It was nice to see a prominent dividend investor in Canada’s national newspaper ‘come clean’ about dividends. John Heinzl has a dividend portfolio that he tracks for readers of the Globe & Mail where I am a subscriber. I’ve dropped the truth about dividends (bombs for dividend devotees) in the investing comment sections a dozen times or so over the last few months. Maybe this was a response or recognition, don’t know. All said, glad to see John educate readers on the fact that ‘dividends, don’t actually create wealth. Rather, they simply transfer cash from a company’s balance sheet to the investor’s account.’ Dividends don’t create wealth, so there’s no dividend snowball. In fact, dividends are of no special use in retirement either – a fact that many will find counterintuitive.
I’ll offer the full quote from the Globe & Mail piece (sub required) …
The powerful benefit of dividends that no one talks about.
Dividend Confessions
Yes, an article that offers Confession about dividends and wealth creation starts with a benefit. This is still Canada after all 😉 Here’s the quote …
But some criticisms of dividends are also valid. For example, it’s true that dividends, per se, don’t actually create wealth. Rather, they simply transfer cash from a company’s balance sheet to the investor’s account. All else being equal, when a $1 dividend is paid, the stock price should fall by $1, so the investor is no further ahead. The drop in the stock price rarely matches the dividend exactly, because myriad other forces also affect stock prices.
So, if receiving a dividend doesn’t actually make you richer, what is the point? I would argue that a dividend makes you feel richer, which is what matters from a behavioural standpoint.
Well it’s not ‘per se’. There is no out. Dividends don’t contribute to wealth creation.
$50 – $1 = $49
In the above, the $1 represents the dividend, $49 is the new stock price on ex dividend day, before the ongoing pricing in the open market.
Check out Justwealth, Canada’s top Robo Advisor
A single dividend event can’t create wealth, so obviously multiple and ongoing dividends can’t create wealth. There is no ‘dividend snowball’ by way of dividend reinvestment. You’re using the dollar to buy stock at $49 – your new name on investment boards is ‘Even Stephen’.
You can’t handle the truth
I offered this comment on the Globe piece.
The first reply to my comment, and on the truth that Mr. Heinzl presented …
Nonsense
Diehard dividend investors still think that …
$50 – $1 = $50
In fact that is the prevailing opinion in the comment section. It’s a great article recognizing the power of dividends. The greater mathematical truth is ignored, or dismissed.
Doubling down on dividends
It’s too late of course, for most. Canadian Malcolm Gladwell, author of Outliers and a super-smart observer of human behaviour offers that …
When someone has a long-held and deeply held conviction, when presented with the simple truth, they don’t embrace the new reality – they double down on the falsehood.
Sorry, I had to paraphrase. That’s courtesy of Malcolm and The Bomber Mafia that I read recently.
Dividends are a divining rod
Dividends can be a divining rod that help you find certain kinds of companies. For starters they find profitability and at times (of high dividend) the big dividends can find value.
The Beat The TSX Portfolio is a good example of that.
But mostly the dividends will fish among a few sectors. Beat The TSX holds blue chip financials and utilities (including telco and pipelines). Those are sectors that have outperformed over the last 3 decades. Occasionally, an oil and gas stock or consumer stock will sneak in at a time when value is present.
Norm Rothery (also in the Globe) shows that the big dividend approach found the second best performing style over the last few decades, for Canadian stocks.
I’m a big fan of the low volatility approach. Greater returns, less risk? What’s not to like, especially for retirees. You can consider the BMO Low Volatility ETF – ZLB-T.
Or just buy enough of the individual stocks in the index / ETF. And ya, the high dividend stuff works too.
Dividend growth
The dividend growth divining rod can work as well. A meaningful dividend growth record (10 year, 15 years, 25 years for instance) can help find strong and durable business models – the Quality factor. The Dividend Aristocrats in Canada appear to have offered no benefit. The Dividend Aristocrats in the U.S. offered outperformance moving through the dot com crash, side-stepping the extrement over-valuation issue.
Divdend growth is best used with other factors, such as financial health screens or pure Quality screens.
Dividends and behaviour
I like the friendly hug and reminder offered from a dividend. They’re telling us that business is good and the company or companies in the ETF are ‘doing good’. They’re making money and throwing some your way. I like them, even though I know they are not contributing to wealth creation, or providing any benefit in retirement funding.
And on this blog I have certainly mentioned the emotional and behavioural benefit of dividends. Just add that to an awareness of how to maximize performance. Separate the emotion and the math. Quite simply, you can do a lot better in the accumulation stage and in retirement when you recognize what is a dividend.
