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BofA Securities U.S. quantitative strategist Savita Subramanian listed five reasons that U.S. high-paying dividend stocks are set to outperform in 2024. I’ll describe the five reasons first and at the end discuss the potential applicability to Canadian equity markets.

BofA’s “global wave indicator” tracks industrial and consumer confidence, capacity utilization, unemployment, producer prices, credit spreads and earnings revisions to assess the investing backdrop for global stocks. The global wave has troughed, which has historically indicated a recovery stage for global equities during which high dividend stocks have previously led. This is reason one.

Reason two is that high dividend stocks form an effective investment solution for periods when economic indicators are mixed and higher-risk, earlier recovery asset classes like small caps are not yet outperforming. Dividends generate returns while investors wait for growth-led capital appreciation elsewhere.

The strategist’s third reason is that even if inflation pressure proves sticky, high dividend stocks outperformed significantly during the last surge of inflation in 2022. U.S. investors looked to dividend stocks to provide downside protection.

Reason four is that, if money market returns fall significantly, Ms. Subramanian expects funds from American retirees to flow out of short-term fixed income and into U.S. dividend stocks to maintain annual income. This will help fuel a rally.

Reason number five is that U.S. high dividend stocks are under-owned by institutional investors and attractively priced.

Investors will have to be extremely careful about applying this investment thesis to Canadian high yield stocks. For one, reasons four and five do not apply as domestic dividend stocks are already widely owned by retirees and, on average, they are not trading at huge discounts.

The good news is that Canadian high yield stocks, as measured by the S&P/TSX Composite High Dividend Index, performed well in 2013 and 2016 when BofA’s global wave indicator troughed previously.

Similarly, U.S. economic recoveries frequently drive Canadian expansions and this would be a huge help for high dividend stocks. The caveat this time is that domestic growth has been trailing the U.S. growth, in large part because of high household debt. This may continue.

The degree to which Ms. Subramanian’s optimism about high dividend stocks can be directed towards Canadian counterparts depends on the appearance of a U.S. economic expansion, and whether that growth drives a domestic economic expansion.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

It’s a bull market - even if it doesn’t feel like one

While stocks globally have been trending higher for the last year and a half, there is a palpable sense that it could all go wrong at any moment. All the bad vibes don’t align with the underlying trend in stock markets, which is one of resilience on a global scale, reports Tim Shufelt.

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We aren’t hearing much about small-cap stocks these days, notes Gordon Pape. It’s not that anything disastrous has happened. But, as a group, Canadian small-cap stocks haven’t gone anywhere. They’ve simply been marking time. This isn’t to say that small-cap stocks can’t be big winners. He has some recommendations.

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Economist David Rosenberg is fielding a ton of questions about whether the Bank of Canada will reignite a speculative bounce in home price inflation if it dares to cut interest rates. The short answer is “no,” he says, and provides this list of five reasons.

When it comes to dividend stock portfolios, simpler is better

Norman Rothery suggests gravitating to simpler methods when constructing dividend portfolios, and provides the data to back it up. (For his latest portfolios for value and dividend investors, click here.)

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Falling inflation and expectations of an economic soft landing are buoying hopes for U.S. real estate stocks in 2024, even as the sector continues to lag the broader market, reports David Randall of Reuters.

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Ask Globe Investor

Question: John Heinzl recently mentioned that his model dividend growth portfolio’s annualized total return is about 6.8 per cent since inception on Oct. 1, 2017, compared with the S&P/TSX Composite Index’s annualized total return of about 8.1 per cent over the same period. Why not just invest in the index?

Answer: You certainly could. In fact, I often remind readers that index investing is a worthy strategy, either alone or in combination with dividend stocks. In my personal portfolio – which, unlike the model portfolio, uses real money – I hold several Canadian and U.S. index exchange-traded funds to enhance diversification and provide exposure to sectors, such as technology, that aren’t known for paying big dividends, but have produced strong returns in recent years.

That said, it’s worth pointing out that the recent sharp rise in interest rates has weighed on the performance of dividend stocks. Prior to starting my current model portfolio, I managed a similar dividend portfolio as part of The Globe and Mail’s Strategy Lab series. Over its five-year run, that portfolio posted an annualized total return of 11.6 per cent, handily beating the S&P/TSX Composite Index’s annualized total return of about 7.2 per cent over the same period.

With bond yields now falling and the Bank of Canada expected to cut interest rates several times this year, I’m hopeful that dividend stocks will regain their mojo.

However, even when dividend stocks are underperforming – as all asset classes do on occasion – they still have a big advantage: By paying you cash during good times and bad, they reward you for staying invested. This is critical for long-term investing success, and it’s especially important during periods of market turbulence when you might be tempted to sell and go to cash. Dividends aren’t free money – they come out of a company’s earnings – but there’s nothing like receiving reliable and growing dividend income to soothe your frayed nerves and keep you on course.

--John Heinzl (E-mail your questions to

What’s up in the days ahead

Michael Craig, head of asset allocation at TD Asset Management, speaks with our Jennifer Dowty on what’s ahead for markets this year.

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