Protecting assets when markets decline

50-yr-upside-downside_50yr_dec_2016
Chart 1 - December 31, 2016
Preservation of capital is one of the primary investment objectives for both institutions and private clients. It is important to participate in the market when it is rising. But when markets decline it is more important to protect invested assets. This chart shows that over the past 50 years Leon Frazer’s equity clients were sheltered from significant declines in the S&P/TSX Composite Index while still participating in most of the upside in the market. This protection of asset values in down markets is another advantage of Leon Frazer’s investment style.

Are bonds or stocks riskier?

after-inflation_after-tax-yield-comparison-as-at-dec-2016
Chart 2 - December 31, 2016
Some say that equity markets are “risky.” In today’s world investors can buy 10-year Canada bonds yielding less than 2%. Given inflation in Canada which averages between 2% and 3%, it seems to us that bonds are incredibly “risky.” This is because after the effects of inflation an investor would be guaranteed a loss of purchasing power over 10 years. For a taxable investor the situation is even worse as the government will take up to 50% of your 2% yield, thereby making the total loss of purchasing power over the 10-year term even worse. A Leon Frazer portfolio, on the other hand, has a higher (dividend) yield than a 10-year bond.

Dividend growers outperform with lower volatility

dividend-gowers-as-at-dec-2016
Chart 3 - December 31, 2016
Over the long-term, companies that pay and grow dividends significantly outperform the broader market, with the added bonus of also being less volatile. A sustainable growing dividend limits downside to a stock during periods of market panic and provides a consistent signal of progress as time passes. According to our research, over the past three decades, 73% of Canadian stock market performance can be explained by the increases in the underlying dividends.

Fortis: a “dividend staircase” to heaven

Fortis Chart - Dec 2016
Chart 4 - December 31, 2016
Fortis Inc., the Newfoundland-based utility company, is one of the largest and longest standing holdings in all Leon Frazer portfolios owing to its exemplary record for increasing dividends. For 40 straight years, Fortis has increased its annual dividend every year, building a perfect “dividend staircase.” Over time the stock price has little choice but to follow the dividend upward. We attempt to build Leon Frazer portfolios with as many of these “dividend staircases” as possible.