The performance of the two-minute portfolio over the past decade is yet another reminder of how dividend stocks can drive investing success.
You can read the 2MP summary for 2019 and the 2010s here.
A quick summary: Though it underperformed the S&P/TSX composite by a bit last year, the 2MP averaged total returns of 10.4 per cent over the past 10 years while the index averaged 6.9 per cent.
The 2MP is a simple stock-picking strategy where you invest equal amounts in the two largest dividend-paying stocks by market capitalization in each of the 11 subgroups of the S&P/TSX composite index. There’s not a lot of portfolio turnover in this portfolio because the sector giants in many sectors tend to remain the same. A perfect example is Canadian National Railway Co. (CNR), which was recently discussed in a weekly note from IncomeResearch.ca. CNR’s steadiness helps explain the consistency of the 2MP.
While Canada is definitely a country of dividend-investing enthusiasts, we don’t have the same depth of long-time dividend payers that U.S. investors do. CNR is an exception. According to IncomeResearch.ca, it has increased dividends for 24 straight years. Over the past four years, dividend increases have averaged 14.6 per cent.
IncomeResearch says the recent share price, which yields about 1.7 per cent, reflects expectations of future annual dividend growth of about 10 per cent.
“CNR is a bellwether stock for the overall economy where growth is expected to continue from interest rates and inflation remaining low,” the IncomeResearch note said.
Investors have a bunch of different ways to get blue chip dividend payers like CNR into their portfolios, including buying the stocks individually and through dividend exchange-traded funds and mutual funds. The 2MP is another possibility for investors who want to own individual stocks, but like the idea of having a simple strategy for deciding what to buy and don’t mind a bit of work at the start of the year to rebalance the portfolio. That means substituting some stocks that are no longer market cap leaders in their sectors and getting each of the 22 stocks back into a roughly equal weighting.
Historically, there are just two or three substitutions at most to make every year in the 2MP. Dividend stalwarts like CNR tend to stick around.
-- Rob Carrick
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Stocks to ponder
Ballard Power Systems Inc. A sell-off in the hydrogen fuel cell space has sent the shares of Ballard Power Systems Inc. into a tailspin, knocking almost 30-per-cent off the company’s market value in just three days. An earnings miss from one of Ballard’s competitors, combined with news that Volkswagen AG plans to cut spending on fuel cell development, seemed to crush investor enthusiasm for the entire subsector. For Ballard, which, up until a few days ago was by far the best performing stock in the S&P/TSX Composite Index over the last 12 months, the swift reckoning put an end to a remarkable run. Tim Shufelt reports
Killam Apartment Real Estate Investment Trust Apartment REITs are bouncing back after experiencing some weakness in late 2019. The investment rationale for this REIT is: 1) earnings growth from acquisitions and development projects; 2) strong operating results; and 3) an attractive yield with a conservative payout ratio of 83 per cent. Jennifer Dowty looks at the investment case for this REIT.
The Rundown
Poof! Why Encana Friday may have disappeared from your portfolio
When the bell rang to open the Toronto Stock Exchange Friday, Encana Corp. disappeared from the major index that tracks the Canadian market – as well as from the portfolios of many Canadians, putting near-term pressure on the company’s share price. Although it leaves the Composite and other indexes that include Canadian stocks, it didn’t join any major U.S. indexes Friday. David Milstead reports
Canadian tech stocks flying high amid stampede to big names
A small but plucky group of Canadian IT names is quietly trouncing not only the overall stock market, but also the colossal U.S. tech sector. The S&P/TSX Composite Technology Sector Index was the class of the Canadian stock market in 2019 with a 64-per-cent return, and the streak has continued into this year, with another 12-per-cent move in just the past three weeks. Shopify Inc. this week hit an all-time high. For a market dominated by resources and banks, tech leadership is a novel twist. The only problem is there are too few of them. Tim Shufelt reports
These funds offer juicy yields and protection from higher interest rates. But here’s what you may not know
Razor-thin interest rates have motivated investors to reach for extra returns for years. Accordingly, many investors have invested in investment funds holding bank loans – a.k.a. senior secured loans, leveraged loans, term loans, floating rate loans, institutional bank loans. The market for floating rate loan funds has evolved over the past five years in good and bad ways. Liquidity risks, however, are higher than ever, and inaccurate labelling of funds and holdings masks true investment exposures. Dan Hallett has this detailed analysis, including a fund-by-fund breakdown of key metrics and each fund’s label accuracy for investors.
Others (for subscribers)
Friday’s analyst upgrades and downgrades
The week’s most oversold and overbought stocks on the TSX
Friday’s Insider Report: CEO and CFO are purchasing this dividend stock yielding nearly 5%
Thursday’s analyst upgrades and downgrades
Thursday’s Insider Report: These three dividend stocks are being bought
Number Cruncher: Six dividend stocks that are ahead of the curve on climate-change risks
Number Cruncher: Taking a fresh perspective on thirteen of last year’s ‘dogs’
When China sneezes: World market themes for the week ahead
Globe Advisor
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What’s up in the days ahead
Rob Carrick this weekend presents this year’s first instalment of the ETF Buyer’s Guide. To kick things off, he looks at Canadian equity funds.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff