Slow and Steady Dividends Wins The Race

THE BRIEF

Value and long-term investing, slow and steady income… Doesn’t ring a bell? We don’t blame you. 2020 has been the year of investing into companies benefiting from COVID or beaten down growth stocks.

• Including dividend stocks is a great way for investors to diversify their portfolio with a steady stream of cash payments.

THE EXPLANATION

On top of the potential appreciation in the stock value, stocks that offer dividends will also provide regular cash payments which are deposited into your account or are directly reinvested (common with ETFs and mutual funds). Investing in dividend paying companies are viewed as a safer investment that provide “tortoise” like returns, slow and steady while growth stocks provide “hare” like returns, fast but unreliable.

A good gauge of a quality dividend stock is the longstanding streak of a company’s dividend payments. Struggling companies have a higher risk of lowering or removing their dividend payments.

• Companies like ExxonMobil ($XOM), Procter & Gamble ($PG), and several others have consistently paid out dividends every year for over a century.

A common mistake is investing in the company with the highest dividend yield. These companies have a high risk of lowering or removing their dividend payments and are a sign of fundamental issues within a company.

PRO TIP: Investors should be cautious with dividend yields greater than 10%.

THE ACTION

We hovered over the strength of the Canadian banks in last week’s issue. The top 5 Canadian banks are known for their long-standing history of paying dividends that are currently yielding a 4-6% return on an investor’s money.

Other industries known for paying consistent dividends include the Utilities, Energy, Telecommunications, Consumer Staples, and Real Estate Sectors.

There are specific Exchange Traded Funds (ETF) that invests in a basket of dividend paying companies.

• Vanguard High Dividend Yield ($VYM, 3.42% dividend yield), iShares Select Dividend ETF ($DVY, 4.16%)

PRO TIP: Investors looking to analyze dividend yields can see the full history of a company’s dividend payment on Dividata.