It is always reassuring to me as a Dividend Growth Investor to see the strategy I use highlighted by analysts and financial planners in major news publications.
I recently found this article in the Globe and Mail and thought it would be beneficial for you to read the high points outlined below.
Dividend stocks will appeal to investors not so much for yield but for the total return they provided through a combination of cash distributions and price appreciation. Consider the bank stocks that Mr. Marshall is looking at, RBC and TD. Both yield a bit less than 3 per cent right now, but their total returns for the past 12 months are about 22 and 15 per cent, respectively, because their shares have risen.
There are hundreds of blue-chip dividend-paying stocks listed on the Toronto Stock Exchange as well as U.S. and global exchanges. How do you find the best of them? The Calgary-based investment dealer McLean & Partners Wealth Management emphasizes not the yield of a company’s dividend, but rather the company’s track record for increasing its cash payouts to shareholders.
A high dividend yield â€” say anything about 5 per cent or more â€” suggests investors have a cautious view toward a company (as the price of a stock falls, its dividend yield rises). But dividend growth sends a message that a company is strong and healthy. â€œIt says a company will be around through thick and thin, and that it will outperform over the long term,â€ said Ric Palombi, a portfolio manager at McLean & Partners.
Mr. Palombi said his firm looks for companies that have increased their dividends by more than 8 per cent every year. â€œOwning a stock that increases its dividend by 8 per cent a year is like getting an 8-per-cent raise every year,â€ Mr. Palombi said.
The major banks are classic dividend growth stocks. RBC, for example, has raised its dividend 14 times this decade, from 12 cents to the current 40 cents a quarter. If you paid the going market rate of about $15.50 for RBC shares in January, 2000 (this price is adjusted for stock splits), then your current yield would be just over 10 per cent.
Three dividend growth stocks that McLean & Partners likes right now are Astral Media Inc., Manulife Financial Corp. and Power Financial Corp., all of which have posted double-digit increases in their dividends over the past few years. The firm also likes global dividend stocks, including French company Veolia Environnement.
If you prefer to buy mutual funds rather than individual stocks, there is a small but growing number of funds that focus on dividend growth stocks. This week, Investors Group introduced Canadian, U.S. and European funds in this category. Another fund in this group is Franklin Templeton U.S. Rising Dividend.
This is great advice from a respected writer and publication. I hope that you heed this advice in your long-term investment strategy as well. Have a great weekend!