MSFT - The ATVI Story - July Dividend Income Report

2023-08-17 13:29:00 ET

Summary

• Some months we might appear to underperform, but you must trust the process over the long term to evaluate our performance more accurately.
• On July 11, my shares of Activision Blizzard were up more than 10% on that day.
• Each year, I do a complete review of my portfolios in December. I like to take some time off to reflect on the year and review my asset, sector, and stock allocations.

In September of 2017, I received slightly over $100K from my former employer, representing the commuted value of my pension plan. I decided to invest 100% of this money in dividend growth stocks .

Each month, I publish my results on those investments. I don't do this to brag. I do this to show my readers that it is possible to build a lasting portfolio during all market conditions. Some months we might appear to underperform, but you must trust the process over the long term to evaluate our performance more accurately.

Performance in Review

Let's start with the numbers as of August 10, 2023 (before the bell):

Original amount invested in September 2017 (no additional capital added): $108,760.02.

• Portfolio value: $221,529.11
• Dividends paid: $4,545.44 ((TTM))
• Average yield: 2.05%
• 2022 performance: -12.08%
• SPY= -18.17%, XIU.TO = -6.36%
• Dividend growth: +10.83%

Total return since inception (Sep 2017-August 2023): 103.69%

Annualized return (since September 2017 - 71 months): 12.78%

SPDR® S&P 500 ETF Trust (SPY) annualized return (since Sept 2017): 12.38% (total return 99.49%)

iShares S&P/TSX 60 ETF (XIU:CA) annualized return (since Sept 2017): 8.65% (total return 63.36%)

Dynamic sector allocation calculated by DSR PRO as of July 5, 2023.

The ATVI Story

On July 11, I was caught by surprise: my shares of Activision Blizzard (ATVI) were up more than 10% on that day. ATVI surged on the market as news of a court win over the FTC was followed by signs of a peaceful regulatory resolution in the United Kingdom of its proposed acquisition by Microsoft (MSFT).

The stock hit $92, and that is close to the original MSFT offer of $95 per share. I sent an email to all my members to congratulate the 84 or more DSR PRO members with ATVI in their portfolio, and I let them know that I sold my shares for a ~50% profit over a year and a half.

As is the case in many transaction stories, what happened behind the scenes with this trade is even more interesting than the story's conclusion.

It all started in December of 2021…

Each year, I do a complete review of my portfolios in December. I like to take some time off to reflect on the year and review my asset, sector, and stock allocations.

The asset allocation review is usually quick. My goal is to be 100% invested in equities all the time. I try to keep a balance of 50% in U.S. stocks and 50% in Canadian securities.

The sector allocation review focuses on the weight of each sector and its sub-sector diversification. I try to keep my sector exposure below 20% for each sector. However, it happens from time to time that one sector (usually information technology) goes above this limit due to stock value appreciation. This red flag triggers a more in-depth analysis of each position in this sector to ensure I'm well-invested and not too dependent on a single industry.

The stock allocation review focuses on the number of stocks and their weight. In an ideal world, I would have all equally weighted positions. However, as the market is never equal, I have some winners taking more room in my allocation. My limit is set at 10% of all my portfolios (not just this pension plan account). If I reach that limit during December, I trim my position by a few percentage points. That's the good old "sell high, buy low" strategy.

During my yearly portfolio review of December 2021, I noticed I was overweight in tech stocks and that my two largest holdings were Apple (AAPL) and Microsoft. I then decided to trim both positions and reallocate my money elsewhere. I discussed those transactions in my January 2022 portfolio update . Back then, I bought more National Bank shares (NA.TO) and introduced my members to Activision Blizzard. Here's what I wrote in that report:

"ATVI has taken a rough beating in 2021. After showing impressive growth, the company revealed an ugly side: a culture of sexual misconduct and harassment. Management is paying the price for closing their eyes to the unacceptable… While this situation must be addressed and fixed rapidly, I doubt it will have a long-term impact on ATVI videogame franchises such as Call of Duty, World of Warcraft, Overwatch and Diablo to name a few. The company remains a dominant player in a growing industry."

I made an educated guess on a stock that was freefalling. I thought the risk/reward trade-off was very good on that buy transaction.

I wasn't the only one.

Microsoft thought the same and made an offer to acquire Activision Blizzard at $95/share later in January 2022. I quickly generated a significant paper profit, but I decided to hold onto my shares. The market sent a clear message that the deal had to be approved by many countries as the stock price was around $80, leaving $15 per share yet to be taken upon the deal closing.

Throughout 2022, the U.S. stock market fell into a bear market led by the technology sector. My investments in Apple and Microsoft took a 20%+ hit. I was glad I sold a few shares at their top to buy another winner instead.

Fast forward to July 11, 2023, where I sold ATVI at an almost 50% profit while Apple and Microsoft finally recovered from their 2022 fall in value. Let's be honest, I got lucky when I bought ATVI literally a month before the acquisition announcement. However, there is a lot more than luck in that story.

