Yes there can be an ongoing debate as to whether or not ‘dividends matter’. Certainly that’s a personal decision and if an investor makes the dividends matter, then well, dividends certainly DO matter because that is the investment style that the investor has embraced. If an investor chooses a dividend growth approach all things dividend and dividend growth will drive the bus with respect to investor behaviour and the risk and returns characteristics the portfolio.
And the greatest advantage that a dividend growth strategy might deliver is with respect to investor behaviour in that it might enable that investor to stay on track. While there are no guarantees in the land of investing and even with respect to dividends, a dividend history is typically much less volatile than the prices of stocks. Dividend growth investors might be exposed to that more than useful ‘distraction’ as they keep an eye on that growing income stream.
Rob Carrick of the Globe penned With decades of dividend growth behind them, these stocks crushed inflation. That article looks to the Canadian Dividend All Star list on Dividend Growth Investing & Retirement. Of course if the goal in retirement is to create a dependable and growing income stream, a generous dividend and a growing income stream might fit the bill and take much of the stock market pricing out of the picture. From Rob Carrick’s article the Canadian stocks with a 10-year (or more) dividend growth history provide a current 3.3% average yield and an average annual 1-year dividend growth rate of 8.8%. The five year annual dividend growth rate was 10.7% and the 10 year annual dividend growth rate was 11.7%.
The investor who embraced this approach would have received an income stream that well, crushes inflation as Rob points out. Imagine the emotional benefit of getting a 9% or near 12% annual raise. If one is in the accumulation stage and adding monies on a regular schedule that income boost is even more exaggerated. That can, and does, make investors giddy with the dividend spoils.
The Globe and Mail piece will also point out though, that dividends do get cut and eliminated. The list will obviously have survivourship bias, it will not show those companies that would have been on such a list, but were removed due to those holds and cuts. Dividend growth investors will typically sell their companies that cut their dividends. Dividend growth funds will eventually remove those companies as per the index methodology.
Don’t forget the Canadian banks.
Not on that list of companies with a 10 year dividend growth streak is the Big 5 Canadian banks. In the financial crises these banks were mandated to not increase their dividends. They held their dividends steady. That said, many of the Canadian banks have been paying dividends (and mostly increasing) well before Canada was Canada. These companies might represent the peak of North American dividend royalty. And certainly the Big 5 crush the market indices with respect to total returns and dividend yield and dividend growth. That said, past performance does not guarantee future returns. It would be my opinion that if you embrace a dividend growth strategy you look beyond that wonderful list on DGI&R and consider the big banks.
Core broad market investing works for retirement, as well.
Portfolio retirement success comes down to enough growth (total returns) in a risk-managed fashion. The core portfolios of North American and global stocks, with the risks managed by bonds and cash will likely continue to do the trick. As an advisor on the index-based Tangerine Portfolios I saw many retirees who where enjoying incredible retirement funding success by way of those Balanced Portfolios.
Dividend focus or not that’s a personal decision. The most important consideration is that you stay committed to your investment approach. Get a plan and stick to it like glue.
On that dividend focus Mark Seed of myownadvisor offered his May 2019 dividend update. Mark and his wife are using that dividend focus to reach their early retirement goals.
Boomer and Echo offered some thoughts on when it might be a good idea to take your CPP early at age 60. I will have to give that some serious though within a few years.
On findependencehub home ownership trumps saving for retirement.
From MoneySense some great insights on RESP withdrawals and tax consequences from Jason Heath.
Milliondollarjourney has refreshed and updated 5 Useful Retirement Calculators.
And on the Canadian banks The Dividend Guy suggests they are not like Pokemons: you don’t have to catch them all. I love that headline.
This week I posted that Over 30 years as an investor taught me that ‘nobody knows nothing’. Yes that’s a double negative. But guessing about investing based on economic and political noise is also a double negative.
And on Seeking Alpha I suggested Don’t Worry So Much About Portfolio Weights And Rebalancing. Let It Ride.
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