2012 Federal Budget Highlights:
Budget
Market Update - Here's What We're Thinking:
Market Update
Resurgence in Dividend Growth
- While North American stock markets reached a cyclical trough in March 2009, it has since taken 26 months plus an unprecedented amount of monetary and fiscal stimulus for the market to regain most of the value destroyed by the financial meltdown and global recession.
In the recent downturn between the end of 2006 and March 2011, the S&P 500 and the S&P/TSX Composite Index posted returns of -6.5% and +9.4%, respectively. When dividends are incorporated, however, the total returns for the indices rise to 2.5% and 23.3%, respectively.
- There remains an abundant amount of risks but certainly, it appears that the broader economic outlook has stabilized and in certain cases, has started to show modest signs of recovery. One interesting signal that has emerged over the past twelve months is a notable reversal in corporate and/or board strategy. Between 2007 and 2009, the highest priority for all companies was to bolster balance sheets as the economic outlook remained highly uncertain. At that time, balance sheets were heavily scrutinized and the term “stress tests” became almost cliché. In response, management teams and board of directors prepared for the worst case scenario by slashing dividends, halting share buyback activity, and in many cases raising both debt and equity at every opportunity. Closer to mid-2010, however, when it became apparent that the worst-case-economic meltdown was avoided, this sentiment started to gradually change as many companies found themselves positioned with excess capital.
Accordingly, particularly in recent months, we have seen management teams and board of directors signal some increased comfort with the economy and their operating outlook by seeking ways to return some capital to shareholders through the recommencement of share buybacks and dividends and/or even the resumption of dividend growth.
- Equity markets have been extremely volatile over the past several years as a near collapse of the global economy took its toll on investor confidence, corporate balance sheets, and even public finances. In an unstable environment with major daily, weekly, and monthly swings in share values, the investing environment becomes extremely difficult as there are both tremendous risks and opportunities. Hence, we continue to highlight the importance of dividend income as a component of total investment return.
While it is important to have exposure to cyclical stocks and growth companies to position for the next economic cycle, it is equally important to enhance returns with a core list of strong dividend paying stocks in the portfolio.
- For this reason, we have updated the table of Toronto-listed companies that have increased dividends in either 2009 or 2010.
We continue to believe that dividend increases are often a good indicator of management’s and board of directors’ confidence in the strength of the company’s capital position and operating outlook. Companies that have consistently done so are likely a good place to start when looking for survivors of an economic downturn and leaders of the subsequent economic recovery. Furthermore, these companies also serve as a good starting point for investors looking for dividend growth stories.
Resurgence in Dividend Growth
Perspective on the new Canadian Federal Budget:
Attached are views on the new Canadian Federal Budget from the firm's Portfolio Strategist, Economics and Wealth & Estate Planning departments.
For individual investors, see page 18 of the Daily Edge for comment from our Financial and Estate Planning group.
Federal Budget - Economic Perspective
Federal Budget - Equity Strategy
Daily Edge
Here is an interesting look at market volatility over the years:
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