A tough time for dividend stocks

A tough time for dividend stocks

Let’s face it. Identifying stocks to buy and hold for decades rather than months or years can be difficult.

2023 in particular, year to date, has been a very tough time for many dividend stocks.

What does this mean for me?

What does this mean, for you, if you invest the same way?

Read on.

A tough time for dividend stocks

It’s no secret to anyone that our world let alone the stocks we invest in, is under constant change.

Over the last couple of years, key markets look like this in Canada and the U.S.:

A tough time for dividend stocks

Source: Portfolio Visualizer.

Hardly good for any stomach. 

But I’m reminded and comforted by the fact that like any improvement approach (and investing is similar), headaches or gains that don’t feel very good short-term often translate into massive improvements/gains over time – just as long as you stick to your program.

Change small to big - Behavior Gap

Source: The Behavior Gap.

With this in mind, it’s hard not to look at some beloved BTSX stocks year to date and be somewhat concerned.

This was taken from Matt Poyner’s site recently, Matt is a huge advocate and follower of the BTSX approach

BTSX October 2023

Source: DividendStrategy.ca

Experts on dividend stocks

Some experts might remind us that a dividend payment from a large, profitable company with a leading market share in a stable or growing industry is about the closest thing to a guarantee a long-term investor can find in the market. In fact, dividends alone accounted for about 40% of total stock market returns from 1930 through mid-2022, according to Fidelity (no affiliation).

But history also tells us that not all stocks may perform equally well when consumer prices are rising, as in now. This makes buying, owning and adding to your personalized dividend portfolio, challenging…

A reminder you can gain exposure to dividend stocks in a few key ways:

1. Buy individual dividend-paying stocks. This is what I do, especially for Canada. In the past, I’ve looked at Board dividend policies, earnings per share (I still do!) and the company dividend payout ratio as key metrics to follow and be mindful of.

To diversify, I own stocks in many sectors as to avoid too much sector risk – but in Canada that’s hard to do.

Long-time subscribers will know I like and therefore own “TULF” stocks in Canada:

  • “T” for telecommunication companies (e.g., Telus).
  • “U” for utilities (think Fortis, Emera, Capital Power, Algonquin Power, Brookfield Renewable Partners, and others).
  • “L” for low-yielding dividend growth stocks with growth potential (think Canadian National Railway, Waste Connections, Alimentation Couche-Tard, and others).
  • “F” for financials (you know the names; big-5 banks to start with).

2. Buy index funds and low-cost ETFs. With indexing, there is minimal stock selection involved since you own a plethora of stocks (good and bad stocks) in a packaged fund for ideally a low-fee. Some strategies can tilt towards income but most focus on total return. 

Honest Math - Dividends

Source: Honestmath.

3. Buy actively managed funds. This is my least favourite option BTW. In today’s markets, professional managers may be able to identify companies that are likely to increase their dividends and avoid those likely to cut them. That active money management usually hits your pockets with higher costs or underperformance however since money managers need to put food on the table as well – they are paid to perform. A manager would need to be actively involved to understand if a company can raise its dividends faster than inflation, and so on. You pay for that money manager understanding whether things work out or not in the form of fees. 

My approach to dividend stocks

Beyond just BTSX stocks, I own dividend-paying stocks because I believe in the long-term power generation of such companies. 

If history is any guide, what has worked in the past should continue to work in the investing future. 

The power of dividends

Source: RBC.

“Dividends can be reflections of a company’s success story. Organizations that raise their dividend payout on a regular basis are telling us they are doing well now and are confident about their future. Sustainable dividends can also help investor behaviour – the investor avoids selling assets in any falling market.” – My Own Advisor

When you invest in stocks, dividend payers or not, you are seeking to earn returns and ideally sell your shares at a higher price than what you paid for them – creating your own dividend.

Dividend-paying stocks do something extra ─ they pay part of the company’s earnings to investors as dividend income (today) and offer up optionality to the shareholder.

You see, in a perfect world, all businesses would allocate capital in a way to perfectly maximize the return on that capital. This would be done so reinvested money would go back into the business in way that pays off immensely for the shareholder (by increasing returns over time AND by continually reducing the company’s tax burden). But you should know by now we don’t live in a perfect world. This means shareholders have over time demanded a dividend – for the purposes of “optionality”. Shareholders like optionality – and dividends provide that optionality – to give investors the choice to increase or decrease their exposure to the business. Reinvested dividends therefore, take advantage of that optionality, to increase exposure. Dividends taken as cash, do not.

