Dividend yields trending upward

Dividend yields dipped in the summer, but they’re back up and comparable to where they were a year ago.

“The current dividend yield for the stock markets in Canada is about 2.7%,” says Stephen Carlin, vice-president and senior portfolio manager of Canadian equities at CIBC Asset Management. He manages the Renaissance Canadian Dividend Fund.

That beats the 2% average yields for 10-year government of Canada bonds, he adds. So “if you’re invested in a broad portfolio exposed to the Canadian equity market, you’d have a yield that’s about 70 bps better than the overall [bond] market.”

What’s more, financially strong companies are increasing their dividends, says Carlin, and that includes Canadian banks and life insurance companies.

Read:

• Are Canadian banks still worth the investment?
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Yet, he isn’t optimistic about the interest rate environment. “We’re not in the camp where we believe rates will be rising significantly over the next 12 to 18 months.”

Rates are depressed, he adds, because the U.S. is currently leading the global market and other economies are trailing. “Europe is struggling from a growth perspective [and] Asia’s growth is impacted by Europe. In China, their reform-oriented strategy is holding growth back.”

Read: Fed ends QE, sticks to interest rate plans

The growth rates of each region are important to monitor, notes Carlin, since the U.S., Europe and Asia represent what he calls the “three-legged stool” of the global economy. While the U.S. represents a strong leg and Asia’s leg is “holding its own,” he finds Europe’s leg is wobbly.

Further, the U.S. Federal Reserve continues to provide little insight on when interest rate hikes may occur. For more on its latest economic assessment, click here.

Also read:

Full recovery far off for Canada

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How new investors can buy into an expensive market

What’s on horizon for U.S. and Canada?