It is no secret that income-seeking investors have fewer places to turn than several years ago. As the global economy went south in 2008, central banks reduced the cost of borrowing to spur economic growth. With long dated Government of Canada bonds yielding a rate similar to headline inflation, other types of securities must be considered to generate income.
It has been said that “a bird in the hand is worth two in the bush.” The theory states that because future earnings are less predictable than cash dividends payments in the hand, the latter is preferred by investors. Furthermore, the true experts of a company are not the analysts who forecast its prospective financial statements but rather the managers who operate the business. Returning capital to shareholders via increased dividend payments indicate to the market that the managers and directors are confident about the company’s future cash flow.
All ten of the largest common equity positions held in aggregate by clients of Baskin Financial Services Inc. in May 2012 have grown their dividends over the past 5 years. This is despite the credit crisis in 2008, European debt debacle, and Washington political gridlock.
If an investor with $100,000 in cash were to have bought equal amounts of the 10 stocks listed below on the first day of 2007, they would have expected a yield of 3.6% ($3600 in annual income) that same year. Today, 5 years later, assuming the investor did not buy or sell a single one of those shares, their cash-on-cash portfolio yield of that original $100,000 would have risen to 6.1% ($6100). This is because all ten companies have substantially raised their dividend per single share over the past 5 years.
Despite recent volatility in the stock market, there is no shortage of companies with strong balance sheets and sufficient liquidity to continue growing dividends over time. Many have recently done so, and many more will continue this trend well into the future.
*This writer does not own the securities mentioned in this column.