As warm and cuddly and comforting as are dividends, the subject or investment approach can lead to some lively debates. Many will write (or build podcasts on the subject) that dividends simply don’t matter.

On that, here’s a measured response from Mike at The Dividend Guy blog. Please have a read of Should I Go With Dividend Growth Investing or ETFs. An Answer To Ben Felix. Of course many dividend and dividend growth investors will simply reference or pull out the Ned Davis research on S&P 500 constituents.

I like the evidence from the Dividend Aristocrats (NOBL) in the US and Canada (CDZ) that both have greater total returns compared to broad market funds through the last market cycle. There is a longer history of outperformance to observe in the US market with those Aristocrats that insist on at least 25 years of annual dividend increases. The threshold for a Canadian Aristocrat is 5 years of dividend increases.

All said, I will leave it to you to decide if dividends matter: to you. Given that nothing is more important than investor behaviour, if watching the dividends is a very useful distraction and those dividend payments allow you to stick to your plan, then they are more than worth the dollar value that shows up in your discount brokerage account.

And for the record I do think or know that the benefits of dividend growth investing do move beyond the emotional and behavioural and into the math and the types of companies that can be found by way of a meaningful dividend growth history. Even Ben Felix will admit that it can help us find certain types of companies and investment factors.

Canadian investors need help!

Let’s face it, the Canadian market is not well diversified. I would often state to clients that Canada makes for a terrible investment. The Canadian market is concentrated in financials and energy and commodity related sectors.

From iShares XIC, TSX capped composite.

The Canadian investor needs the sector and geographic diversification offered by the US and perhaps International markets. Here’s the sector breakdown of the S&P 500, by way of iShares IVV.

The basic principle of the need for added diversification holds true whether a Canadian investor embraces core index funds or dividend focused funds. How much you add by way of International exposure is certainly a personal decision. I am of the opinion that you might go light on that front given that the large and mega cap US companies earn a considerable percentage of their profits overseas. That said, in a recent CTCI investing post I suggested you might also look to developing markets where there is greater growth and growth potential.

Canadian Dividend ETFs

For my Canadian allocation in my personal RRSP account I hold a concentrated portfolio of individual bank stocks, plus pipelines and telcos. I do not expose my wife’s personal RRSP account to that concentration risk: we hold Vanguard’s High Dividend Yield ETF, ticker VDY. That is the core holding. Here is the sector breakdown for the VDY fund. Continue Reading…