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Dividends in the Rough

Dividend in the Rough
Picture courtesy of Edgar Maivel

The past 18 months have been very tough on dividend oriented investors with companies slashing their payouts in the face of a tough economic climate and a strong desire to conserve corporate cash.

While my Canadian dividend portfolio (DivG) experienced only a handful of cuts (Manulife, Husky Energy & Russel Metals) during this period of time there are dividend investors out there whose portfolios suffered significant losses in both income and capital.  Dividend cuts provide a solem reminder to investors of what can happen when a company’s priorities change from shareholder value to corporate security.

I pride myself as a disciplined investor who utilizes a conservative approach to invest in my portfolios, but I will admit that there are times when a lack of dividend increases in my portfolios frustrates me and I consider if my approach is the best over the short-term.

The long-term answer often comes in the way of an eventual dividend increase that remind me of why I invest the way I do and how dividend increases today contribute to meaningful returns in my portfolios for the future.

This past week three Canadian corporations I hold shares of within my DivG portfolio raised their dividends decisively; Fortis (FTS), Atco (ACO.X) and Shaw Communications (SJR.B).  Fortis raised their dividend for the 37th consequetive year with this year’s increase at a surprising 7.7%.  Atco raised their dividend by 6% and Shaw Communications raised by 5%.

These increases don’t come close to replacing the income I lost from the 50% cuts in the payouts of MFC, RUS and HSE, but they do remind me of why I diversify my investments and that other components of my portfolio can provide meaningful value in both increasing income and risk reduction.  The fact that FTS, ACO.X and SJR.B raised their payouts above the annual rate of inflation helps meet my long-term goal of growing my annual dividends from this portfolio at a rate faster than the annual pace of inflation.

Often when a dividend investor starts out with this long-term strategy a lack of dividend increases can both frustrate and demoralize you as you implement this strategy.  Patience isn’t easy, but taking the time to develop it will go a long way to showing you how a dividend in the rough can turn into a diamond over the long-term.

Disclosure: I hold shares in Fortis (FTS), Shaw (SJR.B), Atco (ACO.X) & Russel Metals (RUS)

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{ 6 comments… add one }
  • Think Dividends January 18, 2010, 12:12 pm

    Great article Brad.

    I also hold Shaw (one of my largest positions) and I was very pleased with this year's increase.

    Just curious as to why you hold ATCO versus CU ?


  • Nurseb911 January 18, 2010, 4:43 pm

    When I buy Atco I get exposure to all it's units including Canadian Utilities (CU). The historical book value growth and dividend growth for Atco has been much better than CU alone and the structure of the company isn't very complicated. Atco is the simple choice between the two (or both), but it's always personal preference.

  • Think Dividends January 18, 2010, 6:02 pm

    Thanks for the reply.

    I compared the two on my blog (http://www.thinkdividendsblog.com/2009/11/atco-or-canadian-utilities.html) and while ATCO has historically had better dividend growth, the increases have been similar in recent years. CU's dividend increase last week was actually higher than ATCO's.

    I prefer CU, but thanks again for sharing your opinion.

  • youngandthrifty January 19, 2010, 12:13 am

    I'm in love with Fortis so far!

    Thanks for the heads up that they raised their dividends!

  • Jeremy Homer January 19, 2010, 8:48 pm

    Based on your Disclosure, Did you sell Manulife and Husky ???

  • Nurseb911 January 19, 2010, 10:19 pm

    I did sell both MFC and HSE Jeremy for tax-loss selling back in December. I don't expect the prices to move much and do plan to buy them back since they are core holdings later this month.

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