IWB Buy and Hold

blue-chip stocks with long-term growth potential and regular dividends

11.4%

Ten years of Buy and Hold

By Gordon Pape

It’s great to be a buy-and-hold investor in a bull market. You can just sit back and watch as the value of your portfolio increases a little more each month.

Bear markets are another matter. It’s stressful to see your hard-earned profits melting away each month as the markets slip to even lower lows. Bear markets are the real test of whether you can stick to a buy-and-hold philosophy or cave to market pressure.

Our IWB Buy-and-Hold Portfolio, which this month celebrates its 10^th anniversary, is a testimony to why sticking to the plan through good times and bad will pay off. Despite some slippage in the latest review period, the portfolio shows an average annual compound rate of return of 11.43% since it was launched a decade ago.

The portfolio has one basic goal – invest in great stocks and then hold on to them, no matter what the market is doing. The underlying thesis is that the long-term trend of the markets is up. If you own good stocks, they’ll move with it.

The portfolio consists mainly of Canadian and US 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 but one 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 December. Prices are as of the afternoon of June 23.

iShares Canadian Universe Bond Index ETF (TSX: XBB). This is not a good time for bonds, to put it mildly. In fact, this is the worst bear market in bonds I have seen since I began my career as a financial writer in the late 1980s. As of the close on June 22, this fund was down 13.54% year-to-date. That’s almost unheard of for a universe bond fund and unfortunately the pattern is likely to continue for some months yet. But bonds or their proxies are an essential part of a long-term portfolio so we have to accept the losses and wait for the inevitable turnaround. The price is down $4.12 per unit since the last review in December. We received distributions totalling $0.396 per unit.

BCE Inc. (TSX, NYSE: BCE). BCE shares are down $3.36 since the last update. Because of timing we received three dividends during the period for a total of $2.715 per share.

Brookfield Asset Management (TSX: BAM.A, NYSE: BAM). After several years of steady gains, Brookfield was hard-hit in the market sell-off, with shares losing $16 in the latest six-month period. Despite the retreat, the shares still look a little pricey with a p/e ratio of 18.29. We received two dividends for a total of US$0.27 a share.

CN Rail (TSX: CNR, NYSE: CNI). CN has been a strong performer for us, but a falling tide lowers all boats. The stock is down $23.05 (14%) since our last review. Because of timing we received three dividend payments totalling $2.081.

Enbridge (TSX, NYSE: ENB). Here’s a change of pace. Enbridge shares are actually up in the latest period as pipeline companies are holding their own in the market retreat. The shares are ahead $4.30 (9%) since the last review. We received two dividend payments for a total of $1.72 per share. The quarterly dividend was raised 3% effective with the February payment.

Toronto Dominion Bank (TSX, NYSE: TD). TD raised its dividend by 13% effective in January, but the stock pulled back with the rest of the financial sector, losing $12.49 (almost 13%) per share. We received two dividend payments at the new rate of $0.89 per quarter for a total of $1.78 per share.

 Alphabet (NDQ: GOOGL). When a stock is priced in the thousands, any pullback hurts. In this case, the shares are down a whopping $614.48 since the last review, as the tech sector suffered a major correction. The decline brought the p/e ratio back to a more reasonable 20.3, which may limit further downside. This is the only stock in the group that does not pay a dividend.

 UnitedHealth Group (NYSE: UNH). Another winner. They’re rare right now. This is the top health insurer in the US and the number one performer in our portfolio, with a total return of almost 370%. The shares gained US$59.79 (13.6%) since our last review. We received three dividends due to timing, for a total of US$4.55 per share. The quarterly pay-out was raised by $0.20 a share (13.8%) to $1.65, effective with the June payment.

Walmart (NYSE: WMT). Walmart didn’t do much of anything during the period. The shares dropped US$1.44. We received one quarterly dividend of US$0.55 per share.

Cash. At the time of the last review, we had cash and retained earnings totaling $3,483.40. We held the money in an EQ Bank Savings Plus Account, which was paying 1.25%. We earned interest of $25.40.

