NOTE: The stock and portfolio return references are calculated in Canadian dollars using June 3 closing prices.

Our first Dividend Champions Portfolio was published in the May edition of Canadian Edge. To recap briefly: The objective of the portfolio is to provide an attractive and growing income stream to investors with an estimated total return of 8% to 15% per year over a full market cycle of five years or longer.

The selection criteria for the stocks were all focused on supporting the main objective of the portfolio. We are looking for companies that are able to sustain and grow their dividends with a reasonable degree of certainty, over time. To determine this, we look for:

A track record of consistent and growing dividend payments

A rock-solid balance sheet

A dividend payout ratio that leaves some wiggle room in difficult times

Prospects to grow the dividend ahead of the rate of inflation

An attractive yield

The initial Dividend Champions Portfolio contained 29 stocks with an overall yield of 3.9% and expected dividend growth of 5.6% in 2015 and 5.8% in 2016. The latest quarterly results from our selection of companies indicated that 22 of our 29 stocks managed to grow their dividends compared with last year. The other seven had no increase in the dividends, but we avoided any dividend cuts or omissions.

 In my book, this was a good start.

It is early to make any comments about the total return from the portfolio, but for what it is worth, the portfolio returned 0.9% over the first few weeks since inception, compared with the 0.8% return of the benchmark (Thomson Reuters Canada Equities Index).

The turmoil in the German bond market, and to a lesser extent the U.S. bond market, contributed to the losses in some of our utility, pipeline and REIT holdings. Investors need to be aware that further increases in bond yields will continue to spook markets and temporarily lower stock prices.

To my mind, this could create attractive opportunities for income-seeking investors, and we will be vigilant to point these opportunities out when they arise.

The best-performing stock in the first month was Aimia (TSX: AIM, OTC: GAPFF), which gained 12% after reporting market-pleasing results and announcing a C$0.19/share dividend, a 6% increase compared with the previous year. Whistler Blackcomb Holdings (TSX: WB, WSBHF) also did well, adding 4.4% after a nice bounce from a post-results sell-off. In addition, the company also paid a C$0.24/share dividend during the month. Please see our separate article on the company elsewhere in the newsletter.

Our two top holdings, BCE (TSX: BCE, NYSE: BCE) and Telus Corp. (TSX: T, NYSE: TU), delivered solid results for the first quarter of their financial years, and the share prices increased by 3.2% and 2.5%, respectively. Both also announced inflation-beating dividend increases of 5.3% and 10.5%, respectively.

The two banks held in the portfolio, Toronto-Dominion Bank (TSX: TD, NYSE: TD) and Royal Bank of Canada (TSX: RY, NYSE: RY), reported reasonable results for the second quarter of their financial years, and both announced dividend increases of 8.5%. However, the share price of TD Bank declined by 0.9% during the month, although Royal Bank recorded a small gain.

The pipeline companies held in the portfolio also reported generally decent quarterly results during May. From a dividend perspective, the announcements were particularly pleasing as Inter Pipeline Ltd. (TSX: IPL, OTC: IPPLF), TransCanada Corp. (TSX: TRP, NYSE: TRP) and Pembina Pipeline Corp. (TSX: PPL, NYSE: PBA) announced dividend increases of 14%, 8.3% and 5.2%, respectively. Despite the good news on the dividend front, the share prices of these stocks all declined during the month.

Readers may have noted that our holdings in the initial May portfolio added up to 92%, implying an 8% cash holding. The objective was to keep some fire power ready should more attractive opportunities arise.

We employed some of our cash during the month when we increased the holding in Canadian National Railway (TSX: CNR, NYSE: CNI) to 4% from the initial 2.5%. Despite the relative low dividend yield of 1.7%, we expect significant growth in the dividend over the next few years. Elsewhere in the publication you can read our full report on the company.

For the June publication, we have also decided to make the following changes to the portfolio:

Add 1% to Inter Pipeline Ltd. (TSX: IPL, OTC: IPPLF): The company recently reported strong quarterly results, with the cash flow from operations increasing by 30% and the dividend per share by 14%. In addition, the company scores highly on our Dividend Champion Quality Rating, with an excellent 16-year dividend payment track record, good cash flow and solid balance sheet. The current dividend yield is over 5%, and dividends are expected to grow by 23% over the next two years.

Reduce the cash holding by 1%. The portfolio still holds 5.5% in cash, and we are keeping a close watch on some possible new inclusions or increases in the weight of other stocks. We will keep you posted.