This closed-ended investment trust is cautiously optimistic about higher yielding stocks.
Blue Ribbon Income Fund (TSX—RBN.UN) outperformed the S&P/TSX High Dividend Total Return Index in the first three quarters of this year. Positions in Boralex Inc., Northland Power and Canadian Tire—all stocks we recommend—were the greatest contributors to the fund’s performance over this time. Sectors that contributed the greatest to the performance were utilities, consumer staples and healthcare.
Blue Ribbon Income Fund is a closed-end fund whose objective is to achieve a high level of monthly cash distributions by investing in a high income equity portfolio, consisting primarily of dividend-paying Canadian equities. Closed-end funds often give you opportunities to buy their shares at a discount.
CAGR of 8.4 per cent for 13 years
Blue Ribbon’s portfolio manager is Bloom Investment Counsel, Inc. Led by Paul Bloom, this firm has managed the fund for more than 20 years since its inception.
Started in September 1997, Blue Ribbon has provided a compound annual growth rate of 8.4 per cent from inception to September 30 of this year. Over the same period, the S&P/TSX Composite has delivered an annualized return of 6.3 per cent. Keep in mind, the fund’s performance is handicapped by its management expense ratio, which at June 30 amounted to a relatively reasonable figure of 1.45 per cent.
The past several years, however, has been challenging for the fund. Since the beginning of 2015, its net asset value (NAV) has declined 33 per cent from $10.61 a share in 2015 to a recent figure of $7.10. A decline in net asset value makes it difficult to maintain past distribution levels. Consequently, the annual distribution has declined to $0.48 a share from $0.84 in 2015.
Stocks “display superior long-term performance”
With many Canadian dividend-paying stocks now trading at depressed levels and paying high yields, however, the potential for future increases in NAV is encouraging. Certainly, the recent outperformance of Boralex and Northland Power noted above is helpful in this regard. With about 20 per cent of its portfolio invested in pipelines, power, utilities and infrastructure stocks, Blue Ribbon stands to benefit when investors eventually wake up to the fact that Enbridge Inc. and Keyera Corp, with their high yields, offer attractive total return potential over the next several years.
Despite the recent under-performance of dividend-paying stocks, Bloom Counsel believes that higher yielding stocks, given their track record, “display superior long-term performance”. Bloom, therefore, is cautiously optimistic.
Blue Ribbon’s shares currently trade at a 4.8-per-cent discount to their NAV of $7.29 a share. Their annual distribution of $0.48 a share yields 6.9 per cent. Blue Ribbon Income Fund is a buy if you’re seeking a combination of growth and income and you’re comfortable with equity risk.
This is an edited version of an article that was originally published for subscribers in the November 27, 2020, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.
Money Reporter, MPL Communications Inc.
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