Dividends play a role

RYAN  By Guest Blogger Ryan Lewenza

John D. Rockefeller, the famous oil tycoon and arguably the richest person in modern history, once famously said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” Well I wouldn’t go so far to say the “only” thing that gives me pleasure (my kid’s laughter, a cold beer on a hot day, and ripping a 300 yard drive down the middle of the fairway are pretty darn good), but I definitely agree with old John that clipping quarterly dividends is a pretty good feeling. This week we examine the role that dividends play in a portfolio and overall returns.

Stepping back, when calculating equity returns you have to break it up into two components. First is the appreciation of the equity investment which simply is ending value divided by beginning value. For example, if you purchase a stock or, as our preference, a broad-based equity ETF for $10 and it appreciates to $15, your price return is 50%. Pretty straight forward. The second component to account for is any dividends that were received over the period you owned the investment. For example, if you received a $1 dividend over this period then your total return is $15 + $1 divided by your cost of $10, or a 60% return in this case.

Often investors focus on the capital appreciation part, trying to hit homeruns and often overlook the importance of dividends. This is a novice (and shortsighted) investor mistake since dividends, over the long-run, make up a sizeable amount of total stock returns.

If you invested $100,000 in the S&P/TSX Composite Index in 1988 that would have grown to $477,681 today based on price return only, which equates to a compounded annual growth rate (CAGR) of 5.75%. However, if you include dividends (and have them compounded) that same $100,000 investment would be worth $1,017,013 today, which equates to a CAGR of 8.63%. Therefore of the total return, dividends account for over 30%, or put in more real terms, $539,332. Goes to show the power of compounding returns!

Value of $100,000 Invested in the TSX from 1988

Source: Bloomberg, Turner Investments

A big reason why dividends matter is that they grow! Take Royal Bank for example. Royal Bank shares paid a quarterly dividend of $0.135/share in January 2000. After the 5% dividend increase in the most recent quarter, those shares now offer a $0.91/share quarterly dividend.

Looking at the S&P/TSX Composite Index, it’s dividend per share increased from $59.74/share in 1993 to $420.58/share which equates to a CAGR of 8.5%. Note the general relationship below between the rising dividend per share value and the TSX price. See a connection? This is why we believe strongly in focusing more on dividend growers than just high dividend stocks since that’s where you get the best rates of return, and why investors always need to have some exposure to the Canadian equity markets. Love or hate the Canadian banks, their consistent dividend increases in large part explains the great dividend growth rates of the TSX and TSX returns.

TSX Generally Tracks It’s Dividend Per Share

Source: Bloomberg, Turner Investments

Another important support for dividends is their preferential tax treatment. Dividends paid by Canadian corporations are eligible for the dividend tax credit, which results in lower taxes paid on dividends versus say, interest income from bonds. For example, an Ontario resident earning $75,000/year will pay 31.48% tax on interest income and only 8.92% on dividends.

Tilting portfolios more towards dividend paying equities rather than traditional bonds can result in higher after tax returns. Don’t get us wrong, we still want some bonds to help stabilize the portfolio, but we do want to have a higher weight to equities given their higher long-term rates of return (in large part due to the dividends) and the lower tax rates that are applied to dividends and capital gains.

So how are we positioning portfolios to take advantage of higher dividend rates? Currently, UK, Europe and Canadian equity markets offer the highest dividend rates at 4.2%, 3.4%, and 2.9%, respectively. Recently we’re trimmed our US exposure and added to Canada and Europe in part due to their higher dividend rates. Now let’s just sit back, enjoy the long weekend, and collect those divys!

Global Equity Market Dividend Rates

Source: Bloomberg, Turner Investments
Ryan Lewenza, CFA,CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.

100 comments ↓

#1 For those about to flop... on 09.02.17 at 4:36 pm

Inflewenza,are you trying to tell me you’re are going to pay me for using my photos with dividends…

M43BC

#2 Mic on 09.02.17 at 4:44 pm

This tool tells me that in Ontario, I would pay $3210 in taxes on an investment (retirement) income of $75,000 ($45,000 capital gains + $30,000 eligible dividends). I am loading up on dividend paying stock.

http://taxtips.ca/calculators/invest/investment-income-tax-calculator.htm

#3 Howard on 09.02.17 at 4:56 pm

“Love or hate the Canadian banks, their consistent dividend increases in large part explains the great dividend growth rates of the TSX and TSX returns.”

True. But looking at the RY.TO chart, sitting right on the 50-day MA after a massive run since January 2016….I’d be inclined to wait a bit before increasing exposure, especially as housing declines and oil remains stagnant. Dividends cannot easily compensate for a 15-20% stock price correction.

#4 Gasbag Boomer on 09.02.17 at 4:57 pm

Thanks Ryan, great article.

#5 David on 09.02.17 at 5:09 pm

Right on Ryan. One does need to beware of companies which pay out too much in dividends. Payments of between 3.5 and five percent work best so long as the EPS are safely higher than the annual dividend. I also look for a P/E lower than 15. There are plenty of great Canadian companies within those parameters, including CM, MIC, POW, LB, GWO, NA, BMO, RY, TD, and SLF.

#6 espressobob on 09.02.17 at 5:24 pm

Good point Ryan

Yield from global ETFs keep clogging up the portfolio in the form of cash. Monthly, quarterly & bi annual distributions keep flowing in, and loving it.

