Investors seeking above-average cash flow need to consider two things.
First, the quality of the security. There are many high-yielding choices available but, in general, the risk is proportionate to the potential gains. If a stock is yielding 9 per cent, there is something worrying investors. Find out what it is and decide if you are willing to live with it.
Second, dividend history. Do some research. Does the company have a history of slashing the dividend in hard times? Does it raise the dividend on a regular basis? Companies like Fortis and Canadian Utilities have increased their payout annually for more than 50 years.
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.
Right now, we’re in a stand-pat phase. The Iran war has sparked fears of rising inflation, which normally would prompt central banks to raise rates. If rates start to climb, keep a close watch on this portfolio and consider taking some profits.
The main objective of this portfolio is to generate above-average cash flow. If we can score some capital gains, so much the better.
In the latest period, The Income Investor High-Yield Portfolio delivered on both counts. These stocks were badly beaten up when the Bank of Canada was raising interest rates, but we saw a strong turnaround when central banks lowered rates after the pandemic. I do not expect that to continue.
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.
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 late September. Results are to April 24.
Enbridge Inc. (ENB-T). Enbridge stock has been on a strong upward trend for the past 18 months and was given another boost this month with the approval of a new natural gas pipeline in BC. The quarterly dividend has been increased to 97 cents from 94.25 cents. We received two payments for a total of $1.9125 per share. The stock yields 5.3 per cent at the current price.
Pembina Pipeline Corp. (PPL-T). Pembina shares moved higher, gaining $4.14 in the latest period. We received two dividend payments that totaled $1.42. At the current price, the dividend yield is 4.8 per cent.
Sun Life Financial Inc. (SLF-T). SLF slipped last summer but recovered well to gain $14.73 a share in the latest period. We received two dividend payments of 92 cents each. The current yield is 3.8 per cent.
Capital Power Corp. (CPX-T). The stock gained $2.24 in the latest period. Investors received a dividend increase of 6 per cent, to 69.1 cents, effective with the October payment. Because of timing we received three distributions for a total of $2.073 per share. The dividend yield is 4.1 per cent at the new rate.
Canadian Imperial Bank of Commerce (CM-T). Bank stocks continue to gain ground despite the tension of the Iran war and inflation concerns. CIBC is up $37.31 since September. The bank raised its quarterly dividend by 10 cents a share with the December payment, to $1.07 per share to yield 2.9 per cent. This is low for a high-yield portfolio, but the capital gains make it worthwhile holding.
Power Corporation of Canada (POW-T). 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 $73.04, up $14.30 since the last review. The quarterly dividend was raised to 66.75 cents ($2.67 a year) in March from 61.25 cents ($2.45 a year), to yield 3.7 per cent.
BCE Inc. (BCE-T). BCE stock was up slightly in the latest period. We aren’t seeing much momentum, but the shares appear to have steadied. The stock is up 63 cents since the last review. We received two payments at the new rate of 43.75 cents. The stock now yields 5.4 per cent.
Firm Capital Mortgage Investment Corp. (FC-T). This is a frustrating stock. It pays steady and dependable cash flow, but the share price is very twitchy when intertest rates move. The monthly cash flow is steady at 7.8 cents a share, with a yield of 7.6 per cent.
Peyto Exploration & Development Corp. (PEY-T). 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 5.4 per cent at a price of $24.31.
Northland Power Inc. (NPI-T). Northland was added to the portfolio in May 2025. It is a clean energy company with operations in Canada, the U.S., and Europe. The dividend was cut in December, to 6 cents a month from 10 cents, for a yield of 3.1 per cent.
We put $3,576.28 in cash and retained earnings in Tangerine Bank at the rate of 4.5 per cent for five months on new accounts. We received $93.88 in interest.
The table below shows what the portfolio looked like on April 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 it was added to the portfolio. Sales commissions and exchange rates are not considered.
Comments: The portfolio has a total value of $107,752.40 and is up 19.8 per cent since the last review in late September.
We have a total return of 331.9 per cent in the 14+ years since inception. That translates into an average annual growth rate of just over 11 per cent, which is well above our target range.
In terms of cash flow, the portfolio earned $2,734.37 in the seven months since the last review. The yield for the period was 3 per cent. Our annual cash flow target is 5 per cent, so the portfolio is performing as expected.
Changes: The dividend cut reduces the yield of Northland Power to 3.1 per cent, which is low for this portfolio. Therefore, we will sell our position for a total of $10,539.30, including retained earnings.
We will use the money to buy 370 shares of Gibson Energy Inc. (GEI-T) at a cost of $10,459.90. We have a balance of $79.40, which we will add to cash.
Gibson is a Calgary-based company that’s involved in the gathering, storing, optimizing, and processing of liquids and refined products in Canada and the United States. The company operates a network of infrastructure assets that include terminals, rail loading and unloading facilities, gathering pipelines, diluent recovery unit, and crude oil processing facility. It also purchases, sells, stores, and optimizes hydrocarbon products, including crude oil, natural gas liquids, road asphalt, roofing flux, frac oils, light and heavy straight run distillate. The stock has been on our Income Investor recommended list since October 2021.
The shares are trading at $28.27 and pay a quarterly dividend of 45 cents ($1.80 per year) to yield 6.4 per cent.
We will also use retained earnings to buy another 10 shares of PEY at $24.31, for a total cost of $243.10. We now own 185 shares with retained earnings of $180.40.
We have $5,745.75 in cash and retained earnings. Neo Financial is offering 3 per cent on new savings accounts, so we’ll move the money there.
Here is the revised portfolio. I’ll review it again in September.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
Editor’s note: A previous version of this article incorrectly stated that rising inflation normally prompts central banks to lower rates. The opposite is true.