The Only Investing Constant is Dividends: The Foundation to Wealth Creation
Throughout history, dividends from mature companies have provided superior performance in both good and
bad markets. It was dividend paying companies that investors moved into after the 1929 crash, and throughout
the 1940s, 1950, and 1960s- dividends were seen as safe havens that provide capital protection and a steady
stream of income. One of the most defining and comprehensive studies examining this subject was conducted
by Ned Davis research, incorporating data reaching back to 1871. Overall findings were that approximately 50%
of the total returns of investing are attributable to the dividend portion alone.
Recently, in particular since 2008, many investors have once again witnessed the compelling benefits of owning
dividend growing companies over growth companies and mutual funds. Yes, history has shown time and time
again that the only constant in investing is dividends.
One of the primary and most significant lessons of the last decade is that most non-dividend growing
approaches have painfully failed investors. Traditional approaches that were considered sound faltered
immensely. For example, investors following the buy and hold mantra who stayed the course from 2000
through 2009 booked losses, that for many directly impacted their lifestyle and retirement plans in an adverse
way. Index investing, a buzz word in the industry for many years now and a very popular investment approach
embraced by many, devastated investors in both the 2001 and 2008-2009 downturns as investors lost
anywhere between 30-70% of their investments. Today, many investors are backing away and becoming less
trusting of these conventional approaches and are going back to what has historically proven to be a more
consistent and steady approach that garners superior investment results - investing in dividend growing
companies.
The evidence is clearer now than ever before that dividend paying, and in particular dividend companies that
are increasingly growing their dividends due to increased earnings, should be the foundation on which to build
wealth and retirement income.
Times and tax laws may change, however the fundamentals of dividend investing have remained the same over
the last 100 plus years.
THE DIVIDEND WAY - OUR PROPRIETY APPROACH TO SUPERIOR INCOME AND RETURNS
Study upon study have consistently proven that dividend growth investing, an approach that has been utilized
from the beginning of stock market investing, has outperformed virtually all of today's popular investing styles
and approaches, including growth, value and momentum investing, mutual funds and index investing.
Registered trademark of The Bank of Nova Scotia, used under licence. ™Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services
provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust ®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management
U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod ®, a division of Scotia Capital Inc. Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of Scotia Capital Inc.
Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
®
The Only Investing Constant is Dividends: The Foundation to Wealth Creation
IN THE BEGINNING
Approximately 10 years ago, I set out to develop my own proprietary investment methodology due to my
dissatisfaction with investment results at the time. My purpose was to identify the best dividend growing
companies with the inherent characteristics of managing portfolio risk while maximizing income and total
investment returns. I started by evaluating the common characteristics that comprised some of the world's
best performing companies over the last 100 years. Eventually, I reached the conclusion that companies that
experienced tremendous investment returns over 10, 25 and 50 years and beyond all shared the same common
theme: they were generally mature companies with the ability to grow their annual earnings on a consistent
basis over time, while increasing their dividends to shareholders at a pace surpassing the prevailing inflation
rate along the way.
In 2006, I confidently launched The Dividend Way. This is my signature phrase and represents my disciplined
mode of thinking and strict adherence to a certain way of investing. Since the original release, I have not
altered the model or approach in any way, and more than ever before, remain steadfast that this time-tested
and proven approach is superior to all others. The Dividend Way model has surpassed all of its expectations
over the years, namely providing downside principal protection and sustainable and increasing income, while
generating outstanding portfolio returns. According to the back testing results, The Dividend Way model
achieved significantly higher returns than the market with substantially lower volatility.
SCREENING AND METRICS-THE SCIENCE
One of the most important pieces of my model is that the financial data I utilize is of the utmost integrity and
accuracy. To achieve this, I hired one of North America's most prominent and well-respected data providers of
independent equity research- Computerized Portfolio Management Services (CPMS). CPMS provides
quantitative equity research and portfolio analysis of the highest order to institutional clients worldwide but is
not in the business of promoting investment products. CPMS covers more than 95% of the investable North
American stock market.
Covering more than 95% of investable North American stock market, CPMS standardizes company financial
data by combing through financial reports and statements, eliminating exceptions and accounting irregularities
in order to establish fair comparisons amongst companies. I adhere to a strict rule-based methodology in both
buying and selling companies, namely employing 10 investment filters with different degrees of importance to
screen and rank the best dividend companies poised for long-term growth. I have the ability to rank the largest
North America's stocks based on the following metrics:
1. Trailing P/E Ratio- Measures the price paid for each dollar of earnings. Low numbers indicate better value
2. Quarterly Earnings Momentum-We look for companies with accelerating earnings from the prior quarter.
3. Earnings Surprise- Look for companies that are beating the analysts' expectations for the quarter.
Registered trademark of The Bank of Nova Scotia, used under licence. ™Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services
provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust ®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management
U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod ®, a division of Scotia Capital Inc. Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of Scotia Capital Inc.
Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
®
The Only Investing Constant is Dividends: The Foundation to Wealth Creation
4. Estimate Revisions- Searching for companies who have revised their expected earnings upward for the
quarter.
5. Annual Dividend Momentum- Searching for companies that have been increasing their dividends over the
past year.
6. Dividend Yield- Searching for companies that have a minimum 2% dividend given to their shareholders.
7. Beta- Measures the volatility of the company against the index. Searching for a beta of 1 or less.
8. Trailing Payout Ratio-Searching for companies that payout no more than 60% of free cash flow.
9. Price Change for the Last 9 Months- Looking at how the stock price has changed.
10. Average Monthly Value Traded Last Year- Looking for companies who have sufficient volume of trading in
order to buy and sell without disrupting market price.
SCREENING ELIMINATES EMOTIONAL DECISION MAKING - THE DEATH KNELL OF RETURNS
Following this tested methodology ensures that investment decisions are based on the pure fundamentals of a
company, not one's emotionally-driven investment decisions that usually generate inferior investor results.
One of the reasons why so many investors experience lacklustre returns is that they are usually following the
prevailing sentiments of the markets; that is, they wait to buy when the markets are high and sell when the
markets are experiencing periods of decline. Not being a contrarian and relying on one’s emotional state of
risk, or relying on advice from the media, has sadly diminished the returns and eroded the retirement lifestyles
of so many investors.
To learn more about The Dividend Growth Way or to discuss any of the above information please contact Gene
Giordano at (416) 355-6371 or [email protected].
Registered trademark of The Bank of Nova Scotia, used under licence. ™Trademark of The Bank of Nova Scotia, used under licence. Scotia Wealth Management™ consists of a range of financial services
provided by The Bank of Nova Scotia (Scotiabank®); The Bank of Nova Scotia Trust Company (Scotiatrust ®); Private Investment Counsel, a service of 1832 Asset Management L.P.; 1832 Asset Management
U.S. Inc.; Scotia Wealth Insurance Services Inc.; and ScotiaMcLeod ®, a division of Scotia Capital Inc. Wealth advisory and brokerage services are provided by ScotiaMcLeod, a division of Scotia Capital Inc.
Scotia Capital Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.
®