Dividend Report Card: Solid, Not Perfect

08/10/2012 9:45 am EST


John Heinzl

Reporter and Columnist, GlobeInvestor.com

Remember that dividend investing is a long-term commitment—a marathon, not a sprint, writes John Heinzl, reporter and columnist for Globe Investor.

In September, Yield Hog will celebrate its first birthday. But with most people either watching the Olympics or away at the cottage, we thought now would be a safe time to look back at how our picks and pans have performed.

Actually, it wasn't that bad. Many of the stocks we recommended have risen in price, and some of those we suggested you avoid have tumbled. But a few stocks have gone nowhere, or worse, done the opposite of what we expected. That's OK. Dividend investing is a long-term commitment—a marathon, if you will, not a 100-meter sprint.

Still, we couldn't resist taking a peek at how we've been doing so far. What follows is a sample of the stocks we've written about, not an exhaustive list. For reference, we've also included the date the article appeared.

Telus (Toronto: T)
Price then: $50.64
Price now: $64.49

We quoted a portfolio manager who spoke glowingly about Telus's strong management, good balance sheet, fast-growing Optik TV business, and exemplary dividend growth record. Since then, the company has raised its dividend yet again—the third increase in less than a year—and the stock is up 27%.

McDonald's (MCD)
Price then: $89.34
Price now: $89.01

We cited Mickey D's 35-year record of dividend increases, expansion opportunities in emerging markets, and double-digit earnings growth as reasons to take a bite of the burger chain. Since then, however, the stock has lost its sizzle after same-store sales growth was slightly weaker than expected.

Still, we'll bet you a Big Mac and fries that McDonald's raises its dividend again in September, and the September after that, and the September after that...

Inter Pipeline (Toronto: IPL.UN)
Price then: $16.24
Price now: $21.12

The great thing about Inter Pipeline is that it's an "energy play without energy price risk," we said. We cited growing volumes on its oil sands pipelines, strong margins in its natural gas liquids extraction business, and growth in its petroleum storage division as reasons to own the stock, which is up 30% since then, excluding dividends. If only they all worked out so well.

SNC Lavalin (Toronto: SNC)
Price then: $50.23
Price now: $37.76

We highlighted SNC Lavalin as one of five "top dividend stocks for 2012," which may go down as our worst call ever. The wealth management firm that recommended the engineering and construction giant cited its growing order backlog, rising dividend, and conservative payout ratio.

What nobody foresaw was the bribery scandal that cost the CEO his job and sent the stock down about 25%. Stocks like SNC are a reminder of why diversification matters.

Enbridge (ENB)
Price then: $36.12
Price now: $40

Calling Enbridge a "pipeline to profits," we said investors could expect rising dividends for many years as the company reaps the rewards of about $11 billion in spending between 2010 and 2015.

Not everything is going smoothly for Enbridge—it has been beset by pipeline leaks and opposition to its Northern Gateway project—but you wouldn't know it from the stock price.

TransAlta (Toronto: TA)
Price then: $18.90
Price now: $15.38

We warned investors that TransAlta's high yield (6% at the time) reflected above-average risk, both from potential penalties tied to the shutdown of two units at its Sundance coal-fired generating station in Alberta and falling profits at its Centralia coal-fired plant in Washington state. Sure enough, the stock has since plunged, and the yield has jumped to 7.5%.

AGF Management (Toronto: AGF)
Price then: $14.25
Price now: $11.55

AGF is another stock whose outsized yield (7.6% at the time) was a red flag, we said. The company had been suffering net redemptions from its mutual funds for years, and the loss of star portfolio manager Patricia Perez-Coutts would only make things worse, we said. The stock is down 19% since then, excluding dividends.

Rogers Communications (RCI)
Price then: $36.61
Price now: $40.21

We said Rogers had a "nice dividend" but a "risky stock price," reflecting rising competition in its wireless and cable divisions. But Rogers managed to beat analyst expectations in the second quarter, thanks in part to cost-cutting and the lack of any heavily-subsidized major device launches. Recently the stock has been on a roll, even though analysts say the second half of the year will be tougher.

Hershey (HSY)
Price then: $67.94
Price now: $71.62

Being lactose intolerant, we don't get to eat a lot of chocolate. But we thought Hershey's stock looked sweet, given its 30% US market share, strong pricing power, powerful brands, and great dividend growth record. Our main concern was that the stock wasn't cheap, but that hasn't held it back.
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