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]
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 $73,270 today assuming you spent every dividend you were ever paid and did not reinvest.
|Bank of Nova Scotia||From Show||Correction|
|Share Price Dec 31, 1989||$ 16.25||$ 16.25|
|Initial Investment||$ 16,250.00||$ 16,250.00|
|Share Price at time of Recording||$ 73.27||$ 73.27|
|Split||N/A||4 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
- Tanya Hester’s Work Optional [5:30]
- My Own Advisor: Why I Don’t Invest in Canadian Dividend ETFs [12:10]
- My Own Advisor: Why Dividend investing works for me. Period.[15:00]
- Canadian FIRE: The Dividend Tax Credit is ON FIRE [21:30]
- Dividend Aristocrats [27:10]
- DividendEarner.com: Canadian Dividend Aristocrats
- Dividend Growth Investing and Retirement: What Canadian sectors and industries have dividend paying and dividend growth stocks, and what are these specific stocks? [27:20]
- TAWCAN: How to Start Investing in Dividend Paying Stocks
- TAWCAN: Step-by-Step Guide on How to Make a Dividend Portfolio Spreadsheet