Buy Blue Ribbon fund for income and growth

Where can you buy a basket of stocks at a discount and get a 6.1 per cent dividend yield paid to you in monthly installments? The closed-end Blue Ribbon Income Fund is well named.

Basket_of_StocksThe Canadian stock market is attractive from at least two viewpoints at the moment. First, the Canadian market has considerably underperformed its global counterparts this year. The S&P/TSX Composite, therefore, has plenty of catch-up potential, especially since corporate profits and the Canadian economy have both been strong lately. Then too, the global economy has benefitted from synchronized growth, a condition that would seem to favour this country’s abundant resource companies.

From another viewpoint, Canadian stocks are relatively attractively valued, at least in comparison to US stocks. According to some observers, the S&P/TSX currently trades at the widest discount to the S&P 500 in 15 years.

If you want a combination of growth and income, then, we feel now is as good a time as any to seek exposure to Canadian stocks. And if you also want a relatively quick and easy way to achieve your investment objectives, you might want to consider investing in a diversified portfolio of securities such as that of the Blue Ribbon Income Fund (TSX—RBN.UN).

Blue Ribbon is a closed-end investment trust. That means it has a relatively fixed number of shares. Unlike an open-end fund, it does not offer to buy back shares or units at any time. And only occasionally, if at all, does a closed-end fund sell new shares or units.

As a closed-end fund, Blue Ribbon trades on a stock exchange and its share price is set according to supply and demand. Its shares, therefore, usually sell at a discount or premium to the per-share value of the assets in its investment portfolio.

Right now, Blue Ribbon’s shares trade at a 1.5 per cent discount to their net asset value of $9.87 a share. That means you get $9.87 a share in assets for the price of just $9.77 a share.

High monthly distributions and capital gains

That’s not a huge discount to be sure, but it’s still attractive in light of Blue Ribbon’s current generous dividend yield of 6.1 per cent. This yield is consistent with the fund’s mandate of providing a high level of monthly distributions. But another objective it pursues is capital gains, or growth.

It seeks to accomplish these objectives by actively managing a portfolio of publicly listed or traded securities, including income trusts, royalty trusts, real estate investment trusts, common shares, preferred securities and debt instruments.

The fund’s portfolio manager, Bloom Investment Counsel, specializes in income-oriented investments. Bloom has managed more than 10 TSX-listed closed-end portfolios in this specialty area since 1997. And over the two decades since then, Blue Ribbon Income Fund has a strong compound annual growth rate of 10.5 per cent, versus just 6.7 per cent for the S&P/TSX. The fund is a buy for income and some growth.

This is an edited version of an article that was originally published for subscribers in the November 3, 2017, 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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