Atomic Habits - 3 Takeways

I'm the proud owner of one of 15 million copies of Atomic Habits by James Clear that has been sold since being published in 2018. I re-read the book in an effort to get 2024 off to a good start, and wanted to share three quick takeaways:

Four Laws of Habits
To increase the adoption of good habits, you can make them obvious, attractive, easy and satisfying. In contrast, to decrease bad habits, make them invisible, unattractive, difficult and unsatisfying. After re-reading, I got the idea of "habit stacking" (adding a new habit after an existing one) to start adding teeth brushing to my habit of flossing and using mouth wash while bathing my kids. This has allowed me to stop snacking after supper, as even the most delicious snack tastes less appealing post-brushing.

Don't Let Habits Become Too Much of Your Identity
My simple brain has tried to classify myself according to past habits that grew too large (ultimate frisbee, running, reading, dividend growth investing, etc.). James Clear makes the case for keeping our identify fluid, and not letting any one habit become too much of a part of ourselves. In that spirit, I thought I'd write about this book I love in my dividend blog. 

Aim for a Majority, Not a Sweep
Like everyone, I have bad habits I'm trying to vanish. James Clear uses the metaphor early in the book that every time you perform a good habit, or skip a bad one, you could see it as a vote for the type of person you want to become. He goes onto explain that instead of aiming for perfection, we should be happy with a majority, cause it's impossible to earn everyone's vote in an election. This is a lovely metaphor that I posted on my laptop so that I take it easier on myself going forward.

Since you've read this far, the last tidbit I'm being contemplating lately is how to make more desirable habits into a two minute version. Knowing that doing something easy is better than doing nothing, and taking a step in the right direction will cause some momentum, I'm aiming to try two minute versions of various habits this year.

Goals and Books

Happy new year! Here's hoping your 2024 is off to a great start. After barely posting the last couple of years, I decided to not renew the dividendsinhand domain and go forward with blogger instead.  

Goals:
I'm glad to report that I achieved my 2023 goal of adding $3,200 of dividend income, even if I fell a little short of my 5.0% target for organic dividend growth (4.63% at year end).

For 2024, I'm going to target the same $3,200 increase in forward dividend income and make an effort to achieve a 5% organic dividend growth rate. Complicating factor is I only plan to invest about a third of my contributions + dividends + starting cash balance into dividend growers in 2024. The other thirds will be placed in a Canadian index fund and "compounders" (think Constellation Software, in which I've slowly grown a nice position).  Reasoning is to keep taxes down.

Additionally, I'll continue to look to spend my money on things that create memories for my kids and wife. Likely some trips, hockey games, concerts, and similar experiences. I got better at doing this over the past 12 months, and I'm committed to upping my game in 2024. Also looking to keep investing in my health (dumbbells, running shoes, ski pass, tournament fees for volleyball and ultimate, etc). 

Books:
A friend and I track our reading via a Google sheet and I was surprised to reach 82 books in 2023. In case you're a fellow reader, listed below are the books I read, along with my rating out of 5. 

Run Rose Run - Dolly Parton & James Patterson (3.5)

Hello World - Hannah Fry (3.5)

The Other Emily - Dean Koontz (3.5)

Beyond the Wand - Tom Felton (4)

Beartown - Fredrick Backman (4)

Get it Done - Ayelet Fishbach (3.5)

Sparring Partners - John Grisham (4)

Desert Star - Michael Connelly (3.5)

Forever Terry - Various (3.5)

Klara and the Sun - Kazuo Ishiguro (3.5)

Mindset - Carol Dweck (3.5)

My Squirrel Days - Ellie Kemper (3.5)

Us Against You - Fredrick Backman (4)

The Shallows - Nicolas Carr (3.5)

The Intelligent Quality Investor - Long Equity (3.5)

Long Shadows - David Baldacci (3.5)

Hello Molly! - Molly Shannon (3.5)

The Bond King - Mary Childs (3.5)

The Creative Act - Rick Rubin (4)

The Winners - Fredrik Backman (4)

Tomorrow and Tomorrow and Tommorrow - Gabrielle Zevin (4.5)

The Acquirer's Multiple - Tobias Carlisle (3.5)

The Boys from Biloxi - John Grisham (3.5)

Hench - Natalie Walschots (3.5)

Friday Night Lights - H.G. Bissinger (3.5)

The 12 Hour Walk - Colin O'Brady (3.5)

The Game - Ken Dryden (4)

The Legend of Bagger Vance - Steven Pressfield (4)

This is What it Sounds Like - Susan Rodgers (3.5)

Good for a Girl - Lauren Fleshman (4)

Anxious People - Fredrik Backman (4)

When the Game Was Ours - Jackie MacMullan (4)

Billy No-Mates - Max Dickins (3.5)

