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July 25, 2022

Dividend Champions: Returns up, risk down

Dividend-paying companies have historically produced higher returns with less risk, and there's nobody better at picking Dividend Champions than our own Michael Simpson.


Why focus on dividends?

Some investments rise sharply based on perceived scarcity or growth potential - think cryptocurrencies or cannabis stocks. However, when investor sentiment changes, they tend to come crashing right back down.

In contrast, dividends represent real money that is being passed on to shareholders. It takes a profitable business to pay a dividend. These companies have the financial strength to endure internal and external shocks. And over time, they have exhibited superior risk/return characteristics.

A history of 9x higher returns

Dividend-paying companies have significantly outperformed the S&P/TSX index over time. Compared to companies that don’t pay dividends, companies that have grown their dividends have produced 9x higher returns.

Evidence of 40% less volatility

Dividend-paying companies have historically been less risky than the S&P/TSX index. Compared to companies that don’t pay dividends or that have cut their dividends, companies that have maintained their dividends or grown their dividends have been roughly 40% less volatile.

What is a Dividend Champion?

At NCM, we define a Dividend Champion as a company with strong free cash flow, and typically a track record of stable or growing dividends.

Portfolio Manager Michael Simpson has guided billions in assets using this approach during his 25-year, multi-award-winning career. When the Globe & Mail wants to talk about dividend stocks, they call Michael, because he has such deep expertise in the space.

From a universe of several hundred potential companies in Canada and the US, Michael typically selects fewer than 50 for the Dividend Champions portfolio. In other words, the fund does not look at all like the index.

Here’s a look at the types of companies on Michael's radar, including those that are the primary focus of the fund:


While the following companies are not stock recommendations or necessarily even held by the fund, they provide some further context:

  • Alphabet is the holding company that owns Google. It has fast-growing revenue and ample free cash flow, but is considered a Dividend Potential because it chooses to reinvest that cash in its continued growth rather than pay a dividend.
  • Metro is one of the largest grocery retailers in Canada and a full-fledged Dividend Champion, with a long series of dividend increases going all the way back to 1999.
  • Johnson & Johnson is a legendary Dividend Champion. It has leadership positions across a wide number of healthcare segments and 60 consecutive years of dividend growth.

Where Dividend Champions fit in a portfolio

NCM Dividend Champions provides the potential for stock market growth with less risk, due to its portfolio of high-quality, dividend-paying companies. In addition to this growth potential, investors can opt to receive a fixed monthly cash distribution.

NCM Dividend Champions is an excellent core equity holding and a strong compliment to more index-like funds. Learn more about the fund here.

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Income Solutions Team

Managing a range of income portfolios that can generate fixed monthly distributions without depleting your capital.

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