Canadian money on printer

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High-quality stocks that pay good and growing dividends tend to do relatively well in times of heightened market volatility, says portfolio manager Brad Cann of Mackenzie Investments.

Cann, a vice-president and lead portfolio manager for Mackenzie’s Canada Life Canadian Core Dividend Fund, said dividends provide a cushion to mitigate downside risk in uncertain times.

“Higher-quality stocks — those that have more resilient revenue and earnings profiles, and better relative valuations — display long-term share price volatility,” he said. “And, within that group of higher-quality stocks, many tend to be solid dividend payers.”

Among the dividend-paying stocks he likes are Toronto-based utility Hydro One Ltd.; Calgary-based Tourmaline Oil Co. which, despite its name, is a natural gas producer with a solid balance sheet and strong management team; and Royal Bank of Canada, whose stock price has retreated to a level that now represents good risk-reward potential.

“The dividend stocks we focus on tend to be well-positioned on a relative basis to weather market volatility and potential shifts in the economic outlook,” Cann said.

He’s finding good candidates in industries with high barriers to entry like telecommunications, where Vancouver-based Telus Communications Inc. has caught his eye.

He believes the current market uncertainty was born of extraordinary conditions — ultra-low interest rates that led to unrealistic valuations for growth stocks and speculation frenzies.

“Well, that’s changed now, and that’s what I like,” he said. “Interest rates are now on the rise. The speculative froth in stock valuations is coming out. And the environment, we feel, is much more favourable to those stable, slightly more mature businesses which tend to pay growing dividends over time.”

Furthermore, Cann said, the Canadian stock market offers a larger opportunity set of companies in value-oriented sectors compared to the U.S. market, he pointed out.

“The U.S. market is well known for its growth-oriented companies. Our research shows that the dividend yield of the Canadian stock market has traded at a premium to that same measure in the U.S. for a very long period of time.”

The big difference between the two markets, he added, is that the Canadian market has a higher weighting to financials, energy and utilities stocks.

“These represent value dividend-paying sectors, compared to, say, the very large technology weighting in the U.S. stock market,” he said. “We believe Canada should represent a core or building block of any Canadian’s investment portfolio.”

While some view investing in dividend-paying stocks as a “get rich slow” strategy, it’s one Cann endorses, especially where dividend growth exceeds inflation and the magic of compounding can further enhance returns.

“There are several types of successful investing strategies. We feel that focusing on Canadian dividend payers is one of them,” he said. “It’s a truly time-tested strategy, proven out over many, many years.”


This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

Canada Life Canadian Core Dividend Fund - mutual fund
CAN Canadian Core Dividend - segregated fund
Fonds de dividendes canadiens de base Canada Vie – fonds commun de placement
CAN Dividendes canadiens de base – fonds distinct