An interesting trend has emerged in the Canadian market this year to date. The Toronto Stock Exchange Index is near a record high, while investors in Canadian dividend paying stocks are in negative territory year to date. To illustrate this point let's look at some year to date returns:
XIC (Barclays ETF that tracks the largest most liquid names in Canada)
Year To Date = +5.8%
Some Highlights = Encana (ECA) +35%, Research in Motion (RIM) +25%, Potash Corp. of Saskatchewan (POT) +38%
XDV (Barclays ETF that tracks the 30 highest yielding dividend growing Canadian firms)
Year To Date = -2.7%
Some Lowlights = Bank of Montreal (BMO) -12.5%, Manitoba Telecom (MBT) -10.8%, National Bank of Canada (NA) -0.3%
It's no wonder the Canadian index is soaring while dividend paying stocks flounder. Commodities have been on fire lately, while banks remain under the dark clouds of the credit crunch. Financial services firms make up a much larger portion of the dividend paying universe in Canada than they comprise the total index.
One might assume that these two ETFs would perform quite similarly but this year to date is really showing that this would be a false assumption. Does this mean now is a great time to buy some of the growthy companies that make up the Canadian index? Who really knows, but as a dividend growth investor it is much easier to find value in some of the beaten down constituents of the boring old XDV. When most investors are ignoring these dividend paying firms, is usually the best time to get involved. The Canadian XDV will have its days in the sun in future years and that is perhaps when you want to be accumulating cash or diversifying into other areas. The nice thing about many of the Canadian financial service industry stocks is that at the end of the day they should benefit from any successes that the commodity economy in Canada garners through increased economic activity.