Why Dividends Are Important

The dividends paid out by companies account for a large part of historical stock market returns in the long-term.

Stock market returns are derived from two sources: dividends and price appreciation. Many investors tend to focus on price appreciation, forgetting that over the long term, reinvested dividends contribute substantially to the total return.

The total return of the MSCI World Index from December 31, 1987, to December 31, 2016, illustrates the magnitude of the contribution of dividends. The following chart shows how total return (price appreciation plus reinvested dividends) significantly outpaced price appreciation alone over the period:

chart1.PNG

 

Source: Bloomberg, between December 31, 1987 and December 31, 2016. The chart assumes that the MSCI World Total Return Index reinvests all dividends and is not intended to reflect future values of the indices shown. Past performance is not a guarantee of future results. The indices are not directly investable and the returns shown do not contemplate commissions, fees, expenses, optional charges or taxes which would have impacted an investor’s return.

Guardian Capital LP’s (“Guardian”) goal is to outperform the market in both price appreciation and dividend yield through:

1. Yield carry: Guardian targets 1-2% of additional yield per year over the relevant index.

2. Stock selection: Finding the right stocks across all industry sectors to actively position the portfolio through all market cycles.

Guardian’s GPS Investment Approach

Guardian’s GPS investment approach focuses on three key fundamental drivers: Growth of dividends, Payout of cash flow and Sustainability of the payout profile. Having a portfolio of stocks that offers a combination of these three factors is the core of what makes the GPS strategy such an effective way to invest in dividend stocks.

chart2.PNG

 

 

Different Types of Dividend Stocks

Paying attention to both dividend yield and dividend growth ensures that opportunities can be captured along the growth spectrum, from lower-yielding, high-growth companies in sectors such as technology, all the way through to mature, slower-growing companies in sectors such as utilities and telecoms.

Eligible stocks fall into three different dividend stock categories: Dividend Achievers, Dividend Growers and Dividend Payers.

chart3.png

 

 

The GPS Stock Selection Process

The Systematic Strategies Team at Toronto-based Guardian is a recognized leader and technological innovator in the dividend stock investing landscape. Lead by Srikanth Iyer, Managing Director, the team utilizes a hybrid approach to investing in equity markets that combines a systematic stock selection discipline with a team-refined approach to portfolio construction and risk management.

Through rigorous quantitative research, Guardian has discovered a set of intuitive fundamental criteria (see table below) for evaluating and comparing dividend-paying stocks. All stocks in each global sector are ranked on a daily basis. This quantitative screen can be applied to the dividend stock universe of any geographic sector.

The highest-ranked stocks comprise the BUY list. Lower-ranked stocks may be designated as SELLs and will likely be sold from the portfolio, or avoided completely.

Guardian’s experienced team of portfolio managers use the stock rankings as the primary driver of buy/sell recommendations for the portfolio, but ultimately make the final decision in what stocks will be added or removed from the portfolio.

Growth Efficiency Credit Risk Valuation Payout Validation
Sales Growth Return on Capital Debt Levels Price / Book Dividend Yield Stock Performance
Cash Flow Growth Profit Margins Interest Coverage Price / Sales Payout Ratio Stock Volatility
Earnings Growth - - Price / Cash Flow Dividend Growth -
Earnings Revisions - - Price Earnings Earning Quality -
- - - EV / EBITDA Payout Sustainability -

GPS helps investors access the full breadth of the target dividend stock universe and allows them to capitalize on different market growth cycles. Guardian believes this should lead to superior risk-adjusted returns when compared to traditional dividend strategies, and to the broader stock market.

Horizons ETFs proudly offers four ETFs that use the GPS strategy

ETF Name Ticker Symbol Management Fee*
Horizons Active Emerging Markets Dividend ETF HAJ 0.80%
Horizons Active Cdn Dividend ETF HAL 0.70%
Horizons Active Global Dividend ETF HAZ 0.80%
Horizons Active US Dividend ETF HAU 0.70%

*Plus applicable taxes.

Horizons Actively Managed ETFs

• Experienced Portfolio Management
• Lower Fees
• Higher Income Potential
• Focus on Outperformance

About Guardian Capital LP (www.guardiancapital.com)
Guardian Capital LP is one of Canada’s leading asset managers which has been managing institutional assets since 1962. In partnership with Horizons ETFs, it has successfully implemented its “GPS” approach that focuses on three key fundamental drivers: Growth of dividend payout; payout of cash flow; and sustainability of the payout. Having a portfolio of stocks that offers a combination of these three factors gives Guardian an excellent track record and future in dividend investing.

Download PDF

Share This Article

Official Partner of the Toronto Raptors
 

“Toronto Raptors” and associated word marks and logos are trademarks, designs and other forms of intellectual property of NBA Properties, Inc. and the Toronto Raptors and are used under licence (or with permission) by Maple Leaf Sports & Entertainment Partnership © 2017 NBA Properties, Inc. All rights reserved.

Horizons ETFs is a Member of Mirae Asset Global Investments. Commissions, management fees and expenses all may be associated with an investment in exchange traded products managed by Horizons ETFs Management (Canada) Inc. (the "Horizons Exchange Traded Products"). The Horizons Exchange Traded Products are not guaranteed, their values change frequently and past performance may not be repeated. The prospectus contains important detailed information about the Horizons Exchange Traded Products. Please read the relevant prospectus before investing.

The Horizons Exchange Traded Products consist of the Horizons Index ETFs ("Index ETFs"), 2x Daily Bull and -2x Daily Bear ETFs ("2x Daily ETFs"), Inverse ETFs ("Inverse ETFs"), VIX ETFs (defined below) and active ETFs. The 2x Daily ETFs and certain other Horizons Exchange Traded Products use leveraged investment techniques that can magnify gains and losses and may result in greater volatility of returns. These Horizons Exchange Traded Products are subject to leverage risk and may be subject to aggressive investment risk and price volatility risk, which, where applicable, are described in their respective prospectuses. Each 2x Daily ETF seeks a return, before fees and expenses, that is either 200% or -200% of the performance of a specified underlying index, commodity or benchmark (the "Target") for a single day. Each Index ETF or Inverse ETF seeks a return that is 100% or -100%, respectively, of the performance of a Target. Due to the compounding of daily returns, a 2x Daily ETF's or Inverse ETF's returns over periods other than one day will likely differ in amount and possibly direction from the performance of their respective Target(s) for the same period. The Horizons Exchange Traded Products whose Target is the S&P 500 VIX Short-Term Futures Index™ (the "VIX ETFs"), one of which is a 2x Daily ETF and one of which is an Index ETF, as described in their prospectus, are speculative investment tools that are not conventional investments. The VIX ETFs' Target is highly volatile. As a result, the VIX ETFs are not generally viewed as stand-alone long-term investments. Historically, the VIX ETFs' Target has tended to revert to a historical mean. As a result, the performance of the VIX ETFs' Target is expected to be negative over the longer term and neither the VIX ETFs nor their Target are expected to have positive long term performance. Investors should monitor their holdings, as frequently as daily, to ensure that they remain consistent with their investment strategies.

*The indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. The rates of return shown in the table are not intended to reflect future values of the ETF or returns on investment in the ETF. Only the returns for periods of one year or greater are annualized returns.