Weekend Reading – Dividends Matter
Welcome to my latest edition of Weekend Reading – the yes, dividends matter edition.
You can read some previous Weekend Reading roundups below:
Earlier this week, I shared my latest dividend income update – a brand new all-time high.
Have a great weekend and enjoy these reads!
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:
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.
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:
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.
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.
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.
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!
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).
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.
So, Do Dividends Matter?
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.
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:
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.
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.
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.
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:
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.
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Have a great weekend!