By Scott Ronalds

Roughly one-third of our Income Fund is currently invested in stocks. Equities add both diversification and yield to the portfolio, which can be particularly beneficial in today’s low interest rate environment (10-year government of Canada bonds are yielding a paltry 2.4%).

The Fund only owns stocks that pay dividends, and as a rule, the dividend yield on average must be higher than that of the S&P/TSX Composite Index. Currently, the Fund’s dividend yield is 4.0%, vs. 2.7% for the TSX.

The focus, however, isn’t solely on high-yielding stocks. In fact, stocks with high yields can be a red flag in certain circumstances, as the dividend may not be sustainable. Rather, a key characteristic that the manager (Connor, Clark & Lunn) looks for is growing dividends. Businesses that are able to consistently increase their dividends typically possess two attractive attributes: (1) they are in a strong financial position, and (2) they are steadily growing their earnings.

The attached chart (see link below) illustrates the portfolio holdings that have increased their dividends since 2011. Many have implemented three or more increases totaling 20% or more over the past three years.