TSX in non-reg and growth in a TFSA. Great recipe.

The power draw still needs some work.

#7 Cici on 09.02.17 at 5:33 pm

#1 For those about to Flop

Can you please stop calling him InfLewenza? It’s not even funny, just grade-three style MEAN!

#8 Mark on 09.02.17 at 5:38 pm

” There are plenty of great Canadian companies within those parameters, including CM, MIC, POW, LB, GWO, NA, BMO, RY, TD, and SLF.”

Yeah basically everything you listed is a financial. Financials are inflated because of low interest rates which have expanded their margins quite considerably and bloated asset values.

So in a nutshell, if you really insist on going the individual stock route (which Garth et al advise against for various reasons, most of which I agree with), you need to be a lot more diversified than that.

#9 Support Mark! on 09.02.17 at 5:44 pm

What about Mark’s prediction of a 90 cent to parity $1.50+ CAD$ in the coming days because of Trump and his bad Presidency which is causing the US dollar to collapse?

#10 Ian on 09.02.17 at 5:49 pm

All dividends do is return the investment problem back to the investor. The whole point of an equity is that the internal rate of return of the company is better than other options. Paying the money back out means the company didn’t have better uses for the capital.

For one, if a co has excess capital, I would want a share buyback program long before I’d want dividends. Two, if a co has excess capital, I don’t want it. Capital gains baby!!! Small and mid cap rapid growers! Never owned a dividend stock in my life.

#11 Ian on 09.02.17 at 5:50 pm

Except for Goldcorp I guess, but that’s only because I have cranked up my gold exposure in the last two weeks.

#12 Mark on 09.02.17 at 6:00 pm

“What about Mark’s prediction of a 90 cent to parity $1.50+ CAD$ in the coming days because of Trump and his bad Presidency which is causing the US dollar to collapse?”

Bizarre, please don’t exaggerate my earlier comments, I didn’t offer a timeframe, but I’m thinking maybe a decade out for that final blow-off top to occur in the long-term CAD$ rally that started in the early 2000s. Probably coincident with a gold bubble. ~30 years after the bottom, for a ~60-year cycle between the CAD and USD$ pair, gold and the USD$ pair.

#13 300 yard driver ? on 09.02.17 at 6:01 pm

Keep dreaming

#14 Mark on 09.02.17 at 6:06 pm

“For one, if a co has excess capital, I would want a share buyback program long before I’d want dividends. “

The problem with buybacks is that they leave capital in a particular industry as if, for instance, one stock in an industry goes up, the traders are likely to bid the others up in belief of a systemic increase in long-term earnings. Eventually excess capital retention in a specific industry leads to overcapacity and collapse of margins.

Dividends, OTOH, force the investor to make the re-investment and asset allocation decision. Which could be effectively the same (ie: a DRIP into the same stock), but could also be in the form of rebalancing between sectors, geographies, asset classes, etc.

And in prolonged bear markets, of course, dividends are useful for some investors to live on, to give them a sense of personal security. Dividending out income, rather than retaining it forces management to make their case for additional equity or debt to the marketplace. This can be positive as it may reduce the incidence of malinvestment. OTOH, it could quash innovation as shareholders might not be eager to fund speculative investments such as in R&D that do not present immediate cashflows.

#15 Capt. Serious on 09.02.17 at 6:24 pm

Gordon equation baby. Learn it, love it, live by it.

#16 Gravy Train on 09.02.17 at 6:31 pm

#5 David on 09.02.17 at 5:09 pm

“I also look for a P/E lower than 15.”

#8 Mark on 09.02.17 at 5:38 pm

“Yeah basically everything you listed is a financial. Financials are inflated because of low interest rates which have expanded their margins quite considerably and bloated asset values.”

Mark, I think you missed the point that David was making. Low P/E ratios suggest that asset values are reasonably priced, not bloated, and thus it’s a good time to buy the stocks he listed.

#17 Lee on 09.02.17 at 6:32 pm

#2,

Do a comparison of a teacher with a $50000 db pension and full CPP and OAS but no other investment or rrsp income to someone with no db pension but $35000 of dividend income plus CPP and OAS and see what happens? Not much of a difference in purchasing power?

#18 Lee on 09.02.17 at 6:37 pm

I like ishares CDZ for CDN dividends. Pays about 4% dividend though only grows by about 2.5% per year over time.

#19 tccontrarian on 09.02.17 at 6:37 pm

Sure, I like dividends but in the same way I like ‘icing’ on a cake. My focus is always on the ‘cake’ as this is where the big $$’s are (if you make a habit of buying relatively low and selling high).
You hear a lot of people who say they “don’t care” about share-price fluctuation – they only care about the monthly distribution (income).
But a 5% annual dividend yield would be negated by a 5% drop in share price; of course, at a 6+% drop one would be at a loss and the dividend would serve only as consolation…to take some of the sting away.

To each his own, I guess.

TCC

#20 sydcixel on 09.02.17 at 6:41 pm

#7 You are absolutely correct. He has probably heard that taunt since grade 3. Anybody who choses to use such words should be excluded from posting.

