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Investment strategy
July 11, 2021

Learning to appreciate dividends again

July 11, 2021
David Bailin
Chief Investment Officer & Head of Investments
Steven Wieting
Chief Investment Strategist & Chief Economist
SUMMARY

Expectations of a strong economic recovery have been priced into most financial markets. While the strongest annual returns for this new economic cycle may be behind us, we believe fresh dividend growth and investment opportunities lie ahead.

  • US economists are no longer raising forecasts given that 2021’s GDP growth rate to June averages 7%. This is in no way a bearish view on the future, but it does speak to a new reality for investors and their portfolios.
  • We are returning rapidly to a new normal. We expect growth to moderate further as peaking demand for consumer goods and the end of inventory replenishment are upon us. But we also note that the pandemic is not over yet.
  • We think that most investors and market prognosticators undervalue dividends and the role they play in determining total investor returns.
  • Given that the 38% return for global equities is behind us, we have reduced weightings to some cyclical assets and are beginning to shift portfolios towards higher quality assets. One way to convince investors of a company’s growth prospects is growth in cash distributions.
  • Growth in dividends is consistent with management activities that are focused on the long-term health and competitive position of these companies. A firm’s capacity to grow dividends demonstrates their fortitude and commitment to shareholders.
  • Cash generators have beaten the S&P 500 return by 60 percentage points over the past 30 years.
CIO Strategy Bulletin (PDF 783.38 KB)

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