10.3%
I created the IWB Buy and Hold Portfolio eight years ago, in June 2012. It has a very simple goal – invest in great stocks and then hold on to them, no matter what the market is doing. Over the long term, the strategy works. There are ups and downs, of course, but the underlying thesis is that the long-term trend of the markets is up. If you own good stocks, they’ll move with it.
This portfolio consists mainly of blue-chip stocks that offer long-term growth potential. It also has a small fixed-income holding. The original weighting was 10% for each stock with a bond ETF that started with a 20% position but 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, and relative strength in down markets.
The objective is to generate decent cash flow (all the stocks but one pay dividends), minimize downside potential, and provide slow but steady growth. The target rate of return is 8% annually.
These are the securities we hold with comments on how they performed since my last review in December. Prices are as of the close of trading on June 24 – a day when the markets recorded big losses.
iShares Canadian Universe Bond Index ETF (TSX: XBB). Except for a brief hiccup in March, this bond ETF has been a pillar of stability in this portfolio as the market has experienced its worst turbulence in more than a decade. The units are ahead $1.47 since the last review in early December. Because of timing, we received seven distributions totalling $0.506 per unit.
BCE Inc. (TSX, NYSE: BCE). When the market dropped in March as the impact of the pandemic became clear, most stocks were dragging down with it. That included BCE Inc., which lost a lot of advertising revenue when the economy shut down. The shares dropped as low as $46.03 before recovering to some degree. In March, the company raised its quarterly dividend by 5% to $0.833.
Brookfield Asset Management (TSX: BAM.A, NYSE: BAM).
The good news is that we benefitted from a three for two stock split in April. The bad news is that the shares were hard-hit by COVID-19, largely because of Brookfield’s extensive property holdings and concerns about rent payments. We still have a big gain here, but it has been eaten into by this downturn.
CN Rail (TSX: CNR, NYSE: CNI). CN stock held up much better than might be expected during the period. The railroad was hit by blockades and the economic fall-out from the coronavirus, but the shares are down only $1.20 since the last review. In fact, with dividends included, we made a small gain over the period. The dividend was increased by 6.9% in March.
Enbridge (TSX, NYSE: ENB). After appearing to right the ship, Enbridge has been in retreat and the share price is down $9.54 since the last review. A dividend increase of 9.8% did nothing to restore investors’ confidence. We received two payments for a total of $1.62 per share.
Toronto Dominion Bank (TSX, NYSE: TD). Interest rates near zero are not good for bank stocks and they have all taken a big hit. TD shares are down more than $15 from our last review. I think that’s overkill and we should see some recovery in the next six months. The dividend was increased by five cents per share in April.
Alphabet (NDQ: GOOGL). Technology stocks have done well during the COVID crisis. This one is up about US$132 a share since the last review. It is the only stock in the group that does not pay a dividend.
UnitedHealth Group (NYSE: UNH). After dropping to the US$188 range in March, the stock has rallied strongly and is now up almost US$10 from our last review. The quarterly dividend was increased by 15.7% to US$1.25 a share effective with the June payment.
Walmart (NYSE: WMT). Walmart was added to the portfolio a year ago and it turned out to be a good decision as this is one of the companies that is thriving in the current situation. The stock is up US$2.04 from the last review and, because of timing, we received three dividends totalling US$1.61.
Cash. At the time of the last review, our cash reserves, including retained dividends, were $2,490.12. We invested that money at Laurentian Bank at a special rate of 3.3% and earned $41.09 in interest.
Here is the status of the portfolio as June 24. For consistency, the Canadian and U.S. dollars are considered to be at par. However, the currency differential increases U.S. dollar gains (or losses) for Canadians. Trading commissions are not factored in although in a buy and hold portfolio they are not significant in any event.
