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Dividend Growth Portfolio – Jan 2010

Last week on twitter I announced that I was going to post some information on my Canadian Dividend Growth Portfolio (DivG) for interested readers. I receive comments and requests from time to time to post specifics on my portfolio and since I bought back positions in Manulife Financial (MFC) and Husky Energy (HSE) on Friday after I sold them in December for tax-loss selling I thought that some disclosure on the portfolio would be beneficial to readers.

While I’m not going to give dollar figures ($) for the overall portfolio size or individual positions I have posted a PDF document on all positions held within the portfolio as of January 22nd, 2010. In the document I’ve included a breakdown of the closing prices as of January 22nd, the percentage of each stock within the portfolio, my adjusted cost base (ACB) on each position and some information on annual dividends and yields. I’ve also included the amount of leverage currently placed on the portfolio with an unsecured line of credit I started in late 2008 to take advantage of depressed market valuations.

There are some holdings that might appear to not fit based on the name of the portfolio, but I won’t hold not paying dividends against any company if I see value in the growth of a business or value in its valuation. Research in Motion (RIM) is one such company that I currently own that I purchased at a price for the medium to longer term that I felt was attractive based on its current business model and growth potential. DivG is a balance between dividends and growth with some companies paying out a relatively small yield (1-2%) with higher dividend growth (4-8%) with others paying out a relatively higher yield (3-5%) with lower dividend growth (2-4%)

Now I don’t aim or aspire to be the world’s best investor but what I do strive to be is a disciplined investor; one who has the drive and commitment to follow a strategy with as little emotion as possible. This was best illustrated by my activities during the credit crisis where I remained publicly and privately committed to my strategy by maintaining positions in beaten up stocks and adding aggressively to positions that were heavily undervalued.

A lot of readers and peers asked the obvious question at those times of, “How do you know you’re buying at the bottom?

The objective for me, as a value investor, is not to preoccupy myself with picking a bottom or to time the market as best as I can. My objective is to buy when great companies are at good prices or buy a lot when great companies are at cheap prices. The simple logic behind my activities that seemed to be reckless buying was that I knew the companies I was buying because I had spent hours analyzing and researching them prior to the credit crisis. That didn’t give me a guarantee that I wouldn’t lose money, but it gave me the confidence in my plan, holdings and strategy to stay committed and invested. Essentially what I did was take a margin of safety in my DDCF calculation that assumed a 50% decrease in both earnings and dividends and then a five year P/E of 10 or less based on the current valuations I was seeing to justify when I bought additional shares. I continued buying throughout the crisis with saved money and my LOC as many as five times (in the case of MFC) or just once with my initial purchase of Canadian Tire (CTC.A). Taking out the contributed savings I committed to the portfolio the 2009 and including all re-invested dividends and purchases using leverage my return for DivG last year was 46.25%.

What I learnt from 2008-2009 was that discipline, in all facets of investing, rewards investors when you have clear objectives and capital available to take advantage of opportunities where fearful investors are searching actively for liquidity and not concerned about at what price they sell. The preferred shares I purchased in October and November of 2008 best represent this idea. Many investors, due to fear, were willing to sell preferreds at a 40% discount to retrieve their investment in the fear of losing all of it. Those preferreds (with a par value of $25 selling around $15) had a yield on cost of 7-9% in tax-advantaged income plus the potential for capital gains if held over the medium term. I made my investment back easily over a short period of time, but even if I held for a minimum of five years I had confidence I would make my money back with a decent return on investment for placing capital in the market where it was desperately needed.

Similar moves in my the equity and fixed income portions of my RSP helped to juice returns in 2009 by taking advantage of liquidity and available discounts to specific investments. My return for the US/International equity component of my RSP for 2009 was 32.27% (CDN$) and 37.27% (USD) with my currency hedge strategy helping to ease the effect of currency valuations in the portfolio. My investment in some fixed income alternatives provided a return of 72% (including interest and dividends) for 2009 from the CorTS’ I purchased and preferred shares in STD.PR.A and REP.PR.A.

Link to Dividend Growth (DivG) PDF

Disclosure: I currently own shares in all investments mentioned in this article and/or links

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{ 6 comments… add one }
  • Think Dividends January 25, 2010, 3:19 pm

    Very impressive… Thanks for the update.

  • Barry January 26, 2010, 3:11 am

    Well done Brad. You most graciously helped me to take the plunge last year in February/March

  • Think Dividends January 26, 2010, 5:02 pm

    Two dividend increases in your portfolio today: CN Rail and Metro.

  • Anonymous February 11, 2010, 12:52 pm

    I agree on Manulife. I have had that "I want to bet the farm" feeling on MFC ever since the dividend cut.

    I think I will take a huge overweight position on MFC inside my TFSA (I know I know dividends should be held outside) and turn on the DRIP (3% discount).

    I tend to hold about 3-4% of my portfolio in a given company (so 20-25 stocks) but with MFC I am going to 5-6% or maybe even more. Long term call options look cheap too but I want cash to accumulate in my TFSA. Maybe I'll sell some calls after Q4 reporting confirms they are in turn around mode.

  • JF June 1, 2010, 10:03 am

    Why own PWF and IGM?
    Why not IGM and GWO?

    THX

  • Nurseb911 June 1, 2010, 7:47 pm

    I like the additional assets under the PWF umbrella but not a huge fan of the extras held within POW. I want IGM in a slightly larger allocation than GWO (heavy insurance) so adding some additional IGM and holding PWF fits the bill for my target allocations.

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