Two of my investments have been struggling recently.
Sylogist Ltd. (SYZ.TO) slashed its dividend by 92%, and many analysts expect that the other one, Algonquin Power & Utilities Corp. (AQN.TO), may cut its dividend in the near future.
Both of them dropped sharply with their quarterly earnings results.
It is a setback in my financial journey.
Markets have rebounded sharply from October low, but these two investments are holding me back from the gains.
As an income-focused investor, dividend reduction is not fun to watch. Honestly, it is disturbing me and testing my ability to handle setbacks.
I have seen dividend cuts in my portfolio before.
A couple of holdings (ALA.TO, BEI.UN, IPL.TO, REI.UN) reduced their distributions while I owned them. I exited them later with small or no profits, except REI.UN because I added positions in RioCan in 2020 while expecting a dividend cut.
But they were small positions in my portfolios; thus, their dividend reset didn’t significantly impact my portfolio.
And a few other holdings (CGX.TO, SU.TO) cut dividends after I sold their positions.
Sylogist (TSE: SYZ) reduced its dividend by 92%
Actually, I was expecting a dividend cut from Sylogist, but honestly, I didn’t expect a 92% reduction. I was expecting around a 50% cut next year.
It is the first dividend cut in my portfolio in 2022.
Currently, I have 1400 shares of SYZ.
I initiated this stock in September 2020 and built my positions at the time with an average purchase price of $10.89.
After I completed my positions, the stock went over $18 in a few weeks. It was almost an 80% gain in a few weeks. I looked so smart. I felt like an ‘I am a star stock picker.’
I should have taken profits, but I didn’t (unfortunately). I was in a greeting mindset and hoping for more gain.
The fun didn’t last long.
Within a month or two, the stock tanked and gave up all its gains; however, it continued to pay a steady dividend.
A week ago, it slashed its dividend by 92%, and the stock took a hit with the news.
SYZ paid $700 annually (1400 x $0.50), which was around 2.27% of my annual dividend income.
The value was around 2.3% of my overall portfolio, representing approximately 1.08% after the crash.
It is a small-cap stock and is rarely in many Canadian dividend portfolios. But AQN is in many Canadian dividend portfolios.
AQN earning missed
On November 11, AQN fell more than 19% with its quarterly earnings results. Many analysts now expect a dividend cut from AQN as its payout ratio is well above 100% (based on its adjusted earnings).
But it is well covered if you calculate the payout ratio from its fund-from-operation (FFO).
Thus, I don’t know whether the company will reset its dividend.
It is a well-known utility stock, and many Canadian dividend investors have it in their portfolios.
If they reduce their distribution, it will indeed affect my portfolio and my annual dividend income.
I have 1600 shares of AQN. It is one of my most significant holdings, and it pays me around a $1500 annual dividend (in Canadian dollars), which is approximately 5% of my dividend income.
The stock allocation was around 3.9% before the crash and now is about 2.45%.
It was a very unexpected drop. It impacted my portfolio performance for a couple of days.
Profitable businesses
I don’t speculate when it comes to investment. I don’t have a single investment in Crypto or any unprofitable business.
I invest only in profitable companies.
Both of these stocks make profits. They are not speculative stocks. And without a doubt, they are good businesses.
But, I failed to predict the direction of the stock.
I didn’t expect the news from AQN as it was a steady utility stock.
My Plan
I have no plan to sell these positions at these depressed prices.
As I mentioned, they are profitable companies.
They will recover from their setback, but it may take some time (maybe years).
Once they recover, I may sell a portion of the holdings. Maybe exit the full position of SYZ (depending on their financial situation)
My mistakes
It was not my first mistake, or certainly not the last one. Mistakes and setbacks are common in investing.
Based on history, dividend cuts and unpleasant surprises are very common in a bear market.
As a long-term investor, I try to minimize mistakes. I can’t certainly avoid them altogether, but I can only minimize them.
But, occasionally, something happens beyond our control. It is part of investments.
I must accept my mistakes and move on.
Diversification
Luckily, my portfolio is well-diversified. I have no holdings that represent more than 5% of my portfolio. Thus, any unexpected events in any single stock won’t significantly affect my portfolio.
I respect that you have analyzed your own setback and you accept it + will learn from it.
I occasionally get criticism from different minded people when i try to explain to them how I take my after tax money, and invest it in companies weighing the risk to do so to get an income from them. (Dividend investing) They claim I’m benefitting from other peoples hard work, being paid while I sleep by the dividend. Which is cute to say, but in reality not quite how it works. Its also clearly not without risk. 5% is a pretty hefty setback. Especially if you retired going into a down market.
This risk you have described and explained they never take into consideration. The same people that would claim that insurance covers ALL your losses if your business or home is burned down. So it’s ok.
Thank you, Paul, for stopping by!
I usually ignore those types of criticisms. All investors take the risk with their hard-earned money, and all kinds of investments come with some sort of risks. As a dividend investor, I work hard, save tirelessly, and invest in companies that pay dividends. I have been taking a risk with my money to earn more money. On some occasions, I lose my investments.
It is their mistake if people think it is easy money and benefit from others’ work.
Even if AQN cuts its dividend in half, we will still get over 4% dividend payout.
Thank you, Peter, for stopping by!
That’s what I think too. If management slashes AQN by 50%, it will pay more than 4% with the current price. It will be more secure and well-covered dividend payments. Thus, there is no point in selling at this current level.
There is some risk with their debt level, but I have no plan to sell them at the current level.
Best Regards,