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Algonquin Power & Utilities Corp.’s Riviere-du-Loup hydroelectric generating facility in Quebec. Algonquin is one of the top three performers.

I saw your latest portfolio update online. Could you provide some commentary about the portfolio’s performance?

Gladly. Like the rest of the market, my model Yield Hog Dividend Growth Portfolio suffered through some rocky months following the onset of the pandemic in March. But I’m pleased to report that the portfolio has rebounded as encouraging vaccine results have raised hopes that the pandemic could begin to recede in 2021.

Through Nov. 30, the portfolio posted a total return – including dividends – of 24.8 per cent since inception on Oct. 1, 2017. Thanks to additional gains and dividends received this week, by Friday afternoon the portfolio’s total return had improved to 27.1 per cent.

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The top three performers, along with their simple price returns (excluding dividends), are Algonquin Power & Utilities Corp. (AQN; up 55.1 per cent as of Friday), Canadian Apartment Properties Real Estate Investment Trust (CAR.UN, up 49.2 per cent) and Capital Power Corp. (CPX; up 41.8 per cent).

The three biggest losers are Canadian Utilities Ltd. (CU; down 16.4 per cent), Enbridge Inc. (ENB; down 18.4 per cent) and SmartCentres REIT (SRU.UN; down 23.2 per cent). With SmartCentres, my timing was terrible: I “bought” in February, weeks before the pandemic hit. But SmartCentres is the portfolio’s smallest position, and the unit price has been recovering on hopes that life may start to return to normal next year.

Could you provide your model portfolio’s return on an annualized basis?

Sure. First, some background. The portfolio started with $100,000 of virtual cash. As of Friday, the value had grown to $127,090 (for a total return of about 27.1 per cent, as mentioned above). This is equivalent to an annualized total return, since inception, of about 7.8 per cent. Over the same period, the S&P/TSX Composite Index posted an annualized total return of about 6.9 per cent. (Total return figures include share price gains and dividends.)

Some of your stocks haven’t raised their dividends recently, yet it’s called the Yield Hog Dividend Growth Portfolio. What gives?

Choice Properties REIT (CHP.UN) hasn’t raised its distribution since it acquired Canadian REIT in 2018, but I’m willing to give Choice time to digest that major acquisition, particularly in light of the challenges brought on by the pandemic. Not surprisingly, fellow retail REIT SmartCentres also skipped its regular annual distribution increase this year, but again, I’m willing to cut it some slack in these extraordinary times. The same goes for the banks, which in March were ordered to put dividend increases and share buybacks on hold “for the time being” by the Office of the Superintendent of Financial Institutions.

The good news is that many of the companies in the model portfolio have continued to raise their dividends during the pandemic. They include Algonquin Power, Capital Power, CT REIT (CRT.UN), Emera Inc. (EMA), Fortis Inc. (FTS) and Telus Corp. (T). Most of these companies have very stable cash flows, which is why they’ve been able to continue paying – and raising – dividends.

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As a result, even in the middle of a severe economic downturn, the model portfolio’s income has continued to grow. When I launched the portfolio back in the fall of 2017, it was generating annual income – based on dividend rates at the time – of about $4,094. Now, thanks to dividend increases and dividend reinvestments, the portfolio’s projected annual income has grown to $5,544 – an increase of 35.4 per cent. And I am confident that we’ll be seeing more dividend increases in the months ahead.

Why don’t you use a dividend reinvestment plan for your stocks?

DRIPs are great. They make the reinvestment process automatic, which is especially useful in down markets because they force skittish investors to buy when prices are low. But in the model portfolio – and in my personal accounts (in which I hold all of the stocks mentioned here) – I prefer to let my cash build up and then buy when a company looks attractive. It’s not necessarily a better approach – it just suits my personality.

When will you be making your next dividend reinvestment?

I don’t know, but the portfolio is sitting on more than $2,000 of cash, so I should probably invest it soon. Stay tuned.

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