Weekend Reading – Dividends Matter

Weekend Reading – Dividends Matter

Hello Everyone!

Welcome to my latest edition of Weekend Reading – the yes, dividends matter edition.

You can read some previous Weekend Reading roundups below:

Should you consider leveraged investing?

How to plan your own retirement – including how to determine your financial independence number

Why most stocks are duds!

Earlier this week, I shared my latest dividend income update – a brand new all-time high.

Have a great weekend and enjoy these reads!

Mark

Yes, Dividends Matter

Hard to believe there are people out there that say “dividends don’t matter”. I mean, of course they don’t matter when you consider that any company doesn’t have to pay a dividend to shareholders. Companies can buy back shares, pay down debt, reinvest profits back into the business (especially younger companies and growth companies do this), acquire another company and the list goes on. However, for companies that make money hand over fist – they tend to have a dividend policy as to reward their shareholders and incentivize them for staying onboard. 

Dividends tend to matter to many investors, myself included, for many reasons:

1. Dividends are simple to understand

A company makes a profit – and some of those profits end up going to shareholders like me in the form of a dividend. So simple.

But there’s more!!

A very well-run company will tend to generate higher profits and pay bigger dividends over time. So, with many dividend companies I get the best of both worlds: rising dividend income + capital growth.

2. Dividends can deliver great returns

John Heinzl does a fine job posting a model dividend portfolio. For those that don’t subscribe to The Globe and Mail like I do (and follow John), here it is:

Yes, Dividends Matter - John Heinzl Model Portfolio September 2021

Source: tgam.ca/dividendportfolio

Don’t take John’s picks in isolation though. A mix of other dividend paying stocks can help you just fine!

According to RBC, a dividend investing strategy has killed the TSX index over time.

Yes, Dividends Matter

3. Dividends can provide stable and growing income

We know one of the pillars of investing theory is the stock market will always move up and down – sometimes very wildly at times! However, my dividend income only goes one direction:

My Own Advisor Dividend Income Update

Source: My Dividends page about what I own and why.

4. Dividends help me stick to my plan

Investing theory also tells us that trading, flipping in and out of stocks or funds, can be detrimental to your investing goals and not to mention cost you money. Instead of trading stocks, funds, crypto or anything else, my growing dividend income helps me stick to a plan I believe in. In fact, when the market does go sideways, I usually buy more of my favourite dividend stocks on sale. 

Here are some stocks I’ve bought more of in 2021 as per my plan.

5. Dividends provide inflation-fighting power

Have you seen the prices at the grocery store of late??

Inflation is a wealth-killer. 

Do you invest in fixed income? I don’t and I believe there are only certain reasons to own bonds.

Why would anyone own bonds right now?

Instead of owning bonds, I prefer to own assets that grow my income over time. This means a company that pays a dividend, and increases their dividend over time, can help fight that beast called inflation. It’s not the only way to combat inflation of course but it’s a very good one.

How to fight inflation.

6. Dividends (Canadian dividends) are tax efficient

As you may or may not know, if you have no other income besides dividend income, you would pay very little income tax (up to a particular income threshold) – as in nothing in some cases. Look at the “Eligible” column!

Dividends Matter - Taxtips.ca

Source: Taxtips.ca

Why?

Canadian-listed corporations benefit from the dividend tax credit (DTC), which reduces the amount of tax investors pay. As an investor, in Ontario in my case, with up to $50,000 in taxable dividend income pays essentially nothing.

That’s per investor!

So if you have a large enough dividend portfolio, you and your spouse could theoretically generate $100,000 in dividend income and pay essentially $0 in income tax (depending on the province that you live in).

Incredible…

Now, realistically, any investor that has tens of thousands flowing in – in dividend income – surely has some TFSA or RRSP or other assets – to earn income tax-free and tax-deferred respectively. However, you can see the huge wealth-building and income-building power that can come from a dividend portfolio.

You can read more about the dividend tax credit for taxable investing here. 

So, Do Dividends Matter?

Heck yes. 

For all the reasons above and more, dividends matter to me. I look at it somewhat this way:
Dividends Matter
 
The beauty of dividend investing is that I get paid to be an investor – with real money – I can reinvest or spend as I wish. I get paid for doing absolutely nothing as a buy and hold shareholder. What say you? Do dividends matter to you?
 

More Weekend Reading!

Congrats to fellow blogger Bob Lai for being featured with Rob Carrick in The Globe and Mail. Absolutely, dividends can matter to younger investors – any investors really.

Dividends Matter at Any Age

Our Life Financial is doing very well with her dividend income.

“My reinvested dividends purchased 42 shares this month, providing me with $87.57 added to my forward annual dividend income and an increase to my portfolio of $1,498.82 based on the current share price.”