The Adventures of Amina al-Sirafi - Shannon Chakraborty (3.5)

Friends, Lovers, and the Big Terrible Thing - Matthew Perry (3.5)

Building a Second Brain - Tiago Forte (4)

The Storied Life of A.J. Firkry - Gabrielle Zevin (4)

Less - Andrew Greer (3.5)

The Terraformers - Annalee Newitz (3.5)

Chaos Kings - Scott Patterson (3.5)

The House Next Door - James Patterson (3.5)

Elsewhere - Gabrielle Zevin (3.5)

Fundamentals of Corporate Credit Analysis - Blaise Gauguin (3)

The Greatest Salesman in the World - OG Mandino (3.5)

The Art of Learning - Josh Waitzkin (3.5)

Young Jane Young - Gabrielle Zevin (4)

When McKinsey Comes to Town - Walt Bogdanich (3.5)

How to Host a Viking Funderal - Kyle Scheele (4)

Dark Angel - John Sandford (4)

The Longest Race - Kara Goucher (3.5)

The Wild Things - Dave Eggers (3.5)

All These Things I've Done - Gabrielle Zevin (3.5)

The Nineties - Chuck Klosterman (3.5)

The Road - Cormac McCarthy (4)

Elon Musk - Ashlee Vance (3.5)

Fundamentals of Corporate Credit Analysis - Arnold Ziegel (3)

Michael Jordan The Life - Roland Lazenby (4)

Carrie Soto is Back - Taylor Jenkins Reid (4)

Camp Zero - Michelle Min Sterling (4)

Both Flesh and Not - David Foster Wallace (3.5)

From Strength to Strength - Arthur Brooks (4.5)

SuperBetter - Jane McGonigal (3.5)

Discipline is Destiny - Ryan Holiday (4)

Raffi: The life of a children's troubadour - Raffi (3.5)

The City of Brass - S.A. Chakraborty (3.5)

Surely You're Joking Mr. Feynman - Richard Feynman (4)

Going Infinite - Michael Lewis (4)

Clear Thinking - Shane Parrish (4)

L'Ickabog - JK Rowling (4) in French

The Sparrow - Mary Russel (4)

Murakami T: T-Shirts I Love - Haruki Murakami (4)

Hidden Potential - Adam Grant (4)

Norwegian Wood - Huruki Murakami (4)

Of Boys and Men - Richard Reeves (3.5)

Colorless Tsukuru Tazaki - Haruki Murakami (4)

The Secret - Lee Child (4)

Same as Ever - Morgan Housel (4)

Writing for Busy Readers - Todd Rogers (4)

Wind / Pinball - Haruki Murakami (3.5)

Things My Son Needs to Know About the World - Fredrik Backman (4)

The Real Work - Adam Gopnik (4)

Dead in the Water - Kit Chellel (4)

Beyond PADI

Every November when it comes time to renew the domain name for this blog, I promise myself that I'll write more in the new year. My best intentions usually lose steam in late January or early February. In order to recreate the spark, here is the fourth of what could best be described as 15 30-minute, quantity over quality, blog entries. 

Recently at work, a colleague and I conducted the second round of interviews for credit analysts, talking to six candidates. The last question we asked each candidate was “What do you feel is the best ratio to determine the credit worthiness of a company?” The question got me thinking about what the most important ratio would be to assess the health of an investment portfolio.

In the dividend growth investing space, based on what I see on blogs and Twitter, projected annual dividend income (“PADI”) seems to be the most popular ratio. Having used the PADI ratio as one of three metrics I calculate to assess my portfolio, I can see the draw. The number is precise, pretty easy to calculate, and its growth over time gives the impression that your portfolio is on the right track. That said, PADI can also mask the fact that you might be reaching for yield, or that you are simply adding lots of dollars to your investments. Importantly, PADI also assumes that dividend cuts don’t happen, which has not been my experience in the near 20 years I have invested in stocks.

 

The two other metrics that I use to assess the performance of my portfolio are dollar-weighted, organic dividend growth rate and portfolio IRR. The organic dividend growth rate keeps me honest in terms of limiting the number of times I reach for higher yielding stocks, while the IRR incorporates any inflows/outflows to/from my portfolio. Of these two ratios, the organic dividend growth rate is easier to manipulate, as I could choose to invest only in companies that grow their dividends at a rapid rate, or sell any company that cuts their dividend before the next time I calculate the ratio.

 
In case you’re wondering, there was no “right answer” to the interview question, we simply wanted the candidates to justify their responses. The answers were varied, but the depth of understanding the candidates showed by elaborating on their responses allowed us to differentiate the applicants. Similarly, I don’t feel that PADI is the perfect measure to assess portfolio health, given the wealth of other options available (without having even mentioned portfolio yield, various value metrics, FCF yield, etc.), so long as you’re able to explain why you choose other ratios to calculate. Like most aspects of investing, the metrics you choose to use should be relevant for you, and help you achieve your long-term goals.

