In March 2012, I launched a High-Yield Portfolio for readers seeking above-average cash flow and who were willing to live with a higher level of risk. I cautioned at the time, and continue to do so, that this is a 100-per-cent equity portfolio with no bonds to cushion losses when stock markets retreat. Therefore 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 from this portfolio will receive favourable tax treatment as eligible dividends or return of capital.
Comments: We enjoyed a very strong six months, with the total value of the portfolio increasing by 9.8 per cent. Most of our securities gained in value, especially Premium Brands, and any losses were relatively small.
Since inception four years ago, the portfolio is up 53.2 per cent. The average annual compound rate of return is 10.93 per cent, well above our target of 7 per cent to 8 per cent a year. So far, this High Yield Portfolio has been doing its job for us.
Changes: As mentioned, we have to drop FLY Leasing from the portfolio, as it no longer pays a dividend. We’ll replace it with Exchange Income Corp. (EIF-T), which is also in the aircraft business, albeit on a much different scale.
After dropping to the $21 range in January, EIF has rallied strongly and closed on March 18 at $27.25. The shares pay a monthly dividend of 16 cents ($1.92 per year) to yield just over 7 per cent at the current price. The company recently reported strong results for fiscal 2015, with adjusted net earnings of $51.6 million ($2.09 per share), up from $14.8 million (67 cents per share) in 2014.
The total value of our position in FLY Leasing, including retained dividends, is $3,245.30 (U.S.). Since we are treating the currencies as being at par for purposes of this portfolio, we will buy 120 shares of EIF at a cost of $3,270 (Canadian). We will take $24.70 from our cash to make up the difference.
We’ll also make some other small purchases as follows. Please do not initiate such small transactions yourself unless you have a fee-based account. Use dividend reinvestment plans instead.
KEG.UN: We’ll add 10 shares at a cost of $186.50 to bring our total to 180. This will use all the retained income and we’ll take $36.71 from cash to make up the difference.
DH: It’s a stretch but we’ll buy 10 more shares for $383.70, to increase our position to 120. Here again, we’ll use all the retained income and dip into the cash reserve for $76.40 to make up the difference.
MSI: We have enough in retained income to add 10 shares at a cost of $167.10. That will leave $8.55.
SLF: We can afford five more shares for a cost of $209.75. That will bring the total shares to 120 and reduce retained income to $78.73.
CHE.UN: We’ll purchase 10 more shares at a cost of $175.40. That will bring the total to 190 and leave retained income of $25.50.
We will invest the remaining cash of $941.50 in a high interest savings account paying 0.8 per cent.
Here is the revised portfolio. I will review it again in September.Desktop users click on image to enlarge
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. Follow him on twitter @GPUpdates and on Facebook.Report Typo/Error
Follow us on Twitter:
- Keg Royalties Income Fund$20.26-0.06(-0.30%)
- DH Corp$22.63+0.76(+3.48%)
- Vermilion Energy Inc$56.41+0.61(+1.09%)
- FLY Leasing Ltd$14.32+0.36(+2.58%)
- Sun Life Financial Inc$51.72+0.03(+0.06%)
- Pembina Pipeline Corp$40.29+0.18(+0.45%)
- Premium Brands Holdings Corp$67.10+0.74(+1.12%)
- Chemtrade Logistics Income Fund$17.70-0.19(-1.06%)
- Sun Life Financial Inc$39.21+0.19(+0.49%)
- Morneau Shepell Inc$18.48-0.11(-0.59%)
- Exchange Income Corp$44.98+0.56(+1.26%)
- Updated December 8 3:23 PM EST. Delayed by at least 15 minutes.