Market conditions and company-specific activities can and will continue to influence whether dividends will be paid, reduced or increased. High-yields can be huge warning signs of a dividend cut. Those cuts can and do happen but such cuts are usually in the best interests of the company’s long-term viability. This is why dividends cannot be faked for very long.

As previously mentioned, dividends may also help investors at times when many stocks’ prices are down from their highs – including this year. Going back to the 1940s and 1970s, when inflation surged then, I recall reading that dividends accounted for something like 65% and 71% of the S&P 500’s return, respectively.

We know market history doesn’t always repeat but it can rhyme.

“In the 1970s, surging oil prices caused the most infamous period of American inflation. The market notched another positive return, but this time, a whopping 73% of the S&P 500’s returns came from dividends.” – Source: Hartford Funds (no affiliation).

A tough time for dividend stocks summary

Instead of picking and choosing dividend stocks, when in doubt, as always I say: index invest for total return. 

Index investing works very well because you tend to beat most active money managers from the fund industry over long investing time horizons with this approach AND you can ride market-like returns in the process – whatever those returns may be; good, bad or indifferent. 

In a recent Globe and Mail column (subscription), I read the following reminder: 

“Despite a challenging environment, keep in mind that over the long run, dividends matter a lot, accounting for the lion’s share of equity returns,” Hugo Ste-Marie, a strategist at Scotia Capital, wrote in a report published last Wednesday.”

There is a power behind dividends as part of total returns but needless to say it’s been a very tough time for many dividend-paying stocks this year to date. 

The stock market continues to penalize dividend payers but I don’t believe that pain will last forever. Many dividends will still get paid and prices will rise eventually for many companies too. 

When all this happens is a huge wildcard, but I will be watching. 

It will be interesting to see how our portfolio manages/navigates a higher-yield environment in the coming months and years. I will keep you posted on our progress. I hope you keep me posted on your portfolio too.


Related Reading:

Why would anyone own bonds now?


Should you have 100% of your portfolio in stocks?

Let me know your thoughts, as always, in a comment below!

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

30 Responses to "A tough time for dividend stocks"

  1. Nice post Mark.

    Its been a crazy month in particular those couple of days… Seems like we are kinda going sideways now.

    Interest rates will definitely cost companies a lot more and will take some time to play out. Lots of good values out there now though.. These moments are probably good though as it just reminds you how much more risk there is with high yielders vs low yields. Will they keep their dividends or not.

    Great for drips though!
    cheers man

    1. Nice to hear from you! I hope all is well with family. I recall you made the switch to kill off more mortgage debt with rates moving higher?
      I bet that feels better. 🙂

      Take good care,

  2. Hi Mark: As mentioned I just bought BCE and TRP for the unregistered account and ENB and TRP for the TFSA but BNS is one I’m following closely. I don’t have to save for room in the TFSA as I have much dry powder. In January I’ll just transfer funds from the cash account to the TFSA. I see that next year (3 months) I can transfer $13000.00 to the TFSA as I still have $6500.00 left to invest this year according to my taxes. These last 3 stocks that I bought range from 7.75% to 8.5% so not bad at the moment and when they rise I will still get the same rate. Analysts were worried when Enbridge bought the 3 utilities because of the increased debt but they hammered the stock in 2016 when they merged with Spectra Energy and some thought they would go bankrupt but didn’t turn out to happen and now with the utilities deal the same case seems to be repeating. This makes the company a great opportunity to buy at the moment. The same reasoning is behind my purchase of TRP and BCE is falling because of the interest rates along with all stocks. As noted these incidents will pass and in the future this will seem like a great opportunity to buy great stocks that appear on sale.

    1. I don’t mind ENB buying more regulated assets to be honest. Using too much debt to do is not wise but I don’t believe rates are going much higher now. Things need to stabilize.

      Other than watching and hoping to buy more CNQ, WCP, and maybe some CPX or other beaten up utility stocks I/we are in savings mode for 2024 TFSA contributions. Another 2.5 months to go/to save before we contribute Jan. 1. 🙂


  3. Hi Mark: If you are an investor and not a speculator then this is a time for great buying opportunities. After all who can’t stand yields of 7.2% to 8.2%. I found the market expensive before but now some boring dividend stocks are in a range and delivering a yield that is hard to ignore. Just the other day I bought BCE and TRP for the unregistered account and ENB and TRP for the TFSA. One must always remember that with bonds your interest is fully taxable while stocks get the dividend credit. For the long term investor and at 75 we shall see what long term means than this is a buying opportunity. This falls into the same category as Black Monday, the housing crisis, the turning of the century, the Great Recession and the Covid-19 pandemic. These were all buying opportunities. I’m closely watching BNS as it is coming down. I bought it in ’08 at a titch under $27.00 but the dividend has increased since then and at the $58 range it is yielding over 7%. Not bad for a bank. As mentioned those buying bonds are getting a nice interest rate but is fully taxable. I wish to keep the most of my investments myself as the government will get enough anyways and don’t need the extra money interest would allow them to take. Keep up with the great articles and good luck in your investing. I call my investing profile as Get Rich Slow.

