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A Year In Review: Portfolio Additions, Dividend Growth, and Target Buy Prices

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Merry Christmas everyone. I hope everyone is having a good holiday. With the end of the year coming up, a lot of people spend time to reflect on the year. It’s taken a few years to develop my dividend growth strategy, so I thought it would be a good idea to take a look at my portfolio and go over the past year.

First I thought I’d look at my stock purchases in the year. I have conservative stock targets for buying shares, which means I don’t buy shares a lot. This resulted in only four stock purchases in 2013.

  1. I purchased Intel for $20.50 in February.
  2. I purchased Suncor for $31.84 on June 10th.
  3. I purchased CH Robinson Worldwide for $54.25 on June 24th.
  4. I purchased Potash Corporation of Saskatchewan for $30.30 on August 6th.

I thought it would interesting to see how my purchase prices compared to the 52 week low price and I was pleasantly surprised.

I keep my target buy prices conservative because capital preservation is a component of my strategy. With this in mind I was happy to see that my purchase prices for the most part were very close to their 52 week low prices. While I’m happy to see these results, the market was generally going up this year, so it will take a few more years to see if my target buy prices are still reasonable for my strategy. For now I’m happy, but I think it will be truly tested in strong bear market. I invest for the long term, so I fully expect that some of my investments in the future will have negative returns. The main thing for me is that the business fundamentals don’t change and the dividend continues to increase.

Speaking of dividend increases, lets take a look at my portfolio and see how each company did for 2013. I’ve broken down the portfolio into three sections: Good dividend growth (above 8%), OK dividend growth (4-8%), and low dividend growth (below 4%)

Good dividend growth (above 8%)

  • Potash Corporation of Saskatchewan (Trend analysis of TSE:POT) increased its quarterly dividend from $0.21 to $0.28 and then again to $0.35 which is a 66.7% annual increase. I bought shares after the Potash industry was rocked with the news that OAO Uralkali was splitting up its cartel like marketing group and flooding the market with Potash supply. This caused the share price to drop around 30%, which I viewed as a good buying opportunity. Potash Corporation of Saskatchewan has a history of sporadic dividend increases. I expect this trend to continue. With the current issues in the industry I don’t expect another dividend increase in the short term, but I do in the long term.
  • Suncor (Trend analysis of TSE:SU) increased its quarterly dividend from $0.13 to $0.20 which is a 53.8% increase. I took this as a good sign and purchased shares after the announcement. Suncor has recorded higher dividends each year for over a decade. I expect continued strong dividend growth from Suncor. I purchased shares around at the 2.5% dividend yield mark, so I’m hoping for high dividend growth in the future as this is at the lower end of my target starting yield range. I’m not expecting regular +50% increases, but it should be above my 8% target and I expect Suncor to be one of the top dividend increasers of my portfolio.
  • Telus (Trend analysis of TSE:POT) increased its quarterly dividend from $0.32 to $0.34 and then again to $0.36 which is a 12.5% annual increase. This is in line with their dividend policy where they are planning on increasing the dividend twice a year for average annual increases of around 10%.
  • Royal Bank of Canada (Trend analysis of TSE:RY) increased its quarterly dividend from $0.60 to $0.63 and then again to $0.67 which is a 11.7% annual increase. Canadian banks have been dividend growth machines in the past, so its nice to see them getting back to their old ways.
  • Enbridge (Trend analysis of TSE:ENB) increased its quarterly dividend from $0.315 to $0.35 which is a 11.1% increase. Like Telus, Enbridge provided forward guidance on its dividend policy. In October 2013 they stated that they are trying for 10% to 12% annual dividend growth from 2013 to 2017. This was great news to hear, as this was one of my first core purchases. I’ll continue to DRIP this stock.
  • Bank of Nova Scotia (Trend analysis of TSE:BNS) increased its quarterly dividend from $0.57 to $0.60 and again to $0.62 which is a 8.8% annual increase. Another increase above 8%, I’m happy.
  • Johnson & Johnson (Trend analysis of JNJ) increased its quarterly dividend from $0.61 to $0.66 which is a 8.2% increase.

OK dividend growth (4% to 8%)

  • Medtronic (Trend analysis of MDT) increased its quarterly dividend from $0.26 to $0.28 which is a 7.7% increase. This is very close to 8%, so I’m happy to just leave this stock alone.
  • Proctor & Gamble (Trend analysis of PG) increased its quarterly dividend from $0.562 to $0.6015 which is a 7.0% increase. This dividend champion has been increasing dividends for over 50 years and it has a wide moat, so I’m happy to hold onto this stock for a long time.
  • Altagas (Trend analysis of TSE:ALA) increased its monthly dividend from $0.12 to $0.125 and again to $0.1275 which is a 6.3% annual increase. When I combined Ms. DGI&R’s stock with my portfolio Altagas was brought into the portfolio. I’m happy to leave this one alone and collect the dividends.
  • Aflac (Trend analysis of AFL) increased its quarterly dividend from $0.35 to $0.37 which is a 5.7% increase. It’s not the 8% I like to see, but I’m OK with this for now.
  • Pepsi (Trend analysis of PEP) increased its quarterly dividend from $0.5375 to $0.5675 which is a 5.6% increase.
  • TransCanada (Trend analysis of TSE:TRP) increased its quarterly dividend from $0.44 to $0.46 which is a 4.5% increase. This is getting fairly low, but analysts are expecting annual growth of 10.25% for the next 5 years, so I’d expect dividend growth to improve in the future.
  • SNC Lavalin (Trend analysis of TSE:SNC) increased its quarterly dividend from $0.22 to $0.23 which is a 4.5% increase. I purchased this stock after the price dropped because of the scandal in 2012. Prior to the scandal this company had a history of strong dividend growth. I figured when I purchased the shares that it would take some time for the company to sort everything out, so I’m curious to see what happens in March or April 2014 when I expect the next dividend increase. I purchased these shares with a low starting dividend yield, with the expectation of high dividend growth in the future. So far it hasn’t come, but analysts are expecting annual growth of 14% for the next 5 years, which would suggest stronger dividend growth in the future. I like the company, so I plan to hold on to these shares.

