Stock Portfolio – Dividend Growth Investing

Building a stock portfolio can be as simple as buying one ETF or many stocks. The complexity of building a portfolio comes from your goals and investing strategy.

The theories on building a portfolio are interesting and a starting point, but you need to discover your portfolio. My process has evolved since 2009; just be intentional about your investment decisions.

Various Stock Portfolio Examples

Before we focus on a real portfolio, here are some examples that you can start from.

For young students in university or starting to work, keeping it simple is important as your focus should be to balance your spending and savings.

• A simple beginner ETF can work for young adults.
• The student-specific portfolio is all about the TFSA, but with similar ETFs.

Assuming you started with an index portfolio and are interested in evolving towards dividend investing, the next step is to consider the beginner dividend portfolio. It’s a slower introduction to blue-chip dividend stocks.

You can assess a tollbooth portfolio if you want to be more specific about your investment selection. It’s a list of stocks with ongoing recurring revenue from subscription types of services or products.

A retirement model portfolio is what we often assume everyone is building, but it’s just for when you need to live from your income. Be intentional about the outcome you have in mind based on your age.

A Real Dividend Stock Portfolio Example

The goal of this portfolio is to build wealth through stock appreciation while earning a steady dividend income. In other words, a passive income machine. During the accumulation years, the dividend income is fully re-invested through synthetic DRIP.

When retirement comes, the strategy per account may change to focus on tax efficiency while earning an income from my portfolio.

The dividend growth stocks I pick for total return are selected using a simple yet effective stock selection process which leverages the Chowder Rule as a growth marker.

The dividend income stocks I pick for income focus on a combination of yield, dividend increases and dividend growth. A lower total return is expected for those holdings.

One of my rules is to hold 25 or fewer stocks in my portfolio to ensure I can manage my holdings. You must read my investing rules and leverage my dividend growth stock selection process to understand my strategy better.

All in all, it has provided me with a portfolio that can beat the index, and in retirement, my knowledge of dividend investing will allow me to draw dividend income rather than burn through my hard-earned capital.

Portfolio Breakdown by Accounts

During the accumulation phase, dividend growth and total return drive my stock selection process. As such, you will see very low-yield stocks that I would normally not hold in my retirement years.

However, approaching a pivotal point toward financial independence, I have started switching my non-registered account into a retirement account. That means it will be focused on being tax-efficient with a high income. REITs don’t have a part in it.

I put the table below together to give a clear view of my holdings. If you have a high yield, then you have a retirement income portfolio. There is nothing wrong with that if that’s what you need, but know your income growth to keep up with inflation.

The accounts below represent holdings across my stock porfolio and the spousal equivalent. For now, my accounts are with RBC Direct Investing.

The annual ROR is calculated using a portfolio tracker for a money-weighted return comparison. If your broker provides you with a money-weighted ROR, you can compare yours to my return.

The details of my stock portfolio are outlined below, and you can easily see the sector exposure.

As you know, I don’t put much weight on sector diversification as there are too many businesses now overlapping. Take Disney for example, it’s a communication services company now. Visa is a financial company but it’s really a technology company at the end of the day. Industries are more representative of risk. Check out these dividend income reports for the details.

Canadian Stocks – Purchase Rationale

When choosing a Canadian stock, the list of companies matching my investing criteria will mostly be Canadian Dividend Achievers with a 10% CARG dividend growth.

However, in some industries, it can be difficult to find a match, and I have to vary my approach and selection.

You can see my rationale on why I hold each stock in my portfolio and that’s what I use to run a portfolio stress-test. I love companies that operate like a toll booth where there is regular payments made by the customers.

[CORE] National Bank – An opportunistic purchase as it was undervalued against the other big banks at the time. More specifically, it caters to small businesses in the province of Quebec and has cornered that market well. While I would say it needs some improved branding for the consumers, the business will not care as long as they are served well. Did I mention the bank fees :)

[CORE] TD Bank – A strong Canadian bank across Canada with good product offering and technologically on par with other Canadian banks. TD stands above other Canadian banks with its expansion in the US market through TD Ameritrade and other ventures. Regular fees are paid and dividend increases can always be covered by some increase in fees. Good and safe dividend yield and growth. 