Dividend Growth Watch List for April - June 2023

Every November when it comes time to renew the domain name for this blog, I promise myself that I'll write more in the new year. My best intentions usually lose steam in late January or early February. In order to recreate the spark, here is the third of what could best be described as 15 30-minute, quantity over quality, blog entries. 

     With dividends flowing in regularly, on top of my regular monthly contributions to my investment accounts, and a decent amount of cash in my TFSA and unregistered accounts at the end of the first quarter, here are some of the companies I'm considering buying shares in heading into the second quarter of 2023.

     The most likely purchase in my TFSA is to increase my position size in Brookfield Infrastructure Partners L.P. (TSX: BIP.UN). BIP has grown to be one of my top five largest holdings, as I like the fact it gives a good amount of geographic and sector diversification, I feel it has strong management, and leverages the well-known "Brookfield" name to get access to acquisitions that other infrastructure players might not even know are for sale. Being a dividend growth investor, the 4.5% yield and consistent 5-7% distribution growth rate are good reasons to like this company. If I don't add to my position in BIP, it will likely be because another short-term opportunity in a REIT or royalty company becomes a more obvious choice to add to my TFSA.

     As I expect to be making my annual RRSP contribution sometime during the quarter, the two likely candidates for me to upsize my positions in are Home Depot (NYSE: HD) and Johnson & Johnson (NYSE: JNJ). As I try to rebuild my former position in Home Depot, the company's stock has stayed pretty range bound during the past three months, and it's tempting to keep adding in this company with such a great history of compounding returns. In contrast, I see JNJ's shares as very reasonably priced, likely due to the uncertainties regarding Talc claims, and the splitting of the company (which I really wish they would not do....but it seems like a done deal).

     In my unregistered account, I've tempted to add to my positions in several Canadian banks (Royal, TD and Bank of Montreal) as they have been beaten down by a cooling Canadian housing market, the government's recent change in tax treatment of internal dividends, and the bank turmoil in the U.S. (and internationally in Switzerland). Although I'm already pretty heavy on the company, Capital Power Corporation (TSX: CPX) is also very interesting to me as a value/high dividend play. Lastly, I had planned on adding to my position in Constellation Software (TSX: CSU), but every time I checked in the past couple of weeks, the share price has kept increasing.

     Despite feeling the above names are the most likely to be additions to my portfolio this quarter, I'm reminded of the saying "Man plans, god laughs". 

     

Dividend Reinvestment Plans Are Not For Me

Every November when it comes time to renew the domain name for this blog, I promise myself that I'll write more in the new year. My best intentions usually lose steam in late January or early February. In order to recreate the spark, here is the second of what could best be described as 15 30-minute, quantity over quality, blog entries. 

     Many dividend growth investors choose to use dividend reinvestment plans (“DRIPs”) to add shares to their positions instead of receiving their dividends in cash. With some DRIP programs offering shares at a discount to the current share price, and given the long-term objective to grow large positions in certain companies, it can make sense to leverage these plans. However, I’ve made a choice never to use DRIPs in order to avoid complexity and maximize financial flexibility.

     Having complained about my discount brokerage many times over the years (never create an account with Scotia iTrade), and looking to keep my interactions with them at a bare minimum, not using DRIPs makes sense for me. Having to register shares for a company’s DRIP program, or even using a synthetic DRIP provided through iTrade, I’m happy to use the month or two it usually takes my brokerage to respond to requests in more productive ways. Plus, any DRIPs I started for positions in my unregistered account would entail me keeping track of the adjusted cost base of shares, given I have no faith in iTrade’s calculations based on past negative experiences. As I’ve gotten older, and had kids, I’ve learned that sometimes avoiding complex situations is important to maintaining my sanity.

     In my opinion, the best thing about being a dividend growth investor is the growing cashflows that appear in your investment account each month. Given my preference to make one or two purchases a month, I choose to retain control over my investment process and decide which companies are the best use of cash each month. Investors act as the Chief Investment Officer of their respective portfolios, and their most essential duty is deciding how to best allocate capital. When a share price shoots up prior to a dividend payment, adding more to a potentially inflated position wouldn’t leave me with a good feeling; nor would adding to a position that was on a losing streak. Receiving cash each month provides me with optionality in how I choose to allocate it in congruence with my current goals and the realities of the financial markets.

     Although avoiding complexity and maximizing financial flexibility are good enough reasons for me not to use DRIPs, I can see how they might be great for younger investors, with different goals, and better brokerages to pursue those plans. There might come a time when I rethink participating in DRIPs, but for now, I’ll keep receiving my dividends and distributions in cash.