I Love Companies that Pay Dividends!

dividend treeSince I don’t have a work pension, I need to save on my own for retirement. The government pensions alone won’t provide enough for me. I used to invest in mutual funds, then after reading a few books, such as “Stop Working” by Derek Foster (who claims to have retired at age 34 with an income derived from dividend-paying stocks) (Derek’s website), I took some baby steps after reading his books and began buying stocks. The idea is to buy conservative, recession-proof stocks that pay dividends, especially those that increase over time. I would rather live off the fruit from the tree (the dividends) rather than chop it down for the wood (selling the investments for income). The ones that tend to be considered safest and recession-proof are things like Canadian banks, utilities, consumer staples like Proctor and Gamble, Johnson and Johnson – generally blue chip and, truthfully, boring, selling things that people need all the time, no matter what the economy is doing. These stocks pay 3-4% in dividends every year, and the dividends generally increase every year. If the dividends are reinvested, they can grow quite nicely over time. The theory is that after a few decades of compounding, the dividends themselves will be sufficient to live off (along with government pensions) and the stocks won’t need to be sold. I aim to buy stocks that I will hold for many, many years. Assets that don’t produce dividends, like many mutual funds, would need to be sold off gradually to provide retirement income and then you face the risk of outliving your money.

At first I found this all a bit overwhelming but gradually I absorbed and understood more. Soon, I was able to read and absorb the business sections of the newspaper and now that’s my favourite part.

Nowadays I joke that reading the business pages is my version of reading celebrity gossip. Finding out what public companies are doing is more exciting to me than finding out what celebrities are up to. At first this was a little daunting and my timing wasn’t great (my first purchases were a few months before the 2008 market crash), my stocks went down in price. However, over time I have earned some nice, healthy dividends and I can see that this is a great long term strategy. Not to say that I haven’t bought some poor performers. I’ve been bitten by the stock cutting its dividend shortly after I bought it, some underperformers, and some that just plain tanked. But on the whole it’s been a great strategy. I will post more about investments and dividend stocks over time as it is something I really like to watch and see the progress.

Michelle

2 Comments

  1. Nice article. Have you ever looked into Split Corps? A few came up when I filtered for dividend stocks meeting certain criteria. One, as an example, was North American Financial 15 Split Corp (FFN-T) – Globe shows P/E of 6.5, yield of 13.75% (normally a red flag), and ttm EPS exceeding the dividend (but quarterly EPS extremely lumpy). Reading the fundamentals on RBC – the numbers don’t seem to make sense (eg, profit margin 908% ??).
    Tried submitting a question on BNN a couple of times, but no takers yet…

    • I looked into one I think called Canadian Bancshares a while ago. It had a fabulous yield in the 10% range, but I shied away because I didn’t know how it all worked. From what I gather they were doing derivatives plays on the bank stocks, which is how they managed to yield significantly more than the bank stocks themselves. To me this seemed fraught with risk. But then I ended up buying some Canadian resource stocks which then tanked, so what do I really know???

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