As unpleasant as November was, it was really just a minor hiccup for my portfolio.
John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.
For my Strategy Lab model dividend portfolio, it was definitely not a November to remember.
Hit by rising government bond yields – which are like kryptonite to dividend stocks – my model portfolio tumbled 2.93 per cent last month. It was the second-worst monthly performance for the portfolio since the launch of Strategy Lab in September of 2012, outdone only by the 3.93-per-cent skid in August, 2015.
Am I upset? Well, kinda. I hate watching my portfolio fall as much as the next person. But today – in an effort to soothe any frayed nerves that might be out there, including my own – I'm going to put the November drop into context. I'll also discuss a few other, more cheerful, developments for my portfolio in November and early December.
The first thing to note is that, despite the lousy November, my model portfolio still finished the month with a year-to-date total return – including dividends – of 17.3 per cent. That's tops among the four Strategy Lab portfolios for 2016 and nearly twice the total return of my nearest competitor, index investor Andrew Hallam. (I'm still in third place over all since inception, behind growth investor Chris Umiastowski and value investor Norman Rothery, in first and second spots, respectively).
A second point worth mentioning is that short-term setbacks such as this are a perfectly normal part of investing. If you want to grow your wealth over the long run, you have to live with short-term volatility. One of the nice things about owning a portfolio of high-quality dividend stocks is that, even when prices take a hit, the cash keeps pouring in.
My portfolio is proof of that.
In November, I received a total of $197.44 in dividends from three companies: Procter & Gamble, Royal Bank of Canada and Bank of Montreal. I also received a monthly distribution of $20.08 from the iShares S&P/TSX Capped REIT Index ETF.
As soon as the calendar flipped to December, another chunk of cash arrived. Canadian Utilities, Fortis and Enbridge – all of which have the same dividend payment date of Dec. 1 – sent me a total of $186.53. All told, I made $404.05 in less than five weeks – and the best part is I didn't have to lift a finger.
The money in my Strategy Lab portfolio isn't real, but I also own all of these stocks personally and I can tell you that seeing the cash land in my account has a wonderfully calming effect during bouts of market turbulence. It reminds me of a famous quote attributed to John D. Rockefeller: "Do you know the only thing that gives me pleasure? It's to see my dividends coming in."
A few hundred bucks here and there won't make anyone a billionaire such as Rockefeller. But over time, even modest dividends can really add up. Since I started my Strategy Lab portfolio a little more than four years ago with $50,000 in virtual cash, I've collected – and reinvested – more than $10,000 in dividends. As of Nov. 30, the portfolio's value had grown to $79,441.97 – up 58.9 per cent since inception. Dividends were a big part of that.
And my dividend income keeps growing, thanks to a combination of dividend increases and dividend reinvestments. In November, one of my holdings, Telus, hiked its dividend by 4.3 per cent to 48 cents a quarter – continuing a pattern of semi-annual increases dating back to 2010. And on Tuesday, BMO raised its quarterly dividend by 2.3 per cent to 88 cents as it posted fourth-quarter results that topped expectations.
In the coming months, I expect that several other companies in my portfolio will announce dividend increases. I'll keep reinvesting those rising dividends in additional shares, which, in turn, will produce even more dividends that grow, and so on. This powerful compounding effect is the essence of the dividend-growth strategy. That brings up yet another reason not to mourn when stock prices fall: I can buy additional shares at a discount.
As unpleasant as November was, it was really just a minor hiccup for my portfolio, which is performing pretty much as I hoped it would.
There, I feel much better now.