# Income Stocks



## Mortgage u/w (Feb 6, 2014)

I'm looking for some recommendations. My portfolio consists of solid dividend paying stocks and I have 20% in liquid cash which I would like to decrease. So I would like to buy some income stocks and narrowed it down to the following 5: CHE, HR, REI, PZA, KEG. I already own VNR and enjoy its neutral growth but high yield and hoping to accomplish the same by adding to my portfolio the selection above. Not interested in ETFs or mutual funds.

Would you classify these stocks as fairly stable and a good alternative for income? I don't want to keep more than 5% cash nor do I want to be overexposed in equities. All my portfolios are tax sheltered (RRSP, TFSA, RESP).


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## gardner (Feb 13, 2014)

Mortgage u/w said:


> I have 20% in liquid cash


Cash cash? or bonds? 20% is not an unreasonable amount to put into bonds. Some suggestions might be:

XQB @ 2.60%
VAB @ 2.78%


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## Mortgage u/w (Feb 6, 2014)

gardner said:


> Cash cash? or bonds? 20% is not an unreasonable amount to put into bonds. Some suggestions might be:
> 
> XQB @ 2.60%
> VAB @ 2.78%


Cash cash. Currently sitting in DYN1300 at 0.75%. Whohoo!


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## tygrus (Mar 13, 2012)

Yeah you are missing out on income with stability by ignoring ETFs. They are the perfect instrument. Unless you have an advisor, stay away from individual stocks.


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## like_to_retire (Oct 9, 2016)

tygrus said:


> Unless you have an advisor, stay away from individual stocks.


Can you explain?

ltr


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## agent99 (Sep 11, 2013)

Mortgage u/w said:


> I'm looking for some recommendations. My portfolio consists of solid dividend paying stocks and I have 20% in liquid cash which I would like to decrease. So I would like to buy some income stocks and narrowed it down to the following 5: CHE, HR, REI, PZA, KEG. I already own VNR and enjoy its neutral growth but high yield and hoping to accomplish the same by adding to my portfolio the selection above. Not interested in ETFs or mutual funds.
> 
> Would you classify these stocks as fairly stable and a good alternative for income? I don't want to keep more than 5% cash nor do I want to be overexposed in equities. All my portfolios are tax sheltered (RRSP, TFSA, RESP).


Those stocks are or were income trusts. Smaller companies with high yields, so you must accept higher risk if you buy them. If interest rates rise, REITS will likely drop in value. Restaurants subject to whims of population. CHE is into smaller scale chemicals. 

What I have done to capture yield from this class of stock, is to buy SIN.UN. This fund holds all those stocks as well as many other dividend payers and has a distribution yield of about 7.5%. About 25% of the yield is Return of Capital - Likely in good part from the many REITs (which is not such a bad thing). The fund appears to be using more leverage than it used to (23%?) but is trading below NAV. The management fees amount to about 0.9%. What I see with this fund at present, is possibility of REITs losing value, but energy, industrial and consumer stocks more than balancing that. 

Not suggesting you buy this. But it may be worth looking at. I have owned this fund for many years and watched it's NAV go up and down while collecting a nice stream of distributions.


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## gardner (Feb 13, 2014)

Without knowing what the O/P is currently holding or what his/her diversification strategy is, it is hard to know what to suggest as likely fits.

Most of the suggestions -- CHE, HR, REI, PZA, KEG -- are high-yielding unit trusts. Another option fitting that mold is BPF.UN
If all of your holdings are of this type I would consider diversifying into large stable corporations by adding:

-- a bank -- BNS or RY or etc.
-- a utility -- FTS or EMA
-- a telco -- T, RCI.B, BCE

If you are 100% equity so far, then a bond segment in the 10-20% range is advisable -- as mentioned a diversified bond fund.


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## like_to_retire (Oct 9, 2016)

gardner said:


> ....... If all of your holdings are of this type I would consider diversifying into large stable corporations by adding:
> 
> -- a bank -- BNS or RY or etc.
> -- a utility -- FTS or EMA
> -- a telco -- T, RCI.B, BCE.


But the OP already told us _"My portfolio consists of solid dividend paying stocks and I have 20% in liquid cash which I would like to decrease."_

ltr


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## gibor365 (Apr 1, 2011)

> down to the following 5: CHE, HR, REI, PZA, KEG


 Recently added to KEG.UN. Holding other 3 (except PZA, hold BPF), planning to add to CHE.UN


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## kcowan (Jul 1, 2010)

like_to_retire said:


> But the OP already told us _"My portfolio consists of solid dividend paying stocks and I have 20% in liquid cash which I would like to decrease."_


Yes but since (s)he is already a stock picker, why not continue?


