Over the past few weeks, I’ve been camped out in Toronto meetings with a broad range of analysts, portfolio managers and executives. At some point in each conversation, I’ve asked the question: “What is the elephant in the room? What do you see out there that’s being overlooked or underappreciated?” There have been an array of answers, but the consensus hit on two themes, neither of which could be described as under the radar. First, why would anyone buy a 10-year government bond yielding less than 3 per cent? And the second, which is related to the first, is that a portfolio of dividend-paying stocks is now a better way to generate a stream of income and higher return.
As always, I want to be sensitive to valuation. Buying a big, fat quarterly dividend to maximize income in the short term can lead to disappointment (i.e. cuts) or mean less growth in the future. We are in a unique circumstance where reaching to equities for income makes sense, but make no mistake: This approach requires discipline, fortitude and careful cash management. And it should be done in the context of a diversified portfolio, one that even has a few bonds in it.
Source: Globe and Mail
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