[CORE] Royal Bank – Same reason as TD. Royal Bank happens to also have some international exposure and a strong wealth management segment. 

[CORE] Intact Financial – The leader in property and casualty insurance growing through acquisition and organic growth. Normal dividend yield but great dividend growth. It passed the 10-10 test and is a Dividend Ambassador. The insurance business is a cash-flow business. Even in a bad year, you know they will recover with higher costs the next. It’s like gambling, the house never lose.

[CORE] Alimentation Couche-Tard – station stops around the world. I am late to the party for this company but it has done well. It’s basically a driver tollbooth masquerading as a gas station – huge profit margin on all the items in the stores. It is a true Dividend Ambassador with strong dividend growth offsetting the low yield and supported by the stock growth.

[CORE] Waste Connections – The garbage and recycling industry is big. A number of players own the majority of the business across Canada and the US. WCN is an acquirer similar to ATD within North America. It’s a tollbooth business as the service is a necessity but is also controlled through city taxes, unlike big tech.

[CORE] Constellation Software – A new addition to slowly build up towards growth. These holdings break my research criteria from a dividend growth perspective, and I looked at it the same way I looked at Google from a growth perspective.

[INCOME] Telus – I hold Telus as it offers strong mobile revenue followed by internet/television revenue. However, it chose to diversify into the healthcare sector as opposed to buying content or sports teams like the others. It is also well-positioned to grow customers across Canada and is part of a controlled oligopoly.

[INCOME] TC Energy – A strong pipeline operating between Canada, the US and Mexico. It pays a good dividend yield with consistent dividend growth. The Chowder Score is above 10%, and the dividend growth is consistent.

[OPPORTUNITY] Scotia Bank – An opportunistic purchase in 2022 as it was beaten down and offered over 6% yield. A yield this high is never seen with the big banks and in my view, the bank will bounce back in the future as it makes the necessary adjustments.

US Stocks – Purchase Rationale

The list of stocks matching my investing criteria will mostly be US Dividend Aristocrats, with the exception of the technology sector. That sector is relatively recent to fulfill the requirements for a US Dividend Aristocrat.

[CORE] Microsoft – I opted to buy into Microsoft as a dominant software company in the operation system and office software. Those two segments alone and the transition to subscription for consumers meant the company was moving to a strong recurring revenue. The cloud segment was in the early stages and proved to be a catalyst to the company’s growth.

[CORE] Apple -While most of the revenue is generated from the iPhone, the tollbooth concept comes from people upgrading their phone regularly (every 2 years) and from the app marketplace where Apple takes a cut of all transactions. Apple is also shareholder-friendly friendly with share buybacks and strong dividend growth.

[CORE] AbbVie Inc – A solide healthcare companie.

[CORE] Costco -The undisputed subscription leader. Costco gets people to pay to go shop there, and the price value offerings keep the subscribers coming.

[CORE] Texas Instrument – TXN is a play on the IoT devices. Homes are generally moving into the space of IoT and needs chips to connect to the internet and do some data processing. It’s also a play on the growth in connected automobiles.

[CORE] Broadcom Inc. – TXN does OK, but I wanted to benefit from AI and saw AVGO as another option to benefit from the need for chips. Also, many countries have adjusted their view on chip production to stop relying on Taiwan and certain geopolitical tensions, which positions AVGO as a good contender to benefit from these changes.

[CORE] Google – Great company purchased at a great price. I just could not resist when the price was at $100. I did not have cash on hand, I just sold another company with less upward potential to get in.

[CORE] Visa – A purchase transaction tollbooth, what else could you want. VISA doesn’t assume any risks from credit card holders and gets paid on all transactions that go through the network. Whether you like it or not, using a credit card is a lot simpler than carrying cash and coins. The convenience is here to stay and VISA is increasing its market share.

[CORE] Master Card – Same as VISA. There is room for 2 big players. It gives options to the consumer.