Canada trumps U.S. on dividend stocks

Analysis shows Canadian income stocks outperform.

March 7, 2013

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Canada US moneyRight now, there is a clear search for yield in the markets. In this vein, it may be informative to explore high-yield dividend equities and their performance in Canada, the U.S. and EAFE (Europe, Asia and the Far East).

In exploring the total return of high dividend equities, we can analyze the MSCI High Dividend Yield index for each region versus the total return of the local indices: S&P/TSX Composite, S&P 500 and the MSCI EAFE index.  The period of December 2000 to December 2012 was used as the period for which all indices were available.

An initial look at the entire period showed that not only was the S&P/TSX Composite the best broad market index, but also that Canadian high-yield dividend producers outperformed the index by an astonishing margin compared to other geographies (Click on image to enlarge):

Jacob_1

Source: MSCI, Factset

In chart 2, we also subdivide the return analysis into periods with positive and negative returns on equities to see whether high-yield dividend stocks produced differing index-relative returns based on the underlying index performance (Click on image to enlarge):

Jacob 2

Source: Factset

To see how income-generating equities have returned relative to the broad market, we show the excess return of high dividend stocks in chart 3.  Excess returns of dividend stocks over different sub-periods reveal that MSCI High Dividend indices in the U.S. were relatively comparable to Canada and EAFE in the first period of Dec 2000 to Sep 2002, but in the following 10 years, provided marginal added value versus the broad market index.  Canada and EAFE High Dividend indices both outperformed significantly in the bull markets of 2002 – 2007 and 2009 – 2012, while also underperforming in the liquidity crisis of 2007 – 2009:

Jacob 3

Source: MSCI

The return data begs the question as to why the U.S. experience has been so different and why income-generating stocks in Canada have outperformed. In the next article, we will address these questions to see whether these trends are sustainable.

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