As I outlined in this article, the Canadian markets recently hit a new high. And US markets continue to have a very robust 2019 after that lackluster 2018.
Even US stocks are flirting with all-time highs, again. From Seeking Alpha here's a price chart for the S&P 500 with 5 year time horizon.
And certainly our personal portfolios have gone a long for the nice ride. As they say, a rising tide lifts all boats. Well your boat will go along for the ride if you own the market or own enough stocks that help you replicate (or even best) an index that is performing well.
As my readers will know, in early 2015 I skimmed 15 of the largest cap Dividend Achievers found in Vanguard's (VIG) named the Dividend Appreciation Fund. Here's Buying Dividend Growth Stocks Without Looking. And certainly I did not do any further evaluation or value judgement, but it takes a company with high quality to make it into that index and fund. Dividend Achievers require a 10-year history of dividend increases and the index methodology also applies a few proprietary dividend health screens.
The 15 companies that I added are 3M (NYSE:MMM), Pepsi (NASDAQ:PEP), CVS Health Corporation (NYSE:CVS), Wal-Mart (NYSE:WMT), Johnson & Johnson (NYSE:JNJ), Qualcomm (NASDAQ:QCOM), United Technologies (NYSE:UTX), Lowe's (NYSE:LOW), Walgreens Boots Alliance (NASDAQ:WBA), Medtronic (NYSE:MDT), Nike (NYSE:NKE), Abbott Labs (NYSE:ABT), Colgate-Palmolive (NYSE:CL), Texas Instruments (NASDAQ:TXN) and Microsoft (NASDAQ:MSFT).
I have continued to hold and add upon occasion. I've only added to the losers, while I let the winners run. Staying true to the theme I have not judged any company and in fact I even threw the index methodology out the window. A few of the names are no longer in VIG, and a name or two have been in and out. I have not added any new names.
And there certainly have been a few substantial changes and additions to the index and VIG fund. There have been some big changes at 'the top' of that fund with the more recent additions of Visa (V) and Comcast Corporation (CMCSA). Those are wonderful companies and I'd be happy to own them. An investor who follows an index skimming strategy certainly might pick up any new names that are added or creep into to the top 15 or 20 of an index.
Checking in on the 15 Dividend Achievers
Here's the 15 Achievers as Portfolio 1 vs VIG with no rebalancing. Dividends would be reinvested into each company. That is, MSFT dividend is reinvested in MSFT. The chart is courtesy of portfoliovisualizer.com, and the period is January of 2015 to end of August 2019.
As we can see the 15 largest cap Achievers from 2015 essentially track the index fund. It is more often in a stance of outperformance, but to August 2019 we can call it a draw.
Here's the annual returns history. It's that underperformance in 2019 to date that has brought things back into a stalemate.
And certainly without any rebalancing the portfolio composition will drift 'out of whack'. Here's the returns history for the 15 holdings.
And the contribution to the returns based on that hypothetical $10,000 starting amount split evenly between the 15 holdings. In this scenario each company would begin with $667.
Without any rebalancing we see some holdings that are twice and almost three times the size of some of the losers or weaker performers. I have no problem with those imbalances. Check in with popular Seeking Alpha reader and writer BuyandHold2012 and he'll tell you that his impressive portfolio gains have been driven by just a handful of holdings. He has never sold a single share. The portfolio will drift into incredible proportions over an investment lifetime. He rides his stocks up and into the ground.
Our portfolios have not drifted as much as the portfoliovisualizer numbers will show. I've added to the losers along the way. That has mostly worked out. I'm just waiting for CVS and Walgreens to kick into gear. Even loser QCOM moved into the green and is starting to contribute.
Our largest holding is now Abbott Labs as that practice of adding to the stocks that were down because they were down worked out quite well with ABT.
Here's a price chart for ABT from TD WebBroker. New shares were accumulated in 2015 and 2016.
And that strategy has certainly not worked out yet for my pharma retailers CVS and Walgreens.
