TII RRIF portfolio

balancing the twin objectives of income and safety

Rate of Return: 5.1%

Initial Value $49910.30

February 20, 2013

Original Issue

Update Value $85759.90

February 29, 2024

Update Issue

Gordon Pape's RRIF portfolio

RRIF Portfolio Recovers

By Gordon Pape

Rate hikes hit conservatively invested portfolios hard, including our Income Investor RRIF portfolio. Fortunately, the pressure is finally easing and we saw a return to profitability in the latest six-month period.

This model portfolio was created in February 2013 with an initial value of $49,910.30. So, we now have 11 years of experience with it. It’s been a bumpy ride, especially in the past two years, but the portfolio is performing as we originally expected.

This portfolio differs from an RRSP in two fundamental ways. First, it is designed to be lower risk. RRIF investors are in their retirement years, and preservation of capital becomes more important as a result.

Second, the portfolio should generate income to provide cash for the annual withdrawals. That means focusing on securities with good yields as opposed to those that depend on capital gains for investor returns. These securities tend to be interest sensitive.

Here are the current positions with a commentary on how they have fared since the last review in August. Prices are as of the close on Feb. 23.

CI High Interest Saving ETF (TSX: CSAV). This low-risk ETF holds high-interest deposit accounts in Canada’s major banks. It trades at about $50 a unit. We received five distributions for a total of $1.058 per unit.

iShares Core Balanced ETF Portfolio (TSX: XBAL). This is a fund of funds that invests in eight basic iShares ETFs. The current mix of about 61% stocks, 38% bonds, and a small amount of cash. After a rough period in 2022, the units posted a gain of $1.96 in the latest period. We received two quarterly distributions totaling $0.364 per unit.

Royal Bank of Canada Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BO (TSX: RY.PR.S). This preferred was added three years ago. The shares have been volatile but gained $2.41 in the latest period. We received two quarterly dividends of $0.30 each.

Granite REIT (TSX: GRT.UN). This REIT operates the properties of Magna International and has diversified into other areas. REITs were hard hit by rising interest rates and fears of a recession, but most are now stabilizing. Granite gained a modest $0.57 per unit in the latest period. We received distributions of $1.618 per unit.

BCE Inc. (TSX, NYSE: BCE). BCE shares were hit after the company announced it was laying off 4,800 employees. The stock fell $5.56 in the latest period. We received two dividend distributions for a total of $1.935.

 Pembina Pipeline Corp. (TSX, NYSE: PPL). Pembina shares gained $5.51 in the latest six-month period. We received two dividend payments totaling $1.335 per share.

 Brookfield Infrastructure LP (TSX: BIP.UN, NYSE: BIP). This limited partnership invests in infrastructure projects around the world. The shares were down $1.94 in the latest period. We received two distributions totaling US$0.765.

Firm Capital Mortgage Investment Corp. (TSX: FC). Like most of the holdings in this portfolio, the shares were hit by rising interest rates. However, that cycle appears to be over. The stock price rose $0.80 in the latest period. We continue to collect a steady monthly dividend of $0.078, plus a small year top-up in December that amounted to $0.054 in 2023. The regular monthly yield is 8.1% at the current price. If interest rates pull back later this year the share price should rise.

 iShares S&P/TSX Capped Utilities Index ETF (TSX: XUT). This ETF invests in a portfolio of utilities stocks traded on the TSX. The units lost $1.00 in the latest six months. We received distributions totaling $0.589 per unit.

 Toronto-Dominion Bank (TSX, NYSE: TD). Bank shares fell last year on fears of a recession. We saw a small recovery in the latest period, but it is slow. The quarterly dividend was increased to $1.02 with the January payment. The yield is 5%, very high for Canada’s number-two bank.

Cash. We deposited our cash and retained earnings of $3,071.03 in a Motive Savvy Savings Account, which was paying 4.1%. We received $62.96 in interest.

 Here’s a look at the RRIF Portfolio as it stood at the close of trading on Feb. 23. Note that commissions are not deducted. Although this is a RRIF portfolio, withdrawals are not factored in, as this would make it impossible to track performance accurately.

Income Investor RRIF Portfolio (a/o Feb. 23/24)

Security Weight
%
Average
Cost
Shares/
Units
Book
Value
Current
Price
Market
Value
Retained

