Weekend Reading – Keep calm and dividend on
Welcome to a new Weekend Reading, folks, the keep calm, dividend on edition.
In case you missed a few posts on my site, here are some recent articles to check out:
Everyone has a valuable price related to their time. I think it’s a valuable exercise to figure out yours. James Clear, the author of Atomic Habits, has a comprehensive post about the Value of Time worth reading.
This post was popular this week: some top Canadian stocks to buy and hold – forever!
Weekend Reading – Keep calm and dividend on
The markets are down, inflation remains hot, and interest rates are moving higher.
Are you worried?
I’m really not that worried.
I’ve been preparing for higher interest rates for years, well before the pandemic.
Case in point – this post is literally from five years ago.
Where am I going???
Well, readers of this site will know I’m a big fan of companies that reward shareholders with dividends.
And why not love dividends?
Although I use a few indexed products in my investment portfolio, for extra diversification just in case, getting paid on a consistent, growing basis from Canadian and U.S. stocks – that’s a beautiful thing. I got another raise this week that I’ll link to below!
Digging deeper, I’m not that worried about the markets or inflation right now. There is a reason why dividends matter to me. Why do dividends really matter?
Beyond the Canadian dividend tax credit, beyond consistent payments and ever growing income I’ve experienced to date, dividends help me stick to my plan.
There is no financial advisor in my plan, nor fees paid to any advisor in my plan.
There is no day trading, there are no wasted fees or losses for trading.
There is no wild market speculation, I’m not trying to time anything.
I focus on my savings rate for investing and I invest more money when I have it. It’s that simple.
Recall that dividends paid is real money paid from real company profits. Buying and holding an established company that has paid dividends for decades is a good sign (at least from a historical perspective) that this company had enough cashflow to reward shareholders and stay in business.
Companies that don’t pay dividends tend to use their money for other means, grow their business; make acquisitions or buyback shares, pay down risky debt, therefore driving the stock price higher over time.
These are not poor management decisions by any means – far from it. There are lots of ways shareholder value is created and to be honest, acquisitions, share buybacks and other company reinvestments could be better company decisions in the long-run!!
When it comes to the capital gains versus dividend income debate, there really isn’t a debate to be had, since every dollar you earn in capital gains from a stock is worth just as much as your dividend dollar paid. I love this graphic:
Dividends from established companies however are paid consistently, and dividend payments might even rise over time by some, so this level of predictability can provide some financial security especially when you’re invested in a diverse portfolio stocks.
These are some stocks to buy and hold, potentially forever!
But why dividends matter to me is beyond the growing income – although of course that’s the outcome I want!
Dividends matter since there is something rather beautiful about seeing money earned from your investments come into your account, and then seeing that money buy more investments, every month, every quarter and every year.
When your money starts making money and that money earns more money, you’ll well into the magical world of compounding.
This really isn’t magic as you know (see graphic above), and dividend paying stocks aren’t the only investment vehicles that can participate in this wealth-building recipe. Yet consider the emotional benefits that dividends offer by sticking to a plan, reinvesting your money, motivated by saving for investment purposes, and striving to improve your financial literacy throughout.
That’s why dividends can really matter.
One of the best financial books I’ve read, The Investor’s Manifesto by William Bernstein, talked about the attributes of a successful investor:
- They must possess an interest in the process,
- They need more than a bit of math horsepower, far beyond simple arithmetic ,
- They need a firm grasp of financial history, and
- They need “the emotional discipline to execute their planned strategy faithfully, come hell, high water, or the apparent end of capitalism as we know it.”
So, read #4 carefully.
This is a world-famous neurologist, co-founder of a popular U.S. investment management firm, and author of several books on finance and economic history in one smart William Bernstein. He has contributed to Money Magazine and The Wall Street Journal several times. If he says what you need is emotional discipline to be succesful, then I listen.
Financial advisors, pricey money managers charging 1% or so for assets under management, and some various financial planners will continue to have some negativity towards dividend paying stocks for a few reasons. They are entitled to their opinions.
