FUND FOCUS II
Don’t blindly chase yield: An active approach to dividend investing in Canada
While it might sound counterintuitive, Portfolio Managers Don Simpson, Rory Ronan and Eric Mencke explain why yield is never the first consideration in their dividend mandates.
Our View on Dividends
Don't chase yield. It’s ironic to say that as a portfolio manager of dividend mandates, but the truth is, that if the best-case scenario for investing in a company is receiving the dividend, you're thinking about it wrong.
Instead of yield, we start by prioritizing the quality of the business and work from there. We view dividends as a capital-allocation decision. They are certainly important, but we focus on analyzing the durability of the dividend and management’s plan to grow the dividend over time.
Investment Philosophy – Dividend Growth
Our goal is to find industry leaders with the ability to grow their dividends. Having the discipline to pay a dividend to shareholders is very important, but that’s only part of the equation. What we really want are companies that can balance paying the dividend and also keeping some capital to redeploy into growing the business.
The Case for (Boring) Canadian Dividend Stocks
Last year, the technology sector underperformed the overall market. Investors were concerned about the economy, and technology was coming off a good run. Many portfolio managers were underweight technology. Then all of a sudden … boom, there is a new investing phenomenon, artificial intelligence.
The managers who were underweight technology and concerned about short-term performance had to chase these stocks right away. To do that, they needed a source of funds, so they sold off a number of boring businesses. We don’t mind owning boring businesses. Actually, they’re a good match for our personalities.
The Secret to Success
There are approximately 60 to 70 great businesses in Canada that have the ability to grow their dividends over time, but they're not all in our portfolios. We patiently wait for investors to worry about something in the short term to give us an opportunity to buy these great businesses at an attractive price. Having a long-term perspective is critical. It's the secret to our success. The businesses we own are predictable. The way we manage our portfolios is predictable. We hope our results are predictable. – DON SIMPSON
Active Management
We’re continuously evaluating our holdings and looking for our next great idea. We are active managers. Our goal is to make sure our clients can feel good about what they’re buying and that valuations make sense. You don't have to worry about your equity holdings. That's our job. We’re doing that every day. – DON SIMPSON
We offer various fixed monthly distributions to meet your income goals
Yield percentages are based on the last close price on July 31, 2023. The distribution is fixed, but not guaranteed.