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Globe says reaching for TSX yield an unwise strategy

2015-11-27 08:24 ET - In the News

The Globe and Mail reports in its Friday edition that investors who blindly buy the highest yielding stocks in the S&P/TSX composite might want to reconsider the strategy. The Globe's Scott Barlow writes that for every success story, there are numerous stocks with abysmal returns despite the high dividend yields. The average year-to-date total "return" for the top yielding stocks on the Toronto Stock Exchange has been a painful 22.7-per-cent loss. This investor tendency -- buying high-dividend stocks and underestimating the investment risks -- is called "reaching for yield" and it rarely ends well midterm. Over all, an important investment rule applies: The higher the yield, the higher the risk of portfolio losses. The rare bargains among dividend stocks do not last long, particularly in an era where demographic factors are creating such insatiable demand for income. Markets have adjusted somewhat to low commodity prices so investors can reasonably expect less carnage in dividend-paying resource stocks next year. Merrill Lynch chief quantitative strategist Savita Subramanian suggests companies with growing dividends, rather than those with the current highest yields, are the right strategy for 2016.

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