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
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 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:
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.
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:
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 lots of bonds I prefer to own mostly equity 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.
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.
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:
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.
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.
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.
Have a great weekend!
Mark
Mark
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.
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
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
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 🙂
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
Hi Mark,
As someone who tried passive income through real estate and dividend stocks – Dividend income matters the most. In fact, I am obsessed and never too late to start one.
Great stuff Rommel.
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.
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
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
That’s cannew, not Mark.
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!
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
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
Yes, dividend stocks can help investors with their temperment for sure Kim.
Best wishes and thanks for following my blog and journey.
Mark
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.
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.
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