Dividend-growing stocks overcome market volatility

Lyle Stein - November 15, 2012

Further proof of the benefits of investing in dividend growers, in both up and down markets, revealed in new study

A recent study reported in the Globe and Mail provides further evidence of the ability of dividend growth stocks to both mute the affects of down markets and participate in many of the benefits of up markets.

According to the Globe, strategists at UBS Securities Canada examined the seven largest down cycles on the S&P/TSX Composite Index since 1995. The average drop was 24.3%, including the 44.8% collapse from May 2008, to February 2009.

How did the dividend growth stocks fare?

  • UBS’s “financial dividend growers” – a group that includes the Big Six banks – fell an average of 15.6%, or just 64% of the broader market’s decline,
  • “Non-financial dividend growers” – a diverse group that includes railways, cable, pipeline and retail stocks – posted an average drop of 6.1%, and
  •  A “high-yield” group – which includes telecoms – fell just 5.5%.

How did these same stocks perform in up markets?

According to the newspaper article, in eight major upturns since 1995, the S&P/TSX Composite averaged a gain of 56%.

How did the dividend growers do during these periods of upturn?

  • The financial dividend growers rose, on average, 66.5%,
  • The non-financials gained 41.2% per cent, and
  • The high yield group 31.3%.

 

 

 

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