My high-yield portfolio has been on fire. But I’m booting one stock and buying another

I’ve been saying for the past two years that when rates turned and started down, my Income Investor High-Yield Portfolio would thrive. They have. It is.
Declining rates contributed directly to a huge gain of over 20 per cent in this portfolio for the seven-month period to Oct. 18. We haven’t seen a bump that big in a long time.
This portfolio was created in March 2012 for investors seeking above-average dividend income and who can live with somewhat more risk. The portfolio 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, Canadian dividends are eligible for the dividend tax credit.
The initial portfolio 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 Oct. 18.
Enbridge Inc. (ENB-T). The move to easing interest rates has worked wonders for this stock. The shares are up $9.68 from the last review. The quarterly dividend was increased in February to 91.5 cents, and we received two payments. The stock yields 6.3 per cent.
Pembina Pipeline Corp. (PPL-T). Falling interest rates also boosted this stock, which gained $12.17 in the period between March and October. We received two dividend payments that totaled $1.38. At the current price, the dividend yield is 4.6 per cent. That’s a full percentage point less than March, which highlights the impact of the interest rates environment on this and other dividend shares.
Sun Life Financial Inc. (SLF-T). SLF continued its strong recovery and added $5.10 in the latest period. The quarterly dividend is 81 cents, and we received two payments. The current yield is 4.1 per cent.
Capital Power Corp. (CPX-T). The stock jumped $12.94 in the latest period. Due to timing, we received three dividends totaling $1.882 a share. The dividend yield is 5 per cent at the current price.
Canadian Imperial Bank of Commerce (CM-T). The bank stocks (except TD) continue to recover strongly as recession fears have eased and interest rates have started declining. CIBC is up $18.20 since March. The bank raised its quarterly payout to 90 cents per share last December. The stock now yields 4.2 per cent, which is still respectable for a Big 5 bank.
Power Corporation of Canada (POW-T). We added this conglomerate to the portfolio in March. It has interests in life insurance (Great-West Life), asset management, and banking. The stock is now trading at $44.39, up $6.41 since it was added. The quarterly dividend is 56.25 cents ($2.25 a year) to yield 5.1 per cent. We received three dividend payments due to timing.
BCE Inc. (BCE-T). BCE shares have struggled for some time as the company copes with slow growth and a high debt load. But at least the stock held its ground in the latest period, posting a small gain of 45 cents. The dividend is 99.75 cents per quarter ($3.87 a year). The stock yields 8.4 per cent, which is a strong caution signal.
Firm Capital Mortgage Investment Corp. (FC-T). Mortgage investment corporations normally see their share prices decline when rates rise. But when rates switch direction, these shares move up. That’s where we’re at now – the shares gained 27 cents in the latest period. Not a lot, but we should see more of this as interest rates continue to fall. The monthly cash flow is steady at 7.8 cents a share, with a yield of 8 per cent.
Freehold Royalties Ltd. (FRU-T). We added Freehold Royalties in March 2023 at a price of $14.10. It’s now trading below that, although the monthly dividend of 9 cents a share provides a yield of 7.7 per cent.
North West Company 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 $13.20 since the last review, and we received three dividends for a total of $1.18 per share. The yield is 3.1 per cent.
We put our cash and retained earnings of $2,484.14 in a Duca Credit Union promotion account with 6 per cent interest. We received $86.94.
The table below shows what the portfolio looked like on Oct. 18. 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 it was added to the portfolio. Sales commissions are not considered.
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Comments: The portfolio has a total value of $78,329.61 and is up 20.6 per cent since the last review.
We have a total return of 215.2 per cent in the 12-1/2 years since inception. That translates into an average annual growth rate of 9.59 per cent, which is above our target range.
In terms of cash flow, the portfolio earned $2,463.49 in the latest period, for a yield of 3.8 per cent in that time. Over a full year, that would work out to 6.5 per cent. Our cash flow target is 5 per cent, so the portfolio is doing its job.
Changes: I’m not happy with the way FRU is performing, so we will sell our position and buy a higher-yielding petroleum stock, Peyto Exploration & Development (PEY-T). It’s an Alberta-based natural gas company that is currently paying a monthly dividend of $0.11 a share ($1.32 a year) to yield 8.7 per cent at a price of $15.23.
Our FRU position is worth $2,662.20. We’ll use that to buy 175 shares of Peyto for $2,665.25. We’ll take $3.05 from cash to make up the difference.
We will also reinvest some of our retained earnings as follows:
BCE – I’m still concerned about the performance of this stock, but it’s cheap and has a high yield. So, we’ll buy another 10 shares for $463.10. This brings our total to 90 shares and leaves $16.86 in reserve.
FC – We’ll add 20 shares at a cost of $233.20. That brings our total to 500 shares, with $132.62 remaining.
We have cash and retained earnings of $3,899.16. EQ Bank is paying 4.25 per cent on its 30-day notice savings account, so we will put the money there.
Here is the revised portfolio. I’ll review it again in March.
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Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
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