Dividends: The sleeper sleeve in your portfolio?

BMO Dividend Fund portfolio manager Lutz Zeitler breaks down the four main pillars of investing in high-quality companies and shares a dividend strategy to help investors earn stable cash flow amid ongoing economic uncertainty.

May 2025

Lutz Zeitler

CFA, MBA, Head, Fundamental Equity, Fundamental Equities, BMO Global Asset Management

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Key takeaways:

We break down the four main pillars of high-quality stocks.
Three stock stories, highlighting high conviction holdings in the BMO Dividend Fund.
A look at past bear market corrections and how dividends performed under pressure.

With the parameters around U.S. President Trump’s tariff policies seemingly changing on a whim, the fluid trade war situation is nearly impossible to analyze. In our view, it would be imprudent to make any wholesale changes to our portfolio in this type of environment. It’s in times like these that we are especially disciplined with respect to our process and style. To us, that means looking through the noise of the market to the long-term fundamentals and competitive advantages of the companies that we invest in—which has brought a lot of success to the BMO Dividend Fund over the last 10 years.

In the current backdrop, we’ve fared well. The Fund has outperformed our main benchmark (the TSX) year to date, and more importantly, is a top quartile performer when compared to its peers, according to Morningstar ratings.¹How did we achieve this despite ongoing turmoil in markets? We focused on the fundamentals—investing in the highest quality business models, which is at the core of our investment process, and what has brought such success to our investors in this long-term top quartile fund.

The four pillars of high-quality businesses

Think of it like this: investors tend to go down a few different paths amid tremendous uncertainty and volatility. Some lose their nerve and choose to leave the market, which is a risky thing to do, particularly when policies can reverse by the hour. Then there are those that choose to stay invested. This group usually flocks toward two things. The first is Quality because high-quality businesses can withstand the pressure—often coming out of these scenarios stronger than their competitors. The second is dividend streams. For shareholders, dividend streams are a key part of their returns and the dividend payments a worthy reason to stay in the market.

Investing in companies that not only pay a dividend, but that have grown that dividend regularly and will continue to do so, is key to our process. We concentrate our portfolio with these types of companies, and currently are invested in 38 names in the BMO Dividend Fund,² with Canadian companies representing nearly three-quarters of our geographic exposure. In choosing these holdings, we are searching for businesses that have strong competitive advantages, durable earnings, and capital discipline. They often operate in essential sectors or industries that people can’t go without.

This process is founded on four main pillars:

Competitive advantages: This might be scale, technology, brand value, or customer integration. What allows the company to maintain higher returns on capital than its peers? Are they able to fight off competitive threats or disruption?
Growth of the business: We closely analyze not only the absolute growth of the business, but also the trajectory and volatility of that growth. How sustainable and durable is it?
Management: Essentially, these are the stewards of the capital that we invest in. So, it’s important to look at the kinds of decisions they are making. What experiences have they had in the past? What strategy and vision do they have for the firm?
Entry point: Is the company an attractive investment today?

We use these analytical factors to help determine the quality of businesses. Below are three examples of current holdings and what makes them an attractive investment long term.

Dollarama (DOL)

Dollarama is a well-known Canadian company, which we’ve owned since its initial public offering (IPO) in 2009. It has compounded its dividend by 17% over the last five years,³driven by efficient cost management, operational excellence, and impeccable customer value-for-money. Its store count has increased year in and year out, with expectations to grow by another 50% over the next 10 years as part of their strategic expansion. It also recently entered into the Latin American and Australian dollar store markets. While the stock has always been considered to be “expensive” when it comes to current valuation multiples, we believe in looking at the bigger, longer-term picture. What can grow and drive that value creation over the next five to 10 years? We expect DOL to remain a high dividend grower for the foreseeable future.

Waste Connections (WCN)

Waste Connections is a high conviction name that we’ve held in the portfolio for over 10 years. This is a company that has grown its dividend by 13% on a compound basis³ over the last five years—despite the COVID-19 pandemic, the interest rate volatility we saw two years ago, and current tariff threats. So, who are they exactly? WCN has grown to become North America’s third largest waste management company, though a consistent playbook of strong organic growth and accretive tuck in acquisitions.

Why do we like the third largest business rather than the largest in this field? Management has been very disciplined in its strategy of controlling the waste system from collection to landfill within its chosen markets while avoiding overly competitive ones. As a result, its pricing power is very strong, as is its route density, which are extremely important for margins. WCN has an 18% compound annual growth rate (CAGR) since its IPO back in 2002—that’s going back 22 years ago, which is phenomenal.

Visa Inc. (V)

Visa is a company many people recognize by its brand value but don’t often understand what they do. It’s more than the little logo at the bottom of your credit card—it’s one of the strongest and most adaptable business models we’ve come across. As part of a duopoly with Mastercard, its payment network runs the backbone of the global digital commerce industry. V has such high levels of free cash flow which it reinvests into new technology to ensure switching costs are too high for the nearly 15,000 financial institutions and 80 million businesses using its services,⁴maintaining its competitive advantage. Each year, it deepens the “flywheel effect”⁵ even more with its tremendous business model.

Investing for the long term

In an environment where we’ve seen many policy U-turns creating great uncertainty, it’s important to invest in high-quality companies that can withstand the pressure. The BMO Dividend Fund looks not only for companies that are dividend-payers but have growing dividend streams and drive long-term value creation—which has proven to be a sound strategy in crises past. Here’s how the Fund’s investments have held up during various challenging market events, including the COVID-19 pandemic.

Dividend actions during past bear market corrections

Source: BMO GAM, Bloomberg, S&P500 peak trough loss

Dividend actions during past bear market corrections—Top 10 exposures

Source: BMO GAM, Bloomberg, ***S&P500 peak trough loss.

We believe that the defensive attributes of dividend-growing businesses drive tremendous long-term value creation, but will be particularly important for investor returns amid the tremendous uncertainty we’ve seen and expect throughout 2025.

Please contact your BMO Global Asset Management wholesaler for any additional support and guidance.

Performance (%)	Year-to-date	1-month	3-month	6-month	1-year	3-year	5-year	10-year	Since inception
BMO Dividend Fund - F	2.27	-0.17	-2.01	3.83	17.65	8.18	11.93	8.08	8.87

Bloomberg, as of April 30, 2025.

¹Morningstar, 10-year rankings as of April 30, 2025.

Fund	Quartile rank	# of invest in category	Category name
BMO Dividend F	First	330	CA116

²Bloomberg, BMO Global Asset Management, as of February 28, 2025.

³Bloomberg, as of Monday, April 28, 2025.

⁴About Visa, as of September 30, 2024.

⁵Flywheel effect: A term used when small wins for businesses accumulate over time, gaining momentum and creating continued growth and improvement.

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This article was published on Tuesday, May 13, 2025.