In a previous blog post, I wrote about how successful dividend investing has been in the past 20 years in Canada. I wanted to provide a little more colour on how dividend investing has performed vs. index investing so I did a little number crunching to see which stocks outperformed the S&P 500 and which did not. I looked at total returns for 5, 10 and 15 years (assumes you paid no tax and reinvested all dividends back into the companies or index. The stocks I looked at are all large cap Canadian companies with a long history of paying dividends. They are fairly concentrated in a few sectors (no health care, technology, consumer staples) but that is the nature of the Canadian market and one reason why I don’t think it was wise to only dividend invest in Canada.
Here is what I found:
5 Year Returns:
S&P 500 (CDN): 11.7%
Companies that beat the S&P 500: Enbridge, Sun Life, Loblaw, BCE, Metro
Companies that trailed the S&P 500: All the banks, Fortis, TransCanada Pipeline, Manulife, Power Corp, Imperial Oil, Empire, SNC Lavalin, Riocan, Rogers, Thomson Reuters
10 Year Returns: S&P 500 (CDN) 6.5%
Companies that beat the S&P 500: Royal Bank, Fortis, TransCanada Pipeline, Enbridge, SNC Lavalin, Riocan, Metro, BCE, Rogers
Companies that trailed the S&P 500: BMO, Manulife, Power Corp, Sun Life, Imperial Oil, Empire, Loblaw, Thomson Reuters
15 Year Returns: S&P 500 (CDN) 2.9%
Companies that beat the S&P 500: All the banks, Fortis, TransCanada Pipeline, Enbridge, Power Corp, Sun Life, Imperial Oil, Empire, Loblaws, SNC Lavalin, RioCan, Metro, BCE, Rogers
Companies that trailed the S&P 500: Manulife, Thomson Reuters
As time has passed the percentage of companies that beat the S&P 500 has increased. However, some of the companies who beat the 15 year results of the S&P 500 only did so because of the strength of the Canadian dollar today compared to the past 15 years. This reduced the 15 year performance of the US index by 2.7% (the 5 and 10 year results were not effected much by currency changes). If you remove the currency boost, you can add Power Corp, Sun Life, Loblaws, and BCE to the under performed column vs. the US index.
As a compromise, if you insist, you may consider investing your one third Canadian stocks in high quality dividend payers, but keep your one third world stocks in the Vanguard VXC all world index fund. I still don’t know if dividend investing is going to be so successful for the next 15-20 years if interest rates start to rise again. We’ve had a fantastic 35 year bull market in government bonds and if rates rise, dividend stocks should become less coveted by income seeking investors. But that’s a big if. So far bond rates continue to fall and in some cases are actually negative (Japan, Switzerland and Germany) so what do I know?