Last week in the Equity Leaders Weekly, we examined the REIT sector and how REIT’s have performed given it can provide an income paying component to investment portfolios. For this week’s edition of the Equity Leaders Weekly, we are going to look at how the dividend paying equity ETFs have performed as investors continue to seek income as an important requirement in their portfolio mandates. The low interest rate environment is not only driving up real estate prices but they are also boosting up the stock market. The Canadian Dividend and Income Equity Sector ranks at the top of the Sector/Category list within the Canadian Equity Asset Class in our Asset Class Ranking list.
Dividend paying stocks have increasingly become very popular among investors as many people are finding fewer alternatives for income. GIC’s provide little returns while bank accounts pay practically nothing in terms of savings rates. As such, investors are now looking at the dividend paying equities to get a rate of return that meets their income criteria. With the increasing population of “Baby Boomers” reaching retirement age (or already in retirement), it is only fueling the thirst for income paying equities. Let’s examine both the iShares S&P/TSX Cdn Dividend Aristocrats Index ETF (CDZ.TO) and the SPDR S&P Dividend ETF (SDY) to see how dividend paying equities have performed on both sides of the border.
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ.TO)
The iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ.TO) is designed to replicate, to the extent possible, the performance of the S&P/TSX Cdn Dividend Aristocrats Index, net of expenses. The index is designed to measure the performance of constituents of the S&P Canada Broad Market that have followed a policy of consistently increasing dividends every year for at least five years. In looking at the attached chart, you can see this ETF has been in steady uptrend from May 2009 to July 2015. We did however see a pullback materialize from July 2015 up until March of this past year. A new column of X’s has now formed and we are quickly approaching new all-time highs which was achieved back in July of last year.
Resistance is found above at the all-time high near $26.35. Support can be found at $23.40 and, below that, the $19.97 level. With the increase in investors seeking dividend yield to contribute to meaningful returns and the lack of any other alternatives for reasonable yield, it will be interesting to see if CDZ.TO can break above it’s previous highs. With an SMAX score of 8 out of 10, CDZ.TO continues to show near term strength against most asset classes.
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SPDR S&P Dividend ETF (SDY)
Now let’s draw our attention to the chart of the SPDR S&P Dividend ETF (SDY). The SPDR S&P Dividend ETF tracks the S&P High Yield Dividend Aristocrats Index composed of companies within the S&P Composite 1500 that have followed a managed dividend policy of consistently increasing dividends every year for at least 20 years. The attached chart shows that SDY has recently broke its previous resistance point at the $83.48. In fact, it has reached a new all-time high. It has also been in a long term steady uptrend since 2009. The next level of resistance is now at the $90.00 level. Support can be found around the area of $79.15 to $77.60. Further support can be found below that at $68.90.
With an SMAX score of 10 out of 10, it is showing near term strength against all asset classes. You may want to keep an eye on SDY to see how long this new uptrend can remain intact going forward with the “flock to income” theme which has taken place for the past several years.
For a more in-depth analysis on the relative strength of the equity markets, bonds, commodities, currencies, etc. or for more information on SIACharts.com, you can contact our customer support at 1-877-668-1332 or at siateam@siacharts.com.
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