The power of dividend stocks in taming market volatility

November 04, 2013

Buffeted by continuing bouts of market volatility, low bond yields, and the prospects of even more market turbulence or the return of inflation, plan sponsors are rightly concerned about meeting their pension obligations to working Canadians and their families.

The dividend increases in the Leon Frazer holdings drive growth in both income and capital and offer capital protection in volatile markets.

market volatility, upside/downside capture

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 research by Leon Frazer, over the past three decades, 73% of Canadian stock market performance can be explained by the increases in the underlying dividends.

Market volatility may be here to stay. Which is part of the appeal of a dividend growth strategy. “If you are going to be in equities you want a low-volatility strategy,” says Douglas Kee, Leon Frazer’s Chief Investment Officer. “And you get that focusing on companies that have a track record of growing dividends.”

“The amazing thing about dividend stocks in Canada is that you can have better returns with less volatility,” says Ryan Bushell, Leon Frazer Portfolio Manager. “You can have your cake and eat it too.”

For Pension Fund Newsletter Issue One, click here.