I am grateful to hear and also see pictures, how you have been enjoying summer. Younger ones are now back in school and the season is changing. But we still have nice weather this month and next. Then we’ll have leaves and raking, skis or snowshoes, snowmen and winter fun… with spring break coming. Astonishing how time flies, so enjoy every moment and savour all that is precious in each and every day.
As a quick metaphor for today’s topic let me share a view of Vancouver’s Crescent Beach and the Boundary Bay Wildlife Area. Last month we rented a house in the area and among our travels we visited different beaches on this wide bay, also walked along the dike, with a terrific view of islands to the south and west (San Juan, Vancouver Island, etc.) and mountains to the north (Grouse, Cypress, Seymour, etc.). A magnificent view all round. Similarly for more than a quarter century we’ve continued to focus on the complete 360 financial view to ensure healthy steps and pathways to your lifestyle and future. Life has hills and valleys, sunny days and storms, yet the journey remains rewarding and our destinations secure. As long as people can enjoy such breathtaking views of life and landscape, we’ll keep money safely working for you. So my few words today remind us of two enduring principles for lifelong investing.
That may seem a strange title when dividend funds in Canada have this year gained only modestly. Our 2023 leaders thus far have been growth, global dividends, and emerging markets. Yet dividends are forever a core holding – for good reason! Many investment strategies have their season, and no strategy works in all seasons, but keeping clear focus on dividends will outpace most other strategies more often than not (and with greater stability).
Dividend funds are usually positive, and may show ten-year returns 7-12% per annum depending on which decade is being measured. For the past twelve months these funds’ returns are 1-2% which means buyers are still getting last year’s price on sale, while everyone can enjoy knowing that next-year valuations indicate 12-15% growth. What’s not to like! It’s on sale, and will only get better in the year(s) ahead.
Dividend funds own eight to ten distinct economic sectors among their holdings. Top among them are “financials” – ie. banks, wealth and insurance firms. Pulling back the curtain we see Canadian Banks have been punished by interest-rate hikes which affect their own cash flow and the health of their borrowers. Banks this past year are down 15% and foreign ones are down 25%. Gratefully our dividend managers have earned their keep by protecting value in these funds even against punishing waves of interest-rate hikes and economic uncertainty.
These funds own assets which sustain or increase dividend payouts. Worst-case scenario was 2008 and proves the resilience of owning dividends. Eg. Royal Bank that year fell from $65 to $25 per share but kept paying the dividend: with time, it passed $100/share while greatly increasing dividend payouts. That’s why Royal Bank, TD, and others are top holdings in most dividend funds. Our funds never faced the full storm, not even in 2008. Our dividend holdings have fed us a growing stream of dividends through the whole journey.
Dividend funds are safe: “moderate risk”, when down they rise again and often faster than other assets. Even when results flatten for a time (as now) they’re gathering steam to push forward and accelerate your wealth. You may remember something of the technology meltdown in 2000-2002: markets plunged 50-70% but dividend funds gained 20% in 2000, 5% in 2001, down < 1% in 2002 for overall net 8% growth per year through that period – and then surged forward also the next six years. The 2008 global financial meltdown set the base for dramatic new growth in 2009 to 2015. The past twenty years among our dividend funds show net results near 8%/year. If we ponder this it’s easy to notice how negative or flat periods are soon followed by exceptional growth.
WHAT ABOUT “NOT DIVIDENDS”.
It could be interesting to ask, what is not a dividend fund …because we don’t just own dividends but also growth and other forms of diversification. “Asset allocation” is how we combine different assets to assure growth, income, and stability against market losses. An excellent example of “Not a dividend fund” would be the Canadian Growth fund of Mackenzie’s Bluewater team headed and mentored by Dina DeGeer and David Arpin. These are conservative growth managers. From a global universe they select a narrow list of 200 targets, and at any time own just 29 or 30 strongest positions for value and growth. No fads, fetishes, or “meme” stocks: these are vibrant on-sale low-debt expanding businesses offering a variety of critical products and services, increasing their market and growing free-cash-flow among peers globally. Free cash flow means surplus earnings available to expand the business and still average 2% or more in dividend yield in addition to their actual growth. Peer-leading results over 1, 5, 10, 20, 30 year periods … proven resilience for wealth and lifestyle.
A simple slide from our RBC partners tells the story, comparing twenty-year results in cash, bonds, and dividend/equities. “Gold-bars” are the in-pocket true purchasing power (ie. deducting inflation). Cash and bonds are part of shorter-term planning but true security for 10, 15, 20 years ahead will mainly thrive on dividends and growth. These together enrich lifestyle and safeguard the future. This has always been vital in the counsel Whitney and I have given. That’s why carefully selected dividends and growth are foundational in our own personal and all client accounts, ensuring lifelong wealth for the years ahead.
Yours in Financial Security for LIFE.
Brian Weatherdon, CFP, CLU. 905-637-3500
Whitney Hammond, CFP, CLU. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7
** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to Canada Life, CIBC, Dynamic, Mackenzie Financial, RBC / PH&N, and more. Opinions in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to coordinate with your legal and accounting advisers to further your financial goals in home and business. We are grateful always to receive your comments and questions.