Today, we will review SIA’s approach to dividend income investing and highlight key differences compared to mainstream methods. Our goal is to illustrate the potential performance gap or opportunity cost of a typical methodology versus one based on an SIA intelligence screen. Conventional wisdom suggests defining income goals, such as for retirement or living expenses, and establishing risk tolerance to balance income generation with portfolio stability. A common strategy is focusing on companies with a history of dividend growth, indicating financial health and helping keep pace with inflation. Finally, consider the payout ratio, the percentage of earnings paid as dividends. While high payout ratios may offer attractive yields, they can be risky if earnings decline, as the company may overextend itself. While this approach to investing is sound, it exposes investors to market risks, such as negatively performing securities that erode income yields, ultimately undermining an otherwise risk-averse portfolio. This scenario, known as a dividend yield trap, occurs when a stock’s high yield is unsustainable due to financial instability or a declining stock price. The traditional wisdom to avoid this risk is to focus on companies with a sustainable payout ratio, consistent dividend growth, and strong financial health. However, this is easier said than done. The powerful SIA platform can enhance dividend strategies, particularly through the use of relative strength analysis. A valuable resource within the SIA platform is the SIA Combined Canadian Dividend Report, available in the reports tab. This comprehensive report combines the SIA S&P/TSX Canadian Dividend Aristocrats Index Report, the SIA S&P/TSX High Dividend Index Report and the SIA Dow Jones Canada Select Dividend Index Report. It compares 131 dividend-paying equities based on their relative strength, ranking them by stock price relative performance rather than yield. SIA’s methodology favors companies in the top 25% of the report, helping identify stocks outperforming their peers or index benchmarks. This outperformance often reflects improving investor expectations for strong company growth or, in the case of income-oriented reports, confidence in the dividend. Consider BCE Inc., with a market cap of $34.8 billion sitting in investment accounts but down by $7.8 billion given its 22.35% decline year-to-date. Given this, it’s clear that many investors might prefer a better method for selecting dividend payers. SIA's "high relative strength only" approach to identifying dividend payers remains consistent across equity exposure through ETFs, mutual funds, individual equities, or dividend-paying stocks. By allowing the efficient market to determine quality and adhering to rules-based methods, advisors can avoid biased, gut-feeling analysis.
Looking at BCE specifically, it has consistently ranked at the bottom of the SIA Combined Canadian Dividend Report. This can be seen in the first matrix position chart, where BCE’s share price has never exceeded the yellow zone, only briefly doing so in the past three years. In the second chart, a point-and-figure chart overlaid with its matrix position shows BCE shares have been unfavored (red) since 2016 and sporadically favored in 2014-2015. To further support this underperformance, we have attached a clipping of all the reports in which BCE is included, showing it is consistently unfavored across all SIA reports. For those aiming to improve their dividend investing skills, we have provided a table listing all dividend-paying stocks in Canada with a yield of over 3.50%. The current yields are highlighted in yellow, while the first column shows the SIA Relative Strength rank, with BCE positioned at number 130. Despite having a 10.49% yield, BCE shares are down -22.35% YTD. By focusing on the green-ranked stocks, you might find alternatives with better performance, such as: Fiera Capital (#9, 8.96% yield, +75.68% YTD), Peyto Exploration (#29, 8.03% yield, +48.07% YTD), TC Energy (5.63% yield, +52.33% YTD), Sienna Living (5.6% yield, +54.14% YTD). The list continues, and we encourage you to explore it further. Stocks in the favored zone of the report, highlighted in moss green, offer great yields alongside strong relative strength.
We hope this addition enhances your dividend portfolio strategy, helping you provide higher income for clients beyond the traditional workflow. Our innovative solutions are designed to save time and improve efficiency. With objective, actionable, and rules-based tools, advisors receive timely insights to adapt to market shifts, attract new clients, and support AUM income and growth.
Disclaimer: SIACharts Inc. specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment whatsoever. This information has been prepared without regard to any particular investors investment objectives, financial situation, and needs. None of the information contained in this document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. As such, advisors and their clients should not act on any recommendation (express or implied) or information in this report without obtaining specific advice in relation to their accounts and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. SIACharts Inc. nor its third party content providers make any representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein and shall not be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon. Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.
