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We launched our High-Yield Portfolio in March, 2012, as a model for readers seeking above-average cash flow at reasonable 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 total rate of return of 7 per cent to 8 per cent, with an annual yield of around 5 per cent.

Here is a review of the securities we own and how they have performed in the time since our last review in March. Results are to Sept. 24.

Enbridge Inc. (ENB-T). Enbridge was undervalued for a long time, but investors have finally figured out that stable returns and an above-average yield are worth owning. The stock is up $5.37 from the last review in March. The company pays a quarterly dividend by of 83.5 cents ($3.34 a year), to yield 6.6 per cent at the current price.

Pembina Pipeline Corp. (PPL-T). Pembina continues to pay its monthly dividend of 21 cents a share, and the company prides itself on having been able to maintain it throughout the pandemic and last year’s drop in oil prices. The share price continues to recover, gaining $2.53 since the last review. At the current price, the yield is 6.2 per cent.

Sun Life Financial Inc. (SLF-T). After a big jump in the last review period, Sun Life took a pause to consolidate its gains. The price is down 60 cents since March, but that was offset by two dividends totaling $1.10 a share. The current yield is 3.4 per cent.

Capital Power Corp. (CPX-T). This stock continues to move higher, gaining $7.94 in the latest period. The quarterly dividend is 51.25 cents a share ($2.05 a year), for a yield of 4.9 per cent at the current price.

Canadian Imperial Bank of Commerce (CM-T). Rising interest rates are good for banks, and CIBC shares are up another $19.03 since our last review. The quarterly dividend is $1.46 ($5.84 a year) and is fixed at that level until the Office of the Superintendent of Financial Institutions lifts its prohibition on increases. Because of the increase in the share price, the stock’s yield is down to 4.1 per cent.

Brookfield Renewable Partners LP (BEP.UN-T). This Bermuda-based limited partnership invests in an international portfolio of clean energy properties, mainly hydro. Green energy companies were hot in 2020 but have stalled this year, with the share price down a little over a dollar since the last review. Because of timing, we received three distributions totalling 91.125 US cents.

Brookfield Renewable Corp. (BEPC-T). This is a spinoff from Brookfield Renewable Partners LP. It’s much the same story: The excitement over green energy has abated, and the shares are down about $5 since the last review. The yield is 3 per cent, compared with about 3.2 per cent for the partnership units.

BCE Inc. (BCE-T). We added 10 shares of BCE to this portfolio at the time of the last review. It turned out to be a good move; the shares are up $8 since then. The dividend is 87.5 cents a quarter ($3.50 a year). The stock yields 5.5 per cent at the current price.

AT&T Inc. (T-N). This giant U.S. telecom is going through a major reorganization that will include spinning off its WarnerMedia division in a merger with Discovery Inc. The quarterly dividend is still 52 US cents (US$2.08 a year) for a yield of 7.6 per cent, but it will be cut when the spinoff is complete. This appeared to be a stable company, but now there’s a lot of uncertainty in the equation.

Algonquin Power & Utilities Corp. (AQN-T). This is another green energy company that has stalled this year. The price is down 36 cents since our last review, despite the fact the company raised its dividend by 10.3 per cent effective with the June payment. The price drop and the dividend hike brought the yield to 4.7 per cent.

North West Co. Inc. (NWC-T). This company has a long history, with a prime focus on general stores in Northern Canada and Alaska. The shares are up only 15 cents since the last review, but we will receive a one cent increase in the quarterly dividend in mid-October, to 37 cents a share ($1.48 a year). The yield will rise to 4.5 per cent as a result.

We earned $19.44 from the cash we deposited in an account with Motive Financial that paid 1.25 per cent at the time.

The table below shows what the portfolio looked like as of the close of trading on Sept. 24. 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 and exchange rates are not considered.

