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Investments, Investment Views

Posted by Ian Hardacre

Nov 15, 2016 3:32:25 PM

Senior Portfolio Manager, Canadian Equities
Empire Life Investments Inc.
Gestionnaire principal de portefeuille, Actions canadiennes
Placements Empire Vie

Featuring Ian Hardacre, MBA, CFA

Fund Manager
Empire Life Dividend Growth Mutual Fund
Empire Life Dividend Growth GIF
Empire Life Investments Inc.

Why are portfolios with dividend income important for Canadian investors?

Dividend income is increasingly important for several reasons. Dividend-paying stocks provide a cash flow stream that bonds no longer provide for investors. And there’s the ‘dividend effect’ – the compounding effect of dividends over time – which has accounted for 52% of the S&P/TSX Composite’s Total Returns1. Lastly, dividend-paying stocks have delivered higher returns with less volatility and provide capital appreciation and yield to potentially generate long-term growth.

How can investors find yield in the current interest rate environment?

In today’s environment, investors often need to buy stocks to get a return from their capital. My approach focuses on both the dividend and the growth of the dividend over time. In a nutshell, I believe that buying companies that can grow and increase their dividend is the best way to achieve returns for investors over the long term. Don’t purchase a stock just because it has a dividend!

How do you manage the Empire Life Dividend Growth portfolio?

I am value-oriented, but not deep value, and seek companies that are trading below their intrinsic value. I look for above-average businesses and management teams that are honest, ethical and return-focused.

I tend to be contrarian and actively seek out sectors and companies that are out of favour to determine if the pessimism is justified and if the company is undervalued. Often the market will discount the stock price of a company because of a short term or minor issue, which provides opportunities. Companies are also misunderstood by the market for a number of potential reasons. I look for situations where my proprietary view is often different than the market.

I use a three-pronged approach to analysing new investments – and evaluate the quality of the business, the quality of the management team, and determine if the company’s stock is attractively priced from a valuation perspective.

What type of investments do you hold?

The portfolio holds mainly common stocks and a few trusts. The goal is to diversify across businesses but also be concentrated enough to allow our chosen investments to potentially outperform. The target is 40-60 companies.

The Canadian market is not well-diversified and, more specifically, dividend-yielding stocks tend to be concentrated in certain sectors such as Telecom, Utilities and Financials. I actively search out businesses that are not available in Canada in order to increase market diversification and currently hold 14% foreign stocks2 as a result.

What can an investor expect?

Most consumers shop the way that I invest – we don’t want to overpay. But there are more benefits to value investing than just the price. These stocks tend to be more stable in volatile markets. And combined with their strong and growing dividends, our investors may enjoy better downside protection.

The name “Dividend Growth” really describes what you can expect. I buy companies that can grow and increase their dividend which I believe is the best way to achieve returns for investors over the long term.

1Source: Bloomberg, for the period from December 31, 1990 to December 31, 2015. 2 All fund data of September 30, 2016.

Empire Life Investments Inc. is the Manager of Empire Life Mutual Funds. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. The payment of distributions is not guaranteed and may fluctuate. The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Nothing contained herein shall constitute, or shall be deemed to constitute, investment advice or a recommendation to buy or sell a specific security, by the Portfolios, Funds or their manager, Empire Life Investments Inc. Information contained in this report has been obtained from third party sources believed to be reliable, but accuracy cannot be guaranteed. Empire Life Investments Inc. and its affiliates does not warrant or make any representations regarding the use or the results of the information contained herein in terms of its correctness, accuracy, timeliness, reliability, or otherwise, and does not accept any responsibility for any loss or damage that results from its use.

Segregated Fund contracts are issued by The Empire Life Insurance Company (“Empire Life”). A description of the key features of the individual variable insurance contract is contained in the Information Folder for the product being considered. Any amount that is allocated to a Segregated Fund is invested at the risk of the contract owner and may increase or decrease in value. Past performance is no guarantee of future performance.

This document reflects the views of Empire Life as of the date published. The information in this document is for general information purposes only and is not to be construed as providing legal, tax, financial or professional advice. The Empire Life Insurance Company assumes no responsibility for any reliance on or misuse or omissions of the information contained in this document. Please seek professional advice before making any decisions.

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