Investors may divvy up rewards with dividend paying stocks: CIBC World Markets Inc.
Nov 26, 2009
Stable payers offer downside protection in uncertain times
"It's back to Finance 101 for investors in equity markets these days," says CIBC's Chief Economist Avery Shenfeld in the bank's latest Economic Insights report. "During equity booms, the value of dividends can be forgotten amidst a chase for capital gains. But in today's low rate environment, divvying up the dividends can be particularly rewarding.
"The spread between TSX dividend yields and those on corporate bonds is now near the tightest in decades," adds
"Reinvested dividends account for a sizeable share of the longer term return from holding stocks, and stable dividend payers tend to offer more downside protection in uncertain times," says
The report cites a range of factors that make dividend-paying equities particularly attractive in today's economic climate.
First is the low interest rate environment that
Another consideration is that reliable dividend payers have tended to outperform the broad market and have been less volatile in precarious times.
"S&P has defined a basket of 'dividend aristocrats' - a changing group of TSX-listed companies that have consistently increased dividends per share in the prior five years. That group has outpaced the market not only in the last half-decade, but also in year-to-date returns during a volatile 2009," says
A third factor is the reduced risk of "dividend trap"- investing in companies that offer a generous yield today, but may not be able to pay such high dividends or indeed any dividends in the future.
Some TSX firms have actually increased dividends in the last year, notes
Elsewhere in the report, Canadian REITs are also flagged as attractive yield plays with valuations looking "unduly tarnished by analogies to U.S. real estate conditions."
The complete CIBC World Markets report is available at:
CIBC's wholesale banking business provides a range of integrated credit and capital markets products, investment banking, and merchant banking to clients in key financial markets in
For further information: Avery Shenfeld, Chief Economist, CIBC World Markets Inc. at (416) 594-7356, firstname.lastname@example.org or Tom Wallis, Communications and Public Affairs at (416) 980-4048, email@example.com