Dividend stocks are being mentioned as an answer for investors wondering how to play a bull market that looks much closer to the end than the beginning.
It's all about quality, a note to investors from Richardson GMP Asset Management says. "One straightforward approach is to focus on dividend payers," the firm says. "Typically, companies that pay dividends tend to have greater quality or less volatility than those that don't."
Kudos to you if you're skeptical about this. It's not widely recognized by investors, but dividend stocks have lost momentum recently. The S&P/TSX dividend aristocrats index made a cumulative 23.7 per cent for the five years to Nov. 3, while the S&P/TSX composite index eked out a gain of just 6.5 per cent. But the composite has done better on both a year-to-date and 12-month basis. Richardson GMP says weakness in the energy sector has dragged down the performance of the broader market of stocks that pay dividends. The result is that the dividend side of the market is more attractively priced and has greater defensiveness characteristics, the firm says. "This does appear to be a good time to be adding to the dividend focused portion of portfolios."
Richardson GMP urges investors to be selective about dividend stocks. To do this, think about avoiding stocks in the energy sector and instead focus on defensive sectors like consumer staples. Canada's four public grocery stocks currently trade at historically valuations, so the firm has recently been adding to positions in Procter & Gamble (PG). After a year-to-date decline of 15 per cent, this stock had a dividend yield in early November of 3.5 per cent. Richardson GMP explains the stock's slide as being a result of a rising U.S. dollar and an ongoing streamlining of brands.
If you're interested in TSX-listed dividend ETFs, be mindful of the fact that many of them have significant exposure to energy stocks. Some low-energy ETF options include the First Asset Active Canadian Dividend ETF (FDV-T), with an energy weighting of 2.7 per cent; the iShares Canadian Select Dividend Index ETF (XDV-T), with an energy weighting of a bit less than 11 per cent; and, the Purpose Core Dividend Fund (PDF-T) at 14 per cent.
Rob Carrick