Income Investor High Yield Portfolio (as of Sept. 24)

Weight %Total sharesAvg. priceBook valueCurrent priceMarket valueRetained incomeGain/loss %
ENB-T6.980$48.64 $3,391.20 $50.72 $4,057.60 $442.22 32.7
PPL-T8.8130$32.11 $4,173.75 $39.79 $5,172.70 $468.68 35.2
SLF-T15.3140$27.48 $4,055.95 $64.13 $8,978.20 $481.03 133.2
CPX-T8.2110$31.37 $3,450.90 $43.78 $4,815.80 $225.61 46.1
CM-T13.755$112.97 $6,213.30 $145.84 $8,021.20 $510.40 37.3
BEP-UN-T14.2172$22.83 $3,926.11 $48.38 $8,321.36 $433.97 123
BEPC-T3.642$38.85 $1,631.84 $50.76 $2,131.92 $75.33 35.3
BCE-T7.770$56.75 $3,972.40 $64.74 $4,531.80 $122.50 17.2
T-N5.7120$29.79 $3,574.80 $27.13 $3,255.60 $312.00 -0.02
AQN-T6.1185$19.00 $3,515.00 $19.17 $3,546.45 $174.64 5.9
NWC-T8.1135$25.97 $3,505.95 $34.58 $4,668.30 $238.95 40
Cash1.7$976.28 $995.72
Total100$42,387.48 $58,496.65 $3,465.33 46.2
Inception$24,947.30 148.4

Comments: The portfolio continues to perform well, gaining 6.2 per cent in the latest six-month review period. The largest contributions in the latest period came from CIBC, Capital Power, and BCE.

With the latest gain, we are showing a total return since inception of 148.4 per cent, to $61,961.98, which translates into an average annual gain of about 10 per cent, which is above our target range.

In terms of cash flow, the portfolio earned $1,351.87 in six months, for a yield of 2.3 per cent in that time. Over a full year, that would work out to about 4.6 per cent, slightly below our 5-per-cent target.

Changes: AT&T is offering a very attractive yield right now, but a dividend cut is coming, and the future of the deal involving WarnerMedia and Discovery is a giant question mark. I suggest we exit this position. We’ll receive $3,567.60, including accumulated dividends.

Also, I feel we have too much exposure to green energy, so we’ll sell our position in BEPC for a total of $2,207.25 including retained income.

This leaves us $5,774.85 to reinvest. We’ll put the money into Firm Capital Mortgage Investment Corp. (FC-T). It’s been a recommendation of my newsletter for many years and pays a reliable dividend of 7.8 cents a month (93.6 cents a year) to yield 6.2 per cent at the Sept. 24 price of $15.06. We will purchase 400 shares at a cost of $6,024. We’ll take $249.15 from cash to make up the difference.

Note that although FC’s payments are stated as dividends, they are taxed as interest in non-registered accounts.

We’ll also use some accumulated earnings to add 10 shares of PPL at a cost of $397.90. That will give us 140 shares and reduce our retained income to $70.78.

Our retained earnings plus cash now totals $3,426.27. We’ll keep this amount in our Motive Financial Savvy Savings Account, which is still paying 1.25 per cent.

Here is the revised portfolio. I will review the portfolio again in March.

Income Investor High Yield Portfolio (revised Sept. 26)

Weight %Total sharesAvg. priceBook valueCurrent priceMarket valueRetained income
ENB-T6.880$48.64 $3,391.20 $50.72 $4,057.60 $442.22
PPL-T9.4140$32.65 $4,571.65 $39.79 $5,570.60 $70.78
SLF-T15.1140$27.48 $4,055.95 $64.13 $8,978.20 $481.03
CPX-T8.1110$31.37 $3,450.90 $43.78 $4,815.80 $225.61
CM-T13.555$112.97 $6,213.30 $145.84 $8,021.20 $510.40
BEP-UN-T14172$22.83 $3,926.11 $48.38 $8,321.36 $433.97
BCE-T7.670$56.75 $3,972.40 $64.74 $4,531.80 $122.50
FC-T10.2400$15.06 $6,024.00 $15.06 $6,024.00 $0
AQN-T6185$19.00 $3,515.00 $19.17 $3,546.45 $174.64
NWC-T7.9135$25.97 $3,505.95 $34.58 $4,668.30 $238.95
Cash1.4$746.57 $746.57
Total100$43,373.03 $59,281.88 $2,680.10
Inception$24,947.30

Full disclosure: The author personally owns shares of ENB, PPL, BEP.UN, BEPC, BCE, AQN, and FC.

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/subscribe

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