Though recently, both of those companies are starting to receive some market support and revenues and earnings continue to move in the right direction. I'm sticking with those companies, or more importantly, I'm sticking with the original portfolio strategy of buy and hold and add.
Here's the returns breakdown for the 15 holdings year to date to August of 2019.
That is some very strong performance across the board, for the most part. It's been a good year and certainly we should 'celebrate' and feel good. This is why we investor for those periods when the markets do well and our portfolios do well. Though we should always be prepared for those corrections. They can arrive at any time.
The strong performance of the US holdings have allowed my wife's collective accounts to have a return just about 12% for year to date. She also holds Vanguard's VDY, the TSX 60 XIU and a Canadian bond component. With respect to asset allocation her accounts sit in that Balanced Growth Sweet Spot.
We'll get to my accounts next.
Checking in on the Canadian Wide Moat 7
For my personal account I hold 7 big Canadian oligopoly or wide moat companies. Those companies are Bell Canada (NYSE:BCE), Telus (NYSE:TU), TransCanada (NYSE:TRP) Enbridge (NYSE:ENB), Royal Bank of Canada (NYSE:RY), Toronto-Dominion Bank (NYSE:TD) and Scotiabank (NYSE:BNS). I hold them in Canadian dollars and on a Canadian exchange. All companies are also available with US listings. All 7 companies are all top holdings of that Vanguard High Yield ETF.
Once again, while I hold this concentrated portfolio and accept the risks, my wife is invested in that VDY fund for her Canadian stock allocation.
Here's a look at the Wide Moat 7 as Portfolio 1 vs Vanguard VDY from January of 2015 - almost a 5-year period.
While I own that basket for the potential safety of the big and growing dividends, I am more than happy to see that accidental total return outperformance. Given my new life work stage I'll need all of the income I can get and that will include some share harvesting.
And speaking of those dividends, here's the income of the Wide Moat 7 vs VDY, with dividend reinvestment.
The income is more generous, grows at a faster rate and did not experience the dividend reduction into 2016 that was experienced by VDY.
Even without the dividend reinvestment (what you'll experience if you're spending those dividends in retirement) the dividend growth is in that 8% to 9% area. Those are 'some nice raises' for a retiree or one who is semi-retired.
Here's the performance of the individual assets for the period. The generous returns are across the board except for Enbridge. And that's fine. Those big and juicy dividends continue to arrive and are projected to grow at 10% annual - that will take the market pricing out of the equation. But certainly I'd like to see come capital appreciation. I am in a positive position with Enbridge as I have held the company for well over 10 years.
What about 2019?
The Wide Moat 7 continues to outperform. The total return with dividend reinvestment would have been 15.5% vs 12.9% for VDY.
And those big juicy dividend payments continue to grow and accumulate in the portfolio. 4 of the companies have delivered their annual increase, while BNS and Royal and Telus are on a 2-increases a year plan.
The returns in my portfolio have been quite solid thanks to new all-time highs for the Canadian market. My year to date returns are over 15%. That would best a reasonable balanced growth asset allocation benchmark such as Vanguard's One Ticket - VGRO.
And admittedly, while I hold US stocks, I suffer from a Canadian home bias. You can call that a mistake if you like, I won't argue with you. I may try and fix that moving forward, though we are somewhat covered by my wife's portfolios that hold more US equities compared to Canadian.
It's OK to be happy about your returns.
Once again, that's why we invest to experience these nice gains. But it's also an opportunity to rebalance and adjust the risk level of the portfolio. Always ensure that you are investing within your risk tolerance level. If you're a retiree you might trim a little of those stock price gains - don't cheat yourself. Why not take some of that stock market gift? That's all part of a dynamic spending plan for a retiree who self directs their own portfolio assets.
Make some hay while the sun shines.
Author's note: Thanks for reading. Please always know and invest within your risk tolerance level. Always know all tax implications and consequences. Don't invest like me, this article is not a recommendation. As per the Seeking Alpha mantra, Read. Decide. Invest. If you liked this article, please hit that "Like" button. Hit "Follow" to receive notices of future articles.
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, TXN. 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.
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.