It’s an often overlooked fact that, historically, dividends make up about a quarter to a third of annual equity returns.

It’s an overlooked fact lately because price returns have been so go-go over the 15 months or so.

But, with interest rates remaining low and equity price returns expected to moderate, dividends are taking on increased importance, according to a recent report by the CIBC Equity Research team.

Here are a few excerpts hi-lighting the sectors and companies that have been consistently growing their dividends the last 10-15 years.


Our Conclusion

Dividends are likely to take on increased importance as equity returns moderate.

In the long term, dividends have typically made up one quarter to one third of annual equity returns, though they have been dwarfed by price returns in recent years.

With the current low interest rate environment, we expect dividends to become increasingly relevant for investors.

The “quality” of S&P/TSX dividends has improved meaningfully. Today, over 70% of total dividends are from more stable sectors compared to 54% in the early 1990s.

Furthermore, the yield advantage of Canadian equities over U.S. equities is the largest it has been in over three decades. This argues for Canadian equities over U.S. equities.

Key Points

Our analysis is largely based on proprietary data on the history of dividends for the S&P/TSX over the past 30 years.

In addition, we have audited 15 years of individual company dividend cuts and hikes. S&P/TSX dividends appear to be more resilient than in the past.

Today, roughly one third of S&P/TSX members have a five-year track record of consistent dividend increases compared to 20% in the early 2000s.

Furthermore, Financials, Utilities, Telecoms and Pipelines (which have a better track record of maintaining dividends) today represent a high proportion of all index dividends.

On average over the past three decades, the yield on the S&P 500 has been 86% of that offered by the S&P/TSX; today that ratio is at an extreme of 51%.

We include a list of Canadian “Dividend Dynasties” – companies that have increased their dividends more than 10 times over the past decade.

On average, these companies have doubled the S&P/TSX total returns with over 85% outperforming the broad benchmark.

It is useful to consider the specific securities which we can only describe as “Dividend Dynasties.”

These companies have had more than 10 dividend increases, and have not cut their dividend, over the past decade.

By and large, the stocks have produced strong compounded growth in dividends.

We show these companies in the table in Exhibit 13 ranked by number of increases, and we also include compounded annual increase, average and median annual increases.

We also show their total returns over the period.

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