What are Your Favourite Dividend Funds Holding?

Income-hungry investors irked by low interest rates may still find interest in the category, or high yielding individual stocks

Ian Tam, CFA 2 June, 2020 | 12:47AM
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At the end of March, I wrote about what stocks the top Canadian dividend funds were holding. Since then, the category of Canadian Dividend & Income Equity funds has recovered slightly, after showing similar performance to the Canadian Equity category during the initial drawdown brought on by the pandemic.

For reference, the value of $100 invested into the Canadian Dividend & Income Equity fund category at the peak of the market is currently worth about $80, less than that of the Canadian Equity category. It seems like in the most recent downturn, dividend managers were not able to offer investors much downside protection.

Exhibit 1

This said, let’s not forget the long-term merits of the category.

Exhibit 2


Source: Morningstar Direct

Exhibit 3
Source: Morningstar Direct

On a category average basis, the Canadian Dividend Income and Equity category outperformed Canadian Equities by a good margin over the last 20 years, while achieving a higher degree of risk efficiency measured above by the Sharpe ratio.

Income-hungry investors who are irked by historically low interest rates may still find interest in the category or perhaps individual holdings in stocks that are now offering much higher yields. To this end, ideas might come from the best-performing funds within this category which are outlined on the following table and include four- or five-star funds that have also been rated as gold or silver by the Morningstar Quantitative Ratings platform.

Exhibit 4

Within the category, the most widely held stocks at the end of April include the following:

Exhibit 5


As investors (im)patiently await whether dividend cuts are in the cards for blue-chip companies, they are reminded to look a few clues on the long term viability of dividends outlined in this article.

This article does not constitute financial advice. It is always recommended speaking with an advisor or investment professional before investing.

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About Author

Ian Tam, CFA  is Director of Investment Research at Morningstar Canada. 

 

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