The Dividend Growth Index is a fun project created by Mike over at The Dividend Guy. The Index is comprised of 8 dividend growth bloggers selecting 3 stocks each, for a total of 24 dividend paying companies in the Index. My three selections for the Index are:
Like I’ve mentioned in previous updates, these selections are not recommendations for purchase although I must disclose I own these companies. While I don’t expect these companies to clobber the market in the short-term I do expect these companies to perform well over time while providing me with passive dividend income and in some cases, tax-free income.
Let’s recap what these companies do and what their performance has been lately. The screenshots below are courtesy of TMX.
Abbott Laboratories (ABT:US)
In the healthcare sector, Abbott is a major player. Abbott is one of the largest organizations in the world engaged in the discovery, development, manufacture, and sale of diversified health care products. As you can see from the chart above, ABT stock price has been on a steady climb. I suspect this has happened because later this year, Abbott will spin-off its pharmaceutical business into a separate publicly traded company called AbbVie [pronounced Abb-vee]. AbbVie will take over Abbott’s current portfolio of pharmaceuticals and biologics. Abbott’s reorganization hasn’t been cheap since costs have shaved earnings since the beginning of the year but I believe this is a temporary issue.
On September 13th, Abbott’s Board of Directors declared the company’s 355th consecutive quarterly dividend will be paid on October 15th. I wouldn’t be surprised if the dividend gets bumped to a few cents from the current $0.51 USD before the end of the year, even with the spin-off.
Bank of Nova Scotia (BNS)
What can I say about BNS other than it’s a great stock? Because a banks’ prime objective is to make money, by owning a bank that pays a steady dividend that means you will too. Bank of Nova Scotia has paid a dividend since, get this, 1832 and it continues to do so. Scotiabank is one of North America’s premier financial institutions and arguably Canada’s most international bank, with operations in more than 45 countries outside the Great White North.
This past summer, as part of August 2012 earnings week, Bank of Nova Scotia along with its peers decided to dole out more dividends. Scotiabank increased its dividend from $0.55 to $0.57 CDN. It now sports a healthy yield of over 4% with a dividend payout ratio under 50%. I welcomed BNS to my portfolio a couple of years ago.
CML HealthCare (CLC)
Now to my wildcard pick, for the Dividend Growth Index and for my portfolio! CML HealthCare (CLC) is a small company with respect to market capitalization (less than $800 million) and highly volatile. Although CML HealthCare is an integral player in our Canadian healthcare space, I would argue as a shareholder this company is not as predictable as the essential services it provides. As the leading medical diagnostics provider in Canada with more than 100 sites across Ontario and British Columbia to serve patients, testing in biochemistry, hematology, immunology, urinalysis and diagnostic procedures as electrocardiograms should provide predictable income for investors.
For now, the dividend remains intact but the falling share price and modest earnings per share metric are challenging the current payment amount. You’ll notice from the chart above, CLC is well off the 52-week high of $11 per share and it is struggling to sustain 8% plus yield. This yield is certainly well within if not above a danger zone for shareholders, with the dividend payout ratio effectively 100% of earnings. I will continue to hold CLC for a little while longer since I believe in the organization’s services and mandate, as part of our healthcare system and because CLC net income is moving in the right direction after a couple of tough years. I expect CLC will continue its restructuring plan over the next couple of years, focusing on elements of its core services and reward shareholders accordingly.
How have the holdings in the Dividend Growth Index performed?
In order to make a decent comparison, we have to consider that (15 out of 24 stocks) are from the U.S. and the rest are Canadian. If we consider the stock market as a whole, we can compare our dividend growth index to SPY (Tracking the S&P 500) + XIU (Tracking the TSX60). Here are the results:
Dividend Growth Index: 22.2% since inception (Sept 30th 2011) / 5.7% year to date
XIU: 8.68% since inception / 5.39% year to date
SPY: 29.93% since inception / 16.43% year to date
No doubt U.S. stocks (S&P 500 stocks) have had a nice recovery year to date and the large blue-chip stocks haven’t but rather have buoyed this recovery. Maybe this goes to show you that many dividend stocks could be expected to be outpaced by many other companies in a “bull market” however these stocks give you the defensive stance you are looking for in a “bear market”.
How have my holdings in the Index performed?
Abbott (ABT:US): 38.7% since inception (Sept 30th 2011) / 23.9% year to date
Bank of Nova Scotia (BNS): 6.6% since inception / 7.8% year to date
CML Healthcare (CLC): 2.2% since inception / -2.9% year to date
You can read about the other participant picks by clicking on their name below:
For more reading about the Dividend Growth Index check out this recent post and these articles:
Introducing the Dividend Growth Index
My Own Advisor’s Three Picks for the Dividend Growth Index
Dividend Growth Index Q1 Results
Dividend Growth Index Q1 2012 Update
Dividend Growth Index Q2 2012 Update
What do you make of this Index and its performance?
No sweat. I’ve held it for a few years, the stock is volatile if you’re willing to hang on for the ride 🙂
Have a great weekend!
Given the markets I think you are doing quite well. I have been amazed at the growth of Scotia bank the last few years – not just on the markets either. It seems everywhere I go these days they are the corporate bank for X company. They sure have expanded their business.