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.