Canadian dividend investing: a strategy not without risks

Sector concentration and the prevailing low-yield environment present unique challenges to dividend investors who want to focus on the home market.

Shehryar Khan, CFA 24 July, 2015 | 5:00PM

Focusing on stocks that can pay and sustain a dividend has been an enduring theme among investors -- it's no coincidence that RBC Canadian Dividend is the largest mutual fund in the country -- and has been hailed by many as a way to outperform the market in the long term.

In the wake of the 2008 financial crisis, investors flocked to income-oriented strategies due to the safety they were perceived to provide. After all, in 2008, funds in the Canadian Dividend and Income Equity category lost 24% -- much less than the 33% decline posted by the S&P/TSX Composite Index. And indeed, in 2011 when the TSX lost over 8%, the average fund in the category lost a mere 0.8%. Since 2008, the dividend-oriented funds have done remarkably well at protecting investors' capital when markets decline, capturing just 65% of down markets.

Not only have these funds proved themselves sturdy in market declines, they've kept up when the good times roll as well, capturing 75% of market rallies. Overall, from January 2008 to June 2015, the category has outpaced the broad market, delivering an annualized 4.7% return versus 3.7% for the TSX.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Enbridge Inc45.08 CAD0.76
Suncor Energy Inc24.73 CAD3.69
TC Energy Corp61.52 CAD1.00

About Author

Shehryar Khan, CFA

Shehryar Khan, CFA  Shehryar Khan, CFA, is a senior investment analyst for Morningstar’s Investment Management group.

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