#21 Looney Baloney on 09.02.17 at 6:43 pm

Uh oh. Cici has been triggered. Now she’s trying to tell us what we should find funny. Thanks sweetie, we’ll think about it.

Does Mark have two accounts now? One to post random nonsense, and a second to self congratulate himself?

If y’all could lay out what divy ETFs you have picked, what weightings they are in, and if you hold them in tfsa, rrsp or nr accounts, that be great. For the uninitiated, Divys have different tax treatment based on account types, esp us ones.

Hope y’all have a great long weekend sorrounded by family and canines.

#22 Stability on 09.02.17 at 6:55 pm

All good points, ryan.

Except that part on bonds for stability…
sure, if you are very old, or may need the money in the next 5 yrs, then stable is nice.

Young people that wont touch the principle for a decade or nore… do yourselves a favour and go all-stock.
That way you will end up much richer.

#23 espressobob on 09.02.17 at 6:56 pm

#10 & 11 Ian

Seriously dude? Rookie mistake on the gold thing.

Professional management?

#24 For those about to flop... on 09.02.17 at 7:06 pm

33 pm
#1 For those about to Flop

Can you please stop calling him InfLewenza? It’s not even funny, just grade-three style MEAN!

//////////////////////

Relax,Cici!

I already checked to see if he was cool with it.

Besides,it’s at least grade four stuff…

M43BC

#25 tbone on 09.02.17 at 7:13 pm

# 14 Mark

TD just had a run up this week in price after a big quarter and announced a buy back .

If you buy ZEB or ZWB you get all the banks and ride the share price up on all of them.

I have a bunch of TD and ZWB . The latter for the 5 %
monthly dividend for cash flow .

#26 young & foolish on 09.02.17 at 7:32 pm

Very informative post …

#27 Frank on 09.02.17 at 7:35 pm

Dividends are given out by companies that can’t use the cash for growth, and their stock is too expensive to make a buyback rational.

Underpriced stock should be bought back rather than issue dividends. That leads to a tax deferred gain, possibly 10 years later when you sell the stock.

Dividends are taxed immediately rather than deferred as gains are, taxed at higher rates for higher income tax payers, and push you into a higher income bracket with the gross up.

Bonds stabilize a portfolio, no more than holding cash does. If you don’t invest all your money, the returns will be smoother, but much less. Knowing in advance that you will lose after tax and inflation with bonds, makes them neither an investment or a gamble.

#28 For those about to flop... on 09.02.17 at 7:35 pm

6:41 pm
#7 You are absolutely correct. He has probably heard that taunt since grade 3. Anybody who choses to use such words should be excluded from posting.

////////////////////////

Wow! I don’t expect everyone to remember everything and so let’s take a walk down memory lane.

After Ryan’s first post he received some good natured ribbing amidst his welcome to the blog.

Out of all the jokes ,he plucked my post out of the barrel for his second post as if to say ” thanks a lot guys,but I better watch what I’m doing.”

I have been hamming it up with him ever since, and also call him The Duke of Earl after he admitted to drinking the tea.

I wrote the boss of this blog last night to say I will send you some more photos when I can find the time but I have been super busy at work.

In his normal jovial manner he wrote back “Feed me!!!” and so I spent the next 20 minutes searching for images for him to use and sent him a batch knowing full well it was InfLewenza’s turn to bat today and the above image was one of those supplied.

Do those sound like the actions of a man who has it in for someone?

I also promise ,one day I will stop crawling into the fetal position everytime one of you guys call me Flop…

M43BC

#29 nickname on 09.02.17 at 7:44 pm

#24
Besides,it’s at least grade four stuff…
Just drop the childish nicknames, Flop.
Unnecessary and not funny.

#30 young & foolish on 09.02.17 at 7:57 pm

“But a 5% annual dividend yield would be negated by a 5% drop in share price”

The point is to NOT sell the shares … as Buffet says, if you are not prepared to hold on to the shares for 10 years or more, then don’t buy them in the first place.

#31 young & foolish on 09.02.17 at 8:04 pm

My grandad says dividends are like rental income … the underlying property appreciates over time while paying you to hold it.

#32 Stone on 09.02.17 at 8:04 pm

#22 Stability

It shows you haven’t been here for very long or you aren’t absorbing the lessons being taught. Do the math over a 10 year period rebalancing annually. The result is shockingly amazing as to the power of a fixed income component (even if it’s all bond).

For the very old – you sure are naive.

As for dividends. Yes indeed, I do love them. They are the little magical reward that just keeps on giving, and giving and giving.

#33 For those about to flop... on 09.02.17 at 8:20 pm

Also,if consulted I would have named this post…

“Why you should think about Divvy’s instead of suffocating your child with a Skivvy”

But I was not, and so let’s roll with “Dividends play a roll”…

M43BC

#34 espressobob on 09.02.17 at 8:22 pm

Investing as a retail investor should be more about diversity and covering all the bases instead of looking at an individual index that is un loved.

The herd is unpredictable sending a overpriced index even higher even though analytical sensibility would suggest otherwise.

Just the opposite is true.

Be the benchmark. Easy.

#35 Ryan Lewenza on 09.02.17 at 8:27 pm

David. Right on Ryan. One does need to beware of companies which pay out too much in dividends.

