FFJ Portfolio – November 2020 Report

This is my November 2020 FFJ Portfolio report. 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.

Although the valuation level of many companies are detached from the underlying fundamentals I am not surprised that many companies are trading at 'nosebleed' levels. We have historically low interest rates and eye-popping amounts of money 'sloshing around the system' with few legitimate investment alternatives. In addition, we have witnessed an explosion in the number of retail 'traders' (investors is the wrong terminology) who have little concern for the underlying fundamentals of companies and valuation levels; equity markets have been transformed into casinos.

Several companies in which I wish to initiate a position, such as Intuitive Surgical (ISRG), Cintas Corporation (CTAS), Brown-Forman (BF-B), Waste Management (WM), and Zoetis (ZTS), are currently trading at forward adjusted P/E levels in excess of 37! Then we have companies in which I wish to increase my exposure, such as Mastercard (MA), Visa (V), Nike (NKE), Stryler (SYK), Heico (HEI-a), and Ecolab (ECL), where the forward adjusted P/E levels is, in some cases, well in excess of 37!

As much as I am of the opinion the aformentioned are high quality companies, I can not justify investing in them when my analysis leads me to the conclusion that they are valued at unreasonable levels. Investing in grossly overvalued companies means there is essentially little margin for error. If a company fails to meet 'investor' expectations and falls out of favor with the investment community, a stock price plunge can be swift and significant and the stock price can remain depressed for quite some time. If you think this is not possible....look at the stock charts for Intel (INTC) and Cisco (CSCO) and use mid-1998 as the 'start date'!

Share Purchases in November 2020

Given my concern about current valuation levels and my low tolerance for risk, I made just the following few outright purchases in November:

  • TD Bank (TD);
  • Brookfield Asset Management (BAM-a);
  • 3M (MMM);
  • Intact Financial (IFC);
  • Lockheed Martin (LMT).

The articles in which I disclosed these purchases can be accessed here.

FFJ Portfolio

In November I initiated steps to reduce the number of investment accounts I manage. This is the reason for the slight reduction in the number of 'Core" accounts reflected in the November FFJ Portfolio relative to October; the list of holdings within the FFJ Portfolio’s ‘Core’ and ‘Side’ accounts can be found here.

The monthly FFJ Portfolio dividend income reports can be accessed here.

I typically receive dividend income from TD Bank at the end of January, March, July, and October. This year, TD's October dividend was distributed on October 31st which fell on a weekend so I did not receive that bank's dividend until the first business day of November. As a result, October's dividend income is understated and the November dividend income is overstated relative to historical levels.

In addition to the dividend income reported for November, I received dividend income from the following companies which was automatically reinvested to acquire additional shares. These shares are held in undisclosed accounts:

  • The Toronto-Dominion Bank (TD)
  • AT&T (T)
  • Mastercard (MA)
  • The Bank of New York Mellon (BK)
  • Carrier Global Corporation (CARR)
  • The Royal Bank of Canada (RY)
  • The Bank of Montreal (BMO)

Projected 2021 Dividend Income

At the end of each calendar year I try to anticipate the dividend income my equity holdings can realistically generate in the upcoming year; I segregate the holdings within the FFJ Portfolio and the accounts for which I do not disclose details.

In my December 2019 FFJ Portfolio update I anticipated the following 2020 dividend income levels:

  • Core Accounts – CDN ~$15,500 and USD ~$19,000
  • Side Accounts – CDN ~$20,500 and USD ~$12,500

With just under a month remaining before year end, the dividend income targets for the Side Accounts have been surpassed. By the end of 2020, the Core account dividend income targets will have also been surpassed.

After having reviewed my existing holdings I anticipate the existing FFJ Portfolio holdings will generate, at a minimum, the following dividend income in 2021:

  • Core Accounts – CDN ~$17,600 and USD ~$23,500
  • Side Accounts – CDN ~$24,200 and USD ~$17,000

The increase from 2020 levels takes into consideration lump sum purchases made during 2020, the automatic reinvestment of dividends, and a very conservative 1.50% dividend increase across the board.

If I convert the USD dividend income to CDN using a 1.30:1 fx rate I expect the FFJ Portfolio will conservatively generate $94,450 in 2021 dividend income. The monthly dividend income fluctuates widely on a monthly basis but on average we're looking at $7,870/month available for the purpose of automatically acquiring additional shares.

Final Thoughts

Since I am of the opinion that the current environment is highly uncertain, I would like asset prices to be low so as to create prospective returns that will adequately compensate me for the risk I assume when investing in a company. The low interest rate environment, however, has resulted in elevated stock prices which leads to lower potential investment returns.

Judging from what I see occurring, I think the broad market is vulnerable to negative surprises and far too many investors have placed themselves in a position where the odds are stacked against them. This business of investing using a significant degree of leverage or investing in companies which are grossly overvalued, are unprofitable, which generate negative free cash flow, and/or which have a poor business model, etc. is certainly not a recipe for success.

It is certainly possible the euphoric market conditions witnessed in recent months could continue. For how long, however, is anybody's guess.

I know my tolerance for risk and think the odds of generating reasonable investment returns are stacked against me if I invest in companies which appeal to me at their current valuations. I remain satisfied with my exposure to all the companies in which I have invested but I am certainly not aggressively looking to deploy new money. My game plan is to continue to patiently wait on the 'sidelines' for a meaningful 'pullback' and to selectively acquire shares in high quality companies as appropriate.

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.