The cumulative contribution level for Tax-Free Savings Accounts (TFSAs) has now reached a level at which it should be seriously considered as a supplemental retirement plan. It is now possible for a couple to have contributed $104,000 to their TFSA accounts, which could, if properly invested, generate annual cash flow in the $5,000 range.
In May 2015, I launched an income portfolio designed for TFSAs. The goal was to generate cash flow in the 5 per cent range. Any capital gains would be a bonus. The securities I selected have above-average yields, so risk is on the high side.
At the time I launched this portfolio, the maximum cumulative lifetime contribution was $41,000, so that was the initial starting value.
I selected 10 securities from The Income Investor Recommended List. All are traded on the TSX, so currency exchange is not a factor, except for the distributions from the limited partnerships, which are in U.S. dollars. I gave each security an initial weighting of approximately 10 per cent for diversification and balance. Here are the components of the portfolio with a brief report on how they have performed since the last update in May. Prices are as of the close of trading on Nov. 17.
BCE Inc. (BCE-T). BCE is up by slightly more than a dollar from the time of our last review in May. We received two dividends of 71.74 cents per share. The current yield is 4.7 per cent.
Bank of Nova Scotia (BNS-T). Scotiabank rebounded after a poor showing in the winter and spring, and the shares gained more than $9 in the latest period, making the stock our strongest performer in the six months. The bank implemented a divided increase of 3 cents per share in October, the second bump this year. That brought the quarterly payment to 79 cents ($3.16 a year). The stock yields 3.8 per cent at the current price.
Brookfield Infrastructure Limited Partnership (BIP.UN-T). This Bermuda-based limited partnership is a spinoff from Brookfield Asset Management, which owns a majority stake. It invests in infrastructure projects in North and South America, Europe, and Australia. The stock is up slightly since the last review in May. We received two distributions during the period, for a total of 87 cents (U.S.) per unit. The current yield is 4 per cent.
Brookfield Renewable Partners (BEP.UN-T). This is another Brookfield spinoff, but with a focus on renewable energy, mainly hydro but also some wind projects. The units are down 77 cents from the time of our last review. However, we received two distributions totalling 93.5 cents (U.S.), so we made a small profit during the latest period. The units yield 5.5 per cent at the current price.
Inter Pipeline (IPL-T). We recorded a loss of $0.67 per share during the period. However, distributions totalled 81.5 cents, so we did a little better than breakeven in terms of total return. The company raised its monthly distribution by 3.7 per cent in November, to 14 cents per share. The increase plus the price retreat brings the yield to 6.4 per cent.
North West Company (NWC-T). The shares have moved only marginally since May, gaining just 19 cents during the latest review period. The quarterly dividend is 32 cents per share, and we received two payments in the period. The current yield is 4 per cent.
Sienna Senior Living Inc. (SIA-T). Sienna's share price was up 79 cents during the latest review period, and the monthly dividends of 7.5 cents per share continued to roll in. The current yield is 4.9 per cent.
TransAlta Renewables Inc. (RNW-T). This stock took a big hit in during the past six months, dropping $2.49 in value. That was despite a dividend increase of 6.8 per cent in August, bringing the monthly payment to 7.83 cents per share (93.96 cents per year). The price retreat plus the dividend hike pushed the yield to 7.2 per cent.
Firm Capital MIC (FC-T). This mortgage investment corporation saw its share price slide by 43 cents as investors grew more conscious of the dangers of rising interest rates for mortgage investment corporations. The monthly payment remains at 7.8 cents (93.6 cents per year) to yield 7.3 per cent.
Dream Global REIT (DRG.UN-T). This international REIT invests in office, industrial, and mixed-use properties in Europe. We added it to the portfolio in May, and so far it has paid off well. The share price is up $1.25 since then, and the units pay 6.66 cents per month, or about 80 cents per year. The yield is 6.7 per cent at the current price.
We received interest of $15.52 during the latest period from our EQ Bank savings account.
Here is how the portfolio looked at the close of trading on Nov. 17.
Comments: The value of the portfolio (market price plus retained earnings) increased by $1,897.80, or 3.6 per cent, during the latest six-month period. Scotiabank registered the biggest gain, and we also had good results from Dream Global REIT, BCE, and Brookfield Infrastructure Partnership. TransAlta Renewables posted the biggest loss.
Since it was launched two and a half years ago, the portfolio has posted a gain of 32.9 per cent. On an annualized basis, that works out to just over 12 per cent. Cash flow during the latest period was $1,331.10, for a six-month yield of 2.53 per cent. That is right on target in terms of our 5 per cent annual objective.
Changes: We won't change any of the securities at this time, but we will reinvest some of the retained income as follows.
NWC – We will add 10 shares at a cost of $320. That will bring our position to 180 shares and reduce our retained earnings to $57.15.
RNW – The drop in the price offers an opportunity to add to our position. We will buy 10 shares for $132, leaving cash of $79. We now own 380 shares.
FC – We will add 10 shares at a cost of $128.10 to a new total of 390. Our cash balance will be reduced to $61.64.
DRG.UN – Here too, we will buy 10 shares for $116.50, bringing our total to 480. We will have $71.31 left in cash.
Readers are reminded not to do small trades unless you have a fee-based account. Use a dividend reinvestment plans when available.
We will keep our cash of $2,186.98 in the EQ Bank savings account, which now pays 2.3 per cent.
Here is the revised portfolio. I will look at it again in May.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca. Follow Gordon Pape on Twitter at twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney