt it. They may improve our odds of getting lucky, however. Very important to stay in the game as long as possible.

[Dale Roberts]

Hi @2Reb I think age and experience can be the greatest teachers. Of course we have to learn to make if a great experience. Many get scared off when they take on too much risk and get hurt.

Done properly we can certainly become incredible, patient investors. But it takes a while to learn how to ignore most everything :)

Also, there's little luck with investing IMHO. At the core is the ownership of enough great companies, an approach that works if the economies keep growing.

Dale

[Guy at Work reading SA]

Thanks Dale, really enjoy reading about other peoples portfolios and how to construct them as I am only 24 and have been investing only since I finished (momentarily) university. Wanting to wait to buy other parts of your 7 that I havent already bought, mostly the banks. My biggest winner is qcom and thankfully my biggest position. I have 2 concerns with it, the first being the continuous lawsuits from clients and regulatory bodies around the world. I dont see these ever stopping as everyone wants what they cant have, ip, that will change how the world operates in the foreseeable future. Rogue or politically motivated judges/countries can make it very difficult for qcom to operate. Second being that like you, I am looking for dividend growth and I believe this is the first time qcom hasn't raised its dividend in at least a decade. I try to look for companies that have a moat/monopoly and I'm not sure if qcom can maintain theirs for the next 10 or 20 years.

[Dale Roberts]

Hey @Guy at Work reading SA I think we can ignore all of the economic and political guesswork. We have no control over that stuff, and that's not what will drive things over the longer term. Politicians and policies come and go.

For tech, it's speculative and is an area of incredible creative destruction, we need to own enough of 'em perhaps. Like you I have no idea what will happen with Qualcomm. Perhaps it's prudent to hold a fund such as the QQQs and build around it, or buy enough of 'em if you can.

In the div space there's MSFT, TXN, AAPL, CSCO and more. And there's the rest of those FAANGs.

Dale

[Dividend Latitude]

@Dale Roberts

QQQ is not a bad recommendation, but my tech exposure going forward will be FDN. I will start buying at the next correction.

[Dale Roberts]

@Dividend Latitude thanks for that.

Dale

[Jeff Milligan]

Dale, I, too, am Canadian. I hold all the Canadian stocks you do but my portfolio is more diverse. You may wish to consider adding CN, Franco Nevada and Brookfield Asset Management.

[Dale Roberts]

Thanks @Jeff Milligan I like CN and BAM as per previous articles. I am not a fan of any energy producers, gold, or materials - for me. Jusf oligopolyish…

Dale

[Henry Miles]

Dale

To answer your question, year-to-date total return 19.49%, one year total return 11.95% driven by: a) a heavy rotation to into cash-equivalents last year, b) a rotation back to fully invested in equities in January, and c) alpha performance in various areas I have written about including renewable energy, precious metals, and freshwater management.

Hank

[2Reb]

Dale,

You are where I will be in about 8 years, namely having no resources to tap for additional spending other than my dividends. So I follow your contributions with considerable interest.

What would I do in your situation?

I very much doubt that there is such a thing as "a wide moat" corporation. Maybe they once existed; but I don't think they do anymore. Also, 15 dividend payers, no matter how high in quality, seem insufficient to me. Ideally, I would like to see you expand the number of dividend payers you hold. This will be tough to do, since you are already relying upon their dividends for your living expenses.

So your principal area of focus, in my opinion, should not be on the structure of your investments, but upon the trajectory of your age vs. the trajectory of your spending habits. How much money will you need during the next economic downturn, and for how long?

Don't try to get cute with the yield curve. Just put your money in one-month treasury bills until you hit the target you are looking for.

[Dale Roberts]

Thanks @2Reb my research shows that 15 of high quality should be enough. In total we hold 25 companies and my wife's ETFs.

I prefer those core bond funds for the most part, bonds as risk managers.

Dale

[Geo168]

@2Reb

May I ask what do you generally consider to be a good number of dividend pays to hold?

Thank you,
Geo168

[2Reb]

Geo168,

Between 80 and 100, which is what I think most balanced mutual funds would hold. I am very interested in the dividend performance of Nadel's DG50 portfolio. Maybe I can get away with that. Index funds are best for people who have little time or interest in thinking about stocks, and are terrified at the idea of varying from the market by only a few percentage points. Holding fewer than 50 stocks, on the other hand, seems to me to require a degree of self-confidence I have never been able to muster.

[Dividend Latitude]

I like your Canadian bank stock choices. I have two of them myself and plan to never sell them.

[wdchil]

Hi Dale,

Your stock portfolio selection looks very solid and has similarities to mine.

According to M* - for the portion of the estate that I manage - the total return YTD was 16.4%. I am currently 71% equities (stocks, not preferred), 13% preferred stocks, and the balance bonds & cash. Of the stock portion, two thirds are individual stock holdings and one third is in one of four actively managed Vanguard funds. Very little is in index funds or index ETFs.

