Dividend Increases: Even When Markets Are Down



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This is the fourth post on the Dividend Increases series.

First, let’s get the sore thumb out of the way. My portfolio suffered a minor set-back as CI Financial Income Fund, a non-core holding, is cutting distribution by about 10%, likely due to market jitter.

Dividend Increases

  • Canadian Oil Sand - 36% (150% from last year)
  • Canadian National Railway - 10% (10% from last year)
  • Enbridge - 7.3% (7.3% from last year)
  • TransCanada - 6% (6% from last year)
  • HR Reit - 5.1% (5.1% from last year)
  • Bell Aliant Regional Communications Income Fund - 2.8% (2.8% from last year)

I’m not worried about market turbulence…

Once again, TSX and S&P500 investors are reeling over recession fears as the indexes sank by 2.5% and 2.9% respectively today. Good! This just means that we can invest new money and dividends into progressively higher yielding shares. For example, Royal Bank is paying you $2 a share, doesn’t matter if the share is trading at $40, $50 or $60. As long-term accumulators, we don’t want Royal Bank shares to shoot up the roof. In fact, the cheaper the shares, the more we can buy, and the more dividends we collect. Let’s pray for the market to remain at these bargain levels for awhile.

Many investors are wondering if we’re at the bottom yet. Nobody knows. But one thing is certain; at 16.35 PE ratio, TSX’s earning yield is a savory 6.1%, which compares favourably well to Canada 10-year bond’s 3.84%. Yes, there are short-term risks. But 10 years from now, nobody will be lamenting over that they could’ve bought TSX at 1 or 2 bucks cheaper. It’s that they should’ve bought more.

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Reader Comments

Comment Number:
1
Written by:
Shogun56
Posted on:
February 6, 2008 at 2:28 pm

Not a big fan of the CI Funds. They shuffle their portfolios way too much.

Comment Number:
2
Written by:
mg
Posted on:
February 6, 2008 at 4:37 pm

Glad to hear someone who is of the same mind as I am…

Comment Number:
3
Written by:
Financial Jungle Guy
Posted on:
February 6, 2008 at 4:59 pm

Shogun56 - That’s interesting. Are you scorning CI Funds as a mutual fund customer, or as a CI shareholder? You know where I’m going with this. ;)

Comment Number:
4
Written by:
Financial Jungle Guy
Posted on:
February 6, 2008 at 5:32 pm

These dividend increases keep on ringing in. I just threw Enbridge onto the list as they raised their payout today.

Comment Number:
5
Written by:
dropby
Posted on:
February 6, 2008 at 10:03 pm

IGM’s January sales number is down from one year ago. I am afraid for mutual fund company, if sales is down, then dividend will be down inevitably. The question is that whether it is down temporarily or it is the trend? In other words, will we have more and more smarter investors not buying MF with high MER?

Also, when economy is going down, will be less money to be invested by people? Or will be more investment to be sold for people need to survice?

Comment Number:
6
Written by:
Financial Jungle Guy
Posted on:
February 7, 2008 at 2:41 am

dropby - (1) Don’t extrapolate monthly data. (2) IGM’s $1 billion cash balance is more than enough to cover the dividends of $450 million. Not to mention this cash cow generates about $840+ million of profits each year.

Sales are down because S&P 500 and TSX lost 9% and 6.5% YTD respectedly. Both indexes lost ~50% when the tech bubble burst, but IGM continued to raise dividends during the difficult time.

Comment Number:
7
Written by:
ThickenMyWallet
Posted on:
February 7, 2008 at 8:27 pm

What is the payout ratio on Canadian Oil Sands? Isn’t it well over 100%?

I would differentiate between income trust increase and dividend increase. Dollar for dollar, income trust incomes put less in your pocket after taxes than dividend increases.

Comment Number:
8
Written by:
Financial Jungle Guy
Posted on:
February 7, 2008 at 9:44 pm

ThickenMyWallet :) This is deja vu!

Canadian Oil Sand distributed $791 million to unit holders last year but the tarsand operation poured in ~$1.1 billion in free cashflow (cash from op minus capital expenditures). i.e. This is a cash machine with no exploration risks.

The payout ratio is more like a conservative 72%.

COS distributes very little Return of Capital, so it’s not as tax-efficient as most other trusts. This is why the units belong in registered accounts if there’s room.

Comment Number:
9
Written by:
dropby
Posted on:
February 7, 2008 at 10:29 pm

FJ, thanks a lot for the detailed answer everytime when I have a question.

Do you know where I can find the tax information on HR-UN’s distribution? I cannot find it on their web site.

Comment Number:
10
Written by:
Financial Jungle Guy
Posted on:
February 8, 2008 at 6:49 am

Hey dropby - you’re welcome.

The tax information is available here: http://www.hr-reit.com/finance/history.asp

Roughly 45% of distribution is tax-free.

Comment Number:
11
Written by:
dropby
Posted on:
February 8, 2008 at 7:48 am

Thanks. :-)

Comment Number:
12
Written by:
CheapCanuck
Posted on:
February 11, 2008 at 5:22 pm

Financial jungle guy - What are your predictions for Canadian banks this year? Do you see them continuing to raise dividends despite the difficulties in the financial sector right now? I’m just now starting to get involved in dividend investing, and my first purchase is likely to be one of the banks, and financials will likely be a cornerstone of my portfolio going forward.

Comment Number:
13
Written by:
Financial Jungle Guy
Posted on:
February 12, 2008 at 7:25 am

CheapCanuck - Thanks for dropping by.

I do see all banks to raise their dividends this year, albeit moderately.

There are many great dividend-stocks and income trusts to choose from beside just financial: pipelines, utilities, railways, oil trusts (COS.un), retail (Reitmans), materials (Teck Cominco), and more.

Comment Number:
14
Written by:
Cheap Canuck
Posted on:
February 12, 2008 at 5:54 pm

Thanks for the suggestions FJG. I’d been primarily targetting financials since the sector has been beat down so badly lately (although it could get a whole lot worse), and yields seemed pretty attractive by historical standards. I’m going to avoid trusts for the time-being as my main motivation for investing in dividend stocks is the -15.39% taxation I can take advantage of at my income level, and the trusts wouldn’t come with that tax break. Great job on the series. I look forward to further chapters.

Comment Number:
15
Written by:
Dividend Increases: Even When Markets Are Down | Financial Solution News
Posted on:
February 12, 2008 at 7:59 pm

[…] post by Financial Jungle Guy Related Posts: Dividend Hikes Twinkling Brighter Than Salary […]

Comment Number:
16
Written by:
Financial Jungle Guy
Posted on:
February 23, 2008 at 8:46 am

Dropby - in case you missed it, IGM raised their dividend for the 2nd time in a year by 6%.