Dividends strategy once again key

A veteran player is offering three bulletproof strategies for dealing with the monkey on most advisors’ backs – the need to satisfy yield-hungry clients.

An Ottawa advisor is offering key ideas to ensure clients achieve success as ETFs other high-yield investments increase their appeal for clients.

Robert Roby is not only a Wealth Professional Awards finalist but a big fan of dividend-paying stocks. He likes ETFs and anything else that delivers above-average income while minimizing risk.

There are three key items, Roby believes, that need to be taken into consideration when choosing dividend investments.
  1. Determine what the dividend payout ratio is. Anything over 60 per cent we find as potential problems for future growth issues, says Roby;
  2. Select stocks within the five major sectors of the market; and
  3. If considering ETFs look for funds that invest in the Dividend Aristocrats, Dividend Challengers or Dividend Champions. While he didn’t recommend specific funds you can probably figure out some of the names of these funds pretty quickly. Also, there are funds that grade every holding in a portfolio based on the payout ratio which is then used to come up with an overall grade for the fund itself.

While you want companies that pay out a minimum of their annual net income you also want to be careful about those businesses that pay out too much because future growth can’t happen without the investment of capital. So, above 60 per cent starts to inhibit a company’s growth if done over an extended period of time. It chokes the lifeblood of any business.

When it comes to the five major sectors of the market it can be what you decide are the most important. In Canada that clearly includes financial services and energy.

When it comes to the Aristocrats, etc., Roby believes the 3 baskets achieve superlative diversification without compromising correlation.
Now, if you’re using stocks, Roby has three recommendations.

1. Johnson and Johnson. It’s a great demographic stock.

2.  TD Bank or Bank of Nova Scotia. Solid growth and great dividends.

3. Apple. It has an excellent PE ratio and growing dividend payout that’s a sure thing.

“Choose dividend stocks that offer potential for growth," Roby suggests.

"Dividends are responsible for over 90 percent of the stock market gains historically," says the veteran advisor. "Why don't more advisors go,this route. Too boring ...holding stock for 30 years is not profitable to the brokerage."