Sunday, December 30, 2018

Goals, Metrics and Mistakes in 2018

In December 2017, when I set my aggressive goal to increase my forward dividend income by $3000 while achieving a dollar-weighted average organic dividend growth rate of at least 5%, I knew obtaining both facets would be a challenge. With plans to travel on December 31st, and no will to conduct another trade (19 this year is far more than I had planned on), I'm proud to share my final results: forward dividend income added was $3076 and dollar-weighted average organic dividend growth rate was 6.16%. As I approach a milestone amount of forward dividend income, I decided to slightly alter my goal  for 2019:

Increase forward dividend income by $3300 while achieving a dollar-weighted average organic dividend growth rate of at least 5.5%.

Since I've met my goals for the past couple years, I decided to make things harder in 2019. A 10% increase to both the forward income and growth rate seemed like enough to up the ante for the coming year.

Although I haven't been consistent with posting in 2018, I still spend a fair amount of time thinking about my investment process, searching for attractively priced stocks, trying to find ways to limit my negative behavioural biases,  assessing my results, and contemplating why I feel the need to generate ever increasing amounts of dividend income. Regarding the latter issue, sadly, I can't report any decent answers, which bothers me. As much as I'd like to say that posts will be more consistent and frequent next year, that probably won't be the case. Blogging has definitely fallen down my priority list as my two kids warrant much of my focus and attention when I'm home. That said, I was successful at writing about all 19 transactions in 2018 in my Transaction Journal, a small accomplishment in which I take some pride. 

Since I had a little down time today while the kids and wife were napping, I calculated some portfolio metrics which I thought would be fun to share. If you're not quite as nerdy as I am, feel free to skip over the below bullet points.
- My internal rate of return on my portfolio in 2018 was 3.6%, which beats my weighted benchmark return of -6.9% (36% US S&P Dividend ETF SDY + 64% Canadian Dividend Aristrocrat ETF CDZ). Most of the out-performance on the Canadian side can be attributed to Enercare and Enbridge Income Fund being acquired. Microsoft and McDonalds were very strong performers for my US holdings.
- My portfolio went up by 10.1% in 2018, about half my 2017 increase of 20.0%. Granted the last couple months of 2018 were a much more volatile and difficult period for the North American markets.
- The average dividend yield on my portfolio was 4.2% in 2018, slightly higher than 4.0% in 2017, and 4.1% in 2016. 
- The amount of cash I have in my portfolio at year end sits at 2.7%, identical to the 2017 figure, and much higher than the 0.9% figure from year end 2016. 
- The 38 stocks in my portfolio (a total unchanged since year end 2017) raised dividends 47 times in 2018. Realty income raised their dividend 5 times during 2018, while H&R REIT, Aecon, Rogers Communication, Keg Revenue Royalty, RioCan, and Life Storage didn't raise their dividend at all. 
- The Keg Revenue Royalty and Granite REIT both had special distributions during 2018. This is my first year ever receiving two special distributions. 

Two of the three mistakes I high-lighted in last year's entry, letting performance metrics drive behaviour and committing numerous behavioural investing errors, continued to be sore spots for me in 2018. Instead of boring you with the details, I'll give one example to show how I recently made those two mistakes simultaneously.
- In early December, when I knew how much I needed to reach my forward revenue goal for the year, I pre-calculated the impact of adding  small position in Alaris (a high yield, low dividend growth) on my dollar-weighted average organic dividend growth rate before pulling the trigger. After assuring myself that I'd still reach both goals, I went ahead and added back my position in Alaris for the umpteenth time. I shouldn't be as comfortable as I am with Alaris, but I'm in love with the management team whose goal to create a steadily growing, business cycle independent, income stream mirrors my own. Feeling some emotional connection to a stock is completely irrational and likely won't end well for me.

The other investment mistake I'd add to a long list I've committed is sticking to a plan when the environment is changing. I've long had an idea of which stocks I wanted to hold in my three accounts and continue to make changes to my portfolio to achieve the desired results. That said, when the market slumped the last couple months, I ignored some very attractively priced stocks and just kept making moves that were part of my long-term plan. There's probably a bigger issue at play here regarding my lack of flexibility and not trying to maximize my total portfolio return, which would put me in a better position regarding financial independence. That said, my results in 2018 were better than my benchmark, achieved my goals, and put me a couple steps closer to financial independence.

Now that I've over-analyzed my 2018 goals, performance metrics and mistakes, I look forward to reading about how everyone else did last year. Here's wishing you a happy, healthy and prosperous 2019!

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