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## Mortgage u/w (Feb 6, 2014)

My diversification is mainly Canadian dividend stocks (BNS, RY, TD, FN, MFC, MRU, T, RCI, BCE, FTS, ENB, TRP, PWF, SLF, GUD, SU, VNR, and VXC just to be different. 80% is stock - 20% cash. I would keep no more than 5% in cash (DYN1300). This set-up is only for my tax sheltered portfolios - my non-registered is 100% in a HISA - I don't like to play with my non-registered money. So technically, I could keep 0% cash in my registered products since I have ample in HISA. 
I considered bonds but don't know them enough to add to my portfolio. I'm a buy and hold long term.

I guess what I want to know is, would you consider my 5 stock-pick a good choice for the 'income' part of my portfolio or is it just as risky as the rest of my stocks?


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## like_to_retire (Oct 9, 2016)

kcowan said:


> Yes but since (s)he is already a stock picker, why not continue?


Totally agree Keith. 

(S)he should continue down the same road of dividend stocks, and then put most of that 20% in question 'cash' into fixed income (bonds/GIC's). Forget about the income junk.

ltr


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## kcowan (Jul 1, 2010)

I personally prefer Convertible Bonds but the pickings are pretty slim!


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## agent99 (Sep 11, 2013)

Mortgage u/w said:


> I guess what I want to know is, would you consider my 5 stock-pick a good choice for the 'income' part of my portfolio or is it just as risky as the rest of my stocks?


More risky by far as explaimed previously


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## gardner (Feb 13, 2014)

Mortgage u/w said:


> This set-up is only for my tax sheltered portfolios - my non-registered is 100% in a HISA - I don't like to play with my non-registered money.


I see. This is outside your original question, but I bet your overall portfolio is likely skewed overly towards cash then. I would suggest reading up on approaches to tax efficiency and look at the role of bonds in a healthy risk-averse portfolio. It is generally more tax efficient to hold equity outside registered accounts where it generates capital gains and dividend tax credits and hold bonds/HISA/GICs registered where the interest income is untaxed.

The trust units you originally listed seem fine -- I would add BPF.UN to that list and maybe some other REITS. Historically these small Canadian trusts have been subject to turmoil at various times and I personally would want some large stable conventional corps in the mix, which it looks like you have. I've personally dumped a couple of formerly high-yielding trusts after years, either at a slight loss or a wash, including all the dividends. Yield-chasing is risky since the ones with the yield are often sketchy financially. A change in yield can really undermine the equity value too, since that may be one of the main price drivers.


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## doctrine (Sep 30, 2011)

My #1 "income" dividend paying stock would be ENF. I would prefer it over any of the ones you mentioned. If you already have ENB or ENF, I would then go to IPL. For a non-pipeline, I would take AQN as my #1 choice in investment grade utilities due to good dividend and strong growth. All three of those companies are investment grade companies with very steady dividends and will grow them in the long term at a rate well above inflation. HR & REI are not bad alternates for the real estate sector. CHE just ate a big acquisition and so I wouldn't go all in there and would be my last choice amongst this whole list, and I would exclude PZA and KEG as they are somewhat risker as consumer discretionary stocks and I don't think they're investment grade either, or at least hold in small quantities.


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## Eder (Feb 16, 2011)

Mortgage u/w said:


> my non-registered is 100% in a HISA - I don't like to play with my non-registered money.


You are playing with it...guaranteed loss. Full income tax deducted so perhaps 1% real return while inflation is rising. You assume huge risk with no opportunity for return.


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## gibor365 (Apr 1, 2011)

> my non-registered is 100% in a HISA - I don't like to play with my non-registered money.


 I'm the same


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## Mortgage u/w (Feb 6, 2014)

Thank you for all the replies and great advice. 
I understand how some may see my HISA not working much but I really don't mind. This is money that I use to build up my savings and as a transition between portfolios when needed. It is also my emergency funds 'for a rainy day'. I own RE as well so I like to keep some free cash lying around. So its not money I want to put at risk or try to 'grow'. Overall, it would only represent 10% of my overall investments and savings so I don't think I'm overly cash. 

I think I will start small positions in the income trusts and build from there.


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## mark0f0 (Oct 1, 2016)

Careful about the REITs. Its not really 'income' if its return of capital.


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## Eclectic12 (Oct 20, 2010)

YMMV ... depending on whether it's good or bad.

Examples of good RoC are well maintained RE where the RoC is the capital cost allowance, this type of RoC being flowed through an ETF, dividends that have been converted to RoC by an ETF or unrealised CG in a MF.

Bad is the investors $$ coming back to them.


http://howtoinvestonline.blogspot.ca/2010/07/return-of-capital-separating-good-from.html

Cheers


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