Monday, July 9, 2012

Dividend Growth Index

I am today joining a great group of guys who blog about investing, especially about dividend investing. Back in September 2011, a group of 8 dividend bloggers launched the Dividend Growth Index. Each blogger could pick 3 stocks for the index for a total of 24 stocks. Stock could be either US or CDN. Each quarter, each blogger will follow their picks and the overall portfolio results. One blogger, the Wealthy Canadian has stopped blogging so I will be joining this group.

The other members of this group are listed below. I have also posted links to their June 2012 update for the Dividend Growth Index (DGI) where I know what the link is. Please note that these links will not work until the entry is posted by each blogger on July 9, 2012.
Dividend Growth Investor and DGI
Dividend Guy
Dividend Mantra
Dividend Monk and DGI
Dividend Ninja and DGI
My Own Advisor and DGI
Passive Income Earner and DGI

See Dividend Guy's initial blog entry on this index.

My contribution to this index will be 3 stocks also. My pick to add to the Dividend Growth index is Fortis Inc. (TSX-FTS), Toromont Industries Ltd. (TSX-TIH), and Saputo (TSX-SAP). They are all dividend growth stocks of various risk levels and in different sectors.

What are my goals? I am never out to beat anyone or any index in my investing although I do track my portfolio against the TSX. I just want to make some solid returns on my money. I try to buy good companies and I try to diversify my portfolio so that a loss of a stock or dismal returns in one sector does not do irreparable damage to my investments. So, I will review my picks and why I like these particular stocks.

Fortis Inc. (TSX-FTS)

This stock was one of my first buys and I have had it since 1987. I also bought some for another account in 1995 and 1996 and then sold some in 1998 because this stock was too high a percentage of my portfolio. Overall, I have made a return of 13.24% per year on this stock. Some 8.31% per year of my return was in capital gain and 4.93% per year was in dividends.

If I look just at the stock bought in 1987, I have a similar return. Over the last 10 years, my return is even better at 17.74% per year, however, over the past 5 years, my return is worse at just 8.77% per year.

This company has a great record of increasing their dividends. The 5 year median dividend yield is 3.3%, which is a decent return. The 5 and 10 year growth in dividends is 11.6% and 9.5% per year. The yield I am earnings on my original investment in 1987 is 25.8% and the dividend yield I am earning for my 1995 investment is 13.4%.

The 5 year median Dividend Payout Ratios are 67% for earnings and 27% for cash flow.

See my spreadsheet at fts.htm. For my latest blog postings dated March 2012, click here or here.

This has been a good stock for me and a very solid earner. It is the sort of stock that new investors should start with as it is a utility stock.

Toromont Industries Ltd. (TSX-TIH)

I built my portfolio initially on utility stocks and bank stocks. Once your portfolio gets to a certain size you need to diversify. This is a much riskier stock than Fortis and is considered to be an industrial stock. It is also more volatile and subject to the ups and downs of the business cycle.

Over long periods of time, you would expect this stock to produce better capital gains than a stock like Fortis. However, that long period of time would have to include both a secular bear and bull markets. We have been in a secular bear market since 2000.

I first bought this stock in 2008 and then some more in 2011. The 5 year median dividend yield is 2.23%, which is lower than the one for Fortis. I have made a return of 7.83% on this stock. Some 4.36% per year of this return is in Capital Gain and 3.47% per year is dividend return.

The 5 and 10 year dividend growth is 5.7% and 12% per year. They were having a hard time in the latest recession and earnings are not growing well. So, dividends were decreased in 2011. The company started increasing the dividends again in 2012. This is an industrial stock, so you can expect some variations in dividends.

The 5 year Dividend Payout Ratios are 32% and 19.5% for earnings and cash flow respectively. I have had no growth in dividends from when I bought the stock, but I expect to have dividend increases in the long term.

This stock has brought diversification to my portfolio and I expect it to do well in the long term.

