Initial Value $24,947.30
March 21, 2012
Update Value $49,978.93
September 24, 2020
I created the High-Yield Portfolio in March 2012 for readers looking for above-average cash flow and who could handle a higher level of risk.
This 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, a high percentage of the payments will receive favourable tax treatment as eligible dividends or return of capital.
The initial value was $24,947.30, and I set a target average annual 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 May. Results are to Sept. 18.
Enbridge Inc. (TSX, NYSE: ENB). Investors continue to shun this stock, despite the high yield (currently 8.1%). The shares are down $4.44 from the last review as second-quarter earnings disappointed the market. A dividend cut seems unlikely, but I’ll keep a close watch on this one.
Pembina Pipeline Corp. (TSX, NYSE: PPL). Pembina continues to say that its monthly dividend of $0.21 a share is secure. In releasing its second-quarter results, the company said: “Pembina’s longstanding commitment to its financial guardrails and the steps taken recently to preserve its balance sheet and enhance its liquidity are expected to allow the company to exit 2020 in a strong financial position, ensuring its ability to restart various capital projects when it is deemed prudent to do so and providing confidence in the company’s ability to fund a stable and growing dividend.” At the current price, the yield is 8.3%.
Sun Life Financial Inc. (TSX, NYSE: SLF). After taking a big hit in the spring, Sun Life rebounded over the summer, gaining $6.41 per share. The current yield is 4%.
Capital Power (TSX: CPX). This stock continues its recovery from the March selloff, gaining $2.88 in the latest period. The quarterly dividend is $0.48 per share to yield 6.6% at the current price.
CIBC (TSX, NYSE: CM). CIBC shares rebounded strongly over the summer, gaining $18.73 since our last review. The quarterly dividend is $1.46 per share, which means the stock us yielding 5.7% at the current price. That’s very high for a Big Five bank stock, but it’s down from 7% at the time of our last review due to the price increase.
Brookfield Energy Partners (TSX: BEP.UN, NYSE: BEP). This Bermuda-based limited partnership was added to the portfolio a year ago. It invests in an international portfolio of clean energy properties, mainly hydro. At the end of July, investors received one share in a new company, Brookfield Renewable Corporation (TSX, NYSE: BEPC) for every four units of BEP. We owned 115 units, so we received 28 shares of BEPC, plus a small cash consideration of $43.71 for the fractional share. The adjusted cost base of BEPC is $58.28. We have added it to the portfolio and adjusted the book value of BEP.UN accordingly. Note that the distributions for both securities are paid in U.S. dollars.
BCE Inc. (TSX, NYSE: BCE). We added BCE to this portfolio at the time of our last update in May. The shares are down $1.25 since then but we received two dividends totalling $1.666 that more than offset that. The stock pays a quarterly dividend of $0.833 ($3.332 annually) to yield 6%.
AT&T (NYSE: T). This giant U.S. telecom was also added in May, as we did a major revamp of the portfolio. The shares have slipped by $0.86 since, partially offset by one dividend of $0.52. The stock’s annual dividend is $2.08 a year for a yield 7.2%.
Algonquin Power & Utilities (TSX, NYSE: AQN). Another May addition, this green energy company has lost a little ground since then, but it should recover. The dividend yield is 4.4%.
North West Company (TSX: NWC). This company has a long history, with a prime focus on general stores in Northern Canada and Alaska. This was a very timely addition. The shares are up $9.03 since May on the basis of good results. The stock pays a quarterly dividend of $0.33 ($1.32 annually) to yield 3.8% at the current price. That’s down from 5.1% at the time of the original recommendation because of the price increase. (Note: the dividend will increase to $0.36 a quarter on Oct. 15.)
We earned $19.12 from the cash we deposited in an account with Motive Financial that paid 2.2% at the time. That’s in addition to the $43.71 received from our fractional share of BEPC.
The table below shows what the portfolio looked like as of the close of trading on Sept. 18. 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 inception, or since it was added to the portfolio. Sales commissions and exchange rates are not considered.
Income Investor High Yield Portfolio (a/o Sept. 18/20)
Comments: The portfolio recovered well from last spring’s 4% loss, gaining 9.8% in the latest review period. Big advances for Sun Life, CIBC, and North West Company were the main drivers. We also benefitted from the spinoff of BEPC.
With the latest gain, we are showing a total return of 100.3% since inception, which translates into an average annual gain of 8.52%. That’s a little higher than our target range.
In terms of cash flow, the portfolio earned $903.50 in four and a half months for a yield of about 2% in that time. Over a full year, that would work out to about 5.3%.
Changes: We aren’t going to change any of the securities in the portfolio, but we’ll invest some of our cash as follows.
CPX – We will add 10 shares at a cost of $289.90, bringing our total to 110. This will use up all the retained income, and we will take $8.40 from cash to make up the difference.
CM – We have enough retained income to buy five more shares of CIBC, for a cost of $509.80, which will leave us with $189.20.
After these transactions, our cash balances will total $2,464.89. We’ll keep this amount in Motive Financial, which is now paying 1.75%.
Here is the revised portfolio. I will review it again in March.
Income Investor High Yield Portfolio (revised Sept. 18/20)