Oh so true. Can’t tell you how many companies I’ve seen with high dividends yields who end up cutting the dividend and often the stock. Stick with broad based ETFs. It spreads the risk. – Ryan L

#36 steerage steward on 09.02.17 at 8:34 pm

instant accesses to everything, as we have.

Maybe we all read the newspaper? Seems not, in that no

is ready for they need to pay

#37 For those about to flop... on 09.02.17 at 8:41 pm

#29 nickname on 09.02.17 at 7:44 pm
#24
Besides,it’s at least grade four stuff…
Just drop the childish nicknames, Flop.
Unnecessary and not funny

////////////////////////

See?

Another hypocrite.

Why did you call me Flop instead of my full title?

Probably,because you thought it was no big deal…

M43BC

#38 Setting the Record Straight on 09.02.17 at 8:47 pm

You note the higher dividend rate from the U.K. But you add only to Europe? Why?

Brexit?
Worried about the pound? Then u could use a currency hedged etf

Is not the euro and $US also worrisome? To say nothing about the Canadian $?

I would like a UK investment.

#39 Ian on 09.02.17 at 8:55 pm

#23

I did equity research for 11 years professionally and still do it for myself.

Have you seen a graph of gold and Goldcorp in the last two weeks?

#40 Ian on 09.02.17 at 8:57 pm

And PS what I said in post 10 is from a Warren Buffett annual report years ago. He’s correct.

#41 Ian on 09.02.17 at 9:02 pm

Ryan…no concerns that the US market is the second most expensive valuation of all time? Passing 1929 pre Depression levels?

#42 steerage steward on 09.02.17 at 9:09 pm

kinda cool

https://static01.nyt.com/images/2017/09/03/fashion/03DION4/03DION4-master675.jpg

Almost as cool as Grath

#43 steerage steward on 09.02.17 at 9:11 pm

Haven’t cried

https://www.youtube.com/watch?v=BbRfapWaOKk

#44 acdel on 09.02.17 at 9:17 pm

How true, good article Ryan!

#45 Smoking Man on 09.02.17 at 9:19 pm

Problem with Dividends. To much work to role em for compounding.

Day 2 on the savage road trip. Staying another day in atlantic city before heading south. My dogs made some friends with other dogs despite my teaching of no friends have real life
3rd floor full at Harrahs full of dogs. Wyatt has a cruch on a shitzue. Her mom is pretty hot too.

Selling keysme to a lefty group in Washington. I’m to god damn lazy to make anything of it myself. Low energy due to alcohol abuse.

AS much as I hate the fact that I’m selling to criminals. Money’s money. Can’t let personal bias get in the way.

Then off to Florida.

Want to get close to this bitch. But not too close.
This storm will be epic. Historical.

http://www.zerohedge.com/news/2017-09-02/here-are-5-charts-showing-where-hurricane-irma-might-land

#46 Tony on 09.02.17 at 9:23 pm

Dividends are fine and good but in the case of a total market meltdown ALL dividends get cut for the foreseeable future. Its just like a bond fund where you made the wrong bet and unlike corporate bonds your principle is not guaranteed. That’s the catch 22 with stocks and bond funds.

#47 FOUR FINGERS WATSON on 09.02.17 at 10:09 pm

#46 Tony on 09.02.17 at 9:23 pm
Dividends are fine and good but in the case of a total market meltdown ALL dividends get cut for the foreseeable future. Its just like a bond fund where you made the wrong bet and unlike corporate bonds your principle is not guaranteed. That’s the catch 22 with stocks and bond funds.

…………………..
Through thick and thin, RBC has not missed a dividend payment since 1870

#48 MF on 09.02.17 at 10:14 pm

#29 nickname on 09.02.17 at 7:44 pm

#49 Andrew Woburn on 09.02.17 at 10:17 pm

As a professional accountant, I know how to fake income for at least long enough to get the boss a bonus and me a raise but I’ve never figured out how to fake a dividend.

That’s why I like companies that pay consistent dividends. They need real income to do it. Does anybody remember Enron paying a dividend?

#50 MF on 09.02.17 at 10:26 pm

#29 nickname on 09.02.17 at 7:44 pm

Hey lay off flop.

First off, he is a respected poster around here who consistently adds to the discussion, usually with humour and wit.

I personally kind of like the nick name and don’t mind if it stays.

MF

#51 steerage steward on 09.02.17 at 10:28 pm

http://www.yourdogplus.com/wp-content/uploads/2013/06/img_6138rev-4_3_rx1443_c1920x1440-600×450.jpg

God help us

#52 paracho on 09.02.17 at 10:28 pm

Love my Royal Bank dividends and its appreciation..alos love PFF, and all the US prreferreds I hold . Especially in my RRSP and TFSA !

#53 Ian on 09.02.17 at 10:29 pm

#47

RBC hasn’t faced the biggest debt bubble in Canadian history yet. Just getting started.

#54 mike from mtl on 09.02.17 at 10:32 pm

Dividends are all fine and good however, as with everything, there’s no free lunch.

Preferreds, nice payout but with the added risk of general equities and inversely related to bonds. Who could have guessed sharp drops in either? In retrospect since the 2000s were a low risk high return, but things changed and got ugly.

Banks common shares, some can give high payout but not without significant risk. There’s a reason for this, if it was so easy no one would invest in usual common shares.

