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I recently watched a webinar sponsored by Harvest Funds that featured respected professor and author Jeremy Siegel.
Dr. Siegel, who teaches at the Wharton School at the University of Pennsylvania and wrote the best-selling book Stocks for the Long Run, is a value investor and a firm believer in the long game when it comes to investing.
He displayed a variety of charts to illustrate his points, but one really caught my attention. It showed the average annual real return on various types of investments for a period of more than 200 years, from January 1802 to December 2023. I’ve seen similar graphs but none that covered such a long duration.
I’m sure it won’t come as a surprise that stocks are the best place for your money over the long haul, with an average annual gain of 6.8% over the period. What may be a bit of a surprise is the big gap with the second category, bonds, which averaged only 3.3%. Treasury bills returned 2.5% annually, while the return on gold was only 0.6%. The worst place for your money was cash – the U.S. dollar lost an average of 1.4% in purchasing power annually over those years.
Ironically, the webinar happened just as I was about to update my Internet Wealth Builder Buy and Hold Portfolio, so thanks Dr. Siegel for reinforcing my key point – you can earn great returns by choosing good stocks and then doing nothing.
The portfolio was launched 12 years ago, in June 2012. It invests in high-quality stocks, with the intention of holding them through bull and bear markets. The core premise is that the long-term trend of the markets is up, and if you own good stocks, they’ll move with it.
The portfolio consists mainly of Canadian and U.S. blue-chip stocks that offer long-term growth potential. It also has a bond ETF holding. The original weighting was 10% for each stock with the bond ETF starting with a 20% position. That has now been reduced because equity increases have outpaced the bond market.
I used several criteria to choose the stocks. These included a superior long-term growth profile, industry leadership, a good balance sheet, a history of dividend increases, and relative strength in down markets.
The objective is to generate decent cash flow (all the stocks pay dividends), minimize downside potential, and provide slow but steady growth. The target rate of return was originally set at 8% annually.
These are the securities we hold with comments on how they performed since my last review in late November. Prices are as of the close of trading on June 19.
iShares Canadian Universe Bond Index ETF (TSX: XBB). The Bank of Canada finally delivered a rate cut earlier this month. Are there more coming? Probably, but there are no guarantees. If it happens, it will boost XBB units, although probably not dramatically. The price is up $0.63 since our last review in late November, and we received monthly distributions that totalled $0.449 per unit.
BCE Inc. (TSX: BCE). BCE shares continue to lose ground, despite another dividend increase. The stock is down $8.41 since the last review and is trading at its lowest level in 10 years, despite a yield of about 9%. Because of timing, we received three dividends during the period for a total of $2.9425 per share.
Brookfield Corporation (TSX: BN). Brookfield shares continue to rally and are up $6.93 since the last review. BN pays a quarterly dividend of US$0.08 a share.
Procter & Gamble (NYSE: PG). We added a small position in P&G to this portfolio a year ago. We like the stock because of its steady business profile and long-term growth. The shares gained $17.43 in the latest period, and we also received two dividends for a total of $1.948 per share.
Canadian National Railway Co. (TSX: CNR). CN shares made a small move in the latest period, gaining $4.48. We received three dividend payments totalling $2.48 a share.
Enbridge Inc. (TSX: ENB). Enbridge shares posted a modest gain, up $0.65 for the period. The company raised its quarterly dividend by 3.1%. We received three quarterly dividends for a total of $2.7175.
Toronto Dominion Bank (TSX: TD). The stock has taken a hit, and the bank has been deeply embarrassed by the failure of its anti-money laundering safeguards to stop drug dealers from running an estimated US$650 million through its system. The bank was hit with a US$9.2 million fine, but that may be just the beginning. The bank has set aside an additional $450 million to pay future penalties. Even that may be insufficient; some financial industry experts think the eventual cost to the bank could be in the US$4 billion range. Not surprisingly, the stock fell $9.33 during the period and is trading near its 12-month low. We received two dividend payments of $1.02 each for a total of $2.04 per share.
Alphabet Inc. (NSD: GOOGL). Tech stocks continue to perform well. Alphabet shares are up by over US$40 since our last review. As a bonus, the company instituted a small dividend of US$0.20 per quarter.
UnitedHealth Group (NYSE: UNH). UNH is the top health insurer in the US, and our best performer. But the shares hit some turbulence in the last six months and fell US$53.93 since our last review. Due to timing, we received three quarterly dividends for a total of US$5.85 per share.
Walmart Inc. (NYSE: WMT). Walmart stock split 3 for 1 in February, increasing our position to 360 shares. The stock then went on a strong run, gaining US$15.57 in the period. We also received a small dividend increase.
Cash. We moved our cash and retained earnings of $4,457.16 to Duca Credit Union, which was offering a 5.75% return. We received $128.14 in interest.
Here is the status of the portfolio as of June 19. The Canadian and U.S. dollars are shown at par, but obviously the U.S. holdings are doing better thanks to the strength of the greenback. Trading commissions are not factored in, although in a buy and hold portfolio they are not significant in any event.
The new portfolio value (market price plus retained dividends/distributions) is $167,442.39. That compares with $161,256.73 at the time of the last review, for a gain of 3.8%.
The gain was mainly due to large contributions from Alphabet and Walmart. We also had positive results from Brookfield, Procter & Gamble, CN Railway, and Enbridge. The big losers were TD Bank, BCE, and UnitedHealth Group.
Since inception, we have a total return of 235.3%. That represents an average annual compound growth rate over 12 years of 10.61%. That is well ahead of our 8% target.
TD Bank and BCE are concerns. In any other portfolio I would replace one or both, but the objective here is to stick with our stocks through good times and bad. That does not mean we’ll never replace anything, however. I’m watching both these stocks closely and if things don’t improve soon, we’ll swap them out.
We will use some of our retained earnings, as follows.
BCE – We’ll buy another 10 shares for $444.10. The stock has been sagging badly, but the company is not going out of business. The dividend is a concern, but a cut is unlikely, so we’ll add more shares while they are cheap. Our total position is now 220 shares, and we have retained earnings of $260.82.
CNR – We’ll purchase another five shares at $160.01, for a cost of $800.05. We now own 120 shares and have retained earnings of $96.71.
ENB – With the stock at $47.57, we’ll add 10 shares at a cost of $475.70. We now own 230 shares, with $398.45 in retained earnings.
TD – The bank has some serious issues, but the stock hasn’t been this cheap since early 2021. We’ll buy another 10 shares for a cost of $739.70. We now have 200 shares, with cash remaining of $41.20.
The portfolio has cash and retained earnings of $4,520.10. EQ Bank is currently offering 5% on their notice savings account, so we’ll move our money there.
Here is the revised portfolio. I will update it again in my Internet Wealth Builder newsletter in December.
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 X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 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.
Image: iStock.com/PaulPaladin
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