See my spreadsheet at tih.htm. For my most recent blog entries dated April 2012, click here or here.

Saputo (TSX-SAP)

As I had said above, I built my portfolio initially on utility and bank stock. This is also a riskier stock than Fortis. However, it is a consumer products (consumer staple) stock and this would bring some stability to this stock. The 5 year median dividend is just 1.8%. Consumer stocks tend to have lower Dividend Payout Ratios because they need money to grow and invest. Lower Dividend Payout Ratios lead to lower dividends.

I bought this stock first in 2006 and then some more in 2007. My total return on this stock is 16.93% per year. Some 15.73% per year comes from capital gain and 1.2% from dividends. For the stock I bought in 2006, my dividend yield on my original investment is 3.82% and for the stock I bought in 2007, my dividend yield on my original investment is 3.45%.

Dividends have grown over the past 5 and 10 years at the rate of 13% and 34% per year, respectively. The 5 year median Dividend Payout Ratios for this stock is 33% and 24% for earnings and cash flow, respectively.

This stock has brought diversification to my portfolio and I expect it to do well in the long term. I expect to earn more in capital gains than in dividends compared to utility and bank stocks.

See my spreadsheet at sap.htm. For my most recent blog entries dated June 2012, click here or here.

Below is a chart showing all the stocks covered by this index and by which blogger and with a link to their sites. Since the inception of this Dividend Growth Index, the return is 18.09%. The year to date return is 2.15%.

Company Symbol Blogger
Chevron Corp CVX-N Dividend Growth Investor
Enterprise Product Partners EPD-N Dividend Growth Investor
McDonald's Corp MCD-N Dividend Growth Investor
Coca-Cola KO-N Dividend Guy
Intel INTC-Q Dividend Guy
National Bank NA-T Dividend Guy
Conoco Phillips COP-N Dividend Mantra
Phillip Morris PM-N Dividend Mantra
Procter & Gamble PG-N Dividend Mantra
Energy Transfer Equity ETE-Np Dividend Monk
Novartis AG NVS-N Dividend Monk
Wal-Mart WMT-N Dividend Monk
Husky Energy HSE-T Dividend Ninja
PepsiCo PEP-N Dividend Ninja
Staples SPLS-Q Dividend Ninja
Abbott Labs ABT-N My Own Advisor
Bank of Nova Scotia BNS-T My Own Advisor
CML Healthcare CLC-T My Own Advisor
Aflac AFL-N Passive Income Earner
Canadian Nat. Railway CNR-T Passive Income Earner
Canadian Nat. Resources CNQ-T Passive Income Earner
Fortis Inc FTS-T SPBrunner
Toromont Industries Ltd TIH-T SPBrunner
Saputo Inc SAP-T SPBrunner


We are tracking our index against a number of ETFs. The main drag on our return comes from Canadian National Resources (TSX-CNQ) which is down over 30%. However, this company is into Oil and Gas and these products are down year to date, so this is hardly surprising.

ETF Symbol YTD
S&P/TSX 60 Index Fund XIU -1.28%
Dow Jones Canada Select Dividend Index Fund  XDV 0.46%
SPDR S&P 500 ETF SPY 9.47%
Vanguard Dividend Appreciation ETF VIG 4.80%
Dividend Growth Index DGI 2.15%


See the spreadsheet at dgi.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

3 comments:

My Own Advisor said...

Awesome update Susan!

The Dividend Ninja said...

Susan well done! Awesome job, and well written. You've done a really great job of explaining the DGI to your readers. I of course knew Fortis would be on your list :) Not SNC Lavalin?

All the best,

Cheers
The Dividend Ninja

SPBrunner said...

Thank you both for you kind words.

I still very much like SNC Lavalin, but as an industrial stock I chose Toromont, another favourite.

SNC Lavalin also has a very low dividend, like SAP. I really like SAP also.

I tried to balance out what was already in the index.

You both did great postings for DGI at Dividend Ninja
and My Own Advisor.