#55 Lee on 09.02.17 at 10:33 pm

#47,

Dividends of good solid companies with a history of increasing dividends such as big banks, Bell, Fortis, CN, etc. rarely ever get lowered. Something would have to go structurally wrong with a company for that to occur. A market downturn isn’t enough.

#56 Ponzius Pilatus on 09.02.17 at 10:43 pm

A Nation of Preppers.
Israel has enough bunkers to house their entire population.

#57 Smoking Man on 09.02.17 at 10:46 pm

#47 FOUR FINGERS WATSON on 09.02.17 at 10:09 pm
#46 Tony on 09.02.17 at 9:23 pm
Dividends are fine and good but in the case of a total market meltdown ALL dividends get cut for the foreseeable future. Its just like a bond fund where you made the wrong bet and unlike corporate bonds your principle is not guaranteed. That’s the catch 22 with stocks and bond funds.

…………………..
Through thick and thin, RBC has not missed a dividend payment since 1870
….

A few more years of Dave McKay I’m betting they miss one or two. He doesn’t see the shift. Should have bucket a few rivits for the experience.

#58 Ponzius Pilatus on 09.02.17 at 10:48 pm

Apparently, WW2 is not over yet.
60,000 citizens of Frankfurt are being evacuated because workers uncovered an un-exploded allied bomb.

#59 Cici on 09.02.17 at 11:24 pm

#21 Looney

No, but now I am triggered you lazy, pretentious and annoying little snowflake. Do your own basic research instead of asking for handouts, and watch who you’re calling sweetie.

#60 FOUR FINGERS WATSON on 09.02.17 at 11:29 pm

#53 Ian on 09.02.17 at 10:29 pm
#47

RBC hasn’t faced the biggest debt bubble in Canadian history yet. Just getting started.

…………………….
1929 ? 2008/09 ?

#61 acdel on 09.02.17 at 11:37 pm

#45 Smoking Man

Seriously Smokie, as in life, one needs to step through a few hurdles to get the money rolling, who cares if it takes a day or two longer, Ryan is correct. The wealthy have been doing this all along..

I agree with you regarding Irma, this one might be the epic storm of the century if it reaches the U.S. shores, unfortunately to the poor souls in southern Texas that are going through incredible hardships,Irma does not even compare according to the models to what you are going through, this is unprecedented, if this one reaches the U.S. shores, wow, God help all those in its path. This will be the worst of the worst,catastrophic! I hope not!

#62 crowdedelevatorfartz on 09.02.17 at 11:50 pm

@#7 Cici and #29 nickname

Well, I see the pc crowd are rising with the waxing moon…..cant wait to see what they whine about when its Full.

Grow up kids.
I’m sure Ryan has been called much worse by clients.

As for the Flopster….he’s been called worse by his friends…….

Now back to more important things….
Does gas leave the elevator as people enter or does it stay?

#63 crowdedelevatorfartz on 09.02.17 at 11:54 pm

But THE most important question of the weekend.

Did Apocalypse2017 get trapped under an unstable pile of hoarded Toilet Paper in the bunker OR is he busy helping mom and dad close the cottage in Northern Ontario ?

#64 Rentin on 09.03.17 at 12:28 am

Here is a listing in Langley:

https://www.realtor.ca/Residential/Single-Family/18559828/2535-206-STREET-Langley-British-Columbia-V2Z2B5

And the assessment:

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDBGNFhYSg==

In case the links don’t work,

Sold for 2.599M Jan 2017
List for 3.625M currently
Assessed at 1.6M June 2016

Likely wont sell, but if the current owner drops his pants at 20% off list, that statistic will be plastered all over this board, not the fact that the buyer would have made 400K. Not to mention the 400k ROI could be calculated on a 700K down payent at 50%.

But – the owner must sell to that greater fool.

Now what if I told you the owner was Asian? See – it changes everyone’s opinion because people just take the facts and fit them to their pre-conceived mold.

Anyways, there are 100’s of places listed for sale like this. Bought high; sell higher. Not a sign of a healthy market. Hope the NDP kill our economy and the housing market along with it. That’s the only way to reward the people with a 2+ asset strategy.

#65 Oft deleted much maligned stock picker on 09.03.17 at 2:47 am

Agreed….dividends are good. I run 40 stocks in my quiver and 35 are dividend payers. Some growth plays pay no divs but make it up on growth if you choose the right ones and hold on. I picked GBI.a for example as a small company with great fundamentals…..and a big debt through acquisition strategy…..but it paid off…..$15 to $60 in a few years time…..Tim Hortons…..another super stock…$14 to $92. And now as QSR a big winner…so safety is not always the right play and a few ‘superstocks’ in your portfolio serve to turbo charge the overall performance. I own quite a few superstocks that also pay divvies….so there’s no rules to this…..just fundamental analysis ….and pray someone like Trudeau doesn’t do or say something extremely stupid about your industry.

In fact the salad days for buying the great dividend payers for growth has passed. A few years ago when the market was starved for yield the room got crowded with buyers and everything from banks to telecoms have trebled and more…..the BCE’s etc have run from $18 to $50 ad nauseous….all while paying a dividend. The growth is baked in for the most part….barring M/A….but the divs are still growing.

