Dividends can cushion your portfolio in volatile markets
High-quality, dividend-paying equities can moderate the effects of market volatility on your portfolio in uncertain times.
Investing in dividend-paying companies means that, for the most part, you are choosing high-quality investments. That’s because dividends are a portion of profits, so a company must be conservatively managed to consistently turn a profit and ensure regular payouts.
In addition, dividend stocks are often found in sectors of the market — such as financials, consumer staples, health care, and utilities — where revenue generation is consistent even during unsettled economic conditions.
Dividends themselves act as a cushion because they generate income even in a market downturn. Also, dividend stocks tend to hold their value better in down markets, largely because their payouts make them less likely to be sold.
Dividend investments meet a variety of needs and goals. They can be useful for investors who are:
Seeking stability. When markets are uncertain, dividend investments suit investors who wish to give their portfolios increased stability.
Approaching retirement. Individuals investing more conservatively before retirement, but who still want growth investments, can participate in equity markets with reduced risk. ScotiaMcLeod’s Portfolio Advisory Group rates dividend-paying equities as medium risk because equities do place your principal investment at risk.
Looking for tax-efficiency. In nonregistered accounts, eligible dividend income is taxed more favourably than interest income.
Generating retirement income. During retirement, dividend investments may provide higher after-tax yield than fixed-income investments.
Please contact us if you are interested in adding or introducing dividend investments to your portfolio.