Low dividend growth (below 4%)

  • Sysco (Trend analysis of SYY) increased its quarterly dividend from $0.28 to $0.29 which is a 3.6% increase. This increase will be the 5th one cent increase to the quarterly dividend in as many years. This is not a great trend, but they’ve increased their dividend for 44 straight years, and analysts are estimating annual growth of 7.55% for the next 5 years. The estimated growth is a lot better than the past 5 years, so for now I’m going to wait and see what happens with the US Foods purchase and if the better estimated EPS growth rates result in better dividend growth.
  • Fortis (Trend analysis of TSE:FTS) increased its quarterly dividend from $0.31 to $0.32 which is a 3.2% increase. This is a similar case to Sysco, with its consistent low dividend growth in recent years, but unlike Sysco, Fortis’ estimated annual growth is 4.50% for the next 5 years. I think this will limit their dividend growth to around the 3-4% rate in the short term. Fortis has been increasing its dividend for 39 years, which is the longest of Canadian companies. I’m a long term investor, so I expect to have some companies with low dividend growth for a number of years, but at the same time I expect other companies in my portfolio to have high dividend growth. The end result is hopefully portfolio dividend growth of 8% or more. Fortis is one of these low dividend growth companies that I’m happy to hold onto for now.
  • AT&T (Trend analysis of T) increased its quarterly dividend from $0.45 to $0.46 which is a 2.2% increase. This company has been increasing dividends for 29 years now. This is impressive, but the payout ratio is over 100% and dividend growth for the past decade hasn’t been very good. The 3, 5 and 10 year dividend growth rate are 2.4%, 4.4% and 5.2% which aren’t the type of growth levels I’m looking for. Even with analysts expecting EPS growth rates of 6.47% for the next 5 years, the payout ratio is sitting at around 123%, so I’m not expecting strong dividend growth. This is a company I’ll be looking to replace in the new year.
  • CH Robinson Worldwide (Trend analysis of CHRW) had 0% dividend growth as it kept its quarterly dividend steady at $0.35. I was expecting a dividend increase to be announced earlier this month, but it never came and the dividend was kept steady at $0.35. I’ll be honest, this has me a little worried. If you go back 13 years you’ll notice that they’ve increased their dividend in December of each of those years. So what’s different this time? I’m not sure. Their payout ratio is 39%, and analysts are expecting annual growth of 9.65% over the next 5 years. This would suggest room for dividend growth, so I’m not sure why their wasn’t a dividend increase. I haven’t look in detail at free cash flow levels, but I suspect this is where the answer will be. I read an article on Seeking Alpha and in the comments someone thought that they may be waiting for the purchase of Phoenix International to be accretive. This was the only information I was able to find on the subject, so I’ll have to look into it further. For the time being I’ll be keeping my shares and waiting to see what happens over the next few quarters.
  • Intel (Trend analysis of INTC) is another company that has had no dividend growth over the past year. It kept its quarterly dividend steady at $0.2250. I’m waiting to see what happens when the next dividend is announced sometime in late January as I’m expecting an increase. I’m waiting to see what kind of increase there will be, before I make any decisions about Intel.
  • Sunlife (Trend analysis of TSE:SLF) had 0% dividend growth as it kept its quarterly dividend steady at $0.36. I talked about this stock in my investing mistakes article. I’ve made a decent return with this stock, and I’m getting a yield on cost of 6%, but I’m not expecting dividend growth any time soon. I want dividend growth, so I’ll be looking to sell these shares for a better dividend growth option when the opportunity presents itself.
  • BlackBerry (Trend analysis of TSE:BB) doesn’t pay a dividend, and its been my worst investment to date. I’ll be looking to sell these shares when another company drops below my target buy price.

So there you have it. What do you think of my plans for 2014, would you do anything different?

 

Photo credit: Jacob Windham / Foter.com / CC BY

2 comments to A Year In Review: Portfolio Additions, Dividend Growth, and Target Buy Prices

  • Erich

    I realize Sunlife is not panning out for dividend growth. As I understand it, insurance companies need to invest in very solid safe investments, so with bond returns being so low in recent years it’s no surprise their growth has not been dramatic. With your yield on cost, Sunlife could be a great way to benefit from future bond increases which could lead to a market exodus from other equities. This is certainly speculative though, and I have no crystal ball on how long it will take for bonds to rise.

    • I agree, but I don’t know much about the bond market. They’ve been saying for awhile that interest rates are going to go up, and in the long run I think they will. The problem is I have no idea when this will be. In the meantime I think I should be focusing on dividend growth, and because I have no idea when Sunlife will start raising its dividend I’m inclined to move on. I read a morning star report on the company and in the report they said that they weren’t expecting dividend increases for quite some time. I’m inclined to agree. I also own Alfac which gives me exposure to the insurance industry, but I can expect annual dividend increases from them in the meantime.

      I think overall Sunlife has been a good investment when you look at capital gains, and I’m getting a high yield on the stock, so I’m not in a huge rush to sell the stock. I want to sell the stock when there is something else to invest in and my cash levels are low. This means that Sunlife might not be sold for some time.

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