My strategy now is to keep buying with the steady cash flow generated from the divvies and distributions. Many great companies pay monthly…..even som covered call ETF’s……so get paid monthly…quarterly….semi…..and annually so you can dollar cost average into every stock you own…instead of rebalancing…..which to me is a tax trap…..why sell winners and pay tax……that’s a losing game……get paid…never sell….starve the beast…..cash flow builds continuously……it’s a virtuous circle.

#66 Bankish on 09.03.17 at 7:10 am

A most excellent article!
I am a retired blue collar worker who has a self directed portfolio of over 1 million dollars in Canadian Banks and earns over $50,000 a year in dividends. I added a lump sum buyout of my non indexed pension to my portfolio last year and over the last 2 quarters alone have seen a dividend increase of over $3,000.
This type of investing is not for everyone as I will probably never sell a share because of market market ups or downs. You must believe the math and history behind the investments and ignore the daily noise and the sky is falling crowd.
A good site to study the total returns of stocks over time is http://www.longrundata.com/
As of last Friday I’m up 25% since Mar.7th 2016 and the historic average return has been 10 to 12% annually which seems possible in this rising interest environment.
For the doubters of this approach I wish you luck in your own endeavors and remember Canadian mortgages in arrears are less then 0.35% while American mortgages are closer to 4.0% in arrears and their world has not collapsed.

#67 Havana girl on 09.03.17 at 8:17 am

Any thoughts Garth??

http://vancouversun.com/homes/buying-selling/the-big-sell-custom-built-vancouver-home-goes-for-well-above-asking-price

#68 suburban coyote and pup on 09.03.17 at 8:46 am

informative post Ryan thx

Cici #7
Sydcixel#20
nickname#29

Knock it off with the critique of Flop… nothing malicious about his humour or nicknames and he takes time to share a lot of on the ground info in BC real estate. So shut your pie holes already ;)

Onf52

#69 Ryan Lewenza on 09.03.17 at 8:58 am

Setting the Record Straight “You note the higher dividend rate from the U.K. But you add only to Europe? Why?”

Yes partly due to the unknowns of Brexit but also since the UK market is heavily weighted to the oil and gas sector which given Canada’s huge exposure results in an over-concentration of oil and gas. – Ryan L

#70 Al on 09.03.17 at 9:04 am

Influenza,

I am 100% with you on this one. Way to highlight this.

I am big time dividend investor. I buy the great blue chip type companies whenever they down and usually pick them up at a time when their dividend yield is between 4% and 5%.

Now at the young age of 36 I already get $11,000 per year in dividends that are growing every ear.

For example. Bell and Enbridge right now are paying close to 5%. This is amazing. It’s not like bell or Enbridge are going anywhere anytime soon.

Anyways…great post.

#71 Ryan Lewenza on 09.03.17 at 9:05 am

Ian “Ryan…no concerns that the US market is the second most expensive valuation of all time? Passing 1929 pre Depression levels?”

Yes it’s a concern and something we’re watching closely but there are other mitigating factors. First is given low interest rates and inflation you can justify higher valuations. Second, corporate profits are rebounding which should drive stock prices higher and compress valuations. Third, if Trump and Congress passes corporate tax reform, this could send profits materially higher and help compress valuations further. Fourth, inflation remains low so this is allowing central banks to remain accommodative and keep rates low, a key support for the economy and stock market. Fifth, technicals remain bullish. One day the high valuations will be a problem but for right now the other factors keep us bullish. – Ryan L

#72 Tony on 09.03.17 at 9:36 am

Re: #47 FOUR FINGERS WATSON on 09.02.17 at 10:09 pm

I stated cut not omitted.

#73 Ian on 09.03.17 at 9:40 am

Ryan: thanks for your thoughts. I agree completely that the market has not rolled over yet, I use the monthly PMO (price momentum oscillator) on Stockcharts to look at it, and you’re right, especially on the Nas 100 it’s not rolling over yet. S&P 500 looks a little more shaky, but not breaking down as yet.

I would just caution that I don’t think we’re in an accommodative rate environment any more. Remember Martin Pring’s advice #1: ‘don’t fight the Fed!’

It would be wonderful to see that tax reform. If only Canada could do the same!

Second question…do you guys not use precious metals in your diversification? Gold has been in an awful bear for many years but I’ve beginning to pick up the equities in the last two weeks as I think it’s waking up.

#74 NoName on 09.03.17 at 9:58 am

Economy might be ok, buy hman race, i am not so sure about… press play!

https://goo.gl/cwxHRf

#BackToSchool

#75 Dissident on 09.03.17 at 9:58 am

LMFAO, I just got the joke.

#7 Cici on 09.02.17 at 5:33 pm
#1 For those about to Flop

Can you please stop calling him InfLewenza? It’s not even funny, just grade-three style MEAN!

#76 NoName on 09.03.17 at 10:03 am

hman race should read humankind.

#77 Dissident on 09.03.17 at 10:07 am

#10 Ian on 09.02.17 at 5:49 pm

This seems like a misinformed comment. I see companies with dividends as companies that are not growth companies, their stock value is not going to shoot up by 100% in 6 months or a year, and they are ‘cornerstone’ or ‘essential’ services or utilities that want to incentivize investors to give them their money to help prop up the stock price, a stock price that can wobble up and down throughout the year, not really ‘going anywhere’, but the payoff is the dividend, a sort of ‘thank you’ to the investors who forego any stock price appreciation perks and instead gobble up the dividends that are handed out for their loyalty and their money. That’s my layman’s interpretation of it.

