There’s a mad rush into dividend stocks

When it comes to investing in the post-crisis era, Canadians have been sounding a lot like Cuba Gooding Jr.’s character in Jerry Maguire: “Show me the money!” Yes, the humble stock dividend – viewed by many investors as little more than the icing on the cake a few years ago, before a financial crisis and major recession wiped out a decade of capital gains in the equity markets – has become the cake itself for an increasing number of investors. Data from the Investment Funds Institute of Canada show that sales of dividend-focused equity mutual funds for the first eight months of this year have substantially outpaced those of equity funds as a whole, and are even far ahead of bond funds – indicating that dividends have become investors’ preferred source for both income and overall returns this year.

We know the typical reasons given: Equity markets are too volatile, and two market collapses in less than a decade leave little confidence they can deliver decent returns on price appreciation alone; the baby boomers are inching closer to retirement, are running out of time and need the assurance of a reliable income stream on their investments; lousy interest rates on other assets have made dividends look relatively more attractive as an income stream. But whatever investors’ motivation, their timing is solid. History shows that we’re in the right kind of environment for dividend-paying stocks to outperform.

Source: Globe and Mail

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