I just know I’ll continue to invest in a way that works for me, that keeps more money in my pocket (away from others), in a way that aligns with my emotional discipline. I hope you consider making your investment plan personal too.
More Weekend Reading…
Thanks to Emera, one of my largest holdings, with a dividend increase this week. Not that dividends are magical of course.
My friend Mel Dorion isn’t all about dividends but she does practice a few things I don’t write about often enough on this site – mindfulness.
Do you want to reduce your spending to reach a specific financial goal or simply to have more room in your budget? Does such a change fill you with dread at the idea of depriving yourself or making sacrifices?
Consider Mel’s free course here.
I enjoyed these various takes on the housing market for years to come, from Jon Chevreau. The biggest one from the list (for me), was smaller and more affordable housing in general. I would certainly expect this trend. “McMansions” cost you time and money, in terms of maintenance and managing a larger environmental footprint, commuting needs to ammenities, and much more. Something to consider, your lifestyle when buying any home.
A Wealth of Common Sense offered a guide to navigating your first bear market. From Ben:
“The more good decisions you can make ahead of time the easier it is to avoid the painful emotions that are brought about by the inevitable bear markets.”
Want to know how to retire earlier? Consider a side hustle as your golden ticket. You can shave years off your retirement date by having another income stream based on this Cashflows & Portfolios case study.
Dividend Growth Investor encouraged you to stay the investing course. From his post:
“The issue with stocks of course is that the amount and timing of future capital gains is largely unknown in advance. This is why people panic when prices start going down – they project the recent past onto the future indefinitely. They forget that stocks are not just some pieces of paper or blips on a computer screen, but real businesses that sell real goods and services to consumers who are willing to exchange the fruits of their labor for those goods and services. Over time, those businesses as group will likely learn ways to sell more, charge more, earn more and reward their shareholders. No matter the turbulence we will experience in the US and Global stock markets and economies in the short-run, I believe that things will be better for all of us ten years from now. And as investors, we invest for the long term, not for the next 5 years or 5 months.”
Good reminders for many!
Love this stuff from David from Filled With Money:
“Only after I read personal finance blogs and engaged with the personal finance community did my net worth start to take off. It still boggles my mind that there were total millionaire strangers providing all this advice for FREE. On top of it being free advice, it was the correct advice.”
Awesome, David. Kudos to your journey. Thanks for the long-time follow here. 🙂
Here are some recent Sunday Reads with thanks to the fine writing of Dale Roberts.
Hi Mark, Heat article. I agree that total return is the way to go. Way too often dividend investors get lured into value traps. A good case in point are the shipping stocks like Golden Ocean (GOGL) at the moment (30% dividend, PE at 2!). But when I asked some of my friends who work in shipping for over 20 years, you quickly hear that the shipping fees dropped by 80-90%, meaning the profits won’t be anywhere near where they have to be to sustain a yield of 30%. I more and more come to the realization that it is best to average into a selection of the best buy-and-hold-forever stocks you have super high conviction in, and keep doing that for decades. I started doing that in May 2020, and built my All-Weather Portfolio (now valued at approx. 600,000 USD). Keep up the good work, love your content! Cheers from Singapore, Noah
Thanks from Singapore, Noah.
Any particular all-weather stocks you own?
My top 10 buy and hold forever stocks in my portfolio at the moment are:
1/ Realty Income
6/ Brookfield Renewable
7/ Johnson & Johnson
8/ Store Capital (need to find a new one)
10/ Anheuser Busch
You can check out the full list here 👉 https://wisestacker.com/all-weather-portfolio/
I like a lot of those names, Noah, but biased since I own a few of them as well! I do have a soft-spot for renewables, I hope for the sake of our planet we can push that agenda ahead.
To be honest, I am scratching my head why names like Brookfield Renewable don’t work better in times like these.. Europe is in an (fossil) energy crises, we are facing unprecedented climate change, every country wants to become energy-independent, and so on.. and what does BEPC do? Falls by 43% from its high. Damn.
