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

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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.    

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