Money Matters: Mini-Portfolio Posts Another Gain

Designed to provide a better return than a GIC, this portfolio has averaged over 10 per cent annually over four years.

I created this mini-portfolio for my Internet Wealth Builder newsletter in November 2012. It was designed for people with a limited amount of money who wanted a better return than they could get from a GIC without taking on a lot of risk.

The idea came from two readers who held GICs that were up for renewal at that time. They were unhappy with the rates that were quoted and were seeking alternatives.

I stressed at the time, and still do, that while this is a low-risk portfolio it is nowhere near as safe as a GIC, which guarantees both principal and interest and is covered by deposit insurance up to $100,000. If absolute safety is what you want, stick with the GICs and forget about the extra return this portfolio offers.

Right now, you can find five-year GICs that pay up to 2.5 per cent at some smaller institutions, such as Canadian Tire Bank. However, you have to ask yourself whether you are prepared to tie up your money for that long when it appears higher interest rates may be on the way.

The portfolio includes three securities: the common stock of BCE Inc. and Scotiabank, plus the 5.75 per cent convertible debentures from Firm Capital Mortgage Investment Corporation.

The portfolio was last reviewed in May, at which time it was showing an average annual compound rate of return of 10.5 per cent. Here’s a look at the components, based on prices on Nov. 24.

BCE Inc. (TSX, NYSE: BCE). BCE shares hit a high of $63.40 during the summer but have pulled back recently and are down $2.45 since our last review. We received two dividends totaling $1.3625 per share during the period but that did not offset the drop in the price. Overall, we’re down 1.8 per cent since May.

Bank of Nova Scotia (TSX, NYSE: BNS). Scotiabank shares did not benefit as much as the other banks from the Trump bump because of concerns about its Latin American holdings, but they are still up about $8 since the last review. The company increased its dividend by $0.02 per share in September (2.8 per cent) to $0.74 per quarter. It was the second hike this year. We received two dividends totaling $1.46 per share for the period.

Firm Capital Mortgage 5.75 per cent Convertible Debentures (TSX: FC.DB.A). The price is down $1.10 since the last review on concerns that interest rates are on the rise. These debentures pay interest at the rate of 5.75 per cent semi-annually, on April 30 and Oct. 31. We received a semi-annual interest payment of $28.75 for each $1,000 debenture at the end of October. We have 55 shares for the equivalent of 5.5 debentures so that amounted to $158.13.

We received interest of $11.38 from the cash invested in a high-interest savings account with EQ Bank.

Here is how the Canadian Mini-Portfolio stood on the afternoon of Nov. 24.

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Comments: The portfolio now has a total value of $22,172.82 (market value plus retained income). That’s up from $21,263.28 at the time of the May update for gain of $909.54. That’s an advance of 4.3 per cent in six months. The average annual compound rate of return since this portfolio was created four years ago is now 10.3 per cent.

Changes: We have enough retained income to buy another five shares of BCE for a total of $290.25. That will bring our share count to 140 and reduce the retained income to $245.32.

We will also buy five more of the Firm Capital debentures for $504.50. This brings our position to 60 and reduces the retained income to $42.39.

We will keep our remaining cash of $716.82 in the EQ Bank account, however the interest rate is now down to 2 per cent.

Here is the updated portfolio.

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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.