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



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.

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