This is my April 2020 FFJ Portfolio update. The portfolio was created in January 2017 for the purpose of demonstrating how investing in high quality companies with competitive advantages and with a record of consistently increasing dividends can assist investors in reaching their long-term financial goals without the need to speculate or to chase dividend yield.
Despite a world in turmoil, we have witnessed a broad sudden recovery in equity prices in the month of April; I am of the opinion this ‘bounce back’ from March lows is temporary. I feel this way because although various governments plan to gradually reopen their economies I fear we are a long way from returning to ‘normal’. Even once a COVID-19 vaccine has been developed I think the ‘new normal’ will be different from the past and investors will need to lower their expectations.
It does not seem unreasonable to expect companies to report weak results over the next few quarters. As a result, I am hesitant to deploy ‘new’ money and am restricting share purchases solely to shares acquired through the automatic reinvestment of dividends.
My thinking is that many consumers and businesses are already in a heap of financial trouble in less than 2 months from when COVID-19 was declared a pandemic. With each passing month I suspect the financial position of many will deteriorate further.
If you’re interested in getting a high level overview of how messed up the US economy is I encourage you to listen to this.
The US and Canadian governments are throwing a lot of money around with what appears to have been little sound reasoning as to who is eligible for bailout assistance.
It irks me that companies which loaded up their balance sheets with debt for the purpose of repurchasing shares over the last few years are eligible to receive government assistance.
I am also greatly disappointed that the Canadian, UK, and US Federal governments have NOT placed any restrictions on funding for companies which are registered in offshore in tax havens. They should have done what France, Denmark, and Poland have done.
Any publicly listed company which has reported losses for 2 of the last 5 fiscal years should also be excluded from any bailout assistance. If a company cannot be consistently profitable it should not be in business.
Bailouts should not be permitted for companies which have furloughed employees unless the entire top layer of the corporate hierarchy receives NO compensation whatsoever. Take for example the CEOs of Southwest Airlines and United Airlines. Once again, the rank and file gets short changed.
In addition, no government assistance should be provided to any company unless ALL common share dividends are reduced to $0 and remain at $0 until such time as all government loans have been FULLY repaid.
I know the above is very simplistic but at the very least I think they are factors that should have been taken into consideration before the governments turned on the spigots. As it is, many companies which do not rightly deserve any form of financial government assistance qualify for funding.
I feel so strongly against bailouts that I restrict my investments to high quality companies which are highly unlikely to require government assistance; the holdings within the FFJ Portfolio’s ‘Core’ and ‘Side’ accounts can be accessed here.
On the dividend income front, there are some instances in which newly acquired shares do not get deposited to our investment accounts until several business days following the receipt of the dividends. This is the case for The Canadian Imperial Bank of Commerce (CM), The Toronto-Dominion Bank (TD), and The Bank of Nova Scotia (BNS) where dividends were just received. The April FFJ Portfolio report, therefore, slightly understates my exposure to these companies.
Dividend income is our primary source of retirement income (we have no intent to start collecting government pensions for several more years) so one of my investment objectives is to have this source of income grow faster than the rate of inflation.
Exxon Mobil Corporation (XOM) has recently announced a dividend freeze and the 5 Schedule A Canadian banks in which we have invested are unlikely to increase their quarterly dividend any time soon. The acquisition of additional shares through automatic dividend reinvestment, however, should translate into higher quarterly dividend income so at this juncture I do not foresee any issues with respect to dividend income growth outpacing the rate of inflation; the monthly dividend income generated from the holdings within the FFJ Portfolio can be accessed here.
From a ‘holdings’ perspective there has been very little activity since, as I mentioned earlier, I think shares of the companies which interest me are too richly valued.
The only changes made to the portfolio in April, other than the increase in shares acquired through automatic dividend reinvestment, are the following:
I transferred 51 Canadian National Railway Company (CNR) shares ‘in kind’ from Core – Investment Account #2 to Core – Investment Account #3 for tax planning purposes.
My month end report has been amended to include 35 McDonald’s Corporation (MCD) shares in Side – Investment Account #9 and 132 Johnson & Johnson (JNJ) shares in Side – Investment Account #10. These shares were acquired several years ago but I have never included them in previous reports (I have no rational reason for having excluded them for reporting purposes up to this point).
In my previous article I indicated my intent to share the steps two individuals in their early/mid 20s are taking so as to one day be in a position where they are generating positive personal free cash flow.
I am pleased to report they have slashed their expenses considerably since, by moving in our basement, they have completely eliminated their monthly rent/utilities expenses. They will also be returning to work within days…..so, along with the reduction in their expenses, they will also experience an increase in income.
What we need now, is a significant broad market pullback so their newfound free cash flow can be deployed toward the purchase of shares in attractively valued high quality companies.
Stay safe. Stay focused.
I wish you much success on your journey to financial freedom!
Note: Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].
Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.
I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.