The Dividend Champions portfolio delivered strong results in the third quarter of 2016, gaining 3.8% in U.S. dollar terms and bringing the year to date return to 22%.

The Canadian market is also up by more than 20% in U.S. dollars so far in 2016, placing it among the best-performing markets in the world. By comparison, the S&P 500 has gained 6% and the MSCI World equity index is up 4% so far this year.

Over the 17 months since inception of the portfolio, the Dividend Champions managed to beat its benchmark by 6%, as indicated in the table below.

The biggest gain among the Dividend Champions portfolio holdings during the third quarter came from Whistler Blackcomb (TSX: WB, OTC: WSBHF) after the Board agreed to a takeover proposal from Vail Resorts for C$36 per share in cash and stock. The bid represented a 43% premium to Whistler’s closing price prior to the announcement.

Other portfolio holdings that performed well during the quarter included Finning International (TSX: FTT, OTC: FINGF) after delivering what could well be bottom-of-the-cycle results, as well as Brookfield Infrastructure (TSX: BIP-U, NYSE: BIP) and a recent portfolio selection, CAE Inc (TSX: CAE, NYSE: CAE). All gained 15% or more during the quarter.

North West Company (TSX: NWC, OTC: NWTUF) delivered disappointing results and was mercilessly punished by investors, losing 11% during the quarter. Riocan REIT (TSX: REI-U, OTC: RIOCF) and CI Financial (TSX: CIX, OTC: CIFAF) also lost some favor with investors, dropping 6% and 5%, respectively.

While we are pleased with the strong absolute performance of the portfolio so far this year, we remain cognizant that the portfolio return since inception is still below our annual target of 8%-15%. With a current dividend yield of 3.6% and growth of around 6% per year, we are comfortable that our objective will be met over the target period of 5 years or longer.

After the sale of our Whistler holding, the cash holding in the portfolio currently moved up to 13%. We have now decided to employ some of the cash in A&W Revenue Royalties Income Fund (TSX: AW-U; OTC: AWRRF).

A&W is one of the top fast food outlets in Canada and has built a very strong track record of profitable growth over the past 20 years. The strategy to focus on healthier ingredients since 2013 is also supporting solid growth in same-store sales and revenues. In addition, the royalty model of the fund reduces the volatility of the income stream further. The dividend yield is a reasonable 4.7% and when coupled with moderate growth provides an attractive alternative to fixed income instruments. The price has moved up strongly over the past few weeks and we will therefore only take a small position now with the intention of expanding it later.