Many investors don’t want to be tinkering with their portfolios on a weekly basis. All they want is to buy some solid, long-term stocks and then sit back and watch the portfolio grow and the dividends roll in.
These are the folks for whom the IWB Buy and Hold Portfolio was created in June 2012. It is designed for those who don’t want to spend a lot of time worrying about their assets.
This portfolio focuses on blue-chip stocks that offer long-term growth potential, with a small fixed-income holding mixed in. The original weighting was 10 per cent for each stock with a bond ETF given a 20 per cent position.
I used several criteria to choose the stocks including a superior long-term growth profile, industry leadership, good balance sheet, and relative strength in down markets.
The objective is to generate decent cash flow (all the stocks but one pay dividends), minimize downside potential, and provide slow but steady growth. The target rate of return is 8 per cent annually.
These are the securities we hold with comments on how they performed since my last review, which was based on results to Dec. 7. Prices are as of the morning of June 20.
iShares Canadian Universe Bond Index ETF (TSX: XBB). Bond prices continue to soften as interest rates rise, although the monthly distributions from this ETF keep flowing. The unit price is down $0.56 since December however we received distributions of $0.446, which almost offset that. This bond position is not going to make much (if any) money if interest rates keep rising but I’m keeping it as a buffer in the event of a stock market retreat.
BCE Inc. (TSX, NYSE: BCE). Interest-sensitive stocks were hit hard by rising rates over the latest six months. BCE shares fell $7.97, a big hit for this usually stable stock. About the only good news is that the company increased its dividend by 5.2 per cent at the start of the year, to $0.755 per quarter. Because of timing, we received three dividend payments during the period, totalling about $2.23.
Brookfield Asset Management (TSX: BAM.A, NYSE: BAM). Brookfield stock dipped below $48 in February but has since rallied strongly and is up $0.52 since the last review. We received two dividends totalling US$0.30 per share during the period.
CN Rail (TSX: CNR, NYSE: CNI). We saw a nice recovery in CN shares, which are up $4.76 since the last review. The dividend was increased by 10.5 per cent at the start of the year, to $0.455 per quarter. We received two payments for a total of $0.91 per share.
Enbridge (TSX, NYSE: ENB). Enbridge has been going through a rough period since the merger with Spectra Energy of Houston. Investors are concerned about the large amount of debt the combined company is carrying and its ability to fund new projects. As a result, the stock tumbled to a five-year low of $37.36 in April, however it has rallied back somewhat since. The company lived up to previous commitments by increasing the dividend by 10 per cent at the start of the year to $0.671 per quarter. We received two payments for a total of $1.342 per share.
Toronto Dominion Bank (TSX, NYSE: TD). Bank stocks continue to perform well. TD shares were up $4.06 in the latest period and the company increased its divided by 11.7 per cent in April to $0.67 per quarter. We received two dividend payments during the period for a total of $1.27 per share.
Alphabet (NDQ: GOOGL). This company comprises the Google empire. It has been very strong this year, along with the whole tech sector. The share price is up US$142.04 since the last review. This is the only stock in the portfolio that does not pay a dividend.
UnitedHealth Group (NYSE: UNH). This health insurer stock continues to perform very well for us. It gained US$32.66 per share in the latest review period. Due to timing, we received one quarterly dividend of US$0.75 per share. Effective at the end of this month, the quarterly dividend is going up by 20 per cent to $0.90 per share.
Walt Disney Corp. (NYSE: DIS). Disney stock was up $2.03 in the latest period, to $107.07. We received a semi-annual dividend of US$0.84 per share in December.
Cash. At the time of the last review, our cash reserves, including retained dividends, were $1,926.48. We invested that money at 2.3 per cent in an account with EQ Bank, earning $22.15 in interest.
Here is the status of the portfolio as of the morning of June 20. For consistency, the Canadian and U.S. dollars are considered to be at par. However, the currency differential increases U.S. dollar gains (or losses) for Canadians. Trading commissions are not factored in although in a buy and hold portfolio they are not significant in any event.
Comments: The new portfolio value (market price plus retained dividends/distributions) is $97,781.38, compared to $94,976.50 at the time of the last review. That represents a gain of 2.95 per cent over the period.
That’s below our target but considering the big losses posted by BCE and Enbridge, I consider that a pretty good performance for the period. Big gains in Alphabet and UnitedHealth Group were major contributors.
Since inception, we have a total return of 95.8 per cent. That represents an average annual compound growth rate over six years of 11.85 per cent, which remains comfortably ahead of our 8 per cent target.
Changes: We will use some of our accumulated income as follows:
XBB – We will buy 10 more units at $30.81 for a cost of $308.10. This will give us 460 units and will reduce the retained earnings to $163.91.
BAM.A – We’ll buy another five shares to bring our total to 240. With the price at $55.23, this will cost $276.15. That will use up all our retained earnings and we will take $60.75 from the cash account to make up the difference.
ENB – The stock has been badly beaten up but it seems to be stabilizing and the yield is very attractive at 6.4 per cent. We’ll buy 10 more shares at $42.43 for a cost of $424.30. That will leave us with 160 shares and reduce our retained earnings to $15.78.
We will keep our cash of $2,142.09 in our EQ Bank account, which is continues to pay 2.3 per cent.
Here is a look at the revised portfolio. I will update it again in December.
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.