I have always been a proponent of a balanced portfolio, but those were the days when the world was sane. Now, we need to rethink how we position our assets going forward, cautions Gordon Pape, Canadian stock expert and editor of The Income Investor.
Based on the rates offered on recent issues, bonds don’t look like a good option for income-oriented investors. That leaves the stock market.
Dividend-paying issues have tended to underperform in recent months, but high-quality companies have maintained their payouts and, in some cases, even raised them.
I suggest it is time to reconsider the traditional 60-40 stocks/bonds split and move a higher percentage of assets into low-risk, dividend-paying stocks.
Let me be clear about the meaning of low risk: I’m suggesting securities that may (and probably will) fluctuate in market value in the coming years but will maintain or increase their dividends/distributions.
As an income investor, that should be your main focus. Don’t fret if the price of a stock temporarily goes down. The time to worry is if a company you own cuts its dividend. Some of the stocks on our Recommended List that should be in every dividend portfolio include:
Fortis Inc. (FTS)
The company recently announced a dividend increase of 5.8% increase to $0.505 per quarter ($2.02 per year), effective with the December payment. Fortis also extended its guidance for future annual dividend hikes in the 6% range to 2025. The stock yields 3.7%.
Brookfield Renewable Partners (BEP)
Green energy stocks have done well during the pandemic, in contrast to fossil fuel companies that are struggling. This limited partnership has been able to increase its payout annually by 5-7% in recent years and I see no reason for that to change. The units currently pay US$0.434 per quarter (US$1.736) to yield 3.3%.
BMO Financial Group (BMO)
The pandemic is squeezing banks in two ways. They are having to raise loan loss provisions to protect against customer defaults, which is cutting into earnings.
Plus, the low interest rate environment is squeezing profit margins. It’s going to take some time for them to recover and investors have responded by dumping shares and driving down share prices.
However, the sell-off has been overdone, as Bank of America analyst Ebrahim Poonawala recently said in a research report. The shares pay a quarterly dividend of $1.06 ($4.24 per year) to yield 5.2%.
Bank of Nova Scotia (BNS)
This is another Canadian bank that was upgraded by Bank of America. The quarterly dividend is $0.90 a share ($3.60 a year) to yield 6.3%.
BCE Inc. (BCE).
Canada’s largest telecommunications company is still down from its pre-COVID high but has been trading in a narrow range of $55-60 since rebounding from the March sell-off.
Although the latest quarterly results were unimpressive, the quarterly dividend of $0.833 ($3.332) appears secure and the yield of almost 6% looks very attractive.
