Summary
- Canada offers a unique investment opportunity, with oligopolies dominating several sectors.
- Those sectors are financials, telcos, pipeline and utilities, grocers, and the railways.
- The wide moat portfolio has a history of a tremendous beat over the market, with less volatility.
- Investors can build a relatively well-balanced portfolio from these sectors.
I hold a concentrated portfolio of Canadian stocks. What I give up in greater diversification, I gain in the business strength and potential for the companies that I own to not fail. They have wide moats or exist in an oligopoly situation. For the majority of the Canadian component of my RRSP account, I own 7 companies in the banking, telco and pipeline space. I like to call it the Canadian wide moat portfolio. That said, I wish I had eaten my own cooking, as the wider moat portfolio that also holds the grocers and railways has greatly outperformed the wide moat 7.
Like many Canadian investors, I discovered over the years that my Canadian stocks that pay very generous dividends were beating the performance of the market. You'll find that market-beating event demonstrated by the Beat The TSX Portfolio. That portfolio simply buys the top ten yielding stocks in the TSX 60 each year- ticker XIU on the Toronto stock exchange.
Over longer periods you'll see that BTSX beat the TSX 60 by over 2% annual. And as always, past performance does not guarantee future returns.
I prefer the wide moat approach, as it is buy and hold and can deliver less volatility. It may be the best Canadian stock portfolio method available. The Canadian market offers a unique opportunity as several sectors are dominated by oligopolies.
The Canadian Wide Moat 7
For the bulk of my Canadian contingent I hold 7 stocks.
Canadian banking
Royal Bank of Canada ( RY ), Toronto-Dominion Bank ( TD ) and Scotiabank ( BNS ).
Telco space
Bell Canada ( BCE ) and Telus ( TU ).
Pipelines
Canada's two big pipelines are Enbridge ( ENB ) and TC Energy ( TRP ), formerly TransCanada Pipelines.
I also hold Canadian oil and gas stocks at an 11% weighting. Here is a link to our U.S. stock portfolio . I will post an update this week on the U.S. stock performance in 2022.
Here's the performance for the Canadian Wide Moat Portfolio assets in 2022.
Canadian Wide Moat 7 (Portfolio Visualizer / Author )
The portfolio was down 4.2% in 2022, compared to 5.8% for the TSX Composite. U.S. stocks were down 18.2% in 2022.
Here is a general approximation of how I weight the companies.
Portfolio Weighting (Portfolio Visualizer / Author )
Due to the concentration risk, the portfolio felt the pain of Scotiabank having a terrible year.
More than generous dividends
The portfolio has a wonderful dividend growth record, and 2022 was no exception to the rule.
- Bell Canada delivered a 5.14% increase
- Telus raised 3.42% and follow up with 3.69%
- Enbridge offered two increases in 2022, 2.99% and then 3.20%
- TC Energy raised by 3.45%
- TD Bank topped up their dividend by 7.87%
- RBC raised by 11.1% and then 6.67%
- Scotiabank chipped in with a 3.00% raise.
The yields are also impressive. Here's the top 20 for the TSX 60. All of the wide moat 7 are within the top 20.
Top Yielding TSX 60 Stocks (Dividendstrategy.ca )
And while I did not buy the stocks for the yield, it certainly can be a benefit. I am in semi-retirement, so I have the option of simply collecting and spending the dividends. There is no need to sell any shares. The portfolio generates plenty of growing dividends. That said, eventually shares will be sold to create additional income, in the name of tax efficiency.
Canadians can often reduce their total tax load by collapsing their retirement accounts, called RRSPs (Registered Retirement Savings Plan). The equivalent in the U.S. is the 401k.
The long term performance
10 year performance vs TSX (Portfolio Visualizer / Author )
Over the last 10 years, the Wide Moat 7 delivered 9.1% annual vs 7.7% for the TSX Composite. That's very good, but pales in comparison to the wider moat portfolio that will include the grocers, railways and utilities.
The Canadian Wider Moat Portfolio
Here's the stocks for the wider moat portfolio. This might be the best portfolio model for Canadian stocks.
Wider Moat Portfolio Assets (Portfolio Visualizer / Author )
And here's the performance vs the Wide Moat 7 and the TSX Composite.
Wider Moat Portfolio Performance (Portfolio Visualizer / Author)
The wider moat portfolio beats (with less volatility and drawdown) in every period over the last 10 years.
Wider Moat Returns and Risk (Portfolio Visualizer / Author )
With a beat of over 3% annual with much less risk and drawdown, the wider moat portfolio would be tough to beat.
Within the wider moat portfolio are two sectors that help create a more defensive portfolio - grocers and utilities. Sector arrangement can be more than helpful for retirees and those who need to manage risk. Check out the lowest volatility sectors for retirees post. We can choose to overweight our defensive stocks. That might allow us to lighten up on bonds and hence create greater returns and greater income over time.
Consumer staples ( XLP ) and healthcare ( XLV ) are the clear winners. We also know utilities to be very defensive and are commonly used as bond proxies.
When creating an all-weather portfolio , a retiree can use types of stocks (sector arrangement) to prepare for the various economic regimes. Here are stocks for the retirement portfolio .
Retirement success becomes more about protecting capital compared to outright growth. Using successful sectors allows a retiree to create the needed balance of defense with enough growth. The strategic stock arrangement can work in concert with traditional defensive assets such as cash, short term bonds and long term bonds.
Our inflation protection is courtesy of oil and gas stocks ( XLE ) and commodities ( DBC ). And don't overlook gold ( GLD ) as a very important portfolio diversifier.
As a semi-retiree with an all-weather portfolio I sleep well at night. We're ready for most anything. The generous and growing dividends from the Canadian wide moat 7 stocks certainly help the cause.
Thanks for reading. We'll see you in the comment section. Please hit that like button if you liked this post.
Dale
For further details see:
The Canadian Wide Moat Portfolio Continues To Shine