IWB Buy and Hold Portfolio
(updated June 24/20)
| Symbol | Weight
% |
Shares | Average
Price |
Book
Value |
Current
Price |
Market
Value |
Retained
Earnings |
Gain/
Loss % |
| XBB | 14.7 | 480 | $31.38 | $15,063.50 | $33.42 | $16,041.60 | $404.54 | + 9.2 |
| BCE | 8.3 | 160 | $44.58 | $7,132.95 | $56.59 | $9,054.40 | $920.97 | +39.8 |
| BAM.A | 14.7 | 360 | $15.63 | $5,635.15 | $44.72 | $16,099.20 | $312.00 | +191.2 |
| CNR | 11.7 | 110 | $43.34 | $4,767.35 | $116.47 | $12,811.70 | $232.00 | +173.6 |
| ENB | 6.4 | 170 | $41.88 | $7,119.05 | $40.99 | $6,968.30 | $537.00 | + 5.4 |
| TD | 8.8 | 160 | $44.10 | $7,055.60 | $60.29 | $9,646.40 | $553.22 | +44.6 |
| GOOGL | 10.5 | 8 | $794.49 | $6,355.92 | $1,432.70 | $11,461.60 | $0 | +80.3 |
| UNH | 11.9 | 45 | $112.47 | $5,061.15 | $289.18 | $13,013.10 | $701.79 | +171.0 |
| WMT | 12.7 | 115 | $108.82 | $12,514.30 | $120.30 | $13,834.50 | $246.10 | +12.5 |
| Cash | 0.3 | $358.70 | $399.79 | |||||
| Total | 100.0 | $71,062.57 | $109,330.59 | $3,907.62 | +59.4 | |||
| Inception | $49,945.40 | +126.7 |
Comments: The new portfolio value (market price plus retained dividends/distributions) is $113,238.21, compared to $116,808.38 at the time of the last review. That represents a decline of just over 3% over the period. I never like to see a loss but, in the circumstances, this is a respectable result.
The big losers were TD Bank, Enbridge, and Brookfield Asset Management. Gains from our bond ETF, Alphabet, UnitedHealh, and Walmart helped to partially offset the declines.
Since inception, we have a total return of 126.7%. That represents an average annual compound growth rate over eight years of 10.27%, which is well ahead of our 8% target.
Changes: This is a Buy and Hold portfolio, so I am not making any changes to our holdings, although I am keeping a close watch on Enbridge. However, we will add to our positions in these securities:
XBB – We will buy 10 units at $33.42 for a cost of $334.20. That will bring our position to 490 units and reduce our retained earnings to $70.34.
BCE – We’ll add 10 shares at $56.59 for a total cost of $565.90. We now own 170 shares and have $355.07 left in reserve.
ENB – While the price is down, will purchase another 10 shares for a cost of $409.90. We now own 180 shares. Retained earnings are reduced to $127.10.
TD – I can’t resist what looks to be a bargain price. We’ll use all the retained dividends plus $49.68 from cash to buy 10 shares at a cost of $602.90. We now have 170 shares.
We now have cash of $2,394.51. With rates so low, we have to shop around for the best deals. Right now, Tangerine, which is owned by Scotiabank, is offering 2.5% for five months for new customers, so we will take advantage of that. At the next review, we’ll probably move somewhere else.
Here is a look at the revised portfolio. I will update it again in December.
IWB Buy and Hold Portfolio
(revised June 24/20)
| Symbol | Weight
% |
Shares | Average
Price |
Book
Value |
Current
Price |
Market
Value |
Retained
Earnings |
| XBB | 14.7 | 490 | $31.42 | $15,397.70 | $33.42 | $16,375.80 | $70.34 |
| BCE | 8.7 | 170 | $45.29 | $7,698.85 | $56.59 | $9,620.30 | $355.07 |
| BAM.A | 14.5 | 360 | $15.63 | $5,635.15 | $44.72 | $16,099.20 | $312.00 |
| CNR | 11.5 | 110 | $43.34 | $4,767.35 | $116.47 | $12,811.70 | $232.00 |
| ENB | 6.6 | 180 | $41.83 | $7,528.95 | $40.99 | $7,378.20 | $127.10 |
| TD | 9.2 | 170 | $44.10 | $7,055.60 | $60.29 | $10,249.30 | $0 |
| GOOGL | 10.3 | 8 | $794.49 | $6,355.92 | $1,432.70 | $11,461.60 | $0 |
| UNH | 11.7 | 45 | $112.47 | $5,061.15 | $289.18 | $13,013.10 | $701.79 |
| WMT | 12.5 | 115 | $108.82 | $12,514.30 | $120.30 | $13,834.50 | $246.10 |
| Cash | 0.3 | $350.11 | $350.11 | ||||
| Total | 100.0 | $72,365.80 | $111,193.81 | $2,044.40 | |||
| Inception | $49,945.40 |
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