Here's a simple little challenge for dividend investors: Can you beat the returns of your bank's dividend equity fund?
This question is posed in the context of how much tougher the environment for dividend investing has become in the past year or so. Dividend growth is slowing down, dividend cuts are becoming more common in the energy and materials sectors and the price of many star dividend payers has been under pressure. In an investing environment as confusing as the one we live in today, dividend stocks represent a known and reliable quantity. But, as discussed in this recent column, investors need to up their game when focusing on dividend stocks.
Be honest with yourself about how you're doing with your dividend portfolio. One measure is whether you can beat the returns of the dividend funds sold in branches of the bank you deal with. No snickering. Bank funds get zero respect from savvy investors, and this skepticism is often justified. But if you look at Canadian dividend funds from several of the big banks, you'll find some solid results.
RBC Canadian Dividend Growth Series A has outperformed the S&P/TSX composite total return index over all timeframes from three months to 20 years, with a fair bit less volatility. There are no revelations in the portfolio – almost half the stocks are in the financial sector, and energy's second at 21.5 per cent. Top holdings are the ones individual dividend investors are targeting – the big banks, Canadian National Railway, Brookfield Asset Management, Suncor Energy and Enbridge.
Scotia Canadian Dividend Series A beats the index any which way you look at it on Globeinvestor.com with especially low volatility. Financials and energy are again the top holdings, but with lighter weightings than RBC Canadian Dividend. TD Dividend Growth and BMO Dividend have also done well in comparison to the index.
Management expense ratios for these funds are in the 1.7 to 2 per cent range, which is not cheap. But some of the funds are available in Series D versions, which are meant for DIY online brokerage customers and have reduced MERs. Most self-respecting DIYers won't touch bank funds, but they do have their uses. If nothing else, they're a benchmark by which to measure your own results in a very tough environment for dividend investing.
Rob Carrick