Dividends in retirement
And keep in mind that there’s nothing special about a dividend in retirement. It doesn’t matter if you create a homemade dividend (share sale) or if the company removes the value for you by way of a dividend payment. I did a series on dividends for Seeking Alpha, here was a retirement example. I tested BlackRock (BLK) vs the S&P 500 (IVV) in a retirement funding scenario. BlackRock has a stellar dividend record. No cuts, and a wonderful dividend growth rate. The S&P 500 offered dividend cuts, and a much lower yield. The total returns were near identical. But IVV came out ahead on delivering income.
BlackRock had greater volatility and greater draw down. The stellar dividend record offered no support. Retirement portfolio success comes down to total return and risk level. Given that the dividends are ‘irrelevant’ you can move on to building the superior high quality portfolio, while ignoring the dividends.
Here’s another example I provided. High dividend VYM mixed with growth to deliver identical total returns vs low dividend VIG.
The retirment funding scenario …
At Retirement Club, we learn how to build a better portfolio and create a more optimal retirement cash flow plan, by way of retirement cash flow calculators. Self directed investors / retirees can make sure they’re doing it right. We ignore the dividends, some will consider any tax benefit for Canadian dividends (in modest fashion) when applicable.
But any tax benefit will not trump risk management and sensible asset allocation.
Reach out, if you’d like more info on Retirement Club for Canadians.
The Sunday Reads
At Dividend Hawk’s portfolio week in review, TD Bank reports …
The Toronto-Dominion Bank (TD) Reports Second Quarter 2025 Results; TD reported second-quarter non-GAAP EPS of C$1.97, down 3.4% year-over-year but exceeding analyst expectations by C$0.19. Revenue rose 9.6% to C$15.14 billion, surpassing estimates by C$1.69 billion. The bank’s Common Equity Tier 1 (CET1) capital ratio improved significantly, reaching 14.9% at the end of the quarter, up from 13.1% in the previous quarter. Provisions for credit losses (PCL) totaled C$1.34 billion, an increase of C$129 million from the prior quarter and C$270 million higher than the same period last year.
It was a solid report, and the stock was up 2.55% for the week. It will be interesting to watch the rest of the Canadian banks report this coming week.
As I offered last week – Canadian stocks moved to an all-time high and it was the financials doing the heavy lifting.
How to invest in the Canadian banks.
At Findependence Hub are Canadians hanging on to their Florida properties?
At Banker on Wheels, they feel it’s the end of bitcoin. That said Bitcoin recently moved to all-time highs. It appears to be acting like digital gold, responding to fears of fiscal issues with the rising U.S. debt and deficits. Of course, governments debts are out of control throughout the developed world. I think I’ll hold, and add 😉
I’m happy to be at a 3% weighting in my RRSP and a near 25% weighting in the TFSA.
Banker also steers us toward – You can’t put a price on mental freedom. For Nick at Dollars & Data, part of the freedom was a move away from individual stock selection. And you’ll find a video looking at the risks of an early retirement.
Here’s Part 3 of Bob at Tawcan’s trip to Taiwan.
This week, I applied to manage our CPP investments, wish me luck 😉
Isabelnet offers a very interesting chart on valuations for U.S. sectors …
Join Cut The Crap Investing
You can follow this blog, it’s free. Newsletters, plus other free content and ‘ideas’ will be delivered to your email inbox. Enter your email in the subscribe area, or ‘join us today’ on the home page.
ETFs / Stock Portfolios / Retirement Strategies / Wealth Creation/ Retirement Club
Thanks Partners
Earn a break on fees by way of many of these partnership links.
CANADA’S TOP-RANKED DISCOUNT BROKERAGE
Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free. It’s a great place to build your stock portfolio.
Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and low-fee ETF portfolios all at one shop. You can have it all.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account rates are at 1.75%, other savings rates up to 3.0%. You’ll find some higher rates on GICs up to 3.60%. They also offer U.S. dollar accounts at 3.0%. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
The Tangerine Cash Back Credit Card
For April we received $45.44 in cash. You can select 3 categories for 2% cash back. The rest pays at 0.50%. That’s one of our lowest spending levels of the last several years. Our fuel bill is way down and so is our grocery bill.
That cash went into my TFSA account to help buy some CBIL-T and HUTS.T.
Retirement Club
It is a series of monthly Zoom Presentations, newsletters, plus a secure and private online space where we learn, share ideas and chat. Make sure you’re doing retirement right. It’s also suitable for those who are approaching retirement. Use Contact Dale if you’d like more info. You can get on the waitlist for 2026.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me (try to) pay the bills for this site. But they don’t, ha. That will allow me to keep this site free of ads and easy to read.
