Anyone who has studied investing closely understands the cyclical nature of the process as it relates to interest rates. Some types of securities thrive when rates move higher (for example, GICs). Others see strong gains when the central banks are easing.<\/p>\n
We have just entered a new easing phase. Both the Bank of Canada and the U.S. Federal Reserve Board dropped their target rates by a quarter point in mid-September, and many economists think there is much more to come.<\/p>\n
That should be welcome news for those readers who have been tracking our High-Yield Portfolio. All the securities it holds are interest-rate sensitive, although that\u2019s obviously not the only factor affecting their share price.<\/p>\n
The main objective of this portfolio is to generate above-average cash flow. If we can score some capital gains, so much the better.<\/p>\n
Right now, our model High-Yield Portfolio is delivering on both counts. These stocks were badly beaten when the Bank of Canada was raising interest rates, but now we\u2019re seeing a turnaround that should last for several months.<\/p>\n
This portfolio was created in March 2012 for investors seeking above-average dividend income who were willing to 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.<\/p>\n
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.<\/p>\n
Here is a review of the securities we own and how they have performed in the time since our last review in mid-May. Results are to Sept. 19.<\/p>\n
Enbridge Inc. (ENB-T<\/a>). Enbridge stock has been on a strong upward trend for the past year and was given another boost by interest rate cuts this month in Canada and the U.S. The quarterly dividend is 94.25 cents, and due to timing, we received only one payment. The stock yields 5.5 per cent.<\/p>\n Pembina Pipeline Corp. (PPL-T<\/a>). Pembina shares bounced back, gaining $2.59 in the latest period. The company increased its quarterly dividend by $0.02 in May, to 71 cents per share. We received payments that totaled $1.42. At the current price, the dividend yield is 5.1 per cent. <\/p>\n Sun Life Financial Inc. (SLF-T<\/a>). SLF had been on a strong run but slipped $4.93 in the latest period. The quarterly dividend was increased 4.8 per cent, to 88 cents a share, in May and we received two payments at the new rate. The current yield is 4.2 per cent.<\/p>\n Capital Power Corp. (CPX-T<\/a>). The stock scored a nice gain of $10.84 in the latest period. Investors will receive a dividend increase of 6 per cent, to 69.1 cents, effective with the payment of Oct. 31. The dividend yield will be 4.25 per cent at the new rate.<\/p>\n Canadian Imperial Bank of Commerce (CM-T<\/a>). Bank stocks continue to recover strongly as recession fears have eased. CIBC is up $19.82 since May. The bank pays a quarterly dividend of 97 cents per share to yield 3.4 per cent.<\/p>\n Power Corporation of Canada (POW-T<\/a>). We added this conglomerate to the portfolio in March 2024. It has interests in life insurance (Great-West Life), asset management, and banking. The stock is now trading at $58.74, up $8.75 since the last review. The quarterly dividend is 61.25 cents ($2.45 a year) to yield 4.2 per cent. <\/p>\n BCE Inc. (BCE-T<\/a>). BCE stock finally steadied after the company slashed its dividend by over 50 per cent, to $1.75 a year. The shares are up 89 cents since the last review. We received two payments at the new rate of 43.75 cents. The stock now yields 5.5 per cent. <\/p>\n Firm Capital Mortgage Investment Corp. (FC-T<\/a>). Mortgage investment corporations normally see their share prices decline when rates rise. But when rates switch direction, these shares move up. That\u2019s where we\u2019re at now \u2013 the shares gained $0.27 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 7.6 per cent.<\/p>\n Peyto Exploration & Development Corp. (PEY-T<\/a>). This is an Alberta-based natural gas company that was added in October 2024. It is currently paying a monthly dividend of 11 cents a share ($1.32 a year) to yield 7.3 per cent at a price of $18.01.<\/p>\n