Dividends have fascinated investors since the first payment was made to owners of the Dutch East India Company over 400 years ago. The end of the 1990s – marking the conclusion of a long bull market when the Dow and the TSX were delivering 8% returns year after year – has made the issue of investing in dividend-paying stocks even more compelling.
The following link will take you to a six part video series – The Power Of Dividends – that I have created designed to explain the crucial role dividend paying stocks can play in helping you reach your wealth objectives.
1. Reaching your financial goals
Any robust investment strategy begins with an understanding of the current financial situation of each individual client. From there we establish realistic objectives and identify tax-efficient investment opportunities. We look for growth, income (where appropriate), tax savings (always), and low volatility.
2. Understanding the current environment
Today’s low interest rate environment has created an undeniable case for investing in dividend-paying stocks. Such investments can enhance returns while protecting a portfolio from undue risk. They provide a cushion against volatility. And they can generate a reliable tax-advantaged income stream.
3. The Rule of 72
The rule of 72 is a simple method for estimating an investment’s doubling time. $100,000 at 8% takes 9 years to become $200,000. At 5%, it takes 14.4 years. A low interest rate environment makes growth a challenge. That’s why tapping into the incremental earning power of dividend-paying stocks makes so much sense.
4. Dividends for growth and income
Most investments are either growth oriented or income oriented. Dividend stocks offer both advantages and – shrewdly invested in companies with a strong balance sheet and a solid history of rising earnings – can help you get close to a growth rate impossible in the dismal interest rate world we occupy now.
5. Dividends to manage risk
Dividend-paying stock are advantageous in periods of market volatility. Non dividend-paying stocks need earnings growth and investor optimism to support their price. The income from dividend-paying stocks gives them a certain value, even in volatile markets.
6. Dividends for tax savings
Interest income is taxed at your full marginal tax rate. Dividend income is eligible for a dividend tax credit, which translates into preferential after tax income. An investor in Nova Scotia who earns $10,000 in interest will keep $5,000. A comparable investor earning $10,000 in dividends will keep $6,394.