The power of dividend payers in down markets | Capital Group Canada | Insights

Insights

VIDEOS  |  MARCH 2020

The power of dividend payers in down markets

Featured video from our 2019 Forum: Equity investment director Dale Hanks discusses how the tangibility of dividends becomes more valuable during tough times.

 

Dale Hanks: In a bear market, time horizons compress and it becomes, "What have you done for me lately?" So what's a matter of indifference in the bull market environment is “Well, it doesn't matter if the company pays a dividend because they're going to continue to generate the growth.”

But in a bear market, the tangibility of that return, a component of your return, that's kind of cash in hand, becomes more valuable and more important.

And it's interesting because we've been studying over the last number of years in many different ways, what companies are really going to be defensive in the next bear market.

And there's a lot of assumptions that can go into that. And I'm not saying that we've got it all figured out, but interestingly enough, what you find out is that traditionally defensive companies are traditionally defensive for a reason.

It's because they typically hold up pretty well when the market is going through tougher times. So when you think about Capital Income Builder, the types of companies that we invest in and in this fund are companies that pay a dividend, that have an above-average yield.

So you're getting, you know more than your average return in a typical stock in the form of a dividend. And then we look explicitly for companies that can grow their dividend over time.

Because that can be a real signal of management commitment, and management ability to generate the earnings and the cash flows in order to sustain a slow and steady investment over the long haul.

And so those are the kinds of companies in Capital Income Builder. Quite honestly, in the last few years, that segment of companies have lagged the broader market, and fairly significantly, you know. Again, we've been in a bull market and time horizons are longer and sentiment is optimistic. The companies in Capital Income Builder haven't done poorly. They just haven't gone up as much as the broader market.

But we've seen some flashes in the fourth quarter of last year. We think that these kinds of companies are the companies that can plow through a slower economic growth environment. And again, in an environment where there's more skepticism than optimism, the tangibility of the dividend becomes more and more important.

 

 

Dale Hanks Equity investment director

Dale Hanks is an equity investment director at Capital Group with 33 years of investment industry experience, all with Capital. He holds a master’s degree in theological ethics from Fuller Theological Seminary and a bachelor’s degree in international political economy from the University of California, Berkeley, graduating with high honors. Dale is based in Los Angeles.


Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Unless otherwise indicated, the investment professionals featured do not manage Capital Group‘s Canadian mutual funds.

References to particular companies or securities, if any, are included for informational or illustrative purposes only and should not be considered as an endorsement by Capital Group. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds or current holdings of any investment funds. These views should not be considered as investment advice nor should they be considered a recommendation to buy or sell.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not be comprehensive or to provide advice. For informational purposes only; not intended to provide tax, legal or financial advice. We assume no liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon. The information contained herein has been supplied without verification by us and may be subject to change. Capital Group funds are available in Canada through registered dealers. For more information, please consult your financial and tax advisors for your individual situation.

Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made herein. We encourage you to consider these and other factors carefully before making any investment decisions and we urge you to avoid placing undue reliance on forward-looking statements.

The S&P 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2019 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.

FTSE source: London Stock Exchange Group plc and its group undertakings (collectively, the "LSE Group"). © LSE Group 2020. FTSE Russell is a trading name of certain of the LSE Group companies. "FTSE®" is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under licence. All rights in the FTSE Russell indices or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indices or data and no party may rely on any indices or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company's express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. The index is unmanaged and cannot be invested in directly.

Bloomberg® is a trademark of Bloomberg Finance L.P. (collectively with its affiliates, "Bloomberg"). Barclays® is a trademark of Barclays Bank Plc (collectively with its affiliates, "Barclays"), used under licence. Neither Bloomberg nor Barclays approves or endorses this material, guarantees the accuracy or completeness of any information herein and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

MSCI does not approve, review or produce reports published on this site, makes no express or implied warranties or representations and is not liable whatsoever for any data represented. You may not redistribute MSCI data or use it as a basis for other indices or investment products.

Capital believes the software and information from FactSet to be reliable. However, Capital cannot be responsible for inaccuracies, incomplete information or updating of the information furnished by FactSet. The information provided in this report is meant to give you an approximate account of the fund/manager's characteristics for the specified date. This information is not indicative of future Capital investment decisions and is not used as part of our investment decision-making process.

Indices are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

All Capital Group trademarks are owned by The Capital Group Companies, Inc. or an affiliated company in Canada, the U.S. and other countries. All other company names mentioned are the property of their respective companies.

Capital Group funds and Capital International Asset Management (Canada), Inc. are part of Capital Group, a global investment management firm originating in Los Angeles, California in 1931. The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

The Capital Group funds offered on this website are available only to Canadian residents.


Related Insights