About one year ago my wife and I set 4 long-term goals for our non-registered portfolio. I have these goals indicated on one of my Excel spreadsheets that I use to track my non-registered portfolio. The reason I have them there is so that I can see the 4 goals as a reminder, as well as to check up on my progress regularly. When creating these goals I tried to make them simply stated, specific, challenging, and of course realistic. I thought I would share these 4 goals for our non-registered portfolio in a series of posts. Goal # 1 was shared on my November 4th post and Goal # 2 was shared on my November 24 post.
Goal # 3
Keep our portfolio dividend yield between 2.0% - 4.0%.
For example, we currently want a $35,000 portfolio to pay us between $700 and $1,400 annually. The rationale behind this goal has to due with my investing strategy. The strategy calls for investing in companies with a high current yield. By 'high yield' I am looking for a yield level above 2.0%. The reason I top the yield out at 4.0% is because in the current interest rate environment, a yield above 4.0% usually signals some type of growth expectation issue in my opinion. Examples of dividend yields greater than 4.0% that might come with relatively slow growth would be Pfizer (PFE), Bank of America (BAC), Bank of Montreal (BMO) or Consolidated Edison (ED). While growth can still be achieved with a greater than 4.0% yield in some companies, I don't want to overemphasize high yield in my stock picking and find myself with a portfolio yielding 5% that grows an average of 1% per year over and above dividends. Simply stated, I want to strike a good balance between share price growth and dividend payments.
Currently our portfolio is yielding 4.1% so technically we are not meeting this goal. I am going to excuse us for the time being because of our current heavy weighting in income trusts. This weighting will come down over time as our maternity leave financial strategy comes to an end.
Where this goal becomes a little cloudy is when you consider that economic times change and interest rates change as well. A yield range of 2.0% - 4.0% might seem appropriate now for my universe of equities that I pick from, but as interest rates rise my yield range perhaps should rise as well.
If anyone has an idea for a method to use to know when and how to adjust this yield range to fit my universe of stocks, I would be interested. For example should it be tied to some sort of bond rate, or other industry rate....?