I’ve received a few questions recently regarding my model Yield Hog Dividend Portfolio. Today, I’ll answer some of them.
How can readers trust that the published returns for your model portfolio are accurate?
The Globe and Mail has an independent third party who maintains the portfolio spreadsheet published monthly at tgam.ca/dividendportfolio. This person (whom we’ll call the “accountant,” because that was his job before he retired) is responsible for recording all stock transactions, adding up the dividends and calculating portfolio returns. This is all done at arm’s length from me.
How are your trades “executed”?
It’s a virtual portfolio, not a real one, so trades work differently than with a discount broker. When I want to “buy” or “sell” a security, I inform the accountant of my intentions during the trading day. He then “executes” the transaction at the day’s closing price. This puts me at a disadvantage because I can’t capitalize on intraday moves in stock prices. But it ensures that there is no ambiguity in the price.
Why don’t you include trading commissions? Aren’t you inflating your returns?
Well, a little bit. But most of my model portfolio trades are small reinvestments of $500 to $1,000 in dividends, which would cost me all of $1.99 in commissions if I were using the cheapest discount broker. Also, I benchmark my portfolio’s total returns against the total returns of S&P/TSX composite index, whose performance numbers are not affected by commissions, either. So it’s an apples-to-apples comparison.
But let’s take a worst-case commission scenario. Say I paid $10 for each trade I made so far, including the initial purchases of 22 securities on Sept. 29, 2017, and 10 subsequent transactions. The portfolio’s total return through Feb. 28, 2019, net of commissions, would have been 11.72 per cent, compared with 12.04 per cent with no commissions deducted. Either way, the portfolio still beat the S&P/TSX’s total return of 6.7 per cent. Also, it’s worth noting that the model portfolio started with $100,000 of virtual cash. For a real-life portfolio of, say, $1-million, commissions would have shaved a negligible 0.032 percentage points off the return.
But your returns include dividends, and the index returns don’t, right?
Wrong. I always compare my portfolio’s total return to the index’s total return. Both include dividends.
Taxes would also reduce your return, but you don’t even mention them. Why not?
We don’t include taxes for the same reason that we don’t include commissions: They both vary depending on the individual.
Aren’t you just trying to drive up the price of your owns stocks?
Not at all. It’s true that I personally own all of the stocks in my model portfolio. This is always disclosed. But many of these companies trade more than a million shares a day, and to suggest that I can drive up their price is vastly overestimating the influence I have in a market dominated by large, institutional investors. Besides, I am a buy-and-hold investor focused on dividend growth and income, and because I do very little trading – personally or in my model portfolio – short-term price moves don’t really benefit me. My goal is simply to share what I believe are promising ideas for investors with a similar long-term focus, but I always encourage people to do their own research and not to blindly copy the model portfolio.
E-mail your questions to jheinzl@globeandmail.com.
John Heinzl