May 03, 2016

Energy + Dividends = Do They Add Up?

For years the energy sector offered the best of all worlds, stocks and dividends were both going up on the merits of rising commodity prices. Unfortunately the downturn in commodity prices have had adverse effects on not only the share prices, but the income reliability as well. As investors turn to their portfolios for income, we discuss why dividends are an important attribute of any investment.

As investors turn to their portfolios for income, dividends become an important attribute of any investment. For years the energy sector offered the best of all worlds, stocks and dividends were both going up on the merits of rising commodity prices. Unfortunately, the downturn in commodity prices have had adverse effects on not only the share prices, but the income reliability as well. I had our friends at Scotiabank run a report on the energy and energy services stocks they follow. 91% of the universe were dividend paying stocks in 2014. Over the last year, 23% eliminated their dividend, 51% cut their dividend, while 17% maintained their dividend and only 9% were able to offer investors a pay increase through higher dividends.

At CWB McLean & Partners, our disciplined investment approach leads us to own dividend-paying stocks in a variety of sectors, and regions of the world. But in keeping our comparisons to Canada, I reflect on the holdings in our Canadian Dividend Growth Pool. We hold no stocks which eliminated their dividends and only 4% cut their dividends. 15% kept their dividends the same, and 81% increased their dividends in the last 12 months. When we include all the holdings in the pool, the average dividend increase was 10.4%, more than twice the TSX index’s average.

   Energy & Energy Service Stocks  CWB M&P Canadian Dividend Growth Stocks
 Eliminated the dividend  23%  0%
 Cut the dividend  51%  4%
 Kept the dividend  17%  15%
 Increase the dividend  9%  81%

Source: Scotiabank/Bloomberg/April 2016

If you are an energy weighted investor who has yet to explore the benefits of sector diversification in terms of more reliable income and less volatility, we invite you to learn more.