    1. Ya, I intend to buy more (stocks) in the coming months for sure…just saving for TFSA room now for 2024.

      Bonds in a taxable account are fully taxable vs. other assets, so I wouldn’t own them there myself.

      I think you’re a perfect case study for someone that has gotten Get Rich Slow baesd on what I know.

      Anything beyond BNS you are considering buying?

  4. Hello Mark: Thank you for your post. We have basically been Dividend Growth Investors since the 1980’s. In October 1987 the market dropped 20% in one day, but had recovered by year’s end.
    Our strategy has been to purchase quality, best of sector , enduring companies with a strong record of growing earnings and dividends. Many dividends were reinvested over the years , and some still are. Just today, dividends in CRR and GWO were reinvested at current prices.Dividends from our modest initial investments continue to provide ample and growing income to supplement our lifestyle and gifting needs. Choose well., reinvest some dividends and stay the course.We are not too concerned about the current market malaise . I feel it provides an excellent opportunity to build on positions in some excellent dividend type companies. Regards Mike

    1. Love the comment, Mike.

      This too shall pass. When, we don’t know!?

      I’ve heard from many long-term DIY investors, stocks or ETFs or both, that buying when stocks or ETFs are “on sale” a bit and just sticking with a plan eventually works. I’ve heard from many, many investors over the years that while some individual stocks can disappoint, usually a larger basket of holdings does not as a collective. The ability to stay the course, reinvest dividends and buy more over time has been a time-tested approach for many.

      Is this time different? We’ll find out. 🙂

  5. The Canadian big dividend paying sectors can be capital intensive (interest rate sensitive), they don’t enjoy the higher rate environment. The outperformance of these sectors/stocks over the last few decades was helped by the disinflationary low rate environment.

    Risk free cash/GICs/ultra short bonds now compete and often offer a greater yield. The stocks are hit on a couple of fronts.

    We read about this ‘theory’ for many years, now we are experiencing the event. Living it.

    Are we in a longer-term regime change? Who knows?

    All said, it all points to the importance of sector and geographic diversification. I favour U.S. on that front.

    We also face Canada with negative GDP per capita growth. Add in our housing bubble, ha. No growth strategy beyond immigration.

    Many Canadians with severe home bias are feeling the concentration risk.

    All said, there are very attractive earnings yields and dividends available. Historically, that signals very good value. The question might be – did things change? Or how much did things change for the big dividend category?

    1. Very fair Dale. For me to say Canadian dividend stocks are done for, is a stretch for sure (!) but I will say there could be a short-term shift happening given rates pushing bonds into buying territory and making many investors think twice.

      I will continue to own my Canadian and U.S. stocks and index invest the rest. Only time will tell if my strategy is the one that meets our goals.

      I enjoyed your comment,

  6. Lloyd (63, retired at 55) · Edit

    If I was 20 or even 10 years younger I’d be straining at the harness to be taking advantage of these prices/yields. As it is it takes all the willpower I can muster to just relax and be happy with the way I’ve got things set up. Missed a couple of moves in the summer but I’ll hunker down now and ride out this storm.

    1. Yup. It could be an interesting, longer-term storm. Something that takes a few years to resolve and rebound. We will see, but I think higher/modest interest rates are here until at least early 2025. That’s my thinking.

      1. Lloyd (63, retired at 55) · Edit

        Speaking of interest rates, I have a GIC coming up in the RRSP for renewal at the end of November. Given my propensity to go long term when rates are high, and short term when rates are low, I’m in a bit of a quandary. It turns out that the best rate at the institution holding this account is for 2 years (5.55%). That, coupled with somehow I only have 2 that are maturing in 2025, I’m arguing with myself about going with a 2 year term and hoping rates *don’t* fall much by Nov 2025. It may turn out to be a coin toss.

        1. Ha, well, given your success I recall, and the fact you’re retired, hard to argue going with any 1-year or 2-year GIC that pays north of 5% for coming years to ride our calamity.


