Dividend investing has lost its mojo. Here’s why

Dividend investing is going through a rough patch. If you’re a devoted dividend investor – and that describes just about every Canadian I know – you might want to ponder what has caused this odd state of affairs.

The huge outperformance of high-yield stocks over this long stretch of time offers a powerful argument for dividend investing. Yet things haven’t worked out as theory would predict. Over the past few years, Canadians’ supposedly reliable dividend stocks have suffered more than the rest of the stock market and performed much worse than risky growth stocks. This is difficult to explain purely as an effect of interest rates.

All things considered, “it is difficult to make a bullish call on the sector,” according to a recent note from Paul Holden, an analyst at CIBC. “Revenue growth is subdued and credit risk is elevated.” To be fair, the issues that now plague Canadian banking and telecom could turn out to be temporary. Maybe Canada’s big dividend payers will stumble upon new sources of growth, or maybe new sectors will surge to the forefront, and Canadian dividend investing will resume its market-beating ways.

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