Behavioral finance scientists tell us that we are wired to hold onto losing stocks because we don’t want to feel the pain of realizing a loss.

However, successful investors understand this and put governors in place to help them take a loss and overcome this predilection. These investors regularly review all holdings and make decisions based on valuation and on growth prospects, not previous price movements.

Many subscribers to Canadian Edge currently hold stocks contained in the Legacy Conservative and Aggressive portfolios. Some of these stocks performed well over time, but others performed poorly. Nevertheless, earlier this year, we decided that the time has come to shift the focus of Canadian Edge back to its roots, high-quality income stocks.

The companies in the Dividend Champions Portfolio have been selected with a single-minded focus on the level, sustainability and growth prospects of the dividend payments. Key factors that we consider in this process are the strength of the balance sheet, the level of sales conversion into cash, the dividend payment history, the dividend payout ratio and the prospects for dividend growth.

Although the process is certainly not flawless, it has helped us avoid one-time  favorites such as Valeant (high debt, no dividend) and Crescent Point Energy (unsustainable dividend).

We have now seen six months of performance of the Dividend Champions. The results handily beat the benchmark, in Canadian dollars, as described on page 15 of this publication. Of course, not all stocks performed well, and any selections linked to the energy and commodity sectors were beaten down, even though none of our Dividend Champions so far lowered or omitted their dividends.

Subscribers who are comfortable with the focus on quality dividend-paying stocks as applied to the Dividend Champions Portfolio may wish to consider switching some of their Legacy holdings into stocks held in the Dividend Champions Portfolio.

The table contains suggested Dividend Champions alternatives for some Legacy Portfolio holdings. Please note that we recommend alternatives from similar industry classifications in order to retain the industry exposure.