Monday, July 21, 2014

Dividend Portfolio

Below are my answers to questions I was recently asked:

Question: Do you have a fixed income component as well to 'cushion' equity crashes?

Answer: I have not had any fixed income components since I sold my last bond in 2007. (However since I live off my dividends and take money from my RRPS, RRIF, I have some 3.7% of my portfolio in cash and MMF.)

Question: How did you fare in the 2008-9 crash when more than half of companies paying dividends either reduced them or cut them completely? I know things recovered but how would you fare if the recovery had been very slow? I'm asking because I'm not sure whether to invest using total return and all cap equities or dividend stocks only in retirement as I don't have any pension except CCP & OAS.

Answer: I have been heavily into dividends since the early 1980's and I have never had a year of dividend income decline. Dividend increases slowdown in bear markets, but not right away. When there is a bear market, my overall dividend increases at a lower rate. This is because at such times, some companies stop dividend increases and some cut or cancel dividends. However, there are always some that continue to raise their dividends. For example, my dividends increased in 2008, 2009 and 2010 were 11%, 15% and 5.3%, respectively. In January of this year I wrote a blog entry on how I did in the last two bear markets of 2000 and 2008.

Question: It must be that you have a large capital cushion such that you could live off your capital for your life duration and don't need to live off of dividend income. That could not work for me or others who have no pension yet not enough savings to whether a black swan event.

Answer: I have had individual companies cut dividends, like TransAlta and companies discontinue dividends, like Bombardier and companies like Sun Life and the banks stop dividend increases. It is just the overall dividend income has not decreased. I have a variety of dividend stocks, some give low dividends, but increase them well like Saputo (but these dividend increases have slowed) and REITs which give good dividends but increase at the rate of inflation and others in between.

Question: There is risk of decreasing dividends and even companies suspending dividends given a black swan event which we in Canada have not seen since 1929. How do you plan to deal with that possible event?

Answer: I am of course betting that there will not be an event in Canada in the future that will destroy my dividend income to such an extent that I cannot live off my dividends.

Question: How many companies do you feel is optimal for a portfolio which will give good diversification yet easy to manage such a portfolio?

Answer: I have 32 stocks in my Trading Account which provides most of my income. However, of these I have little invested in a few stocks. For example I bought Barrick Gold Corp for fun because it crashed. I also like tech stocks and have small investments in TECSYS and Evertz Technologies because it is fun. So I really only have 29 stocks I am serious about getting dividends from.

Question: How many companies per sector do you believe is optimal?

Answer: I must admit I made most of my dividends in Utilities and Bank. However, I have branched out into other financials, industrials and REITs. I have focused on dividend growth stocks rather than different sector stocks. However, I have kept an eye on what sectors I have investments in to ensure I have some balance.

Question: Since many companies today are in fact international rather than domestic is it really necessary to add US dividend companies?

Answer: I have gone into Canadian companies doing business worldwide rather than into the US or European market. I tried American and European companies in the past, but did not make much money in them. There was also the complication of the currency exchange rate and getting financial information. I only have one foreign company left which is Barclays Bank.

I have probably broken all sorts of investment rules. I am too concentrated in Canadian Stocks and in Banks and Utilities. I am not evenly invested in the stock I hold with some investments around 10% of my portfolio and some under 1%.

On my other blog I am today writing about Artis REIT (TSX-AX.UN, OTC-ARESF) ... continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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  1. informative post, thank you

    1. If you have any further questions, let me know.

      There will be another post on Wednesday with questions I thought should also be asked.

  2. These were all my questions and thank-you Susan for good answers from your experience :). I have been away for a while and am back now. I have given these questions much thought. So say you have broken many investment rules, but the more one reads the more rules there are! Nothing works for everybody since we and each of our circumstances are different and so different investment strategies work for different people is my conclusion. Your strategy is a concentrated dividend equity portfolio and it has obviously worked for you :). I've read alot about indexing and a more passive (lazy) approach to investing requiring less time. I'm thinking what you think about just buying something like ZDV and XEI etfs which have more diversification and yield ~3-4% net?

    1. There are so many ETFs and I am not interested in buying any, so I know little of ETFs beyond how they work. I suggest you look at a blogs which talk about ETFs. A blogger that comes to mind is My Own Advisor as he often talks about EFTs.