Sam from My Dividend Snowball is doing very well to say the least:

Dividend Snowball - September 2021

Early retiree Matt Poyner doesn’t want any school to teach his kids about personal finance.

Mike Drak, co-author of Victory Lap Retirement (a review you can read about here on my site) encourages retirees or semi-retired folks to design your retirement lifestyle. His post on Boomer & Echo’s site highlighted some strong statistical evidence to retirement happiness and finding retirement purpose:

“These results match up well with recent studies done by Ken Dychtwald’s AgeWave where 92% percent of retirees agree that finding purpose is key to a successful retirement – 93% of the retirees surveyed by AgeWave believed it’s important to feel useful in retirement and 87% agreed that being useful actually “makes them feel youthful.””

Given any retirement purpose can come in many forms, I thought I’d share some of mine:

  • Part-time work, I like staying busy including keeping my mind engaged.
  • Volunteer work.
  • Improved wellness, including more physical fitness from walking, hiking, biking, golf and getting back into skiing in the winter.

MoneySense shared some updates on Couch Potato Core Portfolios – with the writing support of Mr. Dale Roberts. 

A reminder I have a VERY comprehensive post for anyone wondering how to get started with investing here:

Just starting out – how to get started with investing

Accidental Fire tells us we should check our ego when it comes to investing.

“We all have egos. In my experience the key to saving and building wealth is to avoid having a big ego around material possessions and the perceived status they bring.”

Thanks to Accidentally Retired for including me in the latest FIRE Insights Survey – always fun. 

Congrats Questrade – one of Canada’s best online brokerages and a proud partner of this site – for launching a new user-friendly mobile app called QuestMobile. (See my Deals page for more details including how you get started with commission-free investing with Questrade!)

With the QuestMobile app you can:

  • See the new on-screen Learning mode: helpful information always one tap away including definitions, how to read stock data and more.
  • Click and own any stock or ETF with market orders that execute in real-time. With limit orders, investors have flexibility to set the exact price desired.
  • Instantly track portfolio performance with a single-screen view of all accounts (RRSP, TFSA, Margin, etc.). Whether a self-directed account, Questwealth Portfolio or both, users can track their money all on one page, and dive into details of a specific account with a swipe.
  • Get real-time snap quotes as soon as the market opens, with no 15 minute delay on stock and ETF prices for all major North American stock exchanges.
  • Easily track the desired stocks and ETFs, with customizable watchlists that synchronize across devices.

On Cashflows & Portfolios – we answered a reader question: Can Tom retire with a $500,000 RRSP?

I won’t steal the detailed answer but yes, he absolutely can – read how and how much he can safely spend.

A reminder you can Hire Me! to run any retirement projections for you. See my link below!

I also run a site with my partner called Cashflows & Portfolios, a site dedicated to helping you manage your cashflow and portfolio wisely including any retirement drawdown plans.

Cashflows & Portfolios

After visiting the site, read this detailed Retirement Projections page and hit me up on our Contact page to find out more about our services. Because I’m not in the business of providing any direct financial advice, the cost of these services is well below what any financial advisor would ever charge you. Big time. 

On that site this week – thanks to more reader input – we answered this question:

What is a Robo-Advisor? Is a Robo-Advisor right for you?

My reader mail is really starting to pile up in the My Own Advisor inbox. So, part of this weekend I will be replying to those readers and highlighting a few answers in some upcoming Weekend Reading editions so please stay tuned!

Again, have a great weekend and thanks for your readership and sharing the site with family and friends.

Mark

More FREE My Own Advisor content:

How I invest in dividend paying stocks is always found here.

Why I invest in low-cost ETFs – along with dozens of articles about ETFs can be found here. 

You can find dozens of retirement case studies on my Retirement page here.

Looking for free calculators, tools, or even my support? Check out my Helpful Sites page here. 

Save, Invest, Prosper!

As always, check out my Deals page.

My very own personal BMO promo code remains available!  Use that BMO code to get hundreds in cash back when you open investment accounts with BMO like your RRSP, TFSA, taxable account and more! What’s even better with BMO now is they have commission-free ETF investing. Yup. They are now offering commission-free investing for more than 80 Exchange Traded Funds (ETFs), via their self-directed BMO InvestorLine clients. The ETFs cover a broad range of asset classes, geographies, management styles and popular themes from Canada’s largest ETF providers, including BMO, iShares and Vanguard. Simply awesome and I hope more big discount brokerages follow their lead. 

I’ve got a new partnership with EQ Bank – just look at the banner in the margin! EQ Bank typically offers the best savings account rates in Canada. I hope to park my cash wedge for retirement there! 

