Building a spreadsheet is not as daunting as it seems—and a good starting point for loading up your portfolio might be specialized ETFs, writes John Heinzl, reporter and columnist for Globe Investor.
Last week's column, Seven Lessons I've Learned as a Dividend Investor, prompted a great deal of reader feedback.
Some of you wanted to know more about the spreadsheet I use to track my dividend income. Others asked if there are any dividend investing books I would recommend, or if I could provide a list of the best dividend-paying companies. I'll do my best to answer your questions.
Can you tell me more about your dividend spreadsheet?
First, I should point out that I am no spreadsheet expert. A few years ago, I walked out in the middle of an Excel training class because I had managed to turn my entire screen pink, and couldn't figure out how to restore it to black and white. I ended up teaching myself. So if I can do this stuff, you can, too.
The beauty of using a spreadsheet, as opposed to a pencil and a calculator, is that if you buy more shares or if a company raises its dividend, you can enter the new information and your dividend income will update automatically. What's more, by focusing on your dividends you'll be less inclined to panic when the market plunges.
Any spreadsheet program will do. I prefer the one from Google Docs, because it's free and accessible from any computer. You'll need to register for a Gmail account, and then use your Gmail address and a password to log in to Google Docs.
Once you've done that, click on the "create" button and select "spreadsheet."
You can make your spreadsheet as simple or as complex as you wish. We'll start with a very simple version that will track your annual dividend income:
- In the first column, list all of the stocks you own. (Tip: Use stock symbols to save space). Give this column a heading such as "Company" or "Stock."
- In the second column, list the number of shares that you own of each company. Label this column "# of Shares."
- In the third column, enter the company's annual dividend payment per share. Label this column "Annual Div."
- In the fourth column, which we'll call "Div. Income," we'll get the spreadsheet to calculate the annual income that you receive from each of your companies by multiplying the previous two numbers together. With Google Docs, the formula you would enter is: =PRODUCT(X;Y) where X and Y refer to the co-ordinates of the cells containing the number of shares and annual dividend, respectively.
- Once you've done that for each of your stocks, the final step is to add up all of your dividends to get your total income. To do this, in a new box at the bottom of column four enter the following formula: =SUM(A:Z) where A and Z refer to the co-ordinates of the first and last cells containing the annual dividend amounts from each stock. You can click "Help" at any time if you get stuck.
If you want to build a more robust spreadsheet, Google Docs can also track the market price of your shares. Say you own BCE (BCE). You would enter =GoogleFinance("BCE.TO";"PRICE") in the appropriate cell to obtain the current market price, which updates every 20 minutes or so.
With the market price and a few simple formulas, you can then add columns that calculate the dividend yield (annual dividend per share divided by share price), market value (number of shares owned multiplied by share price), and portfolio weight (market value divided by total portfolio value) of each of your holdings. I also track cash levels, sector weights, and the proportion of equities and fixed income, to make sure I'm properly diversified.
If you have other tips and tricks you'd like to share, send me an e-mail or post a comment with the online version of this column.
Can you recommend any books?
My favorite dividend investing book is Lowell Miller's The Single Best Investment: Creating Wealth with Dividend Growth. I also like Daniel Peris's The Strategic Dividend Investor: Why Slow and Steady Wins the Race. Another good resource—and it's Canadian—is Tom Connolly's Web site, dividendgrowth.ca.
Where can I find a list of dividend stocks to start my portfolio?
If you're new to dividend investing, picking individual stocks may not be your best option. Instead, consider a dividend exchange traded fund (ETF), such as the iShares S&P/TSX Canadian Dividend Aristocrats Index Fund (Toronto: CDZ) or BMO Canadian Dividend ETF (Toronto: ZDV). An ETF will provide diversification, which is critical because even dividend stocks can blow up.
For those who want to buy individual stocks, a good place to start your search is the list of holdings of dividend ETFs. This information is available on ETF company Web sites.
But be careful: Just because a stock is included in an ETF doesn't make it a good pick. For example, CDZ's top holding is AGF Management, which has been a disaster of an investment.
In my own portfolio, I try to minimize risk by sticking with large, well-established companies including pipelines (Enbridge, TransCanada), utilities (Fortis, Emera, Canadian Utilities), telecoms (BCE, Telus), banks, real estate investment trusts (Canadian REIT, iShares S&P/TSX REIT Index Fund), and global consumer companies (McDonald's, Wal-Mart, Johnson & Johnson, Procter & Gamble).Most of these companies raise their dividends every year, which means my spreadsheet is always getting a good workout.