5 reasons dividend growth is attractive

Why are dividend growth stocks increasingly attractive to investors?

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Renato Anzovino, lead portfolio manager of the Heward Investment Management Inc. Canadian Dividend Growth Fund, offers the following reasons.

• Dividend growth stocks outperform the index. Dividend growth stocks have outperformed the TSX composite index for the last 25 years and continue to do so. This performance is reflected in the Fund, which is up 16.54% YTD (as of Oct. 31, 2013), compared to the S&P/TSX Total Return Index, which is up 10.29% (for the same period). Additionally, for the three-year period ending Oct. 31, 2013, the Fund generated an 11.59% return, versus 4.77% for the S&P/TSX.
• Dividend growth stocks are less volatile than the index. For example, the Fund beta: 0.46. S&P/TSX Total Return Index beta: 1.0 (for three-year period ending Oct. 31, 2013). Note: “Beta” is a standard calculation of systematic risk based on fluctuation of returns relative to overall market.
• As dividends are increased, stock prices tend to react positively.
• An aging population tends to avoid market volatility, a trend that is expected to grow considerably. (In 2011, 5 million Canadians were 65 years of age or older. By 2036, that number is expected to double – to more than 10 million people.)
• Fixed income investments (for example, government-issued bonds), often regarded as a relatively low-risk investment strategy, are less attractive in the current low interest rate environment.

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“There is a misconception in the market that dividend growth stocks may have peaked,” he says . “But, one of the most compelling attributes of dividend growth stocks is that they tend to perform relatively well in any environment.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.