What are we looking for?
Let's study dividend trends in the S&P/TSX 60 today.
More about today's screen
Every year, UBS Investment Research strategist George Vasic produces a series of reports on Canadian dividend growth stocks. We'll look at those reports for the rest of the week, starting with dividend growth stocks in the S&P/TSX 60.
As the market struggles to post positive returns, investors are increasingly looking to dividends for some guarantee of return. But dividends produce solid longer-term results as well.
"One of the key messages that has emerged from our annual look at dividend-growing stocks is that they are attractive most all of the time, and not just in periods of duress," Mr. Vasic said in a report last month.
Fully 58 of the 60 companies in the S&P/TSX 60 are now paying a dividend. Thirty-five of those companies hiked their dividends over the last year.
Mr. Vasic divides the index into three groups for dividend growth: financials, non-financials and high-yield telecom/utilities. Historically, financials are the strongest performers, but the other two groups have performed much better over the last couple of years and are important to investors for diversification.
The financials dividend growth group has risen 2.1 per cent and 5.3 per cent over the past 12 and 24 months, respectively, excluding dividends.
The non-financials growth group has risen 11.5 per cent and 32.4 per cent over the past 12 and 24 months, respectively, while the high-yield telecom/utilities are up 13.7 per cent and 33.5 per cent, respectively, over the same time periods.
What did we find out?
Today's table looks into the financial dividend growers in the main index. Tomorrow, we'll look at non-financials and higher-yield telecom/utilities.
Half of the financials did start increasing dividends again last year. Three of the four that hiked dividends have outperformed, with National Bank of Canada having the best performance and increasing dividends the most, Mr. Vasic said in his report.
"At this point, payout ratios have in many cases returned to more normal ranges, which is raising expectations that broad-based dividend growth will resume," he said.
"Importantly, with yields still in the 3-per-cent to 6-per-cent range, the resumption of an even moderate 5-per-cent to 6-per-cent trend in dividend growth [in line with earnings]would provide an overall expected return of about 8 per cent to 12 per cent, which is above what we expect for the market as a whole."