Monday, March 23, 2020

Coronavirus - This Too Shall Pass?

I started to invest in stocks in the summer of 2001. It's easy for me to remember as I was working in a Chartered Accountant firm during my last coop term at University of Ottawa. Although the technology bubble had burst a year earlier, that didn't stop me from confidently and stuborronly buying Nortel and other former high-flying market favourites. I made LOTS of mistakes during my early years, and finally started to buy into some solid banks, telecommunications companies and REITs heading into 2008. For those of you too young to remember, 2008 was the start of the great recession, during which the TSX lost 35% of its value over the course of the year.

How did I handle that difficult time? After making five buys during 2007, I had no transactions at all during 2008, and then slowly dipped my feet back in the water with three buys during 2009 (the first didn't come until July). As much as it pains me to admit it, I literally amassed unopened brokerage statements each month, and rarely had the courage to look at my account online during 2008. It was simply too painful to see all that red, so I avoided even thinking about my investment holdings.

At this point, during 2020, the TSX is down just over 30% from its starting value. How am I handling the market turmoil this time around? It's still painful to open my account online and see all that red, even if there's some black and green helping to balance it now that I've been investing for almost 20 years. The consistent, material trickle of dividends hitting my portfolio also helps sooth some of the pain from my investment holdings balance being so much less than at the start of the year. Plus, I've kept up with my plan of making two buys a month (even upped it to three so far in March), and that feels good. Don't get me wrong, I fully anticipate some of my holdings will have to cut and/or pause their distributions, but I'm fine with that given the negative impact the coronavirus is having globally.

Despite the massive uncertainty that's prevalent in the world, the anxiety in my stomach from reading negative articles and posts, and the scary images on the news, I'm trying my best to keep calm, and stick to my plan. One of the first days that the markets plunged, a favourite blogger of mine, Dividend Growth Investor tweeted something to the effect of "Today your future retirement income just went on sale" (sorry, I butchered that...bad memory on my part). I related to that tweet since I have quite a bit of optimism in the world economy.

Some would say that we've never seen anything like the coronavirus, and I agree with that to a certain point. However, if you think back far enough, the world economy has survived wars, plagues, nuclear bombs, and lots of other true atrocities. To doubt that the economy will once again rebound, through the ingenuity and intelligence of billions of people who want to better their lives, is foolish. We're going through a time of great uncertainty, but ultimately, I believe in my heart, that this too shall pass.





Wednesday, February 19, 2020

6 Canadian Banks That Grow Their Dividends


For vacation this winter, my wife and I brought our kids to an all-inclusive resort in Varadero Cuba. It had been six years since our last trip to Cuba, and I couldn’t help noticing some of the positive changes. From small things like hot showers and a wider array of choices at the buffet, to more impactful changes like affordable, high-speed Internet access at the resort, more tourists from Europe, and many new resorts being added along the beautiful beach strip. We stayed at one of three “Melia” resorts in a row and took a train (basically a converted golf cart) to an actual shopping mall at the swankiest of the three hotels. At the mall, to my surprise, I saw a Cuban bank that likely did a great business exchanging tourists’ currency into Cuba convertible pesos. Although I was unfamiliar with the bank in question, seeing a financial institution wasn't a big surprise given the amount of development in Cuba in recent years.

Between my day job and the concentration of banks in my Investment Holdings, I think about banks quite a bit. Before the Royal Bank of Canada releases their Q1 2020 earnings on February 21st, I thought it would be a good time to take a look at the big six Canadian banks. The below table contains both market information (upper half) and operating information relating to the banks' capital levels, asset quality, profitability and funding profiles (bottom half).

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Canadian banks are incredibly complex businesses, and I recommend understanding how and where they generate their revenue/profits before making any investments. The above table is simply a starting point that might high-light some interesting links between a bank's valuation, yield, profitability and operating metrics. For instance, you might ask yourself why CIBC trades at such a big valuation discount compared to their domestic peers. However, based on their negative EPS growth over the past year, the lowest profitability in the peer group, and the bank's costly acquisitions in recent years, the valuation discount might be warranted.

Which of the above Canadian banks do you find most attractive currently?

Wednesday, January 22, 2020

18 Monthly Paying Canadian Dividend Growers for 2020

What are your favorite monthly traditions? One of the best days of my month happens when I use the proceeds of loan repayments from my Kiva portfolio to put $25 toward funding another loan to an entrepreneur in need. Although it took me a little over a year to build toward this goal of funding a new loan through repayments each month, now the virtuous cycle keeps repeating with minimal effort on my part rather than the joy of selecting a worthy recipient.

Another of my favorite days of the month is the 15th, when dividends from some of the companies below magically appear in my brokerage accounts.  When the 15th passed this month, it got me thinking that it was time to post the list of Canadian companies that pay growing monthly dividends for 2020. This has traditionally been one of my most read posts in 20192018,  2017 and 2016. Using the Canadian Dividend All-Star list from December, 2019, I determined the monthly dividend growers for 2020.   To be included, companies had to pay a monthly dividend, increase their distribution at least once in the last 12 months, and have a minimum 5-year history of annually increasing their payouts.  The initial screen this year yielded 20 companies before I removed Inter Pipeline that had not raised their dividend since November 2018.  I then removed Boyd Group Income Fund due to their unimpressive 0.27% dividend yield, even though the company has an excellent record of compounded growth. Lastly, I noticed the one year dividend growth for the A&W Revenue Royalties Income Fund was incorrect at 1.2%, so I fixed it to 11.2%. The remaining 18 monthly dividend growers were one more than the 17 in 2019 and 2018, down from 20 in 2017, but higher than only 12 in 2016.

