IWB Buy and Hold

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

12.0%

Being a buy-and-hold investor can be unnerving at times. Last March was an example. Stocks plummeted as the realization of the economic impact of the pandemic hit home. Many investors, even the most disciplined, lost their nerve and sold, driving prices down even more.

It’s understandable in one sense. We had never seen anything like the coronavirus in our lifetimes. No one knew what was going to happen or what the financial consequences would be. We were heading into uncharted waters.

As it turned out, stocks rallied quickly. It turned out to be the shortest bear market ever, as major North American indexes turned around and drove to record highs.

Those that held on emerged just fine. The rest are kicking themselves.

Our Buy-and-Hold Portfolio suffered a small loss at the start of the pandemic but over the summer and fall it fully recovered from that setback and went on to generate an impressive gain of more than 15%.

This portfolio was launched eight and a half years ago, in June 2012. It was designed for people who don’t want to do a lot of trading and waste money on commissions. We have one 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, as we have seen this year. 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 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, 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 June. Prices are as of the close of trading on Dec. 2.

iShares Canadian Universe Bond Index ETF (TSX: XBB). Bonds aren’t returning much these days, but they provide stability for a portfolio. The units are down $0.16 since the last review in late June. But we received five distributions totalling $0.353 per unit, so we ended the period slightly ahead.

BCE Inc. (TSX, NYSE: BCE). We did not see much price movement from BCE over the summer and fall. The shares are down $0.32 from the last review but that was more than offset by a dividend of $0.833 (we only received one payment because of timing).

Brookfield Asset Management (TSX: BAM.A, NYSE: BAM).

After being hard-hit by the pandemic market slide in March, Brookfield rallied strongly in the latest period, gaining $8.12 per share. We also received two dividends of $0.12 a share each.

CN Rail (TSX: CNR, NYSE: CNI). It was a strong summer and fall for CN. The share price rose by over $21 as the economy started to recover. We received one dividend payment of $0.575.

Enbridge (TSX, NYSE: ENB). Enbridge shares are stuck in a tight trading range between $40 and $42 a share and nothing seems to shake them out of there. But the attractive yield of 7.8% makes this a stock worth holding. We received two payments for a total of $1.62 per share during the latest period.

Toronto Dominion Bank (TSX, NYSE: TD). Bank stocks were hard hit by the sharp drop in interest rates. But they are recovering well. TD is up more than $10 a share since the last review and should do even better in 2021 when the vaccine-led recovery really starts to take hold. It once again proves that investors should never underestimate the resiliency of Canadian bank stocks. We received two dividend payments totalling $1.58 per share.

 Alphabet (NDQ: GOOGL). It’s been a great year for tech stocks, and Alphabet (Google) has been among the front-runners. Since our last review, the shares are up US$392.27, or 27.3%. That’s in just over five months! This is the only stock in the group that does not pay a dividend but at that rate of growth, who cares?

 UnitedHealth Group (NYSE: UNH). After dropping to the US$188 range in March, the stock rallied strongly and kept posting new gains over the summer and fall. The shares are up over US$58 since our last review. The quarterly dividend was increased by 15.7% to US$1.25 a share effective with the June payment. We received two distributions, totalling US$2.50.

Walmart (NYSE: WMT). Walmart was added to the portfolio in June 2018. It has been a solid performer and has done well during the pandemic. The stock is up more than US$30 from the last review. We received one quarterly dividend of US$0.54 per share.

Cash. At the time of the last review we had cash and retained earnings totaling $2,394.51. At the time, Tangerine, which is owned by Scotiabank, was offering 2.5% for five months for new customers, so we took advantage of that. We earned interest of $24.94.

Here is the status of the portfolio as Dec. 2. 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

(a/o Dec. 2/20)

Symbol	Weight %	Shares	Average Price	Book Value	Current Price	Market Value	Retained Earnings	Gain/ Loss %
XBB	12.8	490	$31.42	$15,397.70	$33.26	$16,297.40	$243.31	+ 7.4
BCE	7.5	170	$45.29	$7,698.85	$56.27	$9,565.90	$496.68	+30.7
BAM.A	14.9	360	$15.63	$5,635.15	$52.84	$19,022.40	$398.40	+244.6
CNR	11.9	110	$43.34	$4,767.35	$137.56	$15,131.60	$295.25	+223.6
ENB	5.9	180	$41.83	$7,528.95	$41.56	$7,480.80	$418.70	+ 4.9
TD	9.4	170	$44.10	$7,055.60	$70.78	$12,032.60	$268.60	+74.3
GOOGL	11.4	8	$794.49	$6,355.92	$1,824.97	$14,599.76	$0	+129.7
UNH	12.3	45	$112.47	$5,061.15	$347.56	$15,640.20	$814.29	+225.1
WMT	13.6	115	$108.82	$12,514.30	$150.52	$17,309.80	$308.20	+40.8
Cash	0.3			$350.11		$375.05
Total	100.0			$72,365.80		$127,455.51	$3,243.43	+80.6
Inception				$49,945.40				+161.7

Comments: The new portfolio value (market price plus retained dividends/distributions) is $130,698.94, compared to $113,238.21 at the time of the last review. That represents a gain of 15.4% over the period. That’s an impressive rebound from the time of our last review.

All the securities in the portfolio were ahead when dividends/distributions are factored in. The big gainers were Alphabet, UnitedHealth, and Walmart.

Since inception, we have a total return of 161.7%. That represents an average annual compound growth rate over eight and a half years of 11.98%, 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. All are doing relatively well, and the overall asset mix is sound.

We do not have enough retained earnings to make new purchases, with one exception.

ENB – We will purchase another 10 shares for a cost of $415.60. We now own 190 shares. Retained earnings are reduced to $3.10.

We have cash and retained earnings of $3,202.88. We will move the money to a Motive Savvy Savings Account, which currently pays 1.55%.

Here is a look at the revised portfolio. I will update it again in June, on its ninth anniversary.

IWB Buy and Hold Portfolio

(revised Dec. 2/20)

Symbol	Weight %	Shares	Average Price	Book Value	Current Price	Market Value	Retained Earnings
XBB	12.7	490	$31.42	$15,397.70	$33.26	$16,297.40	$243.31
BCE	7.5	170	$45.29	$7,698.85	$56.27	$9,565.90	$496.68
BAM.A	14.9	360	$15.63	$5,635.15	$52.84	$19,022.40	$398.40
CNR	11.8	110	$43.34	$4,767.35	$137.56	$15,131.60	$295.25
ENB	6.2	190	$41.81	$7,944.55	$41.56	$7,896.40	$3.10
TD	9.4	170	$44.10	$7,055.60	$70.78	$12,032.60	$268.60
GOOGL	11.4	8	$794.49	$6,355.92	$1,824.97	$14,599.76	$0
UNH	12.2	45	$112.47	$5,061.15	$347.56	$15,640.20	$814.29
WMT	13.6	115	$108.82	$12,514.30	$150.52	$17,309.80	$308.20
Cash	0.3			$375.05		$375.05
Total	100.0			$72,805.62		$127,871.11	$2,827.83
Inception				$49,945.40

 

 

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