  7. Thanks for the timely article Mark. Crazy yields with the dividend stocks.
    In a bear like we’re in, I think it’s important to also look at technicals. At least look at 21 dma crossing the 50 dma before buying. I keep reading countless div investors buying in a downtrend justifying it by the yield.
    Just looking at CPX for ex, if you bought only a week ago, it takes 2 years of yields to break even if the price doesn’t change. But looking at the technicals, you should never have bought because it’s below all MAs with macd and rsi screaming Don’t Buy yet.
    I’m also a div investor but we have to respect the technicals.

      1. Hi Sal, I would start with reading the book How To Make Money in Stocks by William O’Neil, who also founded Investor’s Business Daily. Considered by many to be the best book there is to start with.
        Note that timing markets and stocks is Extremely difficult. But at least understanding the trends is a valuable tool.

        1. I would agree, Cris, a good book. I read it some time ago. The key IMO is to buy when you have money, in a manner that keeps your transaction costs/fees low and also when stocks have gone down in price. To say you can time the market, various stocks, is really more luck than skill. That’s my experience and also the experiences I’ve learned from others.

          Much appreciated.

    1. Interesting thoughts, thanks Cris. From the technical side, are you saying some of these stocks are/are not “on sale”?

      I believe any stock moving down 10% or so in price is a better deal than buying the same stock when the price is higher. I certainly can’t time when it’s best to buy a stock, only in hindsight.

      Happy to hear your thoughts!

  8. Great post, Mark. You and I have remarkably similar approaches to investing: Canadian dividend payers (TUF sectors AND dividend growers from other sectors) and index ETFs for international exposure. Simple and effective. It’s important for investors to realize there is nothing magical about dividends and I especially like your graphic from Honestmath which illustrates this reality. Believing that dividends are “magical” just leads to distorted expectations and inevitable disappointment. But over time, stable dividends are certainly powerful and it looks to me like Canada’s big dividend players might be on sale right now.

    1. Thanks, Matt. I was hoping you’d chime in. I appreciate your rolling/ongoing updates related to BTSX because everythning is cyclical and even BTSX stocks are not invincible. Some years BTSX hammers the index/TSX, other years, not so much.

      Over time, I firmly believe in a basket of dividend paying and dividend growth stocks. Not easy times, but things will come around, eventually is my thought.


  9. I finally have some dollars to deploy after we navigated the summer on one income.

    I’m salivating at the opportunity that exists right now with all these stocks sitting at depressed prices. It’s hard to ignore how cheap AQN seems today but boy the interest rates are biting them in the backside. Might they cut again? Yikes.

    I think I’ve talked myself into adding to one of our bank positions but I may yet change my mind.

    1. So many deals to consider. AQN is one that is very beaten up, as are all utilities. Hard to know if they will cut or not but I can’t see AQN cutting again so quickly and at least waiting a quarter or two if they must absolutely do it. CPX is cheap. FTS is worth buying. So is EMA.

      Beyond saving up for the TFSA room in 2024, if I can find more $$ to buy more stocks this winter I will! Other options for me include BCE, Telus, more WCP in O&G as well. Lots of considerations. I just want to buy. 🙂


  10. Hi Mark, do you use or consider covered call option writing strategies to boost dividend yields? If so how do you employ this strategy? What impact does rising bond yields have on the capital and distributions for such a strategy? What can I expect in a scenario where the underlying security, say Enbridge drops 45% or more but the dividend payouts remain consistent and I continue to use covered calls?

    1. I actually have not, Jack. I pretty much own a mix of common stocks (CDN, U.S.), indexed ETFs, and then cash or cash alternatives. Very simple / more simplistic portfolio design this way (I think?!) as to avoid too much tinkering with the portfolio.

      Recall that calls are designed for long-term holdings, then selling (writing call options) on that same asset as to limit an investor’s potential upside profit but little protection if the stock price drops (a lot) in price. If the stock falls rather than appreciates, you’ll likely still be holding the stock, b/c the call option will expire.

      Covered call ETFs have pros and cons but I don’t see too many advantages when stocks slide in price.

      Are there some?


    2. I have been selling short term out of the money covered calls on my blue chip dividend stocks for over 20 years and have very rarely had my stocks called away from me. I have found it to be a nice way to supplement my overall returns in a relatively tax efficient manner. Low commission option brokers like Interactive Brokers help to boost returns as they enable less risky trades offering modest returns that just add up over time.

      I could certainly see why many people would not want to take the time to trade options, but, in my experience, it can be an amazing way to create incremental cash flow.


Post Comment