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This past March marked the tenth anniversary of the High-Yield Portfolio I created for my Income Investor newsletter. It was launched in March 2012 as a model for readers seeking above-average cash flow at reasonable risk.
The portfolio 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 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 total rate of return of 7% to 8%, with an annual yield of around 5%.
Here is a review of the securities we own and how they have performed in the time since our last review in September. Results are to March 11.
Enbridge Inc. (TSX: ENB). Enbridge is a good place for your money at this time. Its assets are mainly in North America, and the rise in the demand for oil, even at these high prices, has boosted revenue and profits. The stock is up $5.94 from the last review in September and the company raised its quarterly dividend by 3% in February to $0.86 ($3.44 per year), to yield 6.1% at the current price.
Pembina Pipeline Corp. (TSX: PPL). The share price continues to recover, gaining $2.53 since the last review. At the current price, the yield on the $0.21 monthly dividend is 6.3%.
Sun Life Financial Inc. (TSX: SLF). After a pause to consolidate, Sun Life shares were on the move again in the latest period, rising $3.35 or 5.2%. The trend was aided by a 20% increase in the quarterly dividend, to $0.66 a share ($2.64 a year), effective with the November payment. The current yield is 3.9%.
Capital Power Corp. (TSX: CPX). After a long upward run, Capital Power gave back $3.43 in the latest six months. The quarterly dividend is $0.5475 per share ($2.19 per year), for a yield of 5.4% at the current price.
Canadian Imperial Bank of Commerce (TSX: CM). Interest rates are moving higher, which is good news for banks because it increases profit margins on loans. CIBC shares are up another $13.10 since our last review. The Office of the Superintendent of Financial Institutions lifted its freeze on increases, and CM immediately announced a hike of 10.3%, to $1.61 per quarter ($6.44 per year). The stock yields 4.1%.
Brookfield Energy Partners LP (TSX: BEP.UN). This Bermuda-based limited partnership invests in an international portfolio of clean energy properties, mainly hydro. Green energy companies were hot in 2020 but then sold off because they couldn’t compete with cheap fossil fuels. Now that oil and gas prices are rising again, green energy looks more cost effective, and the unit price is up $3.84 since the last review. The quarterly distribution was increased 5.3% effective with the February payment to US$0.32.
BCE Inc. (TSX: BCE). The stock is up $5.61 in the latest six-month period. The dividend is $0.875 per quarter ($3.50 a year). The stock yields 5%.
Firm Capital Mortgage Investment Corp. (TSX: FC). This mortgage investment corporation was added at the time of our last update. The shares are down about a dollar since but the monthly cash flow is steady, with a yield of 6.7%.
Algonquin Power & Utilities Corp. (TSX: AQN). This is another green energy company that is showing signs of recovery. The price is up a modest $0.06 since our last review, but at least it’s moving in the right direction. The yield is 4.5%.
North West Company Inc. (TSX: NWC). This company has a long history, with a prime focus on general stores in Northern Canada and Alaska. The shares are up $2.73 since the last review, and we received two dividends of $0.37 each. The yield is 4%.
We earned $21.41 from the cash we deposited in an account with Motive Financial that paid 1.25% at the time.
The table below shows what the portfolio looked like as of the close of trading on March 11. 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 it was added to the portfolio. Sales commissions and exchange rates are not considered.
Comments: The portfolio continues to perform well, gaining 7.7% in the latest six-month review period. The largest contributions came from Pembina, Enbridge, and BCE, but every position gained ground except Capital Power and Firm Capital.
With the latest gain, we are showing a total return of 167.5% in the 10 years since inception. That translates into an average annual growth rate of 10.34%, which is above our target range.
In terms of cash flow, the portfolio earned $1,380.06 in six months, for a yield of 2.2% in that time. Over a full year, that would work out to about 4.4%. Our target is 5% but that may be difficult to achieve without taking on more risk.
Changes: I believe most income investors would be happy with the combination of growth and cash flow this portfolio is producing so I’m not going to make any changes at present. We will, however, put some of our retained income to work, as follows.
ENB – We will buy another 10 shares for $566.60. That will give us 90 shares and reduce retained earnings to $11.22.
SLF – We’ll add 10 shares at a cost of $674.80. We now have 150 shares and retained earnings have been reduced to zero. We’ll take $8.97 from general cash reserves to make up the difference.
CPX – We’ll take advantage of the price drop to buy another 10 shares for a cost of $403.50. Retained earnings will drop to zero and we’ll use $57.33 from cash to pay the difference.
BEP.UN – We have enough to purchase another eight units, to bring out total to 180. The cost will be $417.76, leaving retained earnings of $123.54.
FC – We’ll add another 10 shares for a cost of $140.40. We now have 410 shares and retained earnings of $51.60.
AQN – We have enough saved to add another 15 shares for a cost of $288.45. We now own 200 shares and have $46.41 remaining.
NWC – Finally, we’ll add another five shares of North West Company at a cost of $186.55. That gives us 140 shares and retained earnings of $152.30.
Our retained earnings plus cash now totals $2,228.78. We’ll move the money to EQ Bank, which is paying 1.25%.
Here is the revised portfolio. I will review it again in my Income Investor newsletter in August.
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 Investor newsletters, which are available through the Building Wealth website.
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Notes and Disclaimer
Content © 2022 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. 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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