Canadian High Yield Model

If you are a Canadian Advisor, you likely require a product which has higher dividend yields and strong capital appreciation. At some point your clients will want to generate some income to live off without eroding the capital.

The Problem

But here’s the problem: high-yielding equities have higher risk and typically lower total returns. Look at this chart of the top 20 dividend yielding stocks in the TSX over the past two decades. Even if you re-invested the dividends you would have an annualized portfolio return of 0.49% vs. 8.5% of the TSX Capped Composite. Your clients are not going to be happy with this regardless of the dividends produced.

You can also invest in some fairly generic ETFs with higher yields. I selected the following names in US markets.

I ran a back-test since 2007 (as the history of these ETFs are somewhat limited). What I found was almost identical market performance up until 2018. And then this...

Almost 6% annual under-performance since 2018. Not good.

The other problem with the 'generic ETF approach' is that at some point the client may feel he can drop you and cut your fees and invest in these ETFs himself. He may not appreciate all the other aspects of being a financial advisor.

The Solution

The answer is to come up with a proprietary model which is only offered through you. It doesn’t have to be ‘super amazing wow’ but it should be something that they desire and is unique to you. It also does not have to be a big portion of the account. You may be nervous to go too far out on a limb in case the strategy underperforms and there is drawdown. But with zero risk there is zero gain.

This was the motivation of why I created the Advisor Canadian High Dividend model. High sustainable income streams without destroying the underlying investment.

Before I get into it, I want to mention that I am not charging for this model. It is free. Any subscriber of Portfolio123 will be given 100% transparent access to the model and they can clone the entire strategy and underlying rules in their own account along with 20+ other strategies. These can be white-labeled by advisors for their clients. I believe Portfolio123 to be the best in class and I am offering many strategies to get new subscribers up and running ASAP.

The Model

This is a quick snapshot of the model.

How does it work?

It selects 20 stocks from the TSX exchange and every 4 weeks it re-analyzes those holdings and will replace as necessary. To be included it must have a minimum of 5% dividend yield. The price must be at least $1 / share and there must be at least $300K of average daily turnover over the past 100 days. Some sector weight restrictions are in place.

How are the stocks ranked?

This is an overview of the ranking engine that grades stocks from good to bad. There are 4 main components:

·????????Profitability

·????????Momentum

·????????Value

·????????Other Fundamentals

Notice there is not a single rule relating to dividend growth or dividend yield other than our initial filter of yields being above 5%.

It is my experience that dividend analysis is not a reliable way to find strong and robust high yielding stocks. Dividend analysis doesn’t contain as much information as other fundamentals. For instance, a company may have a policy of raising dividends by 5% every year.

• But are they generating free cash flow?
• Are they diluting the share pool or taking on more debt to raise cash for dividends?
• Is business growing and is this policy sustainable long-term without destroying shareholder equity?

Dividend analysis will tell you none of this. Even a Ponzi scheme can produce a robust dividend policy for a time.

I choose to focus on fundamentals that are logical and that have actually mattered to the total return of higher yielding dividend stocks. The goal is to produce a strong yield for income while at the same time not eroding the underlying investment capital. In a perfect portfolio the capital will grow faster than inflation while at the same time producing cash they can live on. This portfolio has a 6.69% portfolio dividend yield and has a historic back-tested return which is 9.21% higher than the S&P/TSX Capped Composite Index benchmark.

Again, if you are interested in this portfolio or a couple dozen others I have produced (which I offer for free if you have a Portfolio123 subscription), follow these steps:

1)?????Book a demo with Portfolio123 to get an overview of the platform (https://calendly.com/portfolio123meeting)

2)?????Try it out for 3 weeks for $19. For the month of June you get access to markets in North America, Europe, UK and Canada. (Usually Europe costs extra)

3)?????Once you have a trial account, simply give me your username and I will add you to a group where you can clone my models, make any adjustments you want and white-label them.

4)?????Feel free to email me at [email protected] with any other questions you may have. Or DM me here on LinkedIn.?