As the stock market tumbles in anticipation of the longest economic slump in decades, there are no guarantees for your clients — not even dividends.

But despite recent cuts and omissions in dividend payments, dividends will make the difference in long-term investing. They add the “total” to “total return.” So, a dividend-centred approach to selecting stocks for your clients will be a worthwhile approach in these troubled times.

In the past few years, as the market approached the tipping point, dividends returned to the forefront. New indices featured dividends either as a base or as groups. These indices provide a quick entry point for stock selection.

First, there was the approach of indexing stocks by dividend payments or yield rather than by market capitalization. In the U.S., there are exchange-traded funds based on such indexing methods. New York-based WisdomTree Investments Inc. , the pioneer in this arena, has international stock funds but none for Canada alone. Whether this style of indexing provides a clear advantage for clients is still being argued.

Then Standard & Poor’s Corp. and the TMX Group Inc.’ s Toronto Stock Exchange produced their preferred share index in 2007. This is a basket of 60 preferred issues, a mix of mostly perpetual and retractable issues. As expected, this led to the development of Claymore Investments Inc. ’s Claymore S&P/TSX Canadian Preferred Share ETF. With $98 million in assets under management and a management expense ratio of 0.45%, this product has filled a niche for investors.

In October 2007, S&P and the TSX launched the Canadian dividend aristocrats index, consisting of 44 stocks with superior records of dividend payments. Thus far, no ETF has appeared to track the dividend aristocrats index. A hindrance may be the fact that the index is heavily laden with the most important dividend payers in Canada — banks and financial institutions — and they are already covered in existing ETFs.

Both the preferred share and the dividend aristocrats indices have an added value for investors, however. They provide handy shopping lists of the most eligible preferred and dividend-paying stocks.

How well the preferred share and dividend aristocrats indices might have protected investors against the market’s collapse is a mixed story. (See charts, above.)

In price, the preferred share index has dropped the least — down by 15% in the six months ended Feb. 28. That compares with the dividend aristocrats index’s 38% loss and the S&P/TSX composite index’s 41% loss in the same period.

In the matter of dividend payments, the annual rate on the preferred share index has gained 26.7% in the six months, compared with a 5.7% increase in the dividend aristocrats and a drop of 16.6% in S&P/TSX composite’s dividends.

As stock prices drop, dividend yields have risen. As of the Feb. 28 close, the dividend aristocrats index’s yield had jumped to 8.7% from 5.1% in August 2008, when performance was first published.

The preferred share index’s yield gained more modestly, to 6.4% from 4.3% in August. And the S&P/TSX composite’s yield, despite its lower indicated payment, nudged up to 4.2%, from 3% in August.

To see lists of the stocks in the preferred shares and dividend aristocrats indices, go to www2.standardandpoors.com, click on “Indices,” then “Canada” and “equity indices,” and look for the “constituents list” in the overview for each index. IE