Why Dividend ETFs Will Make You Richer

John Heinzl takes the time to answer the questions of readers in the Globe&Mail's Investor Clinic video series discussing dividend ETF's.

"...the great thing about ETF's is that they provide a diversification of a mutual fund but with much lower fees..."

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No Longer Pillars of a Select Dividend Club

John Heinzl of the Globe&Mail writes on the recent revisions made to the S&P/TSX Canadian Dividend Aristocrats index after losing 15 names from the list of companies to consecutively raise their dividends. Some notable deletions?; CIBC, BMO, Royal Bank, Sunlife and Manulife Financial.

"After a year in which some high-profile companies slashed their dividends and many others failed to increase their payments as they dug in for the recession, the S&P/TSX Canadian Dividend Aristocrats index is losing 15 members - including most of the banks - and gaining just one."

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Dividends - Even Better Than Bonds

Andrew Bary of Barron's published an article on Monday that caught the attention of a number of dividend investors within the blogsphere. The article discusses some alternatives over bonds as income investors look for better yields than traditional fixed income products.

"The 'safest' part of the market, Treasuries, seems to be the most overvalued, and high-grade corporate bonds don't look much better. Treasury yields range from just 0.85% on two-year notes to 4.4% on 30-year bonds, while high-grade corporates generally offer 3% to 5%. Federally backed mortgage securities also look unattractive at 4% yields. These securities are apt to return little or nothing after inflation and taxes. While investors are apt to have their principal repaid if they hold their bonds until they mature, they will suffer losses if rates rise and they sell prior to maturity. As for investors in bond funds, they typically have no guarantee of getting their money back. And the funds often levy stiff management fees on their holdings."

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Six Common Misconceptions about Dividends

Jason Whitby of Investopedia.com writes about six common misconceptions involving dividends that investors should be aware of especially during periods of questionable returns and high volatility in markets.

"During periods of low yields and market volatility, more than a few experts recommend dividend stocks and funds. This may sound like good advice, but unfortunately, it is often based on misconceptions and anecdotal evidence. It is time to take a closer look at the six most common reasons why advisors and other experts recommend dividends and why, based on these reasons, such recommendations are often unsound advice."

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The Dividend Decade

Standard & Poor's investment publication, The Outlook, is in the news recently for stating that the next ten years could be what they term as the "dividend decade" as Jay Bryan writes in an article found in The Vancouver Sun.

"...That's because bonds just don't provide the income or safety that's needed in retirement. The thesis, put forth in Standard & Poor's flagship investment publication, The Outlook, contains some important wisdom. Basically, bonds are still important, but certain kinds of stocks might usefully supplement their function as an income-producer in your portfolio. Bonds have long been considered the ballast of a conservative investment portfolio because their issuers have a legal obligation to keep on paying a stated amount of interest until they give you your money back. If the bonds are issued by government, you're highly protected. Even if the issuer is a corporation, few blue-chip firms ever default."


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Dividend Stocks Not Always the Safest Bet

Norm Rothery, author of the Stingy Investor website, was in the news this week in an article published by the Financial Post's Jonathan Ratner. In the article the question of whether high yielding stocks or cheap value stocks were a safer bet in a market downturn.

"Rothery finds that high-yield stocks performed just as poorly as the overall market. Dividend stocks also sucked wind. The winners were growth stocks and dividend growth stocks (i.e. stocks that combine both dividend and growth characteristics)."

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When Patience Pays Off

Steve Proceviat of the globeandmail interviews Canadian dividend guru Tom Connolly of The Connolly Report about his investments, best returns and dividends.

"It all started with a letter to the Financial Times (of Canada) in August, 1984 - that's what got me thinking about dividend growth investing. The guy who wrote the letter, his income, when he retired in 1966, was $4,800. And by the time he wrote the letter to the Times, in 1984, his income was up to $31,000.That piqued my interest, so I started investigating dividend growth stocks, and buying them.

With dividend growth investing, you have to convince yourself that it works. It's fairly easy to do. There's not too many companies to worry about. There might be 20 good dividend growth stocks in Canada - a small group of Canadian stocks that have really good dividend growth, good cash flow and products that you need. It's just a matter of picking a utility, or a bank, or a food retailer or a couple of industrials, perhaps. And building a portfolio that way."

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Dividends in Downturns

Thicken My Wallet asked the question yesterday, "How effective are dividends stocks in downturns?" The obvious answer depends greatly on a company's ability to maintain (or grow) cashflow as the blog author states.

"First, let’s state the obvious. In order to be a long-term dividend payer, a company has to be able to sustain cash flow necessary to pay dividends quarter over quarter. The implication being that dividend paying stocks do not necessarily have to be profitable all the time but rather they cannot be losing money over the long-term lest they jeopardize the dividend payment and investor confidence."

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