With the first quarter in the books, today I’ll review the performance of my model dividend portfolio. Then, I’ll discuss how I’m reinvesting the cash I’ve accumulated.
First, a brief recap of the portfolio’s mission.
I launched the model Yield Hog Dividend Growth Portfolio on Oct. 1, 2017, with $100,000 of virtual “cash.” My goal was to identify established, stable companies with a history of raising their dividends and a high probability of future increases.
I’m happy to report that, during the first quarter, the portfolio continued to meet its core objective of churning out a growing income stream. Five of the portfolio’s 20 companies hiked their payouts: Brookfield Infrastructure Partners LP (BIP.UN) raised its distribution by 6 per cent; BCE Inc. (BCE) 5.1 per cent; TC Energy Corp. (TRP) 3.4 per cent; Restaurant Brands International Inc. (QSR) 1.9 per cent; and Canadian Utilities Ltd. (CU) 1 per cent.
Viewed in isolation, such dividend increases might not seem like much. But over time, particularly when combined with regular reinvestments of cash, they can really add up.
My model portfolio is a great example. At inception, it was generating annualized cash flow of $4,094. Now, it is throwing off a projected $6,439 of income annually, based on current dividend rates. That’s an increase of about 57 per cent, and I have no doubt the cash flow will continue to grow for many years to come.
Dividend investing has proved to be an effective strategy in all sorts of market environments. Now, with inflation at a 30-year high, it’s important to protect one’s purchasing power. Receiving dividends that increase regularly is a great way to fight back against rising living costs, particularly for retirees who rely on dividends to supplement their other sources of income.
As much as I love dividends, they’re just one component of an investor’s return. The other – usually larger – component is capital growth, and the portfolio has delivered in that department, too.
As of March 31, the model portfolio was valued at $161,797.80, representing a total return – from dividends and share price gains – of 61.8 per cent since inception, or 11.3 per cent on an annualized basis. That compares with a total return of 60.4 per cent for the S&P/TSX Composite Index over the same period, or an annualized 11.1 per cent.
The portfolio also held a slim lead over the S&P/TSX in the first quarter, with a total return of 4.6 per cent, compared with 3.8 per cent for Canada’s benchmark index.
Now, let’s put some of the portfolio’s cash to work.
Shares of Restaurants Brands International have been under pressure as the pandemic, labour challenges and stiff competition have posed headwinds for the owner of Tim Hortons, Burger King, Popeyes and – as of December – Firehouse Subs. But as economies reopen and the world learns to live with COVID-19, the company’s growth is set to accelerate.
In 2021, systemwide sales at Restaurant Brands rose nearly 14 per cent, thanks to a combination of rebounding same-store sales and the opening of more than 1,200 new restaurants worldwide. For 2022, analysts expect more than 1,500 new units to open globally, including the expansion of Tim Hortons into India and Popeyes into South Korea.
International growth isn’t without risks. In Russia, the company says it has started the process of disposing of its 15-per-cent stake in a joint venture that operates about 800 Burger King restaurants. But with so many untapped or underdeveloped markets, Restaurant Brands has plenty of growth ahead. The company has said it aims to reach 40,000 restaurants worldwide before the end of the decade, up from about 29,000 today spread across more than 100 countries.
I believe Restaurant Brands will achieve its ambitious growth plans, which is why I’ve decided to take advantage of the stock’s current weakness and purchase an additional 10 shares for my model portfolio, bringing my total to 90 shares.
I have no idea what the share price will do in the short run, but over the long run I’m confident that Restaurant Brands will satisfy my cravings for growing dividends and a rising share price.
Full disclosure: The author personally owns shares of BCE, BIP.UN, CU, QSR and TRP.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.
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John Heinzl