The last quarter of 2016 started reasonably well for the Dividend Champions portfolio, with a 0.6% gain in Canadian dollars — although the weaker currency pulled the U.S. dollar return into negative territory for the month. So far this year, the Dividend Champions portfolio gained 20% in U.S. dollars.

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 gained 4% and the MSCI World Equity Index 2%.

Over the 18 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 October came from Suncor Energy (TSX: SU, NYSE: SU), which rallied after delivering strong operational results. The stock gained 11% after lagging the energy sector earlier in the year.

Other portfolio holdings that performed well during the month included two of our insurance holdings, Sun Life Financial (TSX: SLF, NYSE: SLF) and Manulife Financial (TSX: MFC, NYSE: MFC), as the potential for higher U.S. interest rates buoyed life insurance stocks.

Higher interest rate expectations had an inverse effect on the North American real estate investment trust sector. Despite only a remote possibility of higher Canadian interest rates, the share prices of both RioCan REIT (TSX: REI-U, OTC: RIOCF) and Choice Properties REIT (TSX: CHP-U, OTC: PPRGF) dropped around 4% for the month.

We are pleased with the strong absolute performance of the portfolio so far this year and the fact that the portfolio return since inception is now only slightly below the lower end of our 8%-15% annual target. However, there is more work to do, and 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 five years or longer.

The 12% cash holding in the portfolio is still abnormally high after the sale of our Whistler and InnVest holdings. Last month we initiated a small position in A&W Revenue Royalties Income Fund (TSX: AW-U; OTC: AWRRF), and we decided to increase the position by 1% after the company reported strong third quarter results.

We also decided to add an additional 0.5% to each of our positions in RioCan REIT (TSX: REI-U, OTC: RIOCF) and Choice Properties REIT (TSX: CHP-U, OTC: PPRQF). The stock prices of both trusts have declined substantially over the past few weeks due to fears about rising U.S. interest rates. We feel this is overdone and find the safe and sustainable dividend yields of 5.5% on both REITs attractive.