"Whenever we are surprised by something, even if we admit that we made a mistake, we say, 'Oh I'll never make that mistake again.' But, in fact, what you should learn when you make a mistake because you did not anticipate something is that the world is difficult to anticipate. That's the correct lesson to learn from surprises: that the world is surprising."
- Daniel Kahneman
Heading into 2020, I was on a high after achieving my 2019 goal of increasing my forward dividend by $3,300 while obtaining a dollar-weighted average organic dividend growth rate of 6.8%. Therefore, I set a stretch goal of adding an additional $3,600 to my forward dividend income in 2020, while targeting a dollar-weighted average organic dividend growth of 6.0%. My results from 2020 were surprising: my forward dividend income went up by $1,675 and my dollar-weighted average organic dividend growth was a mere 0.85%.
Although I managed to sell early enough to avoid dividend cuts from Alaris Royalty and Tanger Factory Outlet Centers, the distribution cuts from Laurentian Bank and A&W Revenue Royalties Income Fund severely impacted my dollar-weighted average organic dividend growth rate, especially given A&W is one of my larger positions. Similarly, the Office of the Superintendent of Financial Institutions' ("OSFI") March 2020 decision to halt dividend increases for the Canadian banks that it regulates also negatively impacted the organic dividend growth of my portfolio given I hold seven Canadian banks, and only three (CIBC, Royal Bank & TD Bank) increased their payouts before OSFI's march decision.
Falling almost $2,000 short of my forward dividend income goal isn't quite as surprising if you followed my transaction journal during the last couple months of 2020 and noticed I traded into and out of Brookfield Renewable Partners units twice in three months. Although holding onto my position in Brookfield Renewable Partners at year end wouldn't have allowed me to meet my goal, the deficit wouldn't have been at large. That said, the two trades I completed allowed me to book a profit in excess of the $2,000 shortfall. Other big contributors to the forward dividend income shortfall include selling Alaris Royalty and Tanger Factory Outlets in advance of their announcements to cut their dividends, the lower organic dividend growth noted in the above paragraph, and the fact I continue to count any US dollar dividend income on a 1:1 exchange rates with Canadian dollars (impacts 15 of my 37 holdings).
After taking a couple weeks to digest my shortcomings in 2020, I decided to shoot for a more realistic forward dividend income increase of $3,000 in 2021, while targeting a dollar-weighted average organic dividend growth rate of 5%. Although I personally feel like the coronavirus will continue to impair regular economic activity in North America well into the summer, I'm optimistic that immunization shots will be effective and will become more plentiful in the second half of the year. Other lesser goals for 2021 include:
- At least one quality blog entry per month.
- At least one purchase of stock per month.
Since I had some down time over the holidays, I calculated some portfolio metrics for 2020 that I thought would be fun to share.
- My internal rate of return on my portfolio in 2020 was 1.0%. Although this sounds sadly low, it compares well to -3.9% benchmark return, I get from calculating 67% of the Canadian dividend aristrocat ETF 'CDZ' and 33% of the US S&P dividend ETF SPY (the actual weights of Canadian and U.S. holdings in my portfolio). - The value of my portfolio rose by 6.7% in 2020; much better than I expected after experiencing some large declines in March. Algonquin Power & Utilities and Microsoft were two of my best performers north and south of the border respectively.- The dividend yield of my portfolio was 3.9% in 2020, in-line with the 3.9% achieved in 2019, lower than 4.2% in 2018 and 4.0% in 2017.- Cash represented 4.2% of my portfolio at year end 2020, much higher than the 1.6% at year end 2019, and 2.7% at year end 2018. A big contributor was having traded out of Brookfield Renewable Partners at year end. - My holdings raised their dividends 35 times during 2020, with Realty Income doing so 5 times, and Power Corporation providing the largest percentage increase (10.5%).- I conducted 32 trades in 2020, including six sales. Although this is high compared to the 24 conducted in 2019, it still only represents a couple basis points in terms of cost.
- I ended the year with 37 positions, down from an all-time high of 40 positions at year end 2019. The plan is to slowly decrease this number again this year.
Having made it through the very surprising 2020, I wish all of you the best of luck in 2021 and hope the surprises we experience collectively are less negative this year.