I don’t get it either but oh well. I will continue to own BEPC and BIPC for the long-game, Noah!
On the topic of dividends and higher interest rates my leveraged dividend portfolio remains “green” but very much down from its highs. Interest has grown to 50% of dividends. Yikes, that was fast! We’re temporarily on a single income so for the current month I’m capitalizing the interest rather than paying it out of our budget. That should change by the end of the year.
It’s a little more stressful now but watching my dividend snowball roll sure helps. Should any of my positions go “red” I’ll have to consider selling and paying off the line which I’m prepared to do. Hopefully it won’t come to that.
I think that’s the thing, James….I’ve always been a fan of total returns. Don’t get me wrong. But, there is a HUGE emotional benefit to seeing dividends and distributions roll into the account – and not paying a single financial advisor a cent to manange my money.
James, I recall you were working on a CFP? Update?
Great question on the CFP Mark.
Last winter I took one of the four core courses (Retirement Planning) that begin the process to earn a CFP. I also graduated from University LOL. Not bad for a 50-something (it’s a long story, I attended from ’89 – ‘92).
Just the one CFP course so far. My thought process was preparing for a side gig in retirement, strictly for friends and family. It was hard work and I’m not sure I’ll pursue it further although the Estate Planning course is very interesting to me. I’m just not sure I want to go through the exam process again.
In the end, I suspect I’ll eventually reach out to your sister site although I’m quite interested in Owen’s offering.
I’m comfortable with the direction I’m heading in for now but I will look for decumulation and tax efficiency advice within a year of our projected retirement date, around 4-5 years from now (I hope).
Given my objective of living off my dividends from all of my accounts the only real question I have in terms of taxes is if we should melt down our RSPs (and let some dividends reinvest elsewhere).
But, much could change over the next 4-5 years hence waiting for now.
Yes, the CFP is hard work…
I think that designation is great for financial advice, of course, and providing more holistic plans. Some of that is not needed for some depending on life stage.
The estate planning area is very interesting and could add lots of value to others – very personal decisions of course!
I think you’ll find the more reading you do, asset decumulation and tax efficiency will largely begin with slow RRSP/RRIF withdrawals before you are forced to. TFSAs are usually kept “until the end”. Not a must! 🙂
Thanks Mark for this great article!
I enjoy reading quotes from those great writers like William Bernstein , I’ve read his book “The four pillars of investing” .
I’ve re-read your post from 2017 on ” how we’re going to deal with higher interest rates” and it goes to show you that no one knows the future.
I remember that BOC wanted to increase it and they did but then in 2020 thanks to Covid it went down to almost zero and I remember reading multiple articles on how interest rates are going to be in the negative for first time in North america after Europe I believe and how 0% interest is here to stay and look at us today 🙂
My nephew renewed his mortgage last week with RBC and the person who was helping him suggested that he goes with variable rate because “Interest rates will come down next year for sure” 🙂 I would like to borrow that crystal ball for few days because I would like to know what’s going to happen tomorrow never mind next year.
Like you said it if you believe in the companies that you invest in you’ve got nothing to worry about and I remember years ago I’ve read in article when the market was acting up like today there was an example of Apple that if the stock of Apple goes down 50% would that mean that the iphone is going to be 50% off ? of course not .
Ya, noboby knows where rates might end up – I didn’t five years ago – but I do strongly remember how long, how cheap money has been and I figured it would not continue at some point. Money is not supposed to be free. 🙂
I think your nephew would be smart to get into a shorter-term fixed product personally, a good hedge. Rates are likely to go 100 bps higher in the coming 6 months. Almost “back to normal”!
Take good care, thanks for your comments 🙂
Whoa!! Mark!! Thank you for including me!!
I owe it to my readers to reach FIWOOT now!!
Ha, yes, you do! All the best David and thanks for following along and all your social media support.