8.9%
HIGH-YIELD PORTFOLIO BEATS MARKET
By Gordon Pape
First the bad news. Our High-Yield Portfolio was down 8.8% in the latest six-month period.
The good news is that was much better than the overall market, which was down 13.9% in the same period. Plus, we generated 2.28% in cash flow, which would equate to about 4.6% over a full 12 months.
This portfolio was created for investors who were looking for above-average dividend income and who were willing to accept somewhat more risk. The 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, Canadian dividends are eligible for the dividend tax credit.
The initial portfolio value was $24,947.30, and I set a target average annual total 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 March. Results are to Sept. 23.
Enbridge Inc. (TSX, NYSE: ENB). Pipeline stocks were doing well until the pullback in oil prices prompted some investors to take profits. The shares are down $5.02 from the time of the last review in mid-March. We received two dividends for a total of $1.72 per share.
Pembina Pipeline Corp. (TSX, NYSE: PPL). The Enbridge comments apply here as well. Pembina is down $4.32 from the time of the last review. However, we received a small bump of $0.075 in the monthly dividend in September, to $0.2175 a share ($2.61 a year). At the current price, the dividend yield is 6.1%.
Sun Life Financial Inc. (TSX, NYSE: SLF). Financial stocks have been hit hard in the market selloff. This is unusual because these stocks tend to do well when rates are rising. However, right now recession fears trump all else. The stock is down $12.21 since the last review. We received two dividend payments for a total of $1.38 per share. The current yield is 5%, which is very attractive for a sound insurance stock.
Capital Power Corp. (TSX: CPX). Here’s a stock that bucked the trend. While the broad market was in a downward spiral, Capital Power gained almost $10 a share in the latest period. The company announced that the quarterly dividend will be increased 5.9%, to $0.58 per share ($2.32 per year) effective with the Oct. 31 payment. At that rate, the stock will yield 4.6% at the current price.
Canadian Imperial Bank of Commerce (TSX, NYSE: CM). As with Sun Life, we’re seeing a downtrend in financial stocks, of which the banks are the leaders. This is creating great bargains for astute investors. CIBC split its shares two for one in May, so we now own 110. The stock yields 5.5%, very high for a bank.
Brookfield Energy Partners (TSX: BEP.UN, NYSE: BEP). This Bermuda-based limited partnership invests in an international portfolio of clean energy properties, mainly hydro. The units were trading near $52 in early August but have since retreated. The quarterly distribution is US$0.32.
BCE Inc. (TSX, NYSE: BCE). The stock was down $8.90 in the latest six-month period. The dividend is $0.92 per quarter ($3.68 a year). The stock yields 6% at the current price.
Firm Capital (TSX: FC). Mortgage investment corporations normally see their share prices decline when rates rise, and that’s the case here. We’re showing a loss to date, but the monthly cash flow is steady, with a yield of 7.9%.
Algonquin Power & Utilities Corp. (TSX, NYSE: AQN). Green energy stocks staged a brief rally earlier this year but then got dragged down when the whole market slumped. The shares are down $2.26 since our last review, despite a small dividend increase. As a result, the yield is now up to 5.5%.
North West Company Inc. (TSX: NWC). This company has a long history, with a prime focus on general stores in Northern Canada and Alaska. The shares are down $5.17 since the last review. We received two dividends of $0.37 each. The yield is 4.6%.
We earned $13.93 from the cash we deposited in an account with EQ Bank that paid 1.25% at the time.
The table below shows what the portfolio looked like as of the close of trading on Sept. 23. 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 it was added to the portfolio. Sales commissions and exchange rates are not considered.
Income Investor High Yield Portfolio (a/o Sept. 23/22)
| Security | Weight % |
Total Shares |
Average Price |
Book Value |
Current Price |
Market Value |
Retained Income |
Gain/
Loss % |
| ENB | 8.0 | 90 | $43.98 | $3,957.80 | $51.64 | $4,647.60 | $166.02 | +21.6 |
| PPL | 10.3 | 140 | $32.65 | $4,571.65 | $42.50 | $5,950.00 | $424.63 | +39.4 |
| SLF | 14.3 | 150 | $31.54 | $4,730.75 | $55.27 | $8,290.50 | $207.00 | +79.6 |
| CPX | 10.4 | 120 | $32.12 | $3,854.40 | $50.30 | $6,036.00 | $131.40 | +60.0 |
| CM | 11.6 | 110 | $56.48 | $6,213.30 | $60.87 | $6,695.70 | $859.10 | +21.6 |
| BEP.UN | 14.6 | 180 | $24.13 | $4,343.87 | $46.92 | $8,445.60 | $238.74 | +100.0 |
| BCE | 7.4 | 70 | $56.75 | $3,972.40 | $61.45 | $4,301.50 | $373.80 | +17.7 |
| FC | 8.4 | 410 | $15.04 | $6,164.40 | $11.80 | $4,838.00 | $243.48 | -17.6 |
| AQN | 5.9 | 200 | $19.02 | $3,803.75 | $16.97 | $3,394.00 | $135.61 | -7.2 |
| NWC | 7.8 | 140 | $26.38 | $3,692.50 | $32.14 | $4,499.60 | $255.90 | +32.2 |
| Cash | 1.3 | $701.68 | $715,61 | |||||
| Total | 100.0 | $43,373.03 | $57,814.11 | $3,035.68 | +40.3 | |||
| Inception | $24,947.30 | +143.9 |
Comments: The reason this portfolio is outperforming the TSX this year is simple: high dividends. They put a floor under the market price of these stocks. Unless there is a serious threat of a dividend cut, which we have not seen with this portfolio, investors will tend to hold on to high-yielding securities.
