#8 – Dividend Investing

dividends, coins, money, investing

In this episode, the Mechanic, the Accountant, and the Economist discuss dividend investing. We’ll sample a few new beers as usual too. If you found this podcast you’re probably familiar with the FI/RE movement that has grown in popularity recently. Here at the FI Garage, we’re all on the path to FI, however, we consider the RE part optional.

Beer #1 – A Tout le Monde – Brewed & Bottled in Chambly, QC by Unibroue [1:15 & 9:08]

Interesting Article [3:30]

How Work Optional Can Fit into Your Retirement Plan [4:28 – see reading list]

  • FI Garage apologies to People of Quebec [4:10]
  • “A good, well-planned retirement is designed to ensure that the vast majority of our time and energy is focused on achieving outcomes that are most important to us—and not having to do the bidding of others.” [5:50]
  • Super frugality versus value spending [6:30]
  • The FI Garage’s new definitions of FIRE: Financial Independence/Refocus Energy and Financial Independence/Redefine Employment [8:18]

Dividend Investing [2:40 & 10:00]

  • The Money Mechanic’s hybrid investing strategy: Canadian blue chip stocks and index ETFs [10:00]
  • Too much Canadian bias if we Canadians invest in Canadian dividend-paying stocks as part of a hybrid strategy? [11:15 & 23:10]
  • Building a portfolio of dividend-paying stocks versus Canadian dividend paying ETFs [12:00 – see reading list]
  • Negativity towards dividend investing in the FIRE community – the argument is if you have a $100 company that pays a $1 dividend then you have a $99 company and a dollar that you have to reinvest. This is true in theory (efficient market hypothesis), but this does not necessarily hold true – not how the volatile market reacts to dividend-paying stocks [12:58]
  • Income received from dividend-paying stocks is real, dividend-paying stocks tend to increase dividends over time helping to protect the investor from inflation, and seeing dividends being paid helps you to stick to your plan [15:00 – see reading list]
  • The Psychology of dividend investing and increased yields during stock market downturns [16:20]
  • Diversifying your personal income streams [17:10]
  • Tax Implications and the Dividend Tax Credit – Registered accounts and Non-registered accounts [18:20 – see reading list]
  • The sequence of return risk – market downturns are hedged by dividend-paying stocks [23:57]
  • How does the dividend gross-up work? [25:20]
  • Companies with high dividends are stable companies [26:30 – see reading list]
  • Canadian all cap index’s top 10 holdings have 10 dividend-paying stocks while the top 10 holdings of S&P500 have 5 dividend-paying stocks [28:00]
  • Impact of fees and the cost to buy your dividend-paying stocks [29:40 & 36:40]
    • Using a dividend paying index [30:25]
    • A planned investment that you save for [30:45]
    • Dividend Reinvestment Plan – DRIP [32:05]
    • Investing directly with the company and fractional DRIP (Direct Stock Purchase Programs) [32:55]
    • Wealthsimple zero fee trading [36:40]
  • Is there a dividend investing component of options trading – BUT this is not a component of FIRE [37:30]
  • Dividend investing is probably not for everybody – Downside: a large amount of research and analysis [44:05]
  • Own companies whose services you use [47:45]
  • Risk of dividend investing – cutting or suspending dividend [51:15]

Beer #2 – La Fin du Monde – Brewed & Bottled in Chambly, QC by Unibroue [35:02]

Deep Dive [39:12]

As seen in the table below 1,000 Shares of BNS in 1989 would have cost you $16,250 and would be worth $73,270 today assuming you spent every dividend you were ever paid and did not reinvest.

Bank of Nova ScotiaFrom ShowCorrection
Shares                 1,000              1,000
 Share Price Dec 31, 1989 $              16.25  $            16.25
Initial Investment $      16,250.00  $   16,250.00
Share Price at time of Recording $              73.27  $              73.27
SplitN/A4 for 1
Investment Value Today $      73,270.00 $     293,080.00
Capital Gain $      57,020.00  $    276,830.00
2019 Dividend Per Share $                3.48 $                3.48
Yearly Dividends $        3,480.00  $      13,920.00

Those 1,000 shares (now 4,000 shares) would now be paying you $13,920 in yearly dividends. This represents a 85.7% yield on your initial investment in yearly dividends. $16,250 indexed for inflation would be worth $29,894 according to the Bank of Canada inflation calculator.

In comparison, if you invested $16,250 in the S&P/TSX Composite Index the investment value today would be about $77,700, much less than the value of the same investment in BNS shares. And the yearly dividends that your investment in the index would yield are only about $2,080 – about $12,000 less than in BNS.

Correction from Neal from BalancingFIRE:

BNS has had a few stock splits through the years (turns out 2 for 1 in both 1998 and 2004).

So, your 1,000 shares would be 4,000 shares today. Instead of being worth $73,270 today, it would have been $293,080 today!


Similarly the yearly dividends today would be four times more (like $13,000).

Stupid Money Move [49:05]

  • Chasing yield and buying questionable companies or companies on the downward trend that have high yields.
  • Be wary of dividend yields that are above average
  • Make sure you do your due diligence before investing in a specific stock
  • There are bad deals at every yield

Reading List


  1. Great stuff, enjoyed listening to it. There are definitely advantages on dividend investing. We do both dividend investing and ETF investing to have the best of both strategies.

  2. Thanks Tawcan, I really think it is the best strategy to do both. As long as one is willing to put in the work and understands the risk involved in holding single equities. I’d say the biggest problem in my portfolio is too much Canadian bias.

    1. This is my issue too, Money Mechanic. I got my start in investing through “dripping,” after reading Derek Foster’s book (had around 16 drips going at the peak). Once I transitioned into using a discount broker I never moved away from focussing on Canadian blue-chip dividend stocks – and they now represent about 50% of my portfolio. I’ve got some thinking to do, and soon, about how I’m going to redeploy the investment funds.

      1. I’m still happy to keep my Canadian blue-chips and other CDN div stocks in my TFSA. Eventually I will cash flow those, and aim for around $7,500/year by the time we’re mortgage free, aka FI. I’ve been converting any RRSP holdings to index funds, just with more focus on US and Intl exposure. The dividend stocks in non-reg I have considered converting to the Horizons swap ETF’s but I’m waiting to see what happens with those.

    1. Thanks, I love that spreadsheet you made, we’ll get our producers to put that in the notes. I’ve shared that a few times on the FB group Canadian Dividend Investing.

  3. I strongly believe I am far too dumb and lazy to do better than average which is why I buy the index. I can’t square dividend investing with my view of the market as a whole. I likely own most of the good dividend paying companies in my index I don’t see why I would bother messing with the cap weighted structure. Although done in very small percentages of a portfolio it likely can’t do too much damage or good for that matter. If you are going to be a dividend investor some sort of analysis that takes into account increased trading costs expected return and risks relative to the plain vanilla index is in order. Really enjoying the podcast! Thanks keep up the entertaining banter.

    1. There’s always a lot of discussion between indexing and dividend investing. Both are valid strategies, and you’re right, there is more to take into account with choosing dividend stocks. Eventually I’d like to cash flow from my TFSA and non-reg accounts. I’d really like to be getting 4% which just isn’t going to happen with index funds without draw down. Cheers, thanks for commenting and listening to the show!

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