Dividends can be a strong indicator of investment quality

November 28, 2018

Published by Harvest Exchange Traded Funds

In tough times the best public companies respond by maintaining their dividend payments. Many are able to increase them.

That’s why dividends are a good indication of investment quality. They point to financial stability and a strong business. The odds are good that if a company pays a dividend, it will increase over time and a history of dividends indicates a company has a plan that is creating revenues and profits.

While a high dividend yield is a good sign, it isn’t the only reason to buy a company’s stock. (Dividend yield is calculated by dividing a company’s annual dividend payment by its share price.) A high yield can sometimes be giving you a warning rather than showing you an investment bargain.  It may be high because a company’s share price has fallen, which pushes the yield up.  The decline may be due to business conditions and be a sign that investors believe the dividend will be cut.

The power of dividends lies in their growth over time.


But in general, dividends are a positive indicator showing management’s faith in the business if only because they make the decision to set aside the payment at the beginning of the year. This decision is made before the company has earned the money to make the payment.


Harvest Portfolios Group believes dividend-paying stocks have a place at the heart of all portfolios. Their power lies in their compounding effect over time and when combined with its Dividend Reinvestment Plan (DRIP), –  Harvest offers DRIPs in six of its ETFs – they are an energizer that safely and consistently adds value.

The Harvest Brand Leaders Income Plus ETF  (TSX: HBF) is an example of this philosophy at work. As of Oct. 31, 2018 the ETF held 20 global brand leaders with an average total market capitalization of US $364 billion. The average dividend yield was 2.05%.

It may be no surprise that Canada’s dividend leaders are the banks. The Big 5 and their predecessors have been paying dividends for more than 150 years. Bank of Montreal (TSX:BMO) began paying dividends in 1829. The Bank of Nova Scotia (TSX: BNS)  followed in 1832. TD (TSX:TD)  has paid dividends since 1857, the CIBC (TSX:CM) since 1868  and Royal Bank (TSX: RY)  since 1870.

The Harvest Banks & Buildings Income ETF (TSX:HBF) had 28.6 % of its assets in Canada’s five largest banks as of Oct. 31, 2018.  The fund aims to provide a monthly income and the opportunity for capital appreciation. It has 55% of its holdings in financials and  37% in real estate.   – AM

You might like:



Click on the link for more information on the Harvest Brand Leaders Income Plus ETF.

The views and/or opinions expressed in the blog are of a general nature and are for informational purposes only. Blog contents should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage personal investment strategies.  Investors should consult their investment advisor before making any investment decision.    

You may also like…

Disclaimer

You will usually pay brokerage fees to your dealer if you purchase or sell units of the Fund(s) on the TSX. If the units are purchased or sold on the TSX, investors may pay more than the current net asset value when buying units of the Fund(s) and may receive less than the current net asset value when selling them. There are ongoing fees and expenses associated with owning units of an investment fund. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. An investment fund must prepare disclosure documents that contain key information about the fund. You can find more detailed information about the fund in these documents.

Certain statements in the Harvest Blog are forward looking Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or  “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS.

FLS are not guarantees of future performance and are by their nature based on numerous assumptions, which include, amongst other things, that (i) the Fund can attract and maintain investors and have sufficient capital under management to effect their investment strategies, (ii) the investment strategies will produce the results intended by the portfolio managers, and (iii) the markets will react and perform in a manner consistent with the investment strategies. Although the FLS contained herein are based upon what the portfolio manager believe to be reasonable assumptions, the portfolio manager cannot assure that actual results will be consistent with these FLS.

Unless required by applicable law, Harvest Portfolios Group Inc. does not undertake, and specifically disclaim, any intention or obligation to update or revise any FLS, whether as a result of new information, future events or otherwise.

Subscribe to our newsletter and stay informed

Join Us & Stay Informed!

* indicates required

Your Preferences   (Please select all the ways you would like to hear from)


You are a *


Confirm *