Here is the status of the portfolio as of June 23. For consistency, the Canadian and US dollars are shown at par. 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 (a/o June 23/22)

Symbol	Weight %	Shares	Average Price	Book Value	Current Price	Market Value	Retained Earnings	Gain/ Loss %
XBB	9.8	510	$31.43	$16,031.80	$27.38	$13,963.80	$212.55	-11.6
BCE	8.1	185	$46.67	$8,633.45	$62.18	$11,503.30	$660.97	+40.9
BAM.A	14.8	365	$16.44	$6,001.20	$57.61	$21,027.65	$362.74	+256.4
CNR	11.0	110	$43.34	$4,767.35	$142.16	$15,637.60	$790.36	+246.1
ENB	7.3	195	$41.97	$8,184.00	$52.97	$10,329.15	$416.45	+31.3
TD	10.3	175	$43.07	$7,538.10	$84.01	$14,701.75	$634.80	+103.5
GOOGL	12.6	8	$794.49	$6,355.92	$2,244.84	$17,958.72	$0	+182.6
UNH	15.8	45	$112.47	$5,061.15	$499.81	$22,491.45	$1,262.04	+369.3
WMT	10.0	115	$108.82	$12,514.30	$123.62	$14,216.30	$752.10	+19.6
Cash	0.3			$421.79		$447.19
Total	100.0			$75,509.06		$142,276.91	$5,092.01	+95.2
Inception				$49,945.40				+195.1

Comments: The new portfolio value (market price plus retained dividends/distributions) is $147,368.92. That compares to $161,269.71 at the time of the last review, for a loss of 8.6%.

The only two winners during the latest period were UnitedHealth and Enbridge. The biggest loser in absolute dollars was Alphabet.

Since inception, we have a total return of 195.1%. That represents an average annual compound growth rate over 10 years of 11.43%. I believe that most readers would be satisfied with that return over a decade, and it 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. The bond ETF is a drag on the portfolio at this point, but some of the stock losses have been worse (e.g., Alphabet).

We are holding a lot of cash so with prices in retreat let’s put some of it to work, as follows.

BCE – We’ll buy 10 more shares at $62.18 for a total cost of $621.80. That will give us 195 shares. The retained earnings will drop to $39.17.

BAM.A – We’ll add another five shares at $57.61 for a total of $288.05. That will give us 370 shares. The retained earnings will drop to $74.69.

CNR – We have enough to buy another five shares at $142.16, for an expenditure of $710.80. We now own 115 shares and have retained earnings of $79.56.

ENB – Enbridge is doing well these days, so we’ll buy another five shares at $52.97 for a cost of $264.85. That will bring our position to 200 shares and leave $151.60 in retained earnings.

TD –We’ll purchase another five shares at $84.01, for a cost of $420.05. We now own 180 shares and have retained earnings of $214.75.

WMT – We will buy five shares at $123.62 for a total outlay of $618.10. That leaves $134 in retained earnings.

We have cash and retained earnings of $2,615.55. We will move this money to the Wyth High Interest Savings Account, which currently pays 1.80%. Wyth was recently acquired by Equitable Bank and its deposits are covered by the Canada Deposit Insurance Corp.

Here is the revised portfolio. I will update it again in December.

IWB Buy and Hold Portfolio (revised June 23/22)

Symbol	Weight %	Shares	Average Price	Book Value	Current Price	Market Value	Retained Earnings
XBB	9.6	510	$31.43	$16,031.80	$27.38	$13,963.80	$212.55
BCE	8.4	195	$47.46	$9,255.29	$62.18	$12,125.10	$39.17
BAM.A	14.7	370	$17.00	$6,289.25	$57.61	$21,315.70	$74.69
CNR	11.2	115	$47.64	$5,478.15	$142.16	$16,348.40	$79.56
ENB	7.3	200	$42.24	$8,448.85	$52.97	$10,594.00	$151.60
TD	10.4	180	$44.21	$7,958.15	$84.01	$15,121.80	$214.75
GOOGL	12.4	8	$794.49	$6,355.92	$2,244.84	$17,958.72	$0
UNH	15.5	45	$112.47	$5,061.15	$499.81	$22,491.45	$1,262.04
WMT	10.2	120	$109.44	$13,132.40	$123.62	$14,834.40	$134.00
Cash	0.3			$447.19		$447.19
Total	100.0			$78,458.15		$145,200.56	$2,168.36
Inception				$49,945.40

 

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