A goodly number of blue chip dividend stocks have been utterly crushed lately. Ready to buy some?
It’s understandable if you’d prefer to pass, given that a depressed share price is like a big thumbs down from your fellow investors. But buying low is part of successful investing. While there’s no need to obsess over the price you pay for stocks and funds you plan to hold for the long-term, buying good stocks on the downswing helps feed future gains.
Investing in a diversified dividend exchange-traded fund is one way to work around your nervousness about dividend stocks that have disappointed lately. These ETFs hold dozens of stocks in a variety of sectors, which lessens the risk of picking your own stocks and ending with a bunch that rebound slowly or not at all.
This happens to be an opportune time to look at dividend ETFs because they’re a market niche that hasn’t participated much in the buoyant markets of 2023. Both broad stock and bond indexes have done well – gains of 4 to 7 per cent in November alone. Dividend ETFs did OK as the year wound down, but their medium term results lag badly. The S&P/TSX composite index had a year-to-date total return of 7.5 per cent as of Nov. 30, while the S&P/TSX Canadian Dividend Aristocrats Index made 3.3 per cent.
Some top holdings in the dividend aristocrats index include Enbridge Inc. ENB-T, down about 11 per cent for the 12 months through mid-December; TC Energy Inc. TRP-T, down 4 per cent; and BCE Inc. BCE-T, down about 14 per cent.
One more reason for considering dividend ETFs today is the fact that lower prices for dividend stocks mean higher yields. The yield for the ETF that tracks the dividend aristocrats index, the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF CDZ-T, was about 4.1 per cent as of mid-December, compared to 3.2 per cent for an ETF tracking the S&P/TSX composite index.
Dividend ETFs have drawbacks, notably that they’re not as reliable for delivering dividend growth as owning individual stocks. Check a dividend ETF’s distribution policy to see how dividend payouts have changed over the years. You may be surprised at the lack of consistent growth. Still, if you want to buy into a market segment that offers buy-low potential and a competitive yield, dividend ETFs are worth a look.
– Rob Carrick, personal finance columnist
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The Rundown
Short sales on the TSX: What bearish investors are betting against
As Santa Claus prepares his carbon-free, reindeer-powered sled once more for delivering gifts this month, what companies are the grinches – short sellers and their minions – targeting in December? Larry MacDonald tells us, and also takes a look at the 20 most sold stocks by insiders.
Markets in 2023: Soaring stocks and roaring bonds defy the doubters
This year might go down as one of the most unusual ever in financial markets – mainly because everything seems to have come good despite a lot of turbulence and many predictions turning out to be wrong. Here’s a roundup of what global investments did in 2023 – to the surprise of many.
Ken Fisher says the year ahead will bring an amazingly strong stock market
One person perhaps not so surprised by 2023 market performance is billionaire investor Ken Fisher. In the end, many of his bullish (and anti-consensus) predictions for the year came true. What’s he predicting for 2024? No end to the bull market, as he explains here.
Expect the investing strategy of the year in 2024 to be an old friend that has your back if stocks tank
As for Rob Carrick, he thinks a couple of B words explain what will work for investors next year. Boring is one. But also balanced. After a thrashing in 2022, balanced investing is back and likely to perform well in 2024.
IPO hopes rise for new year after Fed’s early holiday gift
Bankers advising companies on stock market listings are hopeful that the new year will bring a recovery in initial public offerings after the U.S. Federal Reserve signaled it may start reversing the fastest escalation in interest rates in decades.
ESG funds suffer weaker demand despite help from tech-sector performance
Sustainable funds faced a sharp slowdown in demand globally in 2023 amid political controversy and concerns about “greenwashing,” even as many outperformed the broader market when the recovery of technology-related stocks bolstered their returns.
Metals spend the year pinned between old and new cycles
It’s been a year to forget for industrial metal traders – which hasn’t been good news for the resource-heavy S&P/TSX Composite Index. Early optimism around China’s return from lockdown dissipated over the first half of the year, leaving most metals chopping around in difficult range-trading conditions over the second half. But as veteran metals journalist Andy Home tells us, investors shouldn’t be too quick to write off the new green energy super-cycle. And never underestimate the potential for metals supply chains to generate black swan surprises.
Global banks see no recession, U.S. companies are more circumspect
Heading into 2024, analysts say the U.S. recession they’d been forecasting for two years isn’t coming anymore. Everyone else, from companies to investors, is still bracing for a slowdown caused by tepid consumer demand. Dissonance between the habitually bullish investment bank analysts and the more circumspect money managers is not new. What’s different this time, as Reuters reports, is the level of prudence and caution from some top companies as they outline their plans for next year.
Investors often underperform the market because they make this common mistake
Investors often find their picks underperform because they are chasing past performance. As Benjamin Felix explains, they are remarkably consistent with their propensity to get into an investment after it has done well, and then get out after it has done poorly.
Others (for subscribers)
Friday’s analyst upgrades and downgrades
Monica Rizk: Bullish on American Eagle Outfitters Inc.
Ask Globe Investor
Question: Several months ago, I decided to invest in UBIL.U-T. I decided to do that with the hope that I could preserve the capital if and when the market went down. So far, I’ve lost very little. But I am concerned about the future given the turbulence in the bond market. What are your thoughts about UBIL.U in the near- and long-term future given current market conditions? – Robert P.
Answer: UBIL-U-T is the trading symbol for Horizons 0-3 Month US T-Bill ETF. It invests in short-term U.S. Treasury Bills, one of the safest forms of investments in the world. However, that doesn’t mean it’s completely risk-free. Nothing is.
The units trade on the TSX within a tight range that so far this year has varied from a high of $50.31 to a low of $49.96. Based on those numbers, there is a potential for a fractional capital loss, depending on the time of purchase. But many investors don’t seem to care about that. They look at the current yield (7.7 per cent, based on the November distribution of $0.31987 per unit), and that’s all they need to know.
But there are some reasons to be wary. For starters, the monthly payments have varied considerably since the fund started trading last spring, ranging from a high of over $0.40 to a low of $0.27. This makes it problematic to project yields based on a single month’s distributions, especially when we don’t even have a full year with which to work.
Also, the fund has a short history. It’s well-suited for the current interest rate climate, but what will happen when rates start to fall, and the fund’s yield declines? Will investors rush to dump their units? If so, what will be the effect on the market price?
We have no answers to those questions. We do know that there is little appetite for more rate hikes and that an easing by the central banks is likely in 2024. The Federal Reserve Board recently signaled the possibility of three cuts in the coming year. When that happens, this and other comparable funds will be put to the test.
– Gordon Pape (Send questions to gordonpape@hotmail.com and write Globe Question in the subject line.)
What’s up in the days ahead
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Compiled by Globe Investor Staff