Why investors should consider an actively managed dividend-focused strategy

Dividend-focused strategies offer distinct advantages over both traditional fixed income and broad equity exposures. Unlike fixed income, investors gain opportunities for share price appreciation, dividend growth, and tax-advantaged income with dividend-paying equities. Compared to the broader equity market, dividend strategies deliver a greater degree of certainty in returns and inherent downside protection.

Companies that consistently pay dividends tend to be higher quality, with proven business models and sustainable cash flows. The discipline required to maintain dividend payments often signals robust financial health and prudent capital management. Historical performance supports this: even during challenging years like 2022, Canadian dividend equities outperformed most asset classes, and in subsequent market rallies, they continued to deliver strong double-digit returns.

While passive strategies have their place, dividend investing offers several key benefits through active management.

Expert stock selection

CIBC’s approach leverages deep fundamental research. Our experienced analysts and portfolio managers scour the market for mispriced businesses undergoing positive inflection points. We meet with management teams, conduct scenario analyses, and thoroughly evaluate long-term prospects.

Risk management

Active managers can respond to changing conditions, avoid yield traps — such as eye-catching yields that are the result of declining share prices or unsustainable payout ratios — and sidestep companies at risk of dividend cuts. Our proprietary risk tools allow us to dissect portfolio exposures and manage risk at both the stock and the portfolio level. It enables us to focus on companies with sustainable, growing dividends —those with secular tailwinds, recurring revenues, pricing power, and visible cash flows.

A dividend strategy’s income profile can be further enhanced by incorporating a covered call overlay. By selling call options, investors collect premiums that boost portfolio yield. This strategy is particularly suited for flat or moderately bullish markets. This options premium also acts as a cushion against shallow market downturns, improving risk-adjusted returns and reducing overall portfolio volatility. In addition, fundamental inputs from the equity portfolio manager are used to optimize covered call writing in CIBC Asset Management's covered call ETF strategies.

Market dynamics — such as interest rates and implied volatility — impact option pricing, and a dynamic, actively managed overlay allows for real-time adaptation to these changes. Our options and equity teams collaborate closely, integrating fundamental insights with option management to tactically adjust strikes and tenors, especially around key events like earnings releases.

CIBC Asset Management’s actively managed dividend strategies, combined with a dynamic covered call overlay, offer investors a resilient solution in all market conditions. By prioritizing quality, sustainable income, and rigorous risk management, we help investors achieve their income objectives while preserving capital and capturing growth. As markets evolve, our commitment to transparency, discipline, and innovation ensures we remain aligned with our clients’ needs.

For further information on how these strategies can fit within your portfolio, we encourage you to reach out to your CIBC advisor or representative.