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Here's more good news for dividend devotees.

In a report headlined "Dividends are a Big Winner in Canada," RBC Dominion Securities examined the performance of different types of stocks over the past quarter century - companies that raised dividends, those that paid stable dividends, dividend cutters and companies that paid no dividends at all.

Leading the pack were dividend growers, with an average annual total return of 12.6 per cent, followed by a 10.8-per-cent return for companies that paid stable dividends. Both dividend categories handily outperformed the S&P/TSX composite index, which gained 7.3 per cent.

Trailing far behind were stocks that cut dividends, with a total return of 3.2 per cent, and non-dividend payers, up just 2.4 per cent. The total return measures the price change plus dividends, if any.

"Dividend growth is probably the cleanest and strongest signal about the fundamental health of the company," said Myles Zyblock, chief institutional strategist and director of capital markets research at RBC. "A dividend cut is generally a bad-news story for prospective performance."

Paying dividends also "imposes capital discipline on management," meaning companies with an obligation to pay a dividend will be less likely to blow their shareholders' capital on risky ventures or acquisitions that may not pan out.

The results are based on data from December, 1986, through February, 2011. Stocks were grouped according to whether they raised, cut, left their dividend steady or paid no dividend in the previous 12 months. The portfolio was tracked for one year, and then rebalanced again based on the same criteria.

RBC found similar results in the U.S market. The only decade since the 1920s that dividend stocks lagged the market was the 1990s, when the technology boom drove up prices for many non-dividend stocks that later crashed in price.

According to Standard & Poor's, from January, 1926, through March 2011, the benchmark S&P 500 index had a total annualized return - including reinvested dividends - of 10.04 per cent. About 42 per cent of the return came from dividends.

In the Canadian study, higher-yielding dividend stocks outperformed lower-yielding stocks. RBC found this to be the case in three different industries it examined - energy, financials and materials. In the energy sector from December, 1995, through December, 2010, higher-yield energy stocks returned 19.3 per cent annually, compared with 12.9 per cent for lower-yielding stocks.

The comparable numbers in the financial sector were 18.7 per cent for higher-yielding stocks compared with 11.8 per cent for those with lower yields, and in materials 12 per cent compared with 8.4 per cent.

The take-home message, according to RBC: "Be careful about purchasing stocks that do not pay or have recently cut their dividend."

Dividend Screen

Stocks with a relatively attractive combination of dividend yield and payout, according to RBC Dominion Securities.

Company name

Ticker

Dividend Yield %

Payout Ratio %

Magna International Inc.

MG-T

2.1

15.3

Yamana Gold Inc.

YRI-T

1.0

13.9

Canadian National Railway Co.

CNR-T

1.8

25.5

First Quantum Minerals Ltd

FM-T

0.6

2.6

Rogers Communications Inc.

RCI.B-T

4.0

47.1

National Bank Of Canada

NA-T

3.3

39.1

SNC-Lavalin Group Inc.

SNC-T

1.5

24.8

Canadian Pacific Railway Ltd.

CP-T

1.7

27.6

Barrick Gold Corp.

ABX-T

0.9

17.3

Teck Resources Ltd.

TCK.B-T

1.2

18.8

As of April 4, 2011

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