My top 5 stocks are MSFT, BRK, JNJ, Apple, and T, in that order. MSFT is only 3.9 percent of the portfolio total despite being the largest, so you can see that I am extremely diversified. However, I have been investing for decades and feel that I have invested a lot of time in understanding these companies over the years.

When I trim a stock position, I have been putting the money mostly in preferred because I am trying to push the total income up. I feel good about the next 3-5 years but the next 1-2 years is a question. M* rates my stocks at 98% of FMV.

WD

[Dale Roberts]

Thanks @wdchil nice returns ytd. Yes sometimes we can be comfortable with a few choice that are 'simple' and that we know very well. I always appreciate you stopping by.

Dale

[HVAC52]

If you were to use an ETF only approach, what would be your (US) fund choices, as well as percentages invested in each? Choices are assuming one was able to purchase during a period of fair value, not at current valuations.

I have always been an active investor, but at some point down the road I am looking to make things a little less time consuming for myself. I'm just curious if your choices are similar to my own,....thanks!

[Dale Roberts]

Hi @HVAC52 if I were to go ETFs it would be a blend of VIG and NOBL in US dollar accounts.

Dale

[PACKER man]

Dale, superb results and thanks for posting! Like you, I too skimmed the top Aristocrats and am very very happy with the results; thanks for leading the way...these along with AAPL make me SWAN!!

[Dale Roberts]

@PACKER man Ha, thanks as always. How many Aristocrats do you hold?

Dale

[BHLH865]

Good job Dale! The Achiever 15 portfolio, question: Is this portfolio going to remain these 15 companies or will you add as time moves forward or maybe switch one company for another? I personally own 4 of the 15--WBA/CVS/JNJ/QCOM--would love to own the others as well!

Personally, I've been adding to my "beaten down stocks" lately, not wanting to add any more companies for the time being. I also own the Canadian 5 banks...a while back when I was looking towards the banking sector I became interested in the Big 5, couldn't decide because they were all a little different. I was allocating, at the time 10k, instead of investing in two or three I bought all 5. It worked out well over the years.

[Dale Roberts]

Hi @BHLH865 I don't anticipate adding any more. We'll let this group ride :)

Dale

[as10675]

@Dale Roberts

I always enjoy seeing article on peoples real portfolios.

I used to own ENB so I thought that I would look it up to see how it has been doing.

$10K investment on 12/31/2013 with dividends reinvested:

ENB yield 6.05% which for most part this is the draw toward the stock.
Total compounded dividends $2,258
Growth plus dividends $10,458
Profit $458
Average annual ROR 0.8%
This data to me validates my decision to sell ENB.

I own OKE and bought OKE for my girl friend this past week.
OKE yield 4.58%, still a very good yield.
Total compounded dividends $2,978 beat ENB dividends at lower yield ratio.
Growth plus dividends $17,277
Profit $7,277 this is substantial to me over ENB profit. $7,277/$458 = 15.9 times more purchasing power over ENB for just this short time frame.
Average annual ROR 10.4%

OKE beat ENB on dividends and profit (retiree purchasing power).

SPY
Total compounded dividends $1,209.
Growth plus dividends $17,907
Profit $7,907
Average annual ROR 11.1%
Beat both ENB and OKE in retiree purchasing power.

Also previously owned CL, MDT, UTX, BCE, RCI and MMM.

Keep the articles coming.

[Dale Roberts]

Thanks @as10675 for the insight on those holdings and comparison. You left those other stocks behind?

Dale

[as10675]

@Dale Roberts
"You left those other stocks behind?"

Yes, for the market conditions we have had I would look first to performance to peer group stocks and then against the index.

Even though retired for about 5 years now I prefer some growth with the dividend or if little growth, then I look to different investment.

For example same 12/31/2013 start date with dividends reinvested.

RCI
Growth+ dividends $14,412
Average annual ROR 6.8%

BCE
Growth+ dividends $17,025
Average annual ROR 10.1%

SPY Index
Growth+ dividends $17,907
Average annual ROR 11.1%

TMUS
Growth+ dividends $23,618 Purchasing Power.
Average annual ROR 16.8%

Same reasons why I don't own either T or VZ right now.

T
Growth+ dividends $12.697
Average annual ROR 4.4%

VZ
Growth+ dividends $14,770
Average annual ROR 7.3%

[dunnhaupt]

Thanks, Dale. I really like your 'wide moat seven'. Happy to learn they keep outperforming Vanguard because I also own all seven.

[Dale Roberts]

Thanks @dunnhaupt

Dale

[Honda_guy]

Very nice Dale... congratulations. It's hard to filter out all the noise and stick with your own analysis. Thanks for sharing the details with your readers. Do you have any precious metal holdings?

[Dale Roberts]

Thanks @Honda_guy no metals, the Canadian portfolio is wide moat no cyclicals or gold or materials or …

Dale

[yawkey5]

Looks like I well oiled machine. Congrats!

[Dale Roberts]

Thanks @yawkey5 while it's has some 'guess work' with stock selection, it is a passive approach and very easy to manage. It's easy when you don't look or guess on execution.