Like a championship sports team, a well-constructed investment portfolio contains more than one type of stock. For example, if you love investing in dividend stocks, it’s not enough to own 10 large caps that provide a minimum yield and are consistently growing their dividends. You want to spread the love beyond Royal Bank of Canada (TSX:RY)(NYSE:RY) and other Canadian bank stocks — although an investment in the Big Five over the past 10 years delivered wonderful results — to companies with smaller market capitalizations. I’ve always found that a good way to create a championship-calibre portfolio is through the use…
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Like a championship sports team, a well-constructed investment portfolio contains more than one type of stock. For example, if you love investing in dividend stocks, it’s not enough to own 10 large caps that provide a minimum yield and are consistently growing their dividends.
You want to spread the love beyond Royal Bank of Canada (TSX:RY)(NYSE:RY) and other Canadian bank stocks — although an investment in the Big Five over the past 10 years delivered wonderful results — to companies with smaller market capitalizations.
I’ve always found that a good way to create a championship-calibre portfolio is through the use of an all-cap selection process, where you allocate an equal weighting in large-cap, mid-cap, small-cap, and micro-cap stocks.
When and how you rebalance and reconstitute is up to you.
Almost two years later
In May 2016, I’d picked four stocks as part of a miniature all-cap portfolio; I haven’t rebalanced or reconstituted the portfolio since. The performance suggests that the team concept works equally as well with stocks as it does with athletes.
Total return — May 27, 2016, to March 21, 2018
|Market Cap||Company||% Return|
|Large Cap||Brookfield Asset Management Inc.
|Mid Cap||Alaris Royalty Corp.
|Small Cap||DHX Media Ltd.
|Micro Cap||Canopy Growth Corp.
Source: Yahoo Finance
If you’d invested $1,000 in each of these stocks, today you’d have $14,496 — an annualized total return of 90.4%.
However, because I recognized the risk involved in allocating an equal weighting to Canopy, I’d suggested 40% go into Brookfield, 30% into Alaris, 20% into DHX, and 10% into Canopy.
Under this suggested allocation, the all-cap portfolio has delivered an annualized total return of 41.6% — still outstanding, but not quite as impressive.
The all-cap portfolio illustrates how you can generate outstanding returns by diversifying beyond the usual large-cap dividend stocks. Except for Canopy, all pay dividends.
All-cap dividend stocks
Like last time, I’m going to recommend four stocks, one for each market cap that I think will do well over the next two years; three of which pay dividends.
Keep in mind, these are stocks I’m familiar with; I’m not going to give you a lot of information to go on, so you’ll want to do your own due diligence.
I’d love to go with Brookfield again, because it’s one of my favourite TSX stocks, but it’s only right that I recommend a new batch for the ultimate all-cap dividend stock portfolio.
Restricting my large-cap selection to stocks with a market cap of $20 billion or more, I’ll go with Alimentation Couche-Tard Inc. (TSX:ATD.B) — what I consider to be one of the five best TSX stocks; Brookfield is another.
Couche-Tard stock is getting walloped at the moment as a result of soft sales in its U.S. stores. That’s great news if you want to buy its stock for less. It will recover.
Shopify’s success is critical to Canada’s tech sector continuing to grow. If it fails, much like a couple of high-profile flame-outs before it, tech in this country will fail to take off.
It won’t fail.
This one isn’t going to deliver WEED-like growth over the next two years, but since Couche-Tard doesn’t pay a big dividend, I thought I’d include a pick that does.
Rogers Sugar Inc. (TSX:RSI), which sells sugar under the Rogers and Lantic brand names, currently yields 5.7%. In November, the company acquired one of Canada’s biggest producers of maple syrup for $160 million, providing it with a growth vehicle for a future with less sugar in it.
This is an income investor’s dream stock.
It’s upgrading its can line in 2018. The $3.5 million investment will double its canning capacity to 400,000 hectoliters per year, which should add to the top and bottom lines.
From the team that's doubled the market...
Not to alarm you but you're about to miss an important event. You see, renowned investor Iain Butler just revealed his next great stock idea.
And I don't know about you, but I always pay attention when one of Canada's best investors gives me a stock tip.
Fool contributor Will Ashworth has no position in any stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of BROOKFIELD ASSET MANAGEMENT INC. CL.A LV, Shopify, and SHOPIFY INC. Alimentation Couche-Tard and Shopify are recommendationd of Stock Advisor Canada. Alaris is a recommendation of Dividend Investor Canada.