You can hardly go wrong with dividend stocks these days.
Even less-favored names are producing solid or better returns. If you're a dividend enthusiast, you should be wondering how long this run of success can continue.
Almost a year ago, I asked the Dividend Advisor newsletter for a list of 10 stocks it recommends and 10 stocks it did not recommend. The recommended stocks were updated in a recent column, and the overall performance was very good. Now for the stocks that didn't get the nod from this newsletter. Though there are some reasons for caution about some of these stocks, the overall performance was extremely good.
The 10 stocks on this list are Empire Co. (EMP.A-T), Rogers Communications (RCI.B-T), Consolidated Edison Holdings (ED-N), Capital Power (CPX-T), EnerCare Inc. (ECI-T), Corus Entertainment (CJR.B-T), Ten Peaks Coffee Co. (TPK-T), A&W Revenue Royalties (AW.UN-T), Student Transportation (STB-T) and Exchange Income Corp. (EIF-T). On average, the price gain over the past 12 months for this group was 11.3 per cent. The recommended dividend stocks averaged 7.9 per cent for the 12 months to Oct. 25.
Dividend Advisor uses an eight-point process to develop its Dividend Sustainability Ratings for stocks. Companies recommended by the newsletter may not be flashy, but they do show signs of being reliable producers of dividend income. Globeinvestor.com data shows that four of the stocks in the not-recommended list didn't increase their payout. The others all posted small increases ranging from 2.3 to 7.1 per cent.
So why did the not recommended stocks outperform?
One explanation is that the overall stock market has picked up in the past year and investors seem more willing to branch away from big blue chip stocks. Another is in the hunger for yield. The average yield for the not recommended group was 5.2 per cent, compared to 4.3 per cent for the recommended stocks.
Higher yields means higher risk. Let's hope investors buying companies with less sustainable dividends are keeping this in mind. After a long bull market for dividend stocks, it pays to picky about what you buy.
Rob Carrick