The fact that dividends are taxed less is representative of the nature of the investment; its more predictable than growth stock gains, and typically not as high or extreme, yet consistent. Growth stocks would have the potential to yield higher capital gains and therefore would be taxed accordingly. There, I think that makes sense.

#78 NoName on 09.03.17 at 10:07 am

Few weeks back i wrote how how amazon prime is actualy loozing hunderds of dollars on prime members for shipping. here is an interesting read us gov subsidizing “each box” buck fifty.

https://goo.gl/MzAfvV

#79 NoName on 09.03.17 at 10:24 am

Interesting read, 1/4 of cowboys were black.

http://realhistoryww.com/world_history/ancient/Misc/Cowboys/Black_Cowboys.htm

#80 Brian on 09.03.17 at 10:26 am

I have a lot of dividend growers but two ETFs that dole out monthly dividends and our well diversified are VGG (or VIG in the US), dividend appreciation aristocrat for the US and VDY and XEI for Canada.

#81 Figus Makum on 09.03.17 at 11:40 am

Hey Smokie,
On your sojurn in Florida, treat your 4 legged travel companion to a day at the beach at Brohard Paws Park, Venice, Florida. Transplanted Canuck, Ted, is the local dog whisperer and bar owner. His canine inspired bar is a delight! Evening floor show includes Fifi, a white french poodle who is lowered from the ceiling on a platform while “singing” and playing a puppy-sized piano.

https://www.youtube.com/watch?v=VSvRYDecohA

#82 BoomerKid on 09.03.17 at 12:16 pm

#53 “RBC hasn’t faced the biggest debt bubble in Canadian history yet. Just getting started.”

I think the Big banks are pretty safe. Banks make a lot of money from debt. Think about it this way: if mortgage rates go from 2% to 3%, they make 33% more. Even if their mortgage portfolio decreased by 1/3, they would still be making the same amount. Their issue is if people declare bankruptcy – then they would lose their principal. But many mortgages are covered by CMHC. For mortgages given out a number of years ago, most people will have accumulated enough equity in their homes, that the banks would recover most of their losses through power of sale/foreclosures even if housing prices decrease. It’s really mortgages in bubble cities of Vancouver/Toronto in the last year or so that is the problem…which is why OSFI is implementing the stress test on all mortgages later this year.

Having said that, banking is a cyclical industry. By looking at P/E ratios alone, you can over/underestimate the value of a banking stock. Given that the economy is doing well right now, the P/E ratio might make them look cheaper than they are. But that depends on where you think the economy is headed…and not being a fortune teller, I really can’t tell you.

#83 Wrk.dover on 09.03.17 at 12:33 pm

I was driving Airline Limo out of the Toronto airports in 77 and in about October one morning the American business men stopped arriving out of the blue. No more twenty dollar US bills for an eleven dollar run to the down town.

It was due to some financial event.

The boss told me ” when America sneezes, Canada gets pneumonia. “

#84 Ian on 09.03.17 at 12:34 pm

#77

Well it’s from Warren Buffett so it isn’t misinformed.

Depends what you want I guess. I like high internal rates of return and deferred capital gains. No one is saying the stock has to do 100% quickly, but it will defintely do well if the co has no dividends and lots of uses for capital for growth. You can keep it for years and pay the cap gains later. Which is also taxed favourably.

#85 For those about to flop... on 09.03.17 at 12:34 pm

Pink Lemonade stand in Delta.

These guys picked this place up for 1.75 back in April of 2016.

It is over 40 years old with some updates,but the assessment came in at the lower number of 1.59

Could still get out of it whole ,but probably not the Garden of Eden they were looking for…

M43BC

996 Eden Crescent, Delta

Aug 30:$1,928,000
Sep 1: $1,780,000
Change: – 148000.00 -8%

https://www.zolo.ca/index.php?sarea=996%20Eden%20Crescent,%20Delta&filter=1

https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDA1VlFXRg==

#86 Gulf Breeze on 09.03.17 at 1:09 pm

Just bought back into the gold market after a terrible pre election false start.

The only thing assured in 2018 is instability and further chaos.

With the military firmly in control in the U.S. it is likely the debt ceiling will be lifted. Climate is going to have an impact on food prices. Bank regulations likely to be relaxed. Interest rates likely not raised.

It should be good for gold miners, but really…who knows?

#87 technical analysys? on 09.03.17 at 1:11 pm

A little disappointed there is no technical analysis in this week’s topic. Having said that, Ryan is right on the money here. Re-investing dividends over the long term is the way to go.

#88 Keith in Calgary on 09.03.17 at 1:57 pm

Sitting here in Whitefish, Montana for the long weekend.

Normally Canadian license plates outnumber Montana ones by 3-1………the last 2 days it’s more like the locals outnumber us by 10-1.

Nor a lot of for sale signs on the pricey real estate here either.

Interesting.

