I launched the High Yield Portfolio in my Income Investor
newsletter in March 2012 for readers who wanted above-average cash flow and
could handle a higher level of risk. It invests entirely in stocks, so it
is best suited for non-registered accounts where any capital losses can be
deducted from taxable capital gains. Also, a high percentage of the
payments will receive favourable tax treatment as eligible dividends or
return of capital.
The initial value was $24,947.30, and I set a target average annual rate of
return of 7% to 8% annually. Here is a review of the securities we own and
how they have performed in the six months since my last review in
September. Results are to March 23.
The Keg Royalties Income Fund (TSX: KEG.UN). The units are down $2.01 since the last review, despite the fact the fund
raised its monthly payout by 3.2%, to $0.0946 ($1.1352 per year). The yield
is 6.3% at the time of writing.
AltaGas Ltd. (TSX: ALA). The AltaGas price continues to trend lower even though the company
increased its monthly distribution by 4.3%, to $0.1825 ($2.19 per year).
The combination of a lower price and a higher dividend means the yield is
up to 9.2%.
Vermilion Energy Inc. (TSX: VET). Improving energy prices offset the rising interest rate trend, and this
stock held its ground during the period, losing only $0.28 per share. We
received dividends of $1.505 per share, which more than offset the slight
decline in share value.
Enbridge Inc. (TSX: ENB). We bought 70 shares of Enbridge in September at what at the time seemed
like a reasonable price of $49.21. But the market disagreed, and the stock
has continued to drop, losing $10.73 per share in the six months. This was
in spite of a 10% dividend increase, which took the quarterly payment to
$0.671, or $2.684 per year, to yield just under 7%.
Premium Brands Holding Corp. (TSX: PBH). Not all of our stocks went down. Premium Brands continued its great run,
adding $15.29 per share. The company also announced a 13.1% dividend
increase, to $0.475 per quarter ($1.90 per year). That will only have the
effect of increasing the yield to 1.7%; however, the yield based on our
original purchase price will rise to 9.7%.
Morneau Shepell Inc. (TSX: MSI). This stock is also on the rise, with the shares up $4.20 since the last
review. That’s a big move for this company, which reported a 33% profit
increase in 2017. However, there was no change in the monthly dividend of
$0.065 ($0.78 a year), so the yield is down to 3.1% based on the current
price. Using the original purchase price, it is 6.1%.
Pembina Pipeline Corp. (TSX: PPL). Pembina shares dropped a fraction during the period, losing $0.88. However,
we received $1.25 per share in dividends, so we ended up with a small
profit. The stock yields 5.4% at the time of writing.
Sun Life Financial Inc. (TSX: SLF). Banks and life insurance companies tend to do well when interest rates
rise, and Sun Life showed that with a price jump of $6.58 in the latest
period. We received a dividend increase of 4.6%, to $0.455 per share
quarterly ($1.82 per year). The current yield is 3.4%.
Chemtrade Logistics Income Fund (TSX: CHE.UN). Chemtrade shares took a hit, dropping $3.25 since the last review. The
units pay a $0.10 monthly distribution ($1.20 a year), to yield 7.8%.
Medical Facilities Corp. (TSX: DR). This has been a loser since we acquired it, but this time the loss was
modest at $0.69 per share. That was almost offset by dividends of $0.56.
The monthly dividend is $0.09375 ($1.125 per year), to yield 8%.
Pizza Pizza Royalty Corp. (TSX: PZA). We will spend another $2,464.50 to purchase 150 shares of Pizza Pizza
Royalty Corp. at $16.43. The shares have held up reasonably well in the
rising rate environment and yield 5.3% on an annual dividend of $0.82 per
We earned $26.72 from the cash we deposited in an account with EQ Bank that
paid 2.3% at that time.
The table below shows what the portfolio looked like as of the close of
trading on March 23. The weighting is the percentage of the market value of
the security in relation to the total market value of the portfolio. The
gain/loss shows the performance of the security since inception or since it
was added to the portfolio. Sales commissions are not taken into account,
and the U.S. and Canadian dollars are treated as being at par for ease of
Despite the heavy pressure on interest-sensitive stocks, this portfolio
managed a small gain of 3.3% in the latest six-month period, thanks mainly
to strong performances from Premium Brands, Sun Life Financial, and Morneau
Shepell. I consider that a very good result in the circumstances.
In the six years since inception, this portfolio has generated a net gain
of 84%. That’s an average annual return of 10.7%, which is a very good
Changes: The investment climate is changing. Interest rates are moving higher,
U.S. protectionism is rattling world markets, and the bull market may be
running out of steam. Against this background, I want to add some larger,
more stable stocks to this portfolio, even though their yields will be
lower than those we are selling.
Accordingly, we will make the following sales:
AltaGas. We’ve waited a long time for this one to turn around, but it keeps on
sliding. Therefore, we are selling our position for a total of $2,700.75,
including retained dividends.
Medical Facilities Corp. This is another loser, which reported mediocre year-end results for 2017.
Total proceeds from this sale are $2,667.20.
We will invest the money in 50 shares of
CIBC (TSX: CM). The stock is trading at $114.07, for a total cost of $5,703.50. We’re a
little short of the amount needed, so we will take $335.55 from cash to
make up the difference. The stock currently yields 4.7%.
We will also buy another 10 shares of The Keg Royalties Income Fund, to
bring our total position to 200. Retained earnings will be reduced to
As well, we will add another 20 units to our position in Chemtrade at what
appears to be a very attractive price, bringing the total to 220. The cost
is $309.20. We will use all of our retained earnings and take $7.90 from
We are left with a cash balance of $2,220.13, which we will keep in our EQ
Bank Account at 2.3%.
Here is a look at the revised portfolio. I will revisit it in six months in
the Income Investor newsletter.
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 Investornewsletters, 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
https://twitter.com/GPUpdates and on Facebook at
Notes and Disclaimer
© 2018 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.
BUILDING WEALTH WITH GORDON PAPE