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Dividends are an investor’s best friend. According to Standard & Poor’s, over the past several decades, about 40 per cent of the total return of the S&P 500 can be attributed to the reinvestment of dividends.Jupiterimages/Photos.com

King Dividend's benevolent rule over the stock markets is being challenged.

Investors are in a more speculative mood so far in 2014, and that means dividend-paying stocks have slipped down the performance charts. The top three sectors in the first quarter of the year were materials, energy and gold. Even the benighted S&P/TSX Venture index has come to life. We may well be at an inflection point where the dividend stars of the past five years give way to companies that offer more growth potential. But there's still enough uncertainty out there to maintain a dividend core in a portfolio.

Canada's commodity-heavy market hits its stride when global demand for commodities is on the rise. But while the U.S. economy seems to be improving, there's concern that resource-hungry China may be slowing. Investment dealer J.P. Morgan said in a recent note that the world's second-largest economy is going through a "significant adjustment" after a long period of growth, and recent reports show manufacturing in particular has slowed in China. And yet, the S&P/TSX capped materials and energy indexes have each gained about 9 per cent this year. Only the global gold index, up 16 per cent, has topped them. The resource-heavy venture index, down 56 per cent in total over the past three years, has jumped 7.4 per cent this year.

For context, it's worth noting that virtually every sector in the Canadian market was up in the first quarter, while the S&P/TSX composite index rose 5.6 per cent. With a 5-per-cent gain, the S&P/TSX Dividend Aristocrats Index more than held its own. But there are definite signs that enthusiasm for dividend stocks could be waning just a little. Some of the weakest performers of the year to date are in dividend-rich sectors like financials, telecom services and REITs. Stocks in the dividend aristocrats index that were in the red for the first quarter of the year include Empire Co., Rogers Communications, Bank of Nova Scotia, Tim Horton's and Intact Financial.

The Dividend Aristocrat Index's cumulative five-year return is about 104 per cent, compared to 58.5 per cent for the more broadly diversified S&P/TSX composite index. Clearly, the composite has some catching up to do. Suggestion for dividend investors who want to capture such a change in leadership: Simply buy an ETF tracking the composite index. With its newly lowered management fee of 0.05 per cent, the iShares S&P/TSX Capped Composite Index ETF offers a dividend yield of about 2.5 per cent and 37-per-cent exposure to commodities. That's not a bad combination if King Dividend's hold on the stock market slips.