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I created the Income Investor High Yield Portfolio nine years ago, in March 2012. It is designed for readers looking for above-average cash flow and who can handle a higher level of risk. It is mainly designed to generate above-average income, but over the past six months it has also posted a large capital gain.
This 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 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 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 19.
Enbridge Inc. (TSX: ENB). Investors finally figured out that a pipeline company with solid earnings and a dividend yield of more than 8% was not a bad place for their money at a time of low rates. The shares are up $5.14 from my last review in September, and the company raised its quarterly dividend by 3.1%, to $0.835 ($3.34 per year) effective with the February payment. Because of the price rise, the yield is down to 7.4%, which is still high for a company of this quality.
Pembina Pipeline Corp. (TSX: PPL). Pembina continues to pay its monthly dividend of $0.21 a share, and the company prides itself on having been able to maintain it throughout the pandemic and last year’s drop in oil prices. Investors are starting to believe; the shares are up almost $7 since the last review. At the current price, the yield is 6.8%.
Sun Life Financial Inc. (TSX: SLF). Banks and insurance companies profit when interest rates are rising. So, the recent upsurge in sovereign yields was good news for this stock, which is up almost $10 a share since the last review. The yield is unchanged at $0.55 per quarter ($2.20 per year). The price increase has pushed down the yield to 3.4%.
Capital Power Corp. (TSX: CPX). This stock continues its recovery from last year’s selloff, gaining $6.85 in the latest period. The quarterly dividend was raised 6.9% last September, to $0.5125 per share ($2.05 per year). The stock yields 5.7% at the current price.
Canadian Imperial Bank of Commerce (TSX: CM). As mentioned, rising interest rates are good for banks and insurers. CIBC shares responded strongly, rising $24.85 since our last review. The quarterly dividend is $1.46 and is fixed at that level until the Office of the Superintendent of Financial Institutions lifts its prohibition on increases. Because of the increase in the share price, the stock’s yield is down to 4.6%. That’s still high for a Big Five bank, but it’s down from 7% at this time a year ago.
Brookfield Energy Partners (TSX: BEP.UN). This Bermuda-based limited partnership was added to the portfolio in September 2019. It invests in an international portfolio of clean energy properties, mainly hydro. At the end of July, investors received one share in a new company, Brookfield Renewable Corporation (TSX: BEPC) for every four units of BEP. Then, in December, the shares of both BEP.UN and BEPC split 3 for 2. The net result was a nice gain for investors. The distribution will be increased by 5% with the March 31 payment.
BCE Inc. (TSX: BCE). We added BCE to this portfolio about a year ago. The shares are trading at just about the same level, but the dividend was raised by 5% in March, to $0.875 per quarter ($3.50 a year). The stock yields 6.3% at the current price.
AT&T Inc. (NYSE: T). This giant U.S. telecom was also added about a year ago. As with BCE, the shares are trading at about the same price as when we bought them. The quarterly dividend is US$0.52 (US$2.08 per year) for a yield about 7%.
Algonquin Power & Utilities Corp. (TSX: AQN). This is another recent addition. It’s a green energy company that traded as high as $22.67 earlier this year. It has pulled back but is still ahead by almost $1 since our last review. The dividend yield is 4%.
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 only $0.15 since the last review, but we received a 9.1% increase in the quarterly dividend at the end of September, to $0.36 per share ($1.44 a year). The yield is up to 4.1% as a result.
We earned $21.57 from the cash we deposited in an account with Motive Financial that paid 1.75% at the time.
The accompanying table shows what the portfolio looked like as of the close of trading on March 19. 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 and exchange rates are not considered.
Comments: The portfolio is doing well, gaining 16.7% in the latest review period. All the stocks in the portfolio gained ground, with the largest contributions coming from CIBC and Sun Life.
With the latest gain, we are showing a total return of 133.9% since inception, which translates into an average annual gain of 9.9%, which is above our target range.
In terms of cash flow, the portfolio earned $1,212.25 in six months for a yield of 2.4% in that time. Over a full year, that would work out to about 4.8%, slightly below our 5% target.
Changes: To boost our yield a bit, we’ll add another 10 shares of BCE at $56.74, to bring our total to 70. The cost will $567.40. We’ll take $202.44 from retained income and the remaining $364.96 from our cash reserve, reducing that total to $976.28.
Everything else remains the same.
Our retained earnings plus cash now totals $3,109.74. We’ll keep this amount in our Motive Financial Savvy Savings Account, which is now paying 1.25%.
The accompanying table shows the revised portfolio. I will review it again in my Income Investor newsletter September.
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.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
© 2021 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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