A Dividend Portfolio That Delivers

03/06/2013 10:30 am EST


John Heinzl

Reporter and Columnist, GlobeInvestor.com

The Strategy Lab portfolio put together by John Heinzl, reporter and columnist for Globe Investor, has risen 10.4% in six months...and it's gushing dividends to boot.

It’s been nearly six months since I established my Strategy Lab model dividend portfolio, and I’m pleased to report that everything is unfolding as expected—actually, a bit better than expected.

Since inception on September 13, the portfolio has returned 10.4%, including dividends. That handily beats the S&P/TSX composite index, which has gained 3.8% over the same period, also including dividends.

What’s more, ten of my 12 stocks have raised their dividends (more on that in a moment), including Bank of Montreal (BMO), which announced a 2.8% increase on Tuesday. I fully expect the remaining two stocks to follow suit soon.

Thus far, the portfolio is on pace for a pretty good year. Assuming it grows at the same rate over the next 199 days as it did over the previous 166, it would produce an annual return of about 24%. There are no guarantees that will happen, of course, but I would be thrilled if it did. I might even do a little dance.

Not that I’m putting on my dancing shoes just yet.

By way of comparison, my personal portfolio—which includes all of the stocks in my model dividend portfolio, plus more than a dozen others—has gained about 15% annualized over the past three years, including dividends.

I think that’s a more realistic expectation, but I’m also keenly aware that the investing gods can turn angry without notice, so I’m prepared for some tough times, too. Short-term volatility is the price investors pay for the long-term growth the stock market delivers.

While nobody knows what stock prices will do from one day to the next, the nice thing about dividends—and dividend increases—is that they are predictable. My model portfolio, which started with an initial “value” of $50,000 and is now worth more than $55,000, has churned out close to $700 in dividends so far, and that income stream is steadily growing.

In the accompanying chart, I’ve listed the ten stocks that have increased their dividends since the model portfolio’s inception, along with the date and size of the increases. I’ve also listed projected dividend increases for the remaining two stocks.

As an aside, it’s worth noting that several stocks I own personally, but which did not make it into the model portfolio (which was limited to 12 stocks), have also increased their dividends recently, some substantially. They include:

  • Walmart (WMT), February 21, dividend up 18.2%
  • Tim Hortons (THI), February 21, up 23.8%
  • Brookfield Renewable Energy Partners (Toronto: BEP.UN), January 18, up 5.1%

Humble admission: When I initially chose my stocks, I said I wasn’t aiming to win an investing contest. And, sure enough, I’m not! That said, my conservative portfolio is doing what it was designed to do: Provide steady gains through a combination of dividends and capital growth, with few—if any—nasty surprises.

Indeed, all but one of my 12 stocks are trading at higher prices than the day I bought them—the sole exception being Coca-Cola (KO), which has slipped by less than 1%. The good news is that, including dividends, Coke is actually up marginally, and in Canadian dollars it’s ahead by 5.7%.

Far from being discouraged by Coke’s share price performance, I think the recent weakness is an opportunity. That’s why I’ve decided to use some of the cash in my model portfolio to purchase ten additional shares of the soft drink maker.

I have no doubt that Coke’s earnings and dividends will grow for many years to come, so I believe this is a safe investment—just as I believe that dividend investing is one of the safest ways to build wealth over the long term.

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John Heinzl is the dividend investor for Globe Investor’s Strategy Lab. You can see his model portfolio here.

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