#89 waiting on the westcoast on 09.03.17 at 3:05 pm

Looks like the Victoria market is hiring a plateau… VREU can rejoice! ;-)

http://www.timescolonist.com/business/after-years-of-rising-values-benchmark-house-prices-cooling-in-victoria-core-1.22369434

#90 Ronaldo on 09.03.17 at 3:07 pm

#67 Havana girl on 09.03.17 at 8:17 am

Any thoughts Garth??

http://vancouversun.com/homes/buying-selling/the-big-sell-custom-built-vancouver-home-goes-for-well-above-asking-price
—————————————————————–
Very few homes come up for sale in this area. Have monitored this area over the past few years and prices of lots have increased by over 1 million since 2008. Many older homes have been torn down and huge homes built in their place with suites and laneway homes. Huge profits have been realized as a result. A recent sale (Nov. 16) of a house purchased by a realtor for 1.8 million (originally bought in 2008 for $875m) has been totally renovated and the realtor expects to pocket a half million on the resale. The place was actually a tear down 1910 model with sloped floors due to foundation problems. Will be interesting to see what they get for it. There are still a few greater fools out there. The lack of supply and people with more money than brains appears to be the reasoning behind these huge price gains.

#91 NoName on 09.03.17 at 3:20 pm

Older but interesting (2016)

The seismological observatory NORSAR at Kjeller recorded today, 6 January 2016, 02:40:48 Norwegian time, seismic signals from the reported underground nuclear test in North Korea. This is the fourth in a sequence of tests carried out by North Korea since 2006.

Date: 2016/01/06 02:30:00 Norwegian time

Place: North Korea (41.28°N 129.07°E)

Magnitude: 4.9


Depth: 0 km

The event is estimated by NORSAR to have a magnitude of 4.9. In comparison, the previous North Korean nuclear test which took place on February 12, 2013, a magnitude of 5.0. The first North Korean nuclear test on October 9, 2006, had a magnitude of 4.2.The location is estimated to be 41.28N 129.07E which is in the region where the previous nuclear tests have taken place. This is a distance of approximately 7360 km from NORSAR’s seismic station in Hedmark. Given that the seismic waves take approximately 11 minutes to propagate from North Korea to Norway, the measurements indicate that the event took place at 02:30 Norwegian time.

From the size of the event, indicated by the seismic signals, we can say that this was a nuclear event. It is not possible to tell what kind of nuclear device this was from the seismic signals alone. Future observations of radioactive leakage may be able to address this question.

https://www.norsar.no/in-focus/new-nuclear-test-by-north-korea-article186-863.html

#92 Mark on 09.03.17 at 4:31 pm

“Think about it this way: if mortgage rates go from 2% to 3%, they make 33% more.”

It sort of works that way, sort of doesn’t. If mortgage rates go from 2% to 3%, and the increase was completely in isolation to an increase in funding costs, or actual default rates, then sure their profitability goes up.

However, if rates went up because the BoC increased the policy rate, or if actual defaults started seriously accelerating (or some combination of both), then bank profitability would not increase. And over time, the bank’s balance sheet may even shrink as asset values are compressed.

In the short term, rising rates can be good for banks, but over the long term, higher rates are quite bad due to the shrinkage in the real valuation of assets, and higher competition to lend against a smaller asset base. Its no surprise, hence, that the banks, in the long-term falling rate environment, have become some of the wealthiest, highest dividend paying, and most highly compensating companies in all of Canada. A feat that will not be replicated as long-term rates rise.

#93 young & foolish on 09.03.17 at 5:26 pm

“The only thing assured in 2018 is instability and further chaos.”

Really …. when has this ever NOT been the case? You are either an optimist or a pessimist.

#94 Leo Trollstoy on 09.03.17 at 5:30 pm

I love Canadian banks and their dividends

They’re a winner

#95 current on 09.03.17 at 7:00 pm

#90 Ronaldo

Those are sales from june, so not that current any more?
Would it still go for that in sept 2017?
I’m not sure, maybe?

#96 Smoking Man on 09.03.17 at 8:08 pm

8pm and no Garth.

Everything ok brother?

#97 Yanniel on 09.03.17 at 8:43 pm

Hi Ryan,

Aren’t European equities subject to a 15% withholding tax on dividends? If so, how do you go about it? I mean, do you simply take the 15% fine as the cost of doing business in Europe?

Thanks,

Yanniel.

#98 Dissident on 09.03.17 at 9:36 pm

Anyone else concerned about this BRICS business?

Nevermind Hurricane Irma and KJU and his nuclear tests, this is the real concern…

Getting a couple steps closer to overthrowing USA from the iron throne, and replacing the global currency…

How would you feel having to answer to China…and Brazil, and Russia, and India, and South Africa (aka BRICS)?

http://www.foxnews.com/opinion/2017/09/03/china-brics-and-stones-may-break-our-loans.html?

#99 Dissident on 09.03.17 at 9:52 pm

And then there’s this other acronym to raise an eyebrow about. OBOR.

Why overtly invade countries with a military when you can covertly buy your way into ownership through ‘business’ interests.

The problem is, USA is playing Risk while China is playing Monopoly.

http://www.cnn.com/2017/05/11/asia/china-one-belt-one-road-explainer/index.html

#100 Joe Schmoe on 09.04.17 at 10:31 am

Ryan,

Please stop posting about the favorable tax treatment of divedends. ‘You Know Who’ will pounce and say you are evil for exploiting these ‘Loopholes’

Thanks