Despite the recent losses, we are showing a total return of 143.9% in the ten and a half years since inception. That translates into an average annual growth rate of 8.86%, which is above our target range.
In terms of cash flow, the portfolio earned $1,522.71 in the latest. six months, for a yield of 2.28% in that time. Over a full year, that would work out to almost 4.6%. Our target is 5%, so we’re close.
Changes: The largest single holding in the portfolio is Brookfield Renewable Properties. It’s a first-rate operation, but the yield of 3.7% is on the low side for a portfolio of this type. Accordingly, we will sell 80 units at $46.92 for a total of $3,753.60.
We will reinvest this money in 285 units of Automotive Properties REIT (TSX: APR.UN). It’s paying $0.067 per month ($0.804 per year) to yield 6.1% at the current price. You’ll find a full update on this security elsewhere in this issue. The units are trading at $13.20 so our cost is $3,762. We’ll take the extra $8.40 from cash.
We’ll use some of our retained earnings as follows:
PPL – We’ll buy 10 shares for a cost of $425. That will give us 150 shares and reduce retained income to zero. We’ll take $0.37 from cash to make up the difference.
CM – We will buy another 10 shares for $608.70. That will give us 120 shares and reduce retained earnings to $250.40.
FC – We’ll add another 20 shares for a cost of $236. We now have 430 shares and retained earnings of $7.48.
Our retained earnings plus cash now totals $2,473.19. We’ll move the money to a Saven Financial high interest savings account, which is paying 3.3%.
Here is the revised portfolio. I will review it again in March.
Income Investor High Yield Portfolio (revised Sept. 23/22)
| Security | Weight % |
Total Shares |
Average Price |
Book Value |
Current Price |
Market Value |
Retained Income |
| ENB | 7.9 | 90 | $43.98 | $3,957.80 | $51.64 | $4,647.60 | $166.02 |
| PPL | 10.8 | 150 | $33.31 | $4,996.65 | $42.50 | $6,375.00 | $0 |
| SLF | 14.0 | 150 | $31.54 | $4,730.75 | $55.27 | $8,290.50 | $207.00 |
| CPX | 10.2 | 120 | $32.12 | $3,854.40 | $50.30 | $6,036.00 | $131.40 |
| CM | 12.4 | 120 | $56.85 | $6,822.00 | $60.87 | $7,304.40 | $250.40 |
| BEP.UN | 7.9 | 100 | $24.13 | $2,413.00 | $46.92 | $4,692.00 | $238.74 |
| BCE | 7.3 | 70 | $56.75 | $3,972.40 | $61.45 | $4,301.50 | $373.80 |
| FC | 8.6 | 430 | $14.88 | $6,400.40 | $11.80 | $5,074.00 | $7.48 |
| AQN | 5.7 | 200 | $19.02 | $3,803.75 | $16.97 | $3,394.00 | $135.61 |
| NWC | 7.6 | 140 | $26.38 | $3,692.50 | $32.14 | $4,499.60 | $255.90 |
| APR.UN | 6.4 | 285 | $13.20 | $3,762.00 | $13.20 | $3,762.00 | $0 |
| Cash | 1.2 | $706.84 | $706.84 | ||||
| Total | 100.0 | $49,112.49 | $59,083.44 | $1,766.35 | |||
| 66.35 | |||||||
| Inception | $24,947.30 |
Previous Updates
tii2218 | tII2205 | tii2118 | tii2106 | tii2018 | tii2009 | tii1917 | tii1906 | tii1817 | tii1717 | tii1706 | tii1618 |tii1606 | tii1518 | tii1506 | tii1422 | tii1410 | tii1320 | tii1308 | tii1220