Before the pandemic, we started reading how markets were overvalued and we are now making new stock market highs … Market movements should not dictate how you invest and this is a very big emotional task. You need to know why you hold each of your holdings and it has to be related to the business and not the sector, PE, or yield. I call this having a portfolio stress test.
Now more than ever you need to know your investing strategy and be strong to stay the course. You are sailing the ocean in unchartered waters…
The unchartered waters in my opinion are the following economic situations we face at various scales.
Economies are not open everywhere and while some industries are doing well, others are not. Improvements will shift the balance and shift the allocation of money. That means some investors will move out of some stocks and into others. DIY investors tend to be the last one …
Interest rates are still very low allowing for companies to borrow to grow. When interest rates go up, that will change the pattern. On a family and individual level, it will also have a major impact (ie the housing market).
At some point, all the free money from governments will need to be paid back and spending power will probably decrease while inflation continues. How will spending happen? Are you invested in business that profits from businesses? or consumers? is it high-profit margin or low-profit margin? Remember I focus on tollbooth stocks which is allowing me to avoid low-profit margin business.
Stock Trades
I did a couple of small trades but to many, it will appear like HUGE trades.
I sold all of my Enbridge stocks. To start with, I did not have much. My holdings in Enbridge represented 0.77% of my portfolio. It felt like keeping pocket change around and I asked myself why do I keep it? Well, it was for dividends and not for growth. So if you are retired and need the income, keep it. It’s a good one for income.
However, I want my money to work for me at over 15% annually. I use my portfolio tracker to track my performance and my target is 15% annual ROR for my Canadian holdings. While the yield is high, I don’t see the growth but there is safety in the dividend. While Enbridge is shifting from the oil play into renewables and natural gas, it will take time and I am not sitting and waiting. Not for pocket change.
Peak oil happened in 2019 according to Bloomberg. While Canada was an exporter to the US and the pipeline was good, the US is now an exporter and doesn’t need Canadian oil. In fact, with many car manufacturers focusing on EV cars and the expected battery production cost to go down in the next few years, electricity is what will be in demand. Guess who imports electricity from Canada? Yes, the US does. Finding the best utility stocks is going to be more important, than the best renewable energy stock. As see both converging over time.
Along the same line, I am selling my TC Energy stocks for the same reasons outlined above. I was holding even less pocket change with TC Energy representing 0.38% of my portfolio.
My next move is to completely move out of the telecommunication space. That means selling Telus. I had a little more pocket change but still pocket change with 1.89% of my portfolio.
The desire to buy Shaw by Rogers made me realized the following:
- Telecoms cannot grow the wireless and internet business for higher profits.
- Governments are capping the profit margins so consumers are not gouged which makes sense.
- 5G is creating a massive investment challenge for the telecoms where Telus even issued shares to finance it.
The impact of the trades means I will have a lower annual dividend income compared to last year until I invest more money. Again, I am not in retirement and when it’s time, I can shift the portfolio to generate income instead of dividend growth.
Portfolio Management
Overall, I prefer banks and utilities for growth long term. When you look at my portfolio, you will see that I have 12 Canadian holdings now and it’s 9 Canadian dividend stocks when you exclude 2 US index ETFs and Shopify as a millionaire maker.
When you look at your portfolio and at mine, you will see that I have 9 Canadian dividend stocks representing over $400,000 so if you have 20 stocks covering $100,000, you might be over-diversified. This is where building confidence in your investment is important.
One mistake in portfolio management I have realized over the past few years is that selling your winners is a mistake. Taking profits from your winners is a mistake. My winners have been Apple, Microsoft, Costco, Visa, and Canadian National Railway for example and I took profit from time to time and I should not have. I would have more money now.
A reader once told me that he invested in BAM 20 years ago and his investment grew to over $1.6M and that’s what patience does. Once you have a winner, stop messing with it until you reach your goals.
Building a portfolio is like building a pyramid. Try to break down your holdings in layers like a foundation, a structure and then the fancy finish. As you go up the pyramid, you should have higher returns.
We all start with sector allocations but I have realized that sector allocations are too broad and that’s why I switched to industry allocation. When you look at my sectors, you think I am overweight in finances but when you break it down by industries, it’s not too bad.
| wdt_ID | Dividend | No Growth | < 6% Growth | > 6% Growth | > 10% Growth |
|---|---|---|---|---|---|
| 2 | None | 7.10 | 0.00 | 0.00 | 0.00 |
| 3 | Yield < 2% | 3.28 | 0.00 | 12.06 | 36.75 |
| 4 | Yield > 2% | 0.00 | 0.00 | 3.70 | 5.43 |
| 5 | Yield > 4% | 0.00 | 0.00 | 26.45 | 0.00 |
| 7 | Yield > 6% | 0.00 | 0.00 | 4.93 | 0.00 |
Dividend Income
My March 2021 dividend income is $1,982.
I am going to repeat that balancing the income per month is not important. When you retire, you SHOULD NOT be living month to month from the income. That’s just plain bad personal finance. You SHOULD have at least 1 year of cash to pay for the monthly bills and your monthly dividends replenish your cash so you have 1 year of cash at any time.
My yield for the entire portfolio is at 2.04%. It’s perfectly acceptable with a long-term dividend growth portfolio. While it generates under $30,000 annually in dividends, if I were to switch it to a dividend income and double the yield for simple math, I could generate $60,000 in annual dividends.
My magic number is $80,000 or a portfolio value of $1,777,777. Getting closer to financial independence. The closer I get, the more free I feel.