I followed a rigorous investment process and was rewarded for it. By selling shares of my top winners, I reduced my exposure to risk (over exposure to a sector and to specific stocks), I reduced my portfolio volatility (through better diversification) and I increased my chances of making profit (by selecting a solid company in National Bank and an interesting educated guess with Activision Blizzard).

As investors, we lose some, we win some.

We must make sure we win more and more often than we lose.

Now, what did I do with that big chunk of money?

I Bought 343 Shares of Brookfield Corp.

Brookfield Corp (BN) is a Canadian-based company, but it also trades on the NYSE. Even better, it pays its dividend in USD. Therefore, it's even better to buy it on the U.S. side. BN has been on my buy list since December of 2022. The stock price was down by roughly 30% since its peak value in 2021. This is usually the story of most asset managers when the market goes sideways. However, Brookfield Corp has done nothing but reinforce its place amongst the world's top alternative asset managers over the past few years.

BN continues to attract massive amounts of net capital inflows. Today, the company manages over $800B and is active across the world (more than 30 countries). Brookfield Corporation will not only do the asset-light manager's job (strategy + earning fees on AUM), but it will also contribute with its own assets. Therefore, it can benefit from its strategies by selling those assets at a profit in the future. Asset recycling happens when a company sells assets that it deems to be at a high value (e.g., good time to sell) to reallocate the proceeds into new projects or undervalued assets. This is again the classic "buy low, sell high" concept.

Smith Manoeuvre Update

Slowly but surely, the portfolio is taking shape with 9 companies spread across 7 sectors. My goal is to build a portfolio generating 4-5% in yield across 15 positions. I will continue to add new stock monthly until I reach that goal. My current yield is at 4.45%.

Adding more of Nutrien (NTR.TO)

I decided to add more Nutrien ( NTR ) to my portfolio for a second month in a row. As you know, I'm not a big fan of material stocks. They are highly dependent on commodity prices and generally make bad dividend growers. Nutrien is no exception in this regard. Before the merger of Agrium and Potash, Potash cut its dividend due to weak commodity prices.

Since the beginning of the year, NTR has been on a downtrend mostly related to the same narrative: commodity prices have been declining. Management added another layer of uncertainty by recently lowering their guidance for 2023.

Since the NTR stock price will fluctuate according to commodity prices, it's always a good idea to look at this type of business during a downtrend. NTR will not likely be part of my portfolio forever, but it makes sense at this price. It's a classic "buy low, sell higher" type of play.

Here's my SM portfolio as of August 10, 2023 (before the bell):

Let's look at my CDN portfolio. Numbers are as of August 10, 2023 (before the bell):

Canadian Portfolio ((CAD))

My account shows a variation of -$100.80 (-0%) since the last income report on July 5th.

As I'm on vacation off and on almost all summer, I'll do a review of all earnings in September and October.

Here's my US portfolio now. Numbers are as of August 10, 2023 (before the bell):

U.S. Portfolio ((USD))

My account shows a variation of -$1,226.20 (-1.28%) since the last income report on July 5th.

As I'm on vacation off and on almost all summer, I'll do a review of all earnings in September and October.

My Entire Portfolio Updated for Q2 2023

Each quarter we run an exclusive report for Dividend Stocks Rock (DSR) members who subscribe to our very special additional service called DSR PRO. The PRO report includes a summary of each company's earnings report for the period. We have been doing this for an entire year now and I wanted to share my own DSR PRO report for this portfolio. You can download the full PDF showing all the information about all my holdings. Results have been updated as of July 5, 2023.

Dividend Income: $84.89 CAD (-59% vs July 2022)

The dividend income for this month is a lot lower than last year mostly because I sold Gentex (no dividend increases since COVID) and Algonquin ( AQN ) (dividend cut earlier this year).

While I received less dividends, my portfolio is a lot stronger today!

Here are the details of my dividend payments.

Dividend growth (over the past 12 months):

• Alimentation Couche-Tard: +27.27%
• Granite REIT: +3.4%
• Currency: N/A

Canadian Holding payouts: $84.39 CAD.

• Alimentation Couche-Tard: $50.26
• Granite REIT: $34.13

U.S. Holding payouts: $0 USD.

• No dividend payments.

Total payouts: $84.39 CAD.

*I used a USD/CAD conversion rate of 1.3399

Since I started this portfolio in September 2017, I have received a total of $21,882.77 CAD in dividends. Keep in mind that this is a "pure dividend growth portfolio" as no capital can be added to this account other than retained and/or reinvested dividends . Therefore, all dividend growth is coming from the stocks and not from any additional capital being added to the account.

Final Thoughts

I didn't expect to make any other trades at this time of the year. But I couldn't let this opportunity pass by. After all, my goal was to hold ATVI for 18 to 24 months. I then deployed this dry powder in a solid company that I intend to hold for a very long time.

I already know that I'll have to sell some tech stocks in December to rebalance my portfolio. Let's hope next time I follow my end of year process I get lucky again!

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

For further details see: