A Retirement Portfolio Designed for Dividends

How hard can it be to design a good stock portfolio capable of pumping out four percent in dividend income annually? Back in late June, June 25th to be exact, I did jut that. I designed what I hoped would be a portfolio up to the task and I posted it for all to see. Now, to sit back and see it praised or criticized depending on its performance.

I started my portfolio with an initial one million dollars. From personal experience, I believe this is a reasonable starting value. I will do more work on this in the coming months. If I have to lower the initial value of my example portfolio, I will.

I am withdrawing four percent in the first year: $40,000 annually or $3,333.33 at the start of every month. I made my first withdrawal in August. I let the first month, July, slip by as I wanted to build up a little cash before entering the withdraw stage. I filled the portfolio in June, I did not try to time the market, and so dividends began accumulating immediately.

Today, September 5, 2023, the retirement income portfolio is worth $1,008,083.36 after the withdrawal of $6,666.66 in two months (August and September). At this rate, at the end of 12 months, I will have withdrawn a full four percent in cash and the portfolio will have enjoyed a capital gain of 4.85%. Nice. Will this really come to pass. We will see.

To see the portfolio in its entirety, please click:

My latest crack at a "Retirement Portfolio"

Core holdings in a retirement portfolio

One is often advised to have one or more annuities in one's retirement portfolio. Although I believe that is good advice, I do not have any annuities in my portfolio. I look at the stable annuity payout, so stable that in twenty-five years it will be paying exactly what it is delivering today -- not a penny more nor a penny less -- and I cringe.

Then I compare this to the dividends paid by my core stock holdings. For instance, take Fortis (FTS). As reported by Gordon Pape, Fortis "recently increased its dividend for the 49th consecutive year." I find the idea of holding a utility like Fortis for 25 years a lot more appealing than holding an annuity for the same time period.

Fortis is a utility company based in St. John's Newfoundland but with operations extending into five Canadian provinces, nine U.S. states and three Caribbean countries. And Fortis is not the only good utility company in Canada. The short list of fine alternatives includes: Emera (EMA), Hydro One (H) and Canadian Utilities (CU).

I'd feel very comfortable holding 4-5% of my retirement portfolio in each of these companies for a total exposure to the utility sector of 16% to 20%.

Another sector in which all Canadian retirement portfolios should have exposure is banking. The Canadian banking system may be unique in the world. The five biggest Canadian banks control the sector. I would argue that all five Canadian banks are "too big to fail." Conservation of assets is a core goal of one's investment approach in retirement. The five biggest Canadian banks are safe and their dividends are safe as well. This year will mark 194 years without a dividend cut for the Bank of Montreal, 189 years without a cut for the Bank of Nova Scotia and 166 years for the TD bank.

The big five Canadian banks are: RY, BMO, TD, CIBC and BNS. I prefer to weight my investments in the banking sector by bank size. For this reason, I weight my investments in the banking sector toward the Royal Bank and the Bank of Montreal and away from the Bank of Nova Scotia. Still, with all five taken together, I find I feel comfortable with from 25% to 35% of my total portfolio invested in banks. And be aware, I am not adverse to investing in the National Bank (NA) even though it has been known to reduce its dividend in tough times.

Some core holdings for a Canadian retirement portfolio:

• RY (Royal Bank)       
  
• BMO (Bank of Montreal)
  
• TD (Toronto Dominion Bank)
  
• CM (Canadian Imperial Bank of Commerce)
  
• BNS (Bank of Nova Scotia)
  
• FTS (Fortis)
  
• EMA (Emera)
  
• H (Hydro One)
  
• CU (Canadian Utilities)

After this, I would consider adding telecoms and pipelines to my retirement holdings.