Try Fund Library Premium
For Free with a 30 day trial!
Anyone who has studied investing closely understands the cyclical nature of the process as it relates to interest rates. Some types of securities thrive when rates move higher (for example, GICs). Others see strong gains when the central banks are easing.
We have just entered a new easing phase. Both the Bank of Canada and the Federal Reserve Board dropped their target rates by a quarter point in mid-September, and many economists think there is much more to come.
That should be welcome news for those readers who have been tracking our High Yield Portfolio. All the securities it holds are interest-rate sensitive, although that’s obviously not the only factor affecting their share price.
The main objective of this portfolio is to generate above-average cash flow. If we can score some capital gains, so much the better.
Right now, our model High Yield Portfolio is delivering on both counts. These stocks were badly beaten when the Bank of Canada was raising interest rates, but now we’re seeing a turnaround that should last for several months.
This portfolio was created in March 2012 for investors seeking above-average dividend income who were willing to live with somewhat more 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, Canadian dividends are eligible for the dividend tax credit.
The initial portfolio 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 mid-May. Results are to Sept. 19.
Enbridge Inc. (TSX: ENB). Enbridge stock has been on a strong upward trend for the past year and was given another boost by interest rate cuts this month in Canada and the U.S. The quarterly dividend is $0.9425, and due to timing, we received only one payment. The stock yields 5.5%.
Pembina Pipeline Corp. (TSX: PPL). Pembina shares bounced back, gaining $2.59 in the latest period. The company increased its quarterly dividend by $0.02 in May, to $0.71 per share. We received payments that totaled $1.42. At the current price, the dividend yield is 5.1%.
Sun Life Financial Inc. (TSX: SLF). SLF had been on a strong run but slipped $4.93 in the latest period. The quarterly dividend was increased 4.8%, to $0.88 a share, in May and we received two payments at the new rate. The current yield is 4.2%.
Capital Power Corp. (TSX: CPX). The stock scored a nice gain of $10.84 in the latest period. Investors will receive a dividend increase of 6%, to $0.691, effective with the payment of Oct. 31. The dividend yield will be 4.25% at the new rate.
Canadian Imperial Bank of Commerce (TSX: CM). Bank stocks continue to recover strongly as recession fears have eased. CIBC is up $19.82 since May. The bank pays a quarterly dividend of $0.97 per share to yield 3.4%.
Power Corporation of Canada (TSX: POW). We added this conglomerate to the portfolio in March 2024. It has interests in life insurance (Great-West Life), asset management, and banking. The stock is now trading at $58.74, up $8.75 since the last review. The quarterly dividend is $0.6125 ($2.45 a year) to yield 4.2%.
BCE Inc. (TSX: BCE). BCE stock finally steadied after the company slashed its dividend by over 50%, to $1.75 a year. The shares are up $0.89 since the last review. We received two payments at the new rate of $0.4375. The stock now yields 5.5%.
Firm Capital Mortgage Investment Corp. (TSX: FC). Mortgage investment corporations normally see their share prices decline when rates rise. But when rates switch direction, these shares move up. That’s where we’re at now – the shares gained $0.27 in the latest period. Not a lot, but we should see more of this as interest rates continue to fall. The monthly cash flow is steady at $0.078 a share, with a yield of 7.6%.
Peyto Exploration & Development (TSX: PEY). This is an Alberta-based natural gas company that was added in October 2024. It is currently paying a monthly dividend of $0.11 a share ($1.32 a year) to yield 7.3% at a price of $18.01.
Northland Power Inc. (TSX: NPI). Northland was added to the portfolio in May. It is a clean energy company with operations in Canada, the U.S., and Europe. The shares pay a monthly dividend of $0.10 ($1.20 a year) to yield 5.4%.
We put our cash and retained earnings of $3,849.19 into a Simplii Financial promotional account that offered a rate of 3.7%. We earned $47.47.
The table below shows what the portfolio looked like on Sept. 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 it was added to the portfolio. Sales commissions and exchange rates are not considered.
The portfolio has a total value of $89,937.43 and is up 7.9% since the last review four months ago.
We have a total return of 260.5% in the 13 1/2 years since inception. That translates into an average annual growth rate of 9.96%, which is well above our target range.
In terms of cash flow, the portfolio earned $1,430.02 in the four months since the last review. The yield for that period was 1.72%. Our annual cash flow target is 5%, so the portfolio is performing as expected.
All our securities are performing reasonably well, so we won’t make any changes. However, we will reinvest some of our retained earnings as follows:
PPL – We’ll buy another 10 shares for $551.50. This brings our total to 170 shares and leaves $242.25 in reserve.
SLF – We’ll add 10 shares at a cost of $830.10. That brings our total to 170 shares, with $123.50 remaining.
FC – We’ll buy 40 shares at $12.37 for a cost of $494.80. That brings our total to 540 shares, with $66.82 left in reserve.
We love taking advantage of bank promotions with our cash. Right now, Tangerine Bank is offering an annualized rate of 4.5% for five months on new accounts, so we’ll move the money there. We have $3,576.28 to deposit.
Here is the revised portfolio. I’ll review it again in my Income Investor newsletter in March.
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.
For more information and details on how to subscribe to Gordon’s newsletters, go to www.buildingwealth.ca/subscribe.
Notes and Disclaimer
Content © 2025 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/alfexe
Try Fund Library Premium
For Free with a 30 day trial!
Fund Library
