Executive summary
The Richard Dri Canadian Dividend growth model – 20-years on. Learn the story behind the dividend growth model that’s consistency delivered attractive risk adjusted returns for 20-years
So much happened during the last twenty years: the aftermath of 9/11, the financial crisis of 2008, historically low interest rates, quantitative easing by the central banks and more recently, the economic repercussions of the pandemic.
So, I thought it would be a great time to evaluate how my flagship model performed during such extreme conditions.
Given that most of my clients were/are retired or pre-retired and require cash flow to fund retirement lifestyle expenses, it was important for the model to concentrate on the following objectives:
- Stocks that paid increasing dividends,
- stocks that were less volatile against the S&P/TSX, and
- stocks that performed well against the S&P/TSX.
Read this article for my analysis but here’s a hint: during 2021, the model’s stock prices and dividends were both up… significantly.
The year is 2022!
This year marks the 20th anniversary of my flagship model that I shamelessly called the “Richard Dri Canadian Dividend growth ” model.
Today’s article looks back at why I created the model, and possibly more importantly, whether the model has achieved the objectives established back in 2002.
Some history
After completing a four-year stint as a public accountant with a major Canadian accounting firm, I decided that I was ready to expand my wings and start an investment firm. The year was 1992 and the Canadian economy was struggling through a deep recession. Few people were interested in RRSPs, stocks or mutual funds, so the timing couldn’t have been worse. Nevertheless.
As I have written in past articles, the early 1990s were financially difficult for me and my family and I was close to financial bankruptcy.
I should mention that we had two bright spots, the birth of our first son in 1991, followed by the birth of our second son in 1994. Personally, it was a magical time for me, I loved playing and laughing with my young kids and spending time with Mary, as a family of four.
Professionally, I persisted and by the late 1990s, the Canadian economy began to recover, and my little investment firm began to grow and flourish.
We provided mutual funds, insurance and after qualifying as a Certified Financial Planner, we offered personalized financial planning services to Canadian pre-retirees.
Looking back, it was an exciting time to be in business, however, I had a nagging question that kept popping up and I couldn’t find the right answer. I kept asking myself, “how do I consistently find tomorrow’s top-performing stocks?” I didn’t have the answer, but I had a hunch that the study of history held the answer to my question.
A chance encounter with a professional investor
I’m sure you heard the following saying, “when the student is ready, the teacher appears.” My teacher was an experienced and successful long-term investor (not a speculator). Through a review of historical data, he proved that the best-performing stocks share many common characteristics.
At first, I had trouble understanding the lesson, then I remembered my aunt, who’s a teacher. She claimed she could identify the best-performing students on the first day of school. Over her many years of teaching, she learned that the best-performing students shared certain “success characteristics” which increased their odds of becoming top students.
Once she determined which students had some or all of these “success characteristics,” she believed she could guess the honour roll students before any tests or exams were written.
After many hours of study with my investment guru, a two-step investment process was developed:
- Study the best performing stocks of the last 30-years and identify the common characteristics they shared,
- find today’s stocks displaying these characteristics, and
- reapply the filter each quarter and replace stocks that are no longer sharing the characteristics with stocks that do.
The birth of the Richard Dri Canadian Dividend Model
With the assistance of a research company called Computerized Portfolio Management Services (today part of Morningstar research), we identified 10 common characteristics found in the best performing dividend stocks of the last 30-years and with this information we built the computer model needed to screen and rank today’s stocks displaying these characteristics.
I should add a note here that we only studied dividend paying companies because our clients were either retired or pre-retirees and needed cash flow to fund their retirement lifestyle.
By screening stocks against the 10 filters identified from the study, a list was generated ranking stocks based on how well they matched the filters. The model then selected the top 20 stocks and held each stock until the stock’s ranking fell below the 33 percentile, if/when this occurred, the stock was replaced with the next highest ranking stock.
The study also noticed that dividend increases often led to stock price increases, hence we tweaked the model to give additional importance to stocks displaying consistent dividend increases.
As of December 31st, 2021, how has the model performed?
The compounded investment returns are as follows
1 year 17.8%
3 years 13.3%
5 years 8.2%
10 years 12.7%
From inception (December 31st, 1990) 13.8%
(Before fees and reinvesting all dividends)
How about dividend increases?
What a year for dividend increases… As of December 31st, 2021, 19 of the 20 companies in our dividend model increased their dividends in 2021. The dividend increases were as high as 38% for Newmont Corp and Quebecor, and the average increase for the 20 stocks within the portfolio was 13.75%.
I couldn’t be happier with the dividend increases, many of our clients are retirees and the bulk of their retirement income comes from dividends so, when the model’s dividend increases by almost 14%, retirement cash flow also increases.
In addition, if our research is correct and stock prices follow dividend increases, then the future looks promising for our dividend growth stocks.
Final thoughts
From the model’s inception on December 31, 1990, it has consistently outperformed the S&P/TSX index (13.8% vs 8.9%), and demonstrated lower risk and volatility than the index (0.6 beta vs 1 beta for the index).
As the creator of this model, I have seen it grow, evolve and consistently meet its objectives. Akin to a father to his child, I’m proud of what you’ve achieved. As a portfolio manager, I’m very happy with the investment model’s long-term investment performance and I look forward to better or similar returns over the next 20-years.
However, I caution investors (especially newer investors), stock prices move in two directions: upward and downward. Investors must be prepared and expect months or even years when the market direction is downward.
Yet, despite negative returns, the model’s long-term performance has historically rewarded investors with investment returns greater than those offered by guaranteed investments, such as government bonds.
I hope that I’ve inspired you to relook at your financial planning. If you need help, call my office and book an appointment. We will help you start 2022 in a positive and profitable way. In fact, if you have any goal in mind — big or small — that requires some financial planning, but you’re struggling with where to start, reach out to our team. We have the expertise and life experiences to help guide you to achieving your goals.
Contact us today to learn more about the options available to you. CLICK HERE.
Learn more:
- Insurance plans and managing risk
- Maximizing your RRSP contributions
- Retirement and realty
- Eight retirement income sources
- Richard Dri Dividend growth model
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source https://richarddri.ca/richard-dri-canadian-dividend-growth-model/
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