Canadian Dividend Stocks Are Flexing Muscles Too


As mentioned in my High Yielding Dividend Stocks Flexing Muscles post, 12 independent studies concluded that investing in high yielding dividend stocks was a winning strategy for much of the previous century. Despite the overwhelming evidence, all the studies were predominantly US and UK based, so I decided to roll up my sleeves and conduct my own research in Canada.

To begin, I queried for all Canadian dividend mutual funds with at least 15-years of historical data from GlobeFund. I then manually weed out funds with too much bond or foreign content; so, only dividend funds with at least 75% common stocks, and 80% Canadian contents made the list.

Here are the final 7 funds along with their 15-year compounded return and Management Expense Ratio (MER):

  1. PH&N Dividend Income (Return=14.28%, MER=1.11%)
  2. RBC Canadian Dividend (Return=13.08%, MER=1.73%)
  3. Scotia Canadian Dividend (Return=12.03%, MER=1.67%)
  4. TD Dividend Growth (Return=11.51%, MER=1.94%)
  5. CIBC Dividend (Return=9.37%, MER=1.96%)
  6. Investors Dividend (Return=8.27%, MER=2.87%)
  7. Mavrix Dividend & Income (Return=8.08%, MER=2.14%)

Not surprisingly, lower MER funds tend to churn out stronger performance over time. However, I don’t see the benefit of paying for MER when an investor can easily emulate these dividend funds with a handful of core holdings, and then build on them as the portfolio grows.

The average annual return for the group is 10.95%, but if I remove the MER component, gross return jumps to 12.87%. It’s worth reiterating that a typical dividend fund has a bond allocation, so a pure dividend play would see over 13% in return. For comparison, TSX’s total return over the same period is 11.27% before tracking error, or a difference of 1.60+% compounded over 15 years. Over the next 3 years or so, I anticipate financial stocks to rebound and resource stocks to cool, which would widen the lead even more.

For other benefits of dividend investing, please check out my post on Top 10 Reasons For Dividend Investing.

Feeds and Links
Comment Feed
From This Author
Del.icio.us
Digg
Technorati
Categories
Investing
Stocks
Mutual Funds
Dividends



 

Write a Comment

Take a moment to comment and tell us what you think. Some basic HTML is allowed for formatting.

Reader Comments

Comment Number:
1
Written by:
Canadian Capitalist
Posted on:
April 16, 2008 at 2:44 pm

I think this research is worth pursuing, especially in our market which is dominated by a handful of companies. I’ll point to one obvious problem that I have no idea how to correct: the returns should be adjusted for survivorship bias because some of the poorly performing funds might have been merged with other funds and their results don’t show up in the Globe database.

Comment Number:
2
Written by:
Financial Jungle Guy
Posted on:
April 16, 2008 at 4:50 pm

That’s a valid point. Here’s my take on it.

Unlike the US, Canada has very few opportunities for creativity in the dividend investing space. Since there are only a handful of stocks in the pool, funds tend to mirror each other somewhat, so if one dividend fund managed to survive 15 years, no reason why the rest wouldn’t.

Canada has only 5 big banks plus one giant mutual fund company (Investors’.) As we saw, all their flagship dividend funds made the list: TD, Royal Bank, Scotiabank, CIBC and Investors’. BMO Dividend missed the list by one year; it’s only 14 year old, but its 10-year record is 9.49% versus TSX’ 7.81% despite MER. In fact, BMO is one of the better performing dividend funds around, so its addition next year will help boost the overall lead.

To answer your concern, I have no data to refute survivorship bias. But judging from what I know of the Canadian market and what’s on that list, survivorship bias has a minimal impact (if at all) on the conclusion.

Comment Number:
3
Written by:
Dillon
Posted on:
April 17, 2008 at 4:05 am

2.87% MER on the Investors Dividend Fund - that is just nasty.

Comment Number:
4
Written by:
squawkfox
Posted on:
April 17, 2008 at 3:39 pm

I’m in complete agreement with you on emulating these mutual funds and avoiding the MERs. Most people buy mutual funds though due to (probably) disinterest in DIY and the ease of hiring a sales person “cough” financial advisor to invest.

Saying this, I started DYI with PHN and now feel more confidant in buying stocks. But yeah, some of those MERs are crazy terrible.

Comment Number:
5
Written by:
Weekly Dividend Investing Roundup - April 18, 2008 » The Dividend Guy Blog
Posted on:
April 18, 2008 at 12:41 pm

[…] Financial Jungle had a look at Canadian dividend fund performance. […]

Comment Number:
6
Written by:
Ryan
Posted on:
April 18, 2008 at 1:41 pm

Interesting post. I wonder why growth stocks get so much hype? Is it due to the fact that it more interesting to have a home run hitter n your team then a line drive hitter?

Comment Number:
7
Written by:
Financial Jungle Guy
Posted on:
April 18, 2008 at 6:03 pm

Financial industry has the incentive to give more press time to growth stocks due to the underwriting business.

You don’t hear about wonderful dividend stocks like Leon’s Funiture because these companies have been buying back shares for the past 10 years.