Income

Gain/

Loss

%

CSAV 25.4 $50.04 410 $20,516.40 $50.02 $20,508.20 $433.78 +2.1
XBAL 6.8 $26.10 200 $5,220.00 $27.46 $5,492.00 $233.00 +1.0%
RY.PR.S 8.0 $20.27 290 $5,879.00 $22.31 $6,469.90 $262.00 +14.5
GRT.UN 5.5 $78.22 60 $4,693.20 $73.60 $4,416.00 $380.06 +2.2
BCE 10.1 $48.96 160 $7,834.15 $50.76 $8,121.60 $1,214.40 +19.2
PPL 9.8 $46.84 170 $7,962.80 $46.84 $7,962.80 $886.55 +11.1
BIP.UN 10.8 $19.73 210 $4,142.50 $41.31 $8.675.10 $428.50 +119.8
FC 7.7 $13.58 540 $7,334.60 $11.55 $6,237.00 $301.00 -8.6
XUT 5.6 $25.64 180 $4,614.90 $25.07 $4,512.60 $106.02 0.0
TD 10.1 $106.23 100 $10,623.00 $81.62 $8,162.00 $753.00 -16.1
Cash 0.2 $141.43 $204.39    
Totals 100.0 $78,961.98 $80,761.59 $4,998.31 +8.6
Inception $49,910.30   +71.9

Comments: We saw some stabilization in market values as the central banks put rate increases on hold. Pembina Pipeline was our best performer, but we also saw positive results from Firm Capital, TD Bank, our Royal Bank preferred, and CSAV. BCE was the biggest loser.

As of Feb. 23, the total portfolio value (market price plus retained earnings) was $85,779.90 compared with $82,494.63 last August. That represents a gain of about 4% for the portfolio in the latest six months.

Since inception 11 years ago, we have a cumulative total return of 71.9%. That works out to an average annual compound rate of return of 5.05%. Our target is in the 5% to 6% range, so we are at the bottom end of that range.

However, remember that one of the key objectives of a RRIF is to generate cash flow. This portfolio is doing that, with our equities producing better than average yields. As of this writing, Firm Capital yields 8.1%, BCE yields 7.6%, Pembina is paying 5.7%, while TD and Brookfield yield 5%.

 Changes: Although things are looking better, this continues to be a difficult market for conservative portfolios. Interest rates remain high, which depresses the prices of dividend stocks while boosting returns on cash. The situation should improve as the year goes on, but it’s a slow process.

I think we could do better by making a few changes to the portfolio. Accordingly, we will sell our position in TD Bank, which has been underperforming the sector. That will give us $8,915, including retained earnings. We will also sell our position in Granite REIT for $4,796.06, and 60 units of BIP.UN, for $2,478.60. The total available to reinvest is $16,189.66.

We will buy 70 shares of Royal Bank (TSX, NYSE: RY) at $133.22, for a total cost of $9,325.40. Normally, I would not replace one bank for another, but Royal’s recent performance has been far superior to that of TD.

We will also buy 60 shares of Manulife Financial (TSX, NYSE: MFC) at $32.81 for a cost of $1,968.60, which will provide exposure to the insurance industry.

Finally, we will add 285 units of Minto Apartment REIT (TSX: MI.UN) at $17.07. Minto has been performing well and yields about 3%. Total cost of this purchase is $4,864.95. That leaves us with $30.71, which will be added to cash.

We’ll also use retained earnings to add to our positions as follows.

RY.PR.S – We’ll buy another 10 shares for $223.10. We now own 300 shares, with $38.90 remaining in the retained earnings column.

BCE – We will buy another 20 shares for a cost of $1,015.20. We now own 180 shares and have $199.20 in retained earnings.

PPL – We’ll buy 10 shares at $46.84 for a cost of $468.40. We now have 180 shares and $418.15 in retained earnings.

FC – We will add another 25 shares of Firm Capital at $11.55, for a total payout of $288.75. That will give us 565 shares. Our retained earnings will fall to $12.25.

We have cash and retained earnings of $2,104.50, which we will deposit with EQ Bank which is paying 3% on retirement accounts.

Here is the revised portfolio. I will revisit it in August.

Income Investor RRIF Portfolio (Revised Feb. 23/24)

Security Weight
%
Average
Cost
Shares/
Units
Book
Value
Current
Price
Market
Value
Retained

Income

CSAV 24.4 $50.04 410 $20,516.40 $50.02 $20,508.20 $433.78
XBAL 6.5 $26.10 200 $5,220.00 $27.46 $5,492.00 $233.00
RY.PR.S 8.0 $20.34 300 $6,102.00 $22.31 $6,693.00 $38.90
MI.UN 5.8 $17.07 285 $4,864.95 $17.07 $4,864.95 $0
BCE 10.9 $49.16 180 $8,849.35 $50.76 $9,136.80 $199.20
PPL 10.1 $46.84 180 $8,431.20 $46.84 $8,431.20 $418.15
BIP.UN 7.4 $19.73 150 $2,959.50 $41.31 $6,196.50 $428.50
FC 7.8 $13.49 565 $7,623.29 $11.55 $6,525.75 $12.25
XUT 5.4 $25.64 180 $4,614.90 $25.07 $4,512.60 $106.02
RY 11.1 $133.22 70 $9,325.40 $133.22 $9,325.40 $0
MFC 2.3 $32.81 60 $1,968.60 $32.81 $1,968.60 $0
Cash 0.3 $235.10 $235.10  
Totals 100.0 $80,710.69 $83,890.10 $1,869.80
Inception $49,910.30  

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