|
Analysis: Like other dividend funds, the TD Dividend Growth Fund seeks to provide a high level of after tax income and steady growth. To achieve this investment, the management team of Doug Warwick and Michael Lough screen the universe of dividend paying stocks and rank them based on a number of fundamental criteria which includes market cap, earnings growth, and dividend yield. Once the least desirable stocks have been weeded out, the team conducts a more detailed fundamental analysis on the remaining names.
The end result is a portfolio that is made up of 60 to 80 large cap, dividend paying stocks. The fund is very concentrated with the top 10 holdings making up nearly 70% of the fund as of January 31. The fund is also very concentrated from a sector perspective, holding more than half of the fund in financial services. In comparison, the S&P/TSX Composite has only 29% exposure to financial services. This high exposure to financials is a big reason that the dividend yield on the underlying portfolio is significantly higher than the broader market.
The managers are relatively patient in their investment process. Portfolio turnover tends to be very low, in fact, almost non existent. The portfolio turnover has averaged a mere 1.4% between 2006 and 2010.
Performance has been middle of the pack of late, after many years of top quartile returns. Volatility of the fund has been higher than the category average for dividend funds, but is lower than the broader S&P/TSX Composite Index. Costs are reasonable, with an MER of 2.03%, which is just below the category average.
On balance, this isn’t a bad fund. We would expect that this fund will hold its value better in a volatile or falling market environment, but will likely lag in a sharply rising market. You could do a lot worse than this fund, but you could also do better.