Gordon Pape: My Buy and Hold Portfolio continues to blow past 8% target rate of return (2024)

My Buy and Hold Portfolio, launched nine years ago this month, was designed for people who don’t want to do a lot of trading and waste money on commissions. We have one simple goal – invest in great stocks and then hold on to them, no matter what the market is doing. Over the long term, the strategy works. There are ups and downs, of course, but the underlying thesis is that the long-term trend of the markets is up. If you own good stocks, they’ll move with it.

This portfolio consists mainly of blue-chip stocks that offer long-term growth potential. It also has a bond ETF holding. The original weighting was 10 per cent for each stock with the bond exchange-traded fund starting with a 20-per-cent position. That has now been reduced because equity increases have outpaced the bond market.

I used several criteria to choose the stocks. These included a superior long-term growth profile, industry leadership, a 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 was originally set at 8 per cent annually.

These are the securities we hold with comments on how they performed since my last review in December, 2020. Prices are as of the close of trading on June 24.

iShares Canadian Universe Bond Index ETF (XBB-T). It’s a rough time for bonds so it’s no surprise we have seen a drop in the unit value since the last update. This is likely to continue as rates rise, but bonds should remain an essential part of a buy and hold portfolio. We received six distributions totalling 41.2 cents a unit.

BCE Inc. (BCE-T). BCE shares have strengthened recently, rising $4.42 since the last update. Because of timing we received three dividends totalling $2.583.

Brookfield Asset Management Inc. (BAM-A-T). Brookfield continued its strong performance with a gain of $10.82 in the latest period. We also received two dividends for a total of 32.1 cents a share.

Canadian National Railway Co. (CNR-T). The battle with CP over Kansas City Southern took some of the steam out of CN’s recent rebound and we dropped about $7 a share. Because of timing we received three dividend payments of $1.805.

Enbridge Inc. (ENB-T). We added 10 shares of Enbridge in the December update and it turned out to be good timing. The stock is up $7.84 since then so we have a good return on our latest investment. We received two payments for a total of $1.67 a share during the latest period.

Toronto-Dominion Bank (TD-T). All the banks have been rallying on the prospect that higher interest rates will improve net interest margins. Loan loss provisions are also down. TD’s stock is up $16.39 since the last review. We received two dividend payments totalling $1.58 a share. The dividend will be raised once government controls are lifted.

Alphabet Inc. (GOOGL-Q). Despite the recent pullback in tech stocks, Google parent Alphabet has gained US$625 since the last review. That’s an amazing 32 per cent. This is the only stock in the group that does not pay a dividend but at that rate of growth, who cares?

UnitedHealth Group Inc. (UNH-N). This is the top health insurer in the United States and the shares continue to climb. They are up more than US$56 since our last review. The quarterly dividend was increased by 20 US cents to US$1.45 a share effective with the June payment. We received three distributions due to timing, totalling US$3.95.

Walmart Inc. (WMT-N). Walmart benefited from increased business during the pandemic, but the shares pulled back recently despite big gains in its e-commerce revenue. The stock is down US$13.61 from the last review. We received three quarterly dividends totalling US$1.64 a share. The payout was increased by a penny a share in March.

Cash. At the time of the last review, we had cash and retained earnings totalling $3,202.88. We moved the money to a Motive Savvy Savings Account, which was paying 1.55 per cent. We earned interest of $24.82.

The accompanying table shows the status of the portfolio as of June 24. For consistency, the Canadian and U.S. dollars are shown at par. 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 $145,865.05, compared with $130,698.94 at the time of the last review. That represents a gain of 11.6 per cent over the period.

The big gainers during the period were Alphabet, UnitedHealth, Brookfield Asset Management and TD Bank.

Since inception, we have a total return of 192 per cent. That represents an average annual compound growth rate over nine years of 12.6 per cent, which is well ahead of our 8-per-cent target.

Changes: This is a buy and hold portfolio, so I am not making any changes to our holdings. All are doing relatively well, except for the bond ETF, and the overall asset mix is sound.

We will use some cash to add to two holdings, as follows.

XBB – We will buy 10 units at $31.91 for a total of $319.10. That will give us 500 units and reduce retained income to $126.09.

BCE – We’ll buy 10 more shares of BCE at $60.69 for a total of $606.90. That will give us 180 shares. The retained earnings will drop to $328.89.

We will cash and retained earnings of $4,209.05. We will keep the money in a Motive Savvy Savings Account, which currently pays 1.25 per cent.

Here is a look at the revised portfolio. I will update the portfolio again in December.

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.