Low interest rates and widespread global growth have contributed to generous stock market returns in recent years, particularly in 2017. But with less slack in the economy and rates rising, Andrew Zimcik, member of the fundamental equity team at Connor, Clark and Lunn Investment Management, is looking to dividend-growth stocks.

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Rising interest rates are a concern for some dividend stock investors. The S&P/TSX Utilities Index saw an average annual return of 10.9% from 2009 and 2017, while the telecom subindex’s average was 15.1%, Globe Investor reported last week. But year to date, utilities are down 8.8% and telecoms have dropped 5.7%.

“Interest rates are rising because the global growth picture is quite strong and we’re starting to see less and less slack in the economy, which is leading to price pressure,” said Zimcik, whose firm manages the Renaissance High Income Fund, in a late April interview.

In this environment, he prefers dividend growers to high and stable dividend stocks.

“What we find is that many of the dividend growers are in fact companies that benefit from higher global growth in the form of higher corporate profits,” he says. “Those companies can then return those profit windfalls to investors through higher dividend payments.”


Zimcik points to pilot training company CAE, heavy equipment dealer Finning and media company Thomson Reuters as three in the portfolio for which he expects to see rising profits and higher dividends.

With the business cycle getting “a little bit long in the tooth,” he says, “the next big market correction is somewhere in the not too distant future.” This may mean making some portfolio adjustments and moving toward more stable stocks.

Read: In a market downturn, are defensive stocks really defensive?

“As we progress through the coming quarters, or maybe years, we expect to continue focusing on companies that can benefit from strong growth—those dividend-growth type names—but [we’ll] increasingly [also look] to diversify the portfolio into the safest and most stable companies to ensure we can protect capital on the downside when the inevitable market correction does occur,” Zimcik says.


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