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Pape's Income Portfolio posts solid gain
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By Gordon Pape  | Monday, February 13, 2017



In May 2015, I created an income portfolio designed for Tax-Free Savings Accounts (TFSAs) for readers of my Income Investor newsletter. At the time the former Conservative government had raised the TFSA contribution limit to $10,000 annually, making these plans even more attractive to income investors.

The Liberals have since rolled back that limit to $5,500, but even at this level TFSAs can provide a valuable source of tax-free income to investors who structure their portfolios properly.

At present, the maximum lifetime contribution for an individual who was 18 or older at the start of 2009 is $52,000. However, at the time this portfolio was created the maximum was $41,000, so that was the initial starting value.

This portfolio has a goal of generating cash flow of at least 5%. Income is the key to its success; any capital gains are a bonus. Note that because the securities chosen have above-average yields, risk is on the high side. So this is not a good model for very conservative investors.

I selected 10 securities from the Income Investor Recommended List. All are Canadian-based, so currency exchange is not a factor, except for the distributions from the limited partnerships, which are in U.S. dollars. I gave each security an initial weighting of approximately 10% for diversification and balance. Here are the components of the portfolio with a brief report on how they have performed since the last update in May last year. I updated this portfolio in December, so prices shown are as of the close of trading on Dec. 9. Prices for some holdings have changed, but not enough for any concern. And since there haven’t been any material changes to the holdings since then, my recommendations for action stand.

BCE Inc. (TSX, NYSE: BCE). Most interest-sensitive stocks have seen their prices drop since the election of Donald Trump sparked new concerns about higher interest rates and rising inflation. BCE hit a high for the year of $63.40 last July when it appeared the low interest rate environment would continue for some time but have since dropped $5 from that level. That has pushed the yield back up to 4.7%. We received two quarterly dividends totaling $1.365 per share.

Bank of Nova Scotia (TSE, NYSE: BNS). Bank stocks do well during a time of rising interest rates and Scotiabank shares are up $13.77 since our last review. That’s not as good as some other big banks because BNS has a significant presence in Mexico, which is a target for Donald Trump’s trade policies. However, it was enough to vault this stock from a break-end position last time to a gain of 24%. The dividend was raised again in September to $0.74 per quarter.

Brookfield Infrastructure Limited Partnership (TSX: BIP.UN, NYSE: BIP). This Bermuda-based limited partnership is a spinoff company from Brookfield Asset Management, which owns a majority stake. The units split three for two in September, which means you received an additional half unit for every one you owned previously. That increased the position in our portfolio to 113 units and reduced the average cost to $37.93. Due to timing, we received three distributions during the period, totaling $131.07.

Brookfield Renewable Partners (TSX: BEP.UN, NYSE: BEP). This is another Brookfield spinoff, but with a focus on renewable energy, mainly hydro but also some wind projects. Despite a recent pullback, the units are up $0.80 from the time of our last review. We are receiving a quarterly distribution of US$0.445 per share, giving the units a yield of 6% at the current price.

Inter Pipeline (TSX: IPL, OTC: IPPLF). This stock took a big hit after the price of oil dropped. However, it recovered this year and is up another $1.71 since the May review. The company increased its monthly dividend by 3.8% in November to $0.135 per share ($1.62 a year). The increase brings the yield up to 5.7%.

North West Company (TSX: NWC, OTC: NWTUF). This Winnipeg-based retailer had been performing well but got ahead of itself. Investors were selling during the latest review period, driving the price down by $2.84. The only good thing about that is that the yield is back up to 4.7% (it was May). We received two dividends totaling $0.62 per share.

Sienna Senior Living Inc. (TSX: SIA, OTC: LWSCF). Sienna’s share price dropped by $1.08 during the latest review period, but the monthly dividends of $0.075 per share continued to roll in. The current yield is 5.6%.

TransAlta Renewables Inc. (TSX: RNW, OTC: TRSWF). The stock briefly topped $15 in September, but it has been in retreat recently as interest rates have risen. However, the shares are still up $1.09 over our last review in May. The quarterly dividend remains at $0.0733 ($0.88 per year) for a yield of 6.3%.

Firm Capital MIC (TSX: FC). This mortgage investment corporation bucked the downtrend, gaining $0.84 per share in the latest period. This stock offers a monthly payment of $0.078 ($0.936 per year) to yield 6.7%.

SmartREIT (TSX: SRU.UN, OTC: CWYUF). This is the only REIT in the portfolio, and like the rest of the sector, it has been on a slide recently. The shares are off $3.07 since my last review. On the plus side, the monthly distribution was increased by 3% in October, to $0.1416 ($1.70 per year), to yield 5.4%.

We received interest of $19.96 during the latest period from our EQ Bank savings account. Here is how the portfolio looked at the close of trading on Dec. 9.

Comments: The new portfolio valuation is $48,130.16 (market value, cash, and retained income). That is up 5.6% from the time of my last review in May. Overall, we are ahead 17.4% since the launch, for an average annual compound growth rate of 10.5%.

We received cash flow of $1,356.74 over the period, which works out to just under 3% for the seven-month period. Over a full year, that’s the equivalent of 5.1%, which is consistent with our target.

Changes: A couple of our securities had disappointing results over the latest period, such as SmartREIT and North West Company. However, all our picks continue make regular payments and several have raised their dividend/distribution. Our cash flow is on target, so I see no need to make any material changes to the portfolio this time.

However, we will spend some of our cash to add to existing positions, as follows.

BCE – We will add five shares to bring our total to 80. The cost is $292, leaving our retained cash at $7.82.

BIP.UN – We’ll buy seven more units to round up our total to 120. The cost will be $301.28. We’ll use all the retained income and take the balance of $11.28 from cash.

SIA – We will add 10 more shares at a cost of $160.20. This brings the total to 290 and reduces the retained income to $80.90.

RNW – Here too we will add 10 shares, spending $139. Our new total is 360, with retained earnings of $67.68.

FC – We will buy another 20 shares for $279. This will use up all retained income and we will take the balance of $6.40 from cash. We now have 370 shares.

SRU.UN – Finally, we’ll add another 10 units of SmartREIT at a cost of $315.60. This will give us 150 units and reduce retained income to $78.36.

Readers are reminded not to execute small trades unless you have a fee-based account. Use dividend reinvestment plans instead.

We will keep our cash of $1,420.76 in the EQ Bank savings account, which now pays 2%. I’ll review the portfolio again in May.

Here is a look at the revised portfolio.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investornewsletter, which are available through the Building Wealth website.

For more information on subscriptions to Gordon Pape’s newsletters, check the Building Wealth website.

Follow Gordon Pape on Twitter at and on Facebook at

Notes and Disclaimer

© 2017 by The Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.


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