Core retirement portfolio holdings

Recently I did a post on those stocks I consider core holdings in a retirement portfolio. Click the link to read the post: LINK. Today, I'd like to add some more stocks in the core holding category.

At the moment we have:

Financials

• RY (Royal Bank)       
  
• BMO (Bank of Montreal)
  
• TD (Toronto Dominion Bank)
  
• CM (Canadian Imperial Bank of Commerce)
  
• BNS (Bank of Nova Scotia)

Utilities

• FTS (Fortis)
  
• EMA (Emera)
  
• H (Hydro One)
  
• CU (Canadian Utilities)
• ALA (Alta Gas) 
  

Telcoms

• T (Telus)
• BCE (Bell)
• QBC.B (Quebecor) (Best bought on dips.)
  
• CCA (Cogeco) (Only buy on dips) I shifted from CGO to CCA. I did not want the radio ownership.
  

Pipelines

• ENB (Enbridge)
• TRP (TC Energy)
• PPL (Pembina)

Our retirement portfolio now has 15 buy and hold investments. If you had and average of $35,000 in each stock, your total portfolio would be worth $525,000 and would be yielding $22,000 or more in its first year. No one would be surprised if the yield increased by three or four percent annually in the coming years. In other words, I fully expect the income generated by this portfolio to increase by approximately $800 in the second year.

Are you beginning to understand why I balk at the idea of adding an annuity to my retirement package?

In my next post, I will touch on other investments I see as important investments in a well designed retirement portfolio. For instance, you may have noticed the exposure to the U.S. market is totally inadequate at this moment. This can be corrected by adding an ETF like XUS or VUS. Stay tuned. We'll compete this thought soon.

Algonquin Power Utilities Corp may have found a bottom

 

For investors in Algonquin Power Utilities Corp the last few months have been difficult. The stock is some fifty percent off its recent highs. The question being asked is this: "Is it time to sell? Is it time to save what is left and move on?"

This is a tough call. Investors had confidence in AQN and that confidence was misplaced. If we have confidence in AQN today, is that confidence again misplaced? My gut feeling is no, it's not. AQN will not drop a further fifty percent from its present price. The days of massive losses are over. AQN stock may go down but it will do so in lock-step with a falling market. AQN will not lead the retreat.

Look at the screen grab posted at the top of this post. Note that four absolutely superb stocks were all down at the open this morning. AQN balked. AQN was actually up almost a full percent. I don't find this apparent strength surprising. AQN is testing a bottom. I feel confident continuing to hold AQN.

AQN slashed its dividend. The pain of that cut is reflected in the present stock price. I don't see another big cut in the near future. And so the correct question is: "If I sell my AQN, where can I invest the money and get the same or better dividend income. What investment is offering better potential for a decent capital gain?" I have no quick, easy answer and so I continue holding AQN.

In the mid-afternoon, I checked the gain/loss of AQN again. Wow! It was up more than two percent while everything else remained down. AQN is clearly testing a possible bottom.

Core holdings in a retirement portfolio

One is often advised to have one or more annuities in one's retirement portfolio. Although I believe that is good advice, I do not have any annuities in my portfolio. I look at the stable annuity payout, so stable that in twenty-five years it will be paying exactly what it is delivering today -- not a penny more nor a penny less -- and I cringe.

Then I compare this to the dividends paid by my core stock holdings. For instance, take Fortis (FTS). As reported by Gordon Pape, Fortis "recently increased its dividend for the 49th consecutive year." I find the idea of holding a utility like Fortis for 25 years a lot more appealing than holding an annuity for the same time period.

Fortis is a utility company based in St. John's Newfoundland but with operations extending into five Canadian provinces, nine U.S. states and three Caribbean countries. And Fortis is not the only good utility company in Canada. The short list of fine alternatives includes: Emera (EMA), Hydro One (H) and Canadian Utilities (CU).

I'd feel very comfortable holding 4-5% of my retirement portfolio in each of these companies for a total exposure to the utility sector of 16% to 20%.

Another sector in which all Canadian retirement portfolios should have exposure is banking. The Canadian banking system may be unique in the world. The five biggest Canadian banks control the sector. I would argue that all five Canadian banks are "too big to fail." Conservation of assets is a core goal of one's investment approach in retirement. The five biggest Canadian banks are safe and their dividends are safe as well. This year will mark 194 years without a dividend cut for the Bank of Montreal, 189 years without a cut for the Bank of Nova Scotia and 166 years for the TD bank.

The big five Canadian banks are: RY, BMO, TD, CIBC and BNS. I prefer to weight my investments in the banking sector by bank size. For this reason, I weight my investments in the banking sector toward the Royal Bank and the Bank of Montreal and away from the Bank of Nova Scotia. Still, with all five taken together, I find I feel comfortable with from 25% to 35% of my total portfolio invested in banks. And be aware, I am not adverse to investing in the National Bank (NA) even though it has been known to reduce its dividend in tough times.

Some core holdings for a Canadian retirement portfolio:

• RY (Royal Bank)       
  
• BMO (Bank of Montreal)
  
• TD (Toronto Dominion Bank)
  
• CM (Canadian Imperial Bank of Commerce)
  
• BNS (Bank of Nova Scotia)
  
• FTS (Fortis)
  
• EMA (Emera)
  
• H (Hydro One)
  
• CU (Canadian Utilities)

After this, I would consider adding telecoms and pipelines to my retirement holdings.

Is it time to invest in health care?

According to information posted by the Toronto Stock Exchange (TSX), almost all sectors that make up the market are up over the past ten years. Industrials, financials, telecoms and utilites are all clearly up. The loser among the various sectors is health care.

I strive for a diversified portfolio. I am wondering if it is time to invest in health care? A ten year losing streak is not one to be ignored and yet such a run of bad luck must come to an end at some point. I believe it is time to take a look at some health care ETFs.

• The BMO Equal Weight US Healthcare Index ETF (CAD-Hedged) (TSE:ZUH) offers exposure to 73 of the largest US-listed healthcare stocks in an equal-weighted ETF.
• The iShares Global Healthcare Index ETF (CAD-Hedged) (TSE:XHC) is composed of 114 of the largest global healthcare companies.
• The Vanguard Health Care Index Fund ETF (NYSE:VHT) wraps 407 of the largest US-listed healthcare and biotech stocks from all three major sub-sectors: pharmaceuticals, medical equipment and biotechs. If you are not put off by currency risk, it is worth a look. Note, this is an NYSE listed ETF.
• The TD Global Healthcare Leaders Index ETF (TSE:TDOC) contains 156 of the top global healthcare stocks. For personal reasons, I lean toward the TD offering. With the TDOC relatively low MER of 0.38%, teamed with the largest yield (2.19%) of the group, plus very good reviews posted by other more knowledgeable investors, I am drawn to this ETF. 

Check out the chart posted below. TDOC is comfortably on the plus side of the ledger over the past year. In fact, at the time this chart was created, TDOC (green) was the best performer of the four health care ETFs I charted. 

The Vanguard ETF VHT (red) is not a clear standout, I am not interested in owning it since it must be bought on the NYSE and I like to steer clear of currency exchange complexities.

ZHU seems to have staked out a claim to the bottom of the chart. I am looking for reasons to eliminate ETFs from consideration. The ZHU performance over the past year has dropped it from my consideration at this time.

As the iShares offering XHC (blue) has done quite nicely, I find myself favouring the idea of investing in two health care ETFs: TDOC and XHC. If I should decide to go with just one, I'll go with TDOC. As a retiree, I need the dividend income.