The key downside to owning any dividend paying equity right now is a risk of a dividend cut or suspension. In Canada, these risks are elevated due to a proportionally higher weighting of commodities such as oil and gas, and energy in general, as well as financials.
Laurentian Bank (TSX:LB) recently cut its dividend, the first such move by any significant Canadian lender in nearly three decades; the bank’s move exemplifies my point.
That said, in spite of the uncertainty around current dividend payout, I am going to discuss why focusing on companies that have historically raised their dividends in the past is a preferable strategy right now.
In particular, I am going to use the Vanguard Dividend Appreciation ETF (NYSE:VIG) as a proxy for this group. This is because this Exchange Traded Fund (ETF) tracks a broader array of companies in a more diversified way via its U.S. exposure.
This ETF takes a multifaceted approach to picking companies not only with a historical track record of dividend increases, but those that are assessed as most likely to increase their dividend moving forward.
The model used by this ETF is one I think provides investors with an extremely high level of value for the management expense ratio (MER) charged, and therefore is a great bang for one’s buck today. In many ways, I prefer this ETF to most of the actively managed funds, and I do expect this fund to outperform other income-oriented ETFs over the long-term.
Invest wisely, my friends.