Read on: The Cash Wedge – a tool to manage market volatility at any age.

With 5i Research, take a no obligation FREE trial for your ETF and stock research.

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and I'm now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Subscribe and join the newsletter! Follow me on Twitter @myownadvisor.

17 Responses to "Weekend Reading – Dividends Matter"

  1. Hi Mark
    Good article.
    Dividends help a lot when it comes to taking a long term view on investing. Just seeing organic dividend growth of quality stocks over the years is hugely motivating. Combining that with dividend reinvestments and a regular, consisting savings process to put money to work has a positive impact on improving our financials. Indeed, dividends matter a lot. 👍
    Cheers

    Reply
    1. Those DRIPs (dividend reinvestments) can add a HUGE amount to any portfolio value over time. I’ve used that approach for well over a decade now myself. Thanks for your comment SavyFox! 🙂
      Mark

      Reply
  2. Happy Thanksgiving Mark to you and all the readers here!
    There’s a lot of things to thank for our health and family and people like you Mark who in their way are helping others to achieve a better way of living so thanks for all you do here.
    as for dividends Yes they matter they keep me calm through the storms of the stock market 🙂 and now I completely ignore market fluctuation and look forward for dividends payments and increases 🙂

    Reply
    1. Ah, so kind Gus! I hope you had a great Thanksgiving weekend. Yes, dividends can help investors psychologically stick to a plan and ride out market storms. The markets always seem to throw us a cuvreball now and then!

      Hopefully a few more dividend increases before the end of this year!
      Mark

      Reply
  3. There are a number of ways to invest successfully, but very few believe, or even know that they can do extremely well, if not better, by just investing in dividend growth stocks. No Mutuals, no ETFs, no International’s, and no fixed assets.

    Reply
    1. You know that well Cannew 🙂 I will stick to my plan. Still holding the same stocks?
      https://www.myownadvisor.ca/your-ever-growing-income-review-and-giveaway/

      Now, maybe this will catch many readers by surprise, we only own 12 dividend growth stocks (banks, utility, communication and pipeline stocks) across all our accounts. There are no funds, no ETFs, no REITs, no US stocks or any fixed income products. We do maintain a healthy cash account for personal and emergency needs.

      Thanks for your comment.
      Mark

      Reply
      1. Hello Mark,
        Thanks for an edition and I hope you are doing well.

        I’d like to clarify your comments above as I’m surprised:)) You now DON’T own etf, reits, us stock but 12 dividend growth stock. Is it correct? So you gave up a hybrid approach? if that I may have to rearrange my portfolio:)) Look forward to hearing from you. Happy Thanksgiving. Kim

        Reply
        1. Hey Kim,

          What May said 🙂 I still own ETFs and stocks Kim.

          Cannew is the one that just owns about 12 stocks. I couldn’t have that much conviction!

          Happy Thanksgiving to you too!
          Mark

          Reply
          1. Hi Mark,

            Thanks for a confirmation as I misunderstood it. I follows your path with DGI stocks and ETF. Since May and start seeing dividend coming to my account. This approach works for me as it calms me down and hopefully in 10 years I could reach your current level. Thanks for your post. Cheers. Kim

            Reply
    2. I, as one, believe that. That’s why my core holdings across my accounts are DGI stocks. And Yes to Mark’s question, of course dividend matters, matters a lot to me.

      If I have done tracking properly, I have just reached $4000 dividend increase year to date just by DRIP and dividend raises. Wow! I suspect my salary raise this year would be as much. And still expect another raise from ENB. This is with no dividend raises at all from bank and insurance companies which I hold quite a bit. With snowball effect, I assume I can expect more increase next year even without new money. But as we are still working, of course there will be new money added next year.

      Our investment income right now can cover our basic expenses, I am hopeful three years from now when we actually retire, dividend income can cover all of our expenses, basic plus discretionary. The current plan is to use group RRSP to buy more DGI, but if in case we already have enough dividends, I might use that money to buy more high growth stocks or ETFs.

      Reply
  4. Great post and thanks Mark for including the Core Couch Potatoes link on MoneySense.

    And for the record the entire Couch Potato section is updated.

    We had some hiccups in putting it all together, but it should be fixed up, I hope. Ha.

    I also have interactive performance charts in the works, comparing the Couch Potato and Advanced Spud models to the Mutual Fund benchmark. They should be posted soon.

    Thanks for the support.

    Reply
    1. Great stuff Dale. Yes, that was a monster article for sure. Well done and good insights for those that want to keep it simple.
      Of course, many of those Canadian ETFs have some juicy dividend stocks as holdings 🙂

      Happy Turkey Weekend!
      Mark

      Reply

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