The Dividend Champions Portfolio has been active for nearly two years. So a review of its performance during this period is timely.

Over the past two years, we’ve endured an energy sector crash and a resurgent U.S. dollar—both of which have profoundly influenced the Canadian economy, the country’s stock market, and the performance of our portfolio.

In light of these challenges, let’s examine our portfolio’s returns, while highlighting our best and worst recommendations, along with some key takeaways.  

Our analysis has focused on the ability of the Dividend Champions to sustain and grow their dividends. To this end, we select companies that have demonstrated their ability to be reliable dividend payers and whose fundamentals, including a sound balance sheet, strong cash-flow generation, and credible growth expectations, suggest further dividend growth ahead.

Since its inception back in May 2015, the Dividend Champions Portfolio has delivered a total return of 17.6% in Canadian dollar terms and 5.7% in U.S. dollars. This compares favorably to our Canadian benchmark’s total return of 10.0% in Canadian dollar terms and 1.1% in U.S. dollars.

We are satisfied with the considerable outperformance of our Dividend Champions Portfolio, though we also recognize that the weak Canadian dollar reduced returns from a U.S. investor’s standpoint.

Although our portfolio’s inception coincided with a tumultuous period for the Canadian stock market, we still managed to achieve our objective of delivering a total return of between 8% and 15% annually.

With a current dividend yield of 3.5% and growth of around 6% per year, we believe the portfolio will continue to generate returns within our target range, not only in Canadian dollar terms but also in U.S. dollars.

Despite our focus on income generation and stability, some of our recommendations produced absolutely spectacular performances.

Top of the log was Whistler Blackcomb, the ski-resort operator, which gave us a gain of 102% after being taken over by Vale. And hotel owner and operator InnVest REIT was acquired by a foreign investor, for a 48% return.

While there was no way that we could have predicted these outcomes, takeovers offer a strong affirmation of our value-oriented approach to selecting high-quality dividend payers.

Trading platform provider TMX Group Ltd. (TSX: X, OTC: TMXXF) has been another big winner, returning 85% since we added it to the portfolio back in January 2016. We picked this stock because not only was it trading at a dirt-cheap valuation, it also scored well according to our stringent criteria, with attributes including a solid balance sheet and abundant cash flow.

Rounding out the top 5, Brookfield Infrastructure Partners LP (TSX: BIP-U, NYSE: BIP) and North West Co. Inc. (TSX: NWC, OTC: NWTUF) have generated returns of 53% and 43%, respectively. Brookfield has continued to deliver strong financial results and distribution growth, while North West’s superior profitability has finally gotten recognition from investors.

We also had our share of disappointments, with Potash Corp. of Saskatchewan Inc. (TSX: POT, NYSE: POT), Aimia Inc. (TSX: AIM, OTC: GAPFF), and Husky Energy Inc. (TSX: HSE, OTC: HUSKF), the most conspicuous. All three stocks were sold at a loss.

In the case of Potash Corp., we were wrong to believe the CEO’s assertion that the dividend would be maintained despite difficult market conditions. We should have done further analysis on conditions in the potash markets, as well as paid more heed to obvious distress signals, such as layoffs and the mothballing of production facilities.

Husky quickly became a disaster as plummeting energy prices forced the board to first convert the cash dividend to an equity dividend, and then later abandon the dividend completely.

And loyalty-program manager Aimia’s attractive yield caused us to underestimate the potential risks of this highly competitive industry.  

Despite these missteps, there are truly exceptional companies operating in Canada. And our Dividend Champions Portfolio holds many of them.

On a final note, my time as chief investment strategist of Canadian Edge is coming to an end. Although this is my last issue, I’ll be writing weekly updates through the end of April.

Thereafter, my colleague Ari Charney will take the helm. Ari has been with Canadian Edge since 2012, serving in various capacities from analyst to managing editor, so I trust that I’m leaving you in very capable hands.

It has truly been an honor to serve you, and I wish you all the best with your Canadian investments.