Despite the rising tensions in North Africa and the Middle East, North American equity markets have continued to perform well during the early months of 2011, picking up where they left off in late 2010. Economies in the developed world are continuing to deliver steady growth, resulting in improved performance for a great many publicly traded companies. The greatest beneficiaries during this early stage of the improving economic cycle have been the resource commodity stocks, particularly in base metals and oil.
As corporate fundamentals improve, we are witnessing several dividend increases across the spectrum of companies that we are invested in. Dividends are an important component of the total returns generated for investors over the long run, and should not be regarded lightly. In addition to their simple cash return, rising dividend payouts also signal management’s and boards of director’s growing confidence in the outlook for corporate fundamentals.
To date this year, Imperial Oil, Canadian National Railways, Shopper’s Drug Mart, and TransCanada Pipelines have all announced increases, while Cisco and MacDonald Dettwiler are initiating dividend payouts for the first time. Conspicuously absent from this list are the Canadian banks and other financial services firms, which historically have been good dividend payers and steady increasers. They have been holding back, as they wait for clarity on the level of required equity capital that they will have to retain in their businesses under newly formed international standards. Unlike their American and international peers, no major Canadian bank cut its dividend during the financial crisis of 2008-2009. While they have held their dividends steady over the past two years, we expect that within the foreseeable future, they will once again increase their dividend rates.
March 2011
Despite the rising tensions in North Africa and the Middle East, North American equity markets have continued to perform well during the early months of 2011, picking up where they left off in late 2010. Economies in the developed world are continuing to deliver steady growth, resulting in improved performance for a great many publicly traded companies. The greatest beneficiaries during this early stage of the improving economic cycle have been the resource commodity stocks, particularly in base metals and oil.
As corporate fundamentals improve, we are witnessing several dividend increases across the spectrum of companies that we are invested in. Dividends are an important component of the total returns generated for investors over the long run, and should not be regarded lightly. In addition to their simple cash return, rising dividend payouts also signal management’s and boards of director’s growing confidence in the outlook for corporate fundamentals.
To date this year, Imperial Oil, Canadian National Railways, Shopper’s Drug Mart, and TransCanada Pipelines have all announced increases, while Cisco and MacDonald Dettwiler are initiating dividend payouts for the first time. Conspicuously absent from this list are the Canadian banks and other financial services firms, which historically have been good dividend payers and steady increasers. They have been holding back, as they wait for clarity on the level of required equity capital that they will have to retain in their businesses under newly formed international standards. Unlike their American and international peers, no major Canadian bank cut its dividend during the financial crisis of 2008-2009. While they have held their dividends steady over the past two years, we expect that within the foreseeable future, they will once again increase their dividend rates.