The resulting 18 companies included nine real estate investment trusts (REITs). As the payout ratios and valuations of REITs are usually calculated based on funds from operations (FFO) or adjusted funds from operations (AFFO), I decided to separate the resulting list in two so as not to confuse any casual readers. For your browsing pleasure, the resulting monthly dividend payers are included below.

Here are some quick comparisons between the monthly dividend payers and the complete list of Canadian Dividend All-Stars:

- 20 of the 107 Canadian Dividend All-Stars at December 31 2019 pay dividends monthly.
- Although the average yield of all Canadian Dividend All-Stars of 3.37% is considerably less than the 18 monthly payers listed above (4.54%), the 1-year average dividend growth rate of 9.95% is significantly greater than that of the monthly payers (4.55%). 
- The average 3, 5, and 10-year dividend growth rates of the Canadian Dividend All-Stars of 10.74%, 10.37% and 10.36% are much greater than the comparable growth rates of the monthly payers 5.29%, 6.32%, and 5.99%. 

As with any other screen, the above list is simply a starting point for further research.  Clearly, a deeper dive is required given the average EPS payout ratio of 89.21%, although the trailing average P/E of 23.73X looks somewhat reasonable. As indicated on my Investment Holdings tab, I currently own four monthly paying Canadian Dividend All-Stars (A&W Revenue Royalties, Granite REIT, CT REIT and Canadian Apartment Properties). Of the remaining fifteen companies, Savaria is jumping off the page for me given their impressive dividend growth and reasonable 3.29% yield.  

If you're looking to create a virtuous cycle of re-investing monthly dividends, I think diversifying into some of the names above might be a good start. The psychological boost I get from holding a couple monthly dividend payers in my portfolio helps me on the 15th of each month to be a proud dividend growth investor!

Do you hold or are you interested in purchasing any of the 18 monthly payers?

Friday, January 10, 2020

Goals & Metrics for my Dividend Growth Portfolio

When I set my 2019 stretch goal to increase my forward dividend income by $3,300 while achieving a dollar-weighted average organic dividend growth rate of at least 5.5%, I half expected to fall short. Both aspects of the goal seemed aggressive and then I got off to a slow start to the year conducting only one transaction over the first three months of 2019. Although I can't identify a turning point, around May I decided to start deploying cash more regularly, which resulted in a personal high 24 transactions in 2019, including five sells. Three of the sells related to closing out positions that hadn't raised their dividends in years (H&R REIT, Keg Revenue Royalties and Life Storage Inc.). When the dust settled, I'm happy to report that my forward dividend income was up by $3,317 and my weighted average organic dividend growth rate was a strong 6.8%.

After thinking about it over the holidays, I chose to set an even more aggressive goal for 2020, aiming for an increase of $3,600 in my forward dividend income. Similarly ambitious, I'm targeting dollar-weighted average organic dividend growth of 6.0% in 2020. Although the dividend growth goal is less than I achieved in 2019, I think it's more of a long-term target given I don't expect to be sell any positions in 2020. Plus, I felt like I spent the last couple months of 2019 chasing dividend growth, which is something I prefer to avoid in 2020.

There are two other goals I want to work toward during 2020.
- At least one quality blog entry per month. My thoughts here are that if I keep renewing the domain name, I might as well use it regularly, rather than just as a transaction journal. For context, a quality entry would provide some benefit to readers, so this one wouldn't qualify.
- By this time next year, I want to produce an outline of how I'd fill a week without work. Not the dream week of sipping drinks on a tropical beach, but the outline of how I would spend my days when/if money weren't an issue.

Since I had some quiet time over the holidays, I calculated some portfolio metrics for 2019 that I thought would be fun to share.
- My internal rate of return on my portfolio in 2019 was 17.8%. This was lower than the benchmark return of 24.6% I get from calculating 67% of the Canadian dividend aristrocat ETF 'CDZ' and 33% of the US S&P dividend ETF SPY (the actual weights of Canadian and U.S. holdings in my portfolio). This result is consistent with my past experience that shows in years when the market is up, I tend to underperform, while I outperform in years when the market falls. I also realized my benchmark is not time-weighted with the inflows of my portfolio, which confounds the under/out performance.
- The value of my portfolio rose by 28.1% in 2019; much higher than anticipated. Canadian Apartment REIT and Microsoft were two of my best performers north and south of the border respectively.
- The dividend yield of my portfolio was 3.9% in 2019, lower than 4.2% in 2018 and 4.0% in 2017.
- Cash represented 1.6% of my portfolio at year end 2019, lower than the 2.7% at year end 2018.
- My holdings raised their dividends 47 times during 2019, with Realty Income doing so 5 times, and Kinder Morgan providing the largest percentage increase (25%).
- The only two companies in my portfolio that didn't raise their dividends in 2019 were Alaris Royalty and RioCan REIT (which I'll give away my last shares to charity in 2020).
- I ended the year with an all-time high 40 positions, up from 38 at the end of 2018. The plan is to slowly see this number decrease going forward.

Here's hoping all of you met your investment goals in 2019 and wishing you the best of luck in 2020!