Last updated: Jul-13-2018

    
 
Small gain for Pape’s High Yield Portfolio
7/16/2018 2:33:33 AM
HOME : FEATURES : COLUMNS : Small gain for Pape’s High Yield Portfolio
Show Printable Version Download Plain Text
 
Wealth Builder
Gordon Pape writes on common-sense wealth-building strategies.



By Gordon Pape  | Monday, May 07, 2018


 

BUILDING WEALTH WITH GORDON PAPE
 

Lower prices, higher yields. That pretty well sums up the impact of the past six months (to March 23) on my High-Yield Portfolio. The share prices of dividend stocks remain under pressure as rates rise, pushing yields up in the process. Here’s a review and update of this portfolio.

I launched the High Yield Portfolio in my Income Investor newsletter in March 2012 for readers who wanted above-average cash flow and could handle a higher level of risk. It 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% annually. Here is a review of the securities we own and how they have performed in the six months since my last review in September. Results are to March 23.

The Keg Royalties Income Fund (TSX: KEG.UN). The units are down $2.01 since the last review, despite the fact the fund raised its monthly payout by 3.2%, to $0.0946 ($1.1352 per year). The yield is 6.3% at the time of writing.

AltaGas Ltd. (TSX: ALA). The AltaGas price continues to trend lower even though the company increased its monthly distribution by 4.3%, to $0.1825 ($2.19 per year). The combination of a lower price and a higher dividend means the yield is up to 9.2%.

Vermilion Energy Inc. (TSX: VET). Improving energy prices offset the rising interest rate trend, and this stock held its ground during the period, losing only $0.28 per share. We received dividends of $1.505 per share, which more than offset the slight decline in share value.

Enbridge Inc. (TSX: ENB). We bought 70 shares of Enbridge in September at what at the time seemed like a reasonable price of $49.21. But the market disagreed, and the stock has continued to drop, losing $10.73 per share in the six months. This was in spite of a 10% dividend increase, which took the quarterly payment to $0.671, or $2.684 per year, to yield just under 7%.

Premium Brands Holding Corp. (TSX: PBH). Not all of our stocks went down. Premium Brands continued its great run, adding $15.29 per share. The company also announced a 13.1% dividend increase, to $0.475 per quarter ($1.90 per year). That will only have the effect of increasing the yield to 1.7%; however, the yield based on our original purchase price will rise to 9.7%.

Morneau Shepell Inc. (TSX: MSI). This stock is also on the rise, with the shares up $4.20 since the last review. That’s a big move for this company, which reported a 33% profit increase in 2017. However, there was no change in the monthly dividend of $0.065 ($0.78 a year), so the yield is down to 3.1% based on the current price. Using the original purchase price, it is 6.1%.

Pembina Pipeline Corp. (TSX: PPL). Pembina shares dropped a fraction during the period, losing $0.88. However, we received $1.25 per share in dividends, so we ended up with a small profit. The stock yields 5.4% at the time of writing.

Sun Life Financial Inc. (TSX: SLF). Banks and life insurance companies tend to do well when interest rates rise, and Sun Life showed that with a price jump of $6.58 in the latest period. We received a dividend increase of 4.6%, to $0.455 per share quarterly ($1.82 per year). The current yield is 3.4%.

Chemtrade Logistics Income Fund (TSX: CHE.UN). Chemtrade shares took a hit, dropping $3.25 since the last review. The units pay a $0.10 monthly distribution ($1.20 a year), to yield 7.8%.

Medical Facilities Corp. (TSX: DR). This has been a loser since we acquired it, but this time the loss was modest at $0.69 per share. That was almost offset by dividends of $0.56. The monthly dividend is $0.09375 ($1.125 per year), to yield 8%.

Pizza Pizza Royalty Corp. (TSX: PZA). We will spend another $2,464.50 to purchase 150 shares of Pizza Pizza Royalty Corp. at $16.43. The shares have held up reasonably well in the rising rate environment and yield 5.3% on an annual dividend of $0.82 per share.

We earned $26.72 from the cash we deposited in an account with EQ Bank that paid 2.3% at that time.

The table below shows what the portfolio looked like as of the close of trading on March 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 inception or since it was added to the portfolio. Sales commissions are not taken into account, and the U.S. and Canadian dollars are treated as being at par for ease of tracking.

Comments

Despite the heavy pressure on interest-sensitive stocks, this portfolio managed a small gain of 3.3% in the latest six-month period, thanks mainly to strong performances from Premium Brands, Sun Life Financial, and Morneau Shepell. I consider that a very good result in the circumstances.

In the six years since inception, this portfolio has generated a net gain of 84%. That’s an average annual return of 10.7%, which is a very good result.

Changes: The investment climate is changing. Interest rates are moving higher, U.S. protectionism is rattling world markets, and the bull market may be running out of steam. Against this background, I want to add some larger, more stable stocks to this portfolio, even though their yields will be lower than those we are selling.

Accordingly, we will make the following sales:

AltaGas. We’ve waited a long time for this one to turn around, but it keeps on sliding. Therefore, we are selling our position for a total of $2,700.75, including retained dividends.

Medical Facilities Corp. This is another loser, which reported mediocre year-end results for 2017. Total proceeds from this sale are $2,667.20.

We will invest the money in 50 shares of CIBC (TSX: CM). The stock is trading at $114.07, for a total cost of $5,703.50. We’re a little short of the amount needed, so we will take $335.55 from cash to make up the difference. The stock currently yields 4.7%.

We will also buy another 10 shares of The Keg Royalties Income Fund, to bring our total position to 200. Retained earnings will be reduced to $33.60.

As well, we will add another 20 units to our position in Chemtrade at what appears to be a very attractive price, bringing the total to 220. The cost is $309.20. We will use all of our retained earnings and take $7.90 from cash.

We are left with a cash balance of $2,220.13, which we will keep in our EQ Bank Account at 2.3%.

Here is a look at the revised portfolio. I will revisit it in six months in the Income Investor newsletter.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investornewsletters, which are available through the Building Wealth website.

For more information on subscriptions to Gordon Pape’s newsletters, check the Building Wealth website.

Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.

Notes and Disclaimer

© 2018 by The Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

BUILDING WEALTH WITH GORDON PAPE
 

 
:: STOCK SEARCH
Find a Stock

(Leave blank for all)
Symbol   Name
:: MEMBER SERVICES
Username:
Password:
Forgot your password?
Register now
Tech Support
:: USEFUL LINKS
For general inquiries, please email the Librarian.
 
Home |  Features |  Member Services |  Tools |  Funds |  About Us
For any questions or problems with this site, please contact the Librarian.
Page ID: 20:40:1047:00016603:9/12/2017:4:10:55 PM Duration of this visit: 0 sec.