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Discussion Starter · #1 ·
Hello all,

I'm in the process of planning out a long-term dividend portfolio and was hoping to gain some insight from your combined experiences in this realm. The intention of this post isn't to garner specific stock picks which I can copy, I very much plan to do my own research, but I am more so interested in the thought processes behind your picks and why you chose them.

That being said I'd love to hear about your favourite dividend stock pick, and the reasons why it's your favourite.

Also, if you had any tips or things to look out for when choosing and deciding between dividend stocks I'd love to hear them. I am fairly new to the investing world but I am hoping to act as a sponge and absorb as much knowledge as I can.

Cheers,
 

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Hello R. Austin:

I don't have any favourite stocks to offer since I index my portfolio. But if I were to put together a dividend portfolio for myself, I would make sure that I diversify into all sectors appropriately, with no single stock representing more than 5% of my portfolio and no sector going above 25%. That, in my opinion, is far more important in terms of risk (and easier to control) than trying to figure out which bank would outperform another, etc.

I believe distinguished members of the forum have suggested 5-pack and 10-pack portfolios which fulfill the sector diversification, but obviously each position is going to be bigger than 5% at the outset. Nevertheless, the general principles can be extended to a 20-pack I guess.

Personally, I would also go a bit deeper into mid- and small caps. If there is value (in a general sense) to be found, it would be lurking in that space.
 

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With a preamble it really depends on a number of factors and my goals and preferences may not align with yours...

Canada has a handful of wide moat/oligopoly type industries/sectors with companies paying a growing dividend. Dale Roberts has a recent article on the subject. While many dividend investors have built a fairly broad dividend portfolio with a range of companies which I think is also a good way go, my strategy has generally been to select a couple of leaders in each of the wide moat sectors for a portfolio of 10-12 companies. There's obviously a lack of diversification risk. I'm hoping that the wide moat offsets some of the risk but they're still susceptible to technological change, regulation change, etc. I also don't go want to choose too many stocks because I want to try to stay on top of listening to their analyst calls and reading their quarterly reports/company news. I think I read somewhere analysts don't cover more than a dozen companies and that's their full time job. Volatile industries like energy, airlines, etc are also areas I'm trying to avoid. While I have a couple of desert island exception picks to the wide moat strategy (a restaurant royalty and an Industrial), I had been meaning to get rid of them to allocate the funds to better round out my dividend portfolio with stocks that fit my strategy better.

Another point to note is that my dividend strategy is for the Canadian component of my portfolio and I also use index EFT's for geographical diversification.
 

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I'd suggest one needs at least 10 stocks in the Cdn equity space to fill out the Canadian component of a diversified Cdn/US/International portfolio. If one restricts themselves to only Cdn equities, then one needs at least 15 to get diversification across at least 5-8 sectors. One also needs to decide whether they intend to be a value investor, or a growth investor, and whether to overweight yield or overall performance (yield plus capital gain). It is possible to do both but a portfolio will end up looking like a dog's breakfast.

You might take a look at Investment Management to find out what your strategy and investing style might be. Personally, I avoid cyclic sectors like energy/commodities to reduce volatility. I also avoid sector rotation investing styles and I stick to large cap blue chips for the most part that have a substantial footprint, and in some cases, a moat. They tend to be like Energizer bunnies over long periods of time, e.g. 10-20 years.

It takes awhile to build a portfolio based on the valuation metrics you choose to focus on.

Added: One might consider 2 each of:
  • Financials, e.g. banks
  • Non-bank financials, e.g. financial services
  • Consumer staples, e.g.grocer
  • Consumer discretionary, e.g. retail, self-storage
  • Regulated utility, e.g. electrical
  • Regulated telecom
  • Infrastructure, e.g. pipeline, water, waste management
  • Industrial, e.g. rail
  • Technology, e.g. sofware
There is 18 stocks right there......
 

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^^^^
... That being said I'd love to hear about your favourite dividend stock pick, and the reasons why it's your favourite.
... one of the rules to successful investing is never to fall in love with your stock(s) so can't advise on a favourite (or 2). The lists from post 2, 3 and 4 appear to be popularly successful with some very experienced Canadian-based investors here.
 

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I generally evaluate potential dividend investments by looking for PE to be in the 10 .. 15 range, market cap over C$1B, yield in the 3% .. 4% range and payout ratio in the 50% .. 70% range.
I wind up with banks, insurance, telecom, utilities, pipelines, some manufacturing (MG) and CNR. I also make an effort to address the sectors of Argo's 5pack. I have, approximately, a 30-pack weighted between banks, telecoms, reits, pipelines and a little bit of railway, augmented by a weighting of insurance.

I don't have any favourite specifically, but my best performing are probably BCE and RY, mainly because I've held those the longest.
 

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Discussion Starter · #8 ·
Hey everyone,

Thank you for your tips and contributions, very helpful and gives me a lot to consider.

In terms of building out a portfolio, I am a younger guy and just finished school so I don't have a ton of investable income right now. Is it advisable to focus on say 5 stocks, build up healthy ownership, and then move on to another 5+? Or would you suggest diversifying right away into 10+ and then slowly build up each holding as funding allows?
I will likely build this portfolio alongside some index funds (TD eSeries), just for added diversity and simplicity of forced savings through automatic contributions.

Cheers.
 

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Hey everyone,

Thank you for your tips and contributions, very helpful and gives me a lot to consider.

In terms of building out a portfolio, I am a younger guy and just finished school so I don't have a ton of investable income right now. Is it advisable to focus on say 5 stocks, build up healthy ownership, and then move on to another 5+? Or would you suggest diversifying right away into 10+ and then slowly build up each holding as funding allows?
I will likely build this portfolio alongside some index funds (TD eSeries), just for added diversity and simplicity of forced savings through automatic contributions.

Cheers.
Diversification could be medium term objective if you are just starting out and do not have a big portfolio. Have a list of a few stocks you like, and once funds become available buy one at a time.
 

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I agree with starting a position in one at a time. Depending on financial contribution rate, one might pick a different stock ever 6 months to get started to get a 5 pack of 8 pack going, and then go back to the first one to add to it.

Not sure what the OP means by building the stock portfolio alongside TD e series, unless the OP means using TD e series for non-Canadian equities, e.g. stock picking Canada and index everything else... a perfectly logical approach. Don't double up though with the Candian TD e series index fund along side Cdn equity stock picking. There is no logic in that.
 

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That article provided me a lot of reassurance. I hold almost all of those names (CNR, CP, Couchetard and Fortis excluded) I have always thought the first 3 names offered too little yield for my IPS. That being said the recent market events have reinforced there is risk in reaching for yield. Although I don't want long term recessions or depressions, should this week's bank results push share prices downward I may take a shot at CNR.
 
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