A Market Crash Dividend Shopping Spree
- Mix equal parts compounding and bargain shopping, shake and serve chilled.
- SA Reader Balthazar-B comes up with a clever formula to help investors like me develop a market crash shopping list.
- A spreadsheet tool that adds yield, distance from the 52-week high, and historical dividend growth rate for each of my stocks. And the bigger the result, the better.
I posted a blog entry last week and one of SA's readers, Balthazar-B, made a very clever suggestion. Before I tell you, I have to give you some background.
Like many of you, my investment strategy is based almost purely on compounding. I own the highest quality businesses that I can find with the most reliable dividends, which I reinvest into shares of any company in my portfolio that seems like the best deal at the time. I don't pay too much attention to my portfolio's net worth - my only goal is to grow my portfolio dividend income at an exponential rate. And whenever I reinvest dividends, I would obviously much rather pay lower prices than higher prices because all things being equal, lower prices will make my dividend compounding grow the portfolio income that much quicker. And as anyone who knows me can attest, I am hardly known for my patience.
So, to make a long story short, I watched the market collapse last week with a sense of vast excitement and greed. So, many lovely, lovely companies to buy on sale! Ah, but which one? I enjoy collecting a good yield from a great company and enjoy it all the more when that company is trading at a steep discount. So that's what gave me the idea for a back-of-the-envelope formula to help me make my stock shopping list: calculate the distance the stock is trading from its 52-week high, add the yield, and presto! I take the result for each of the stocks in my portfolio and whichever result is the biggest is probably a stock I am going to consider closely when I reinvest my portfolio dividends this month.
Here's where Balthazar-B comes in. His (or her) suggestion was to basically a riff off the Chowder rule where you add a company's yield to the historical dividend growth rate, take the result and the higher that result, the better. It's a handy little rule, but if you are a bit of a piggy investor (like me) who enjoys buying stuff on the cheap, why not go ahead add in the discount the stock is trading at from its 52-week high to the Chowder result. The higher the result, the greedier you get.
So, that's what I did. I created a Google spreadsheet, input my ticker symbols for my whole portfolio, manually input the dividend information and historical dividend growth information I pulled off Seeking Alpha (always using the longest period of dividend growth info available). Then, I programmed the spreadsheet to pull stock price data offline and calculate the percentage distance from the current stock price to the stock's 52-week high. In the last column on my spreadsheet, I calculate what I'm calling my "Balthazar-B Number" (with conditional formatting to turn each cell an increasingly brilliant shade of green depending on the size of the Balthazar-B Number). Here is how it looks for my whole portfolio:
Now right off the bat, I see some problems. The dividend growth for a company like Citigroup (C) is probably artificially high since they're rebounding from severe dividend cuts during the financial crisis. Not only that, some companies pay dividends in currencies other than US dollars which can obfuscate the true growth rate. What about special one-time dividends? Or how about companies like post-merger Linde PLC (LIN) that don't have a long enough track record of dividends to produce a long-term dividend growth rate. As with any formula, there's always a question of using some basic judgment about the quality of your inputs, and it is patently obvious that past dividend growth guarantees you nothing when it comes to future dividend growth. The Balthazar-B Rule is a place to maybe get a start for putting together a shopping list when the stock market has seen the carpet pulled out from under it.
Could you use a spreadsheet like that? Go ahead and make a copy for yourself and modify the spreadsheet to suit your own purposes (and remember to check that data for yourself!)
I like to disclose not only what I own but also how much of it I own and what the portfolio performance has been (in this case, since 2016, which is how far back PortfolioVisualizer goes based on my holdings of Royal Bank of Canada (RY)). I think that sort of transparency is very good practice if you're someone like me writing about markets, investing and finance. Plus, when I publish my portfolio, it makes me feel like one of those unsettlingly enthusiastic entomologists showing off a collection of preserved bugs and creepy crawlies. Don't you love those occasional shrieks of "eeeeeewwww!" from cringing members of the audience when they see my positions in Altria (MO) and Philip Morris (PM)?
How about the returns? Well, I don't mind telling you they were way higher than last weekend.
And since this is Seeking Alpha and Seeking Alpha is what we do around here, the Alpha on my portfolio clocks in at 3.14% per year against the Vanguard S&P 500 ETF (VOO) over the last 4 years. And by the way, that should hardly come as a huge surprise to anyone. The S&P 500 is cap weighted, after all, which means they purposefully buy more of a company's stock when prices are high and sell more of the stock when prices are low. That's just plain stupid! The S&P 500? That's stupid, too!
It certainly doesn't take long to figure out why I prefer to pick profitable and well-managed companies, buy the stock low (and the lower the better) and then ideally not sell. And now with my handy dandy spreadsheet and the Balthazar-B rule, I can do that even more systematically when I reinvest dividends this week. Thanks Balthazar-B!
This article was written by
Analyst’s Disclosure: I am/we are long RY. 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.
I am long every position shown in the attached spreadsheets and have no other financial positions besides those. I am not an investment advisor and nothing contained in this article or the attached spreadsheet tool can be relied on for accuracy, or as investment advice, or basically for anything at all besides entertainment value at best (and a waste of your valuable time at worst). Check your own data!
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