Initial Value $41,000.00
December 18, 2016
Update Value $59,352.13
May 30, 2019
We launched our model Income Portfolio in May 2015, so we now have four years of history with which to work. The goal is to generate cash flow in the 5% range for TFSA accounts. This makes it especially useful for older people who want to receive tax-free income. You can withdraw the dividends/distributions earned each year without paying any tax, while leaving the principal intact.
This approach will also work in RRSPs, RRIFs, and non-registered accounts. It just won’t be as tax-effective in those cases.
I must stress again that this is not a low-risk portfolio. It is entirely invested in stocks, which makes it more vulnerable than a balanced portfolio that includes bond holdings. This means that anyone who wishes to emulate this portfolio should be more interested in steady cash flow and not fixated on the bottom-line value from month to month. That will vary up or down, depending on conditions. As long as you are still receiving your 5% cash return, don’t be overly concerned by the share price movements.
At the time I launched this portfolio, the maximum cumulative lifetime contribution for a TFSA was $41,000, so that was the initial starting value.
I selected 10 securities from The Income Investor Recommended List. All are traded on the TSX, so currency exchange is not a factor, except for the distributions from the limited partnerships, which are in U.S. dollars. I gave each security an initial weighting of approximately 10% for diversification and balance.
Here are the components of the portfolio with a brief report on how they have performed since the last update in November. Prices are as of the close of trading on May 24.
BCE Inc. (TSX, NYSE: BNS). We saw a nice rally in BCE shares in the latest period, with the price moving up by $4.67. The company also implemented a dividend increase of 5%, to $0.7925 per quarter ($3.17 per year). We received two dividends for a total of $1.5475. At the current price, the stock yields 5.2%.
Bank of Nova Scotia (TSE, NYSE: BNS). Canadian bank stocks are mired down these days. This one is up only $0.42 since our last review (0.06%). The good news is that we received another dividend increase, the second in the past 12 months, with the April payment up 2.4%, to $0.87 per share. The combination of the two increases and the share price stagnation has pushed up the yield to 4.9%.
Brookfield Infrastructure Limited Partnership (TSX: BIP.UN, NYSE: BIP). This Bermuda-based limited partnership invests in infrastructure projects in North and South America, Europe, and Australia. The price continued its upward climb in the latest period, gaining $3.47 per unit. We also benefitted from a distribution increase in February, a 6.9% increase to US$0.5025 per quarter (US$2.01 per year). We received two distributions during the period for a total of US$0.9725. The current yield (based on U.S. dollar distributions) is 4.8%.
Brookfield Renewable Partners (TSX: BEP.UN, NYSE: BEP). This partnership focuses on renewable energy, mainly hydro but also some wind projects. The units rallied strongly in the latest period after a weak 2018. They are up are $6.18 from the time of our last review. Fortunately, we bought 10 more units at that time, so we have made a handsome profit here. As with the infrastructure partnership, we received a distribution increase, this one of 5.1%, to US$0.515 per quarter (US$2.06 per year). We received two distributions totalling US$1.005. The units yield 6.3% at the current price.
Pembina Pipeline (TSX: PPL, NYSE: PBA). We added this pipeline company to the portfolio a year ago, replacing Inter Pipeline, which had been a disappointment. The stock held its own over the summer of 2018 with the shares rising a modest $0.51. But it moved sharply higher in the latest period, gaining $4.54. We also received a dividend increase of one penny per month, to $0.20 per share ($2.40 a year). We received total distributions of $1.15 in the latest period. The total return during the six months was an impressive 13%. The stock yields almost 5% at the current price.
North West Company (TSX: NWC, OTC: NWTUF). This stock was almost flat over the latest six months, losing two cents a share. The quarterly dividend was increased by a penny in March, to $0.33 per share ($1.32 per year). We received two payments totalling $0.65. The current yield is 4.4%.
Sienna Senior Living Inc. (TSX: SIA, OTC: LWSCF). Sienna’s share price rallied during the latest period, gaining $2.07. We received six monthly dividends of $0.0765 per share for a total of $0.459. The current yield is 4.9%.
TransAlta Renewables Inc. (TSX: RNW, OTC: TRSWF). We saw a nice rally in these shares, with a gain of $2.39. We added 10 shares at the time of the last review, so we were able to take full advantage of the price rise. The monthly payment is $0.07833 per share ($0.93996 per year), so the cash flow is good. The price increase dropped the yield to 7%.
Firm Capital MIC (TSX: FC). This is the Steady Eddy stock in this portfolio. The share price never varies much, and the dividend has been the same for years, at $0.078 per month, to yield 6.9%.
Dream Global REIT (TSX: DRG.UN). This international REIT invests in office, industrial, and mixed-use properties in Europe. It made a modest recovery after a loss in the summer of 2018, gaining $0.38 per unit in the latest period. The units pay $0.0666 per month, or about $0.80 per year. The yield is 5.7% at the current price and 7.6% based on book value.
We received interest of $27.36 during the latest period from our EQ Bank savings account.
Comments: The value of the portfolio (market price plus retained earnings) gained a healthy 10% during the period, as many of our stocks were helped by the turnaround in interest rates.
The portfolio has posted an overall gain of 44.8% since it was started four years ago. On an annualized basis, that works out to 9.69%, which is an excellent return for a portfolio of this type.
Cash flow during the latest period was $1,431.74, for a six-month yield of 2.65% based on the portfolio value last November. In terms of the original $41,000 investment, the six-month yield was 3.49%, so we are well ahead of our 5% annual cash flow target.
Changes: Every stock in the portfolio advanced during the period with the exception of North West Company, which was flat. At the time of my last review, I expressed concern about TransAlta Renewables, but the stock has recovered well since that time.
Given the recent good performance and the continued strong cash flow, I see no need to make any changes to the portfolio at this time. It’s performing exactly as I designed it to do.
However, we will use some of our cash to add to our holdings, as follows:
BCE – We will add 10 shares at a cost of $608.70, to bring our total position to 90. That will use the retained earnings of $596.45, and we will take $12.25 from cash to make up the difference.
BNS – We’ll invest in another 10 shares of Scotiabank, for a cost of $706. That will give us 70 shares and reduce retained earnings to $32.90.
BIP.UN – We will buy 10 units for $565, bringing our total to 130. That will use up all the retained income, and we’ll take $70.30 from cash to fund the difference.
SIA – We will buy 10 more shares at a cost of $188.30. That will bring our position to 330 shares and reduce our retained earnings to $47.13.
RNW – We will buy another 20 shares for $270.40, leaving cash of $9.91. We now own 430 shares.
FC – We will add 10 shares at a cost of $135.50 to a new total of 430. Our cash balance will be reduced to $94.22.
DRG.UN – We will buy another 10 shares for $139.60, bringing our total to 520. We will have $101.71 left in cash.
Readers are reminded not to do small trades unless you have a fee-based account. Use a dividend reinvestment plans when available. Also, keep in mind that our tracking assumes reinvested dividends/distributions. If you withdraw income annually, the results will be different.
We will move our cash of $1,224.93 to Motive Financial, which is paying 2.8% in its Savvy Savings Account. Motive is owned by Canadian Western Bank and is covered by federal deposit insurance.
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