Investors have had so much success with dividend funds in recent years that it's easy to become complacent about these products.
But times are getting tougher for dividend stalwarts in sectors such as utilities, pipelines, telecoms and real estate. Interest rates have been on the rise in recent months, and this in turn has put downward pressure on these rate sensitive sectors. Looking for dividend funds that can manage this change in the investing landscape? Let's take a look at a few candidates that turned up in a screen of the Globeinvestor.com fund database.
The screen sought dividend and income funds that were in the first quartile (the top 25 per cent of their category) for the 12-month and 10-year periods to Aug. 31. The past 10 years were largely a bull market for dividend stocks. The past 12 months brought us a shift to a more complex outlook for dividends. Which funds managed to handle periods both well?
One is Cambridge Canadian Dividend Class A, which has been consistent over the past decade in beating both the average return for its peer group and the S&P/TSX composite total return index. The 10-year return was 6.1 per cent, while the index made 4.1 per cent; the one-year return was 8.4 per cent, compared to 7.2 per cent.
Dynamic Dividend Series A is another consistent dividend fund, with a 10-year return of 6.1 per cent and a one-year gain of 10.6 per cent. Returns over the past decade consistently beat the index.
RBC Canadian Dividend Series D made 5.6 per cent over the past 10 years and 8.5 per cent over the past 12 months. Trimark Canadian Plus Dividend Class A made 5.6 per cent in the past 10 years and 9.1 per cent in the past year.
One exchange-traded fund made it through the screen – the iShares Canadian Select Dividend Index ETF (XDV), with a one-year return of 10.3 per cent and a 10-year return of 4.7 per cent. The management expense ratio for this fund is 0.55 per cent, somewhat pricey for an ETF but much cheaper than the 1.2 to 2.59 per cent range for the mutual funds shown here.