1) The document discusses market volatility and the benefits of long-term investing in dividend paying stocks. While markets are volatile in the short-term, long-term investors who hold quality dividend stocks for 20+ years experience much less volatility. 2) The document also profiles Imperial Oil, highlighting its large oil and gas reserves, refining operations, relationship with ExxonMobil, and potential for growth and dividend increases going forward given its stable business model. 3) Cardinal Capital Management believes in a long-term strategy of investing in high-quality dividend paying companies. This approach helps investors stay invested through downturns and volatility while being rewarded over the long-run.

1. November 2012
cardinal
update
Dividend Increases
Honeywell International
Stryker Corp.
(During the period: October 1 – 31, 2012)
10.1%
20.8%
Market Volatility: COMPANY FOCUS
The Bumpy Path to Investing Success Imperial Oil
During the past 25 years (1986 to 2011), the S&P 500 returned 9.3% annually. In an interesting
statistical coincidence, the index returned the exact same 9.3% during the preceding 25 year Imperial Oil should provide investors with the
period from 1961 to 1986. rare combination of growth and stability, which
lends itself to dividend increases and capital
As attractive as these returns are, fear of volatility is causing many investors to stay out of the preservation over the long term.
market, opting for the smooth 2% return in bonds instead of a bumpy 9% in equities.
The company owns and controls the largest
This fear is understandable, but markets have always been volatile. Looking at downside reserve base in the Canadian oil and gas industry
volatility (the type investors fear) in our two 25-year periods, there were 5 calendar years with a proven reserve life over 30 years, much of
where negative returns averaged -16.7% in the most recent 25 years, versus 7 negative return which is located in the oil sands. This reserve base
years averaging -11.6% in the preceding 25 years. Both periods included some nasty bear supports Imperial’s plans to double production
markets. Recently, we had the technology bubble in 2000 and then the financial crisis in by 2020. Growth is to come from the Kearl oil
2008/2009. 40 years ago, the recession of 1973/1974 was a serious rival for the financial crisis. sands mine and the Cold Lake project, which has
provided steady production since the mid-1970’s.
Our philosophy at Cardinal is well suited to help investors deal with volatility. We believe in
investing for the long-term. Building on a 1994 study by Jack Bogle1, we find that volatility Imperial’s stability is backstopped by two key
decreases dramatically for investors with long time horizons. In the past 50 years, the difference differentiating characteristics: its world-class
between the best and worst one-year calendar return in the S&P 500 was 74.4% (37.4% in refineries and its relationship with Exxon Mobil.
1995 vs. -37% in 2008). For investors with a 20-year time horizon, this difference shrinks to Owning refining assets provides stability. Earnings
11.3% (17.9% from 1979-1999 vs. 6.8% from 1961-1981). are not impacted by swings in Canadian oil
prices. In its most recent quarter, Imperial earned
We buy quality companies that pay dividends. Dividends allow clients that require income
a company record $536 million from its refining
to meet their needs without having to sell shares in a downturn. For those that are still saving,
operations. Imperial is also 69.6% owned by
dividends can be used to buy shares at depressed prices. Historically, stocks that pay dividends
Exxon. This relationship is a competitive
tend to have more price support than others during a downturn.
advantage as it lowers Imperial’s cost of capital
Staying invested through downturns is easier to stomach when you have a portfolio of quality as reflected by its AAA rating for long term debt.
companies. We own high quality companies that tend to hold up during bear markets, but
more importantly, they maintain their fundamental value. For example, despite share price vola-
tility, our Canadian banks continued to earn profits, make acquisitions, grow, and pay their divi-
dends. Since the financial crisis, all of the banks have rewarded clients with dividend increases.
Unless otherwise noted, the source of all data in this Update is Bloomberg and Cardinal research. This
We believe that investors following our approach of staying fully invested in dividend paying, Update is prepared for general informational purposes only. Statements about future performance may not
be realized and past performance is not a guarantee of future performance. Cardinal does not guarantee
quality companies will be well rewarded over the long term, just as they have in the past. the accuracy or completeness of the information contained herein, nor does Cardinal assume any liability
for any loss that may result from the reliance by any person upon any such information or opinions. The
information and opinions contained herein are subject to change without notice.
1
Bogle, J. (1994). Bogle on Mutual Funds: New Perspectives for the Intelligent Investor © 2012, Cardinal Capital Management, Inc.
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