April Dividends

When I was setting my goals for the year, I must admit that I did not do an enormous amount of calculations. In some cases I just liked the idea of the goal, others I picked a round number seemingly out of a hat and made that my goal. Such was the case with my goal for how much money I wanted to receive from dividends this year. I picked $200 because it sounds so much better than $120. The obviously apparent downside is that my goal is tougher than I wanted. You want difficult goals to help you grow but they should be attainable. That is the A in the SMART method of setting goals.

Last month was my best month for dividends, coming from a stock which pays out quarterly. So this month may look worse by association, but anything is good. The great thing about dividends is that you get paid for having money, like interest in your bank account, but it is almost assuredly more than a savings account. And also the value of my investments have the ability to go up in the case that I want to sell them, although this is unlikely for a long time.

So in April my dividends totaled $7.59. Companies paid me this money for doing almost nothing. I received almost an even split between my mutual funds and my exchange traded fund.

Hopefully this will make you consider dividend investing. Investing for dividends may not be for everyone but I personally like seeing money added to my money monthly. I can use this money for spending cash or I continue the way I have been using my dividends and keep investing them to garner me more dividends. This creates a slow trickle into a modest stream into a raging river by the time I need the money. So these dividend reports will keep coming and slowly growing.


Comments

April Dividends — 6 Comments

    • I wish the dividends would be more satisfying, but that will just take time and more money until the payments get bigger. My big payments come depending on the quarter but are nowhere close to $70, that must really keep you looking forward to the holidays.

  1. I’m not sold on dividends for young investors because you are losing capital appreciation. In theory, Company X that pays out dividends will not grow as fast as Company Y that does pay dividends. Especially if you’re re-investing the dividends and not using it as fixed income. Is there a reason you like dividend funds as a young investor?

    • I like dividends for a lot of reasons. Number one is that I enjoy them, I like the knowing that my investments are going to pay me money and then I like receiving said payment. I am comfortable with dividend investing so it is best for me. Second, I have no intentions of selling any of my stocks, hopefully not ever. Capital appreciation means very little to me. Because I do not want to sell investments anytime soon, capital appreciation provides me with no money. I can’t invest capital appreciation, it is merely a number unless I want to sell my investments.

      Yes a company that pays a dividend should have smaller price growth than a company that doesn’t. That is assuming that the company can use the money better than I can. There is lots of evidence that management does not always know what to do with money. If your boss said that you had made money at work but did not pay you because he figured you would not use it wisely, would you accept that? I for one have confidence that I can use my own money in the way that benefits me the most. A lot of the time the earnings that a company keeps just goes to pad management’s own wallets, so I would rather pad mine. Like you said, it is only a theory that Company X will not grow as fast. You say that I am losing capital appreciation by investing in dividend paying companies but that is not true. I do not have the actual numbers but I know that a lot of companies pay dividends. And I do not think that if you looked at the history that these companies would have grown less than the non dividend paying counter parts.

      I do not know what you mean that re-investing my dividends is somehow worse than using them as fixed income. Investing any money I get is better than spending it. Dividends I get I use to buy more investments. That is only a good thing.

      The reasons that companies that pay dividends are believed to have less growth is because to be able to pay a dividend you need to be pretty well established. But in order to pick a stock that will have a very high growth rate I need to be smarter than millions of others who are also trying to find those stocks. I know enough to know I am not able to pick a winning stock from a losing stock. I know what my return is with a dividend stock simply by looking at the yield.

      After all this attempted persuasion however, I will say that my investments are not only dividend payers. And it is only one thing I look at with an investment. Dividends are just a nice measurable to look at monthly. And students I believe are not fully aware of all the benefits of dividends. From posting these updates I see how I may come across that I only believe in dividends, I do not though.

      Thanks for commenting, I really like the comments to become a discussion.

      • Thanks for the detailed and well thought out response. I try to invest based on facts,trends, etc. As you said, I do not think I, nor anyone can effeciently pick winners and losers. Dividends are very complicated to me because you can argue that one company will manage their money better than the other, etc, but you can not ever prove either side wrong.

        I think dividend stocks make sense for older investors because that is when you don’t have time for capital appreciation. You want the company to pay out now, and not later. But when you are young, like you and I, we want capital appreciation. That’s what we’re counting on!

        About dividend re-investment, if a company is worth $1000 and has 10 shares at $100. Let’s say they pay out $100 in dividends, now they’re worth $900. You get $10 of that $100 and re-invest. You now own more of that company, but the value has gone down. And I can actually back up this crazy statement :) Look at the graph that shows the two funds are nearly identical except for the fact that non-dividend paying stocks will be taxed less over the long run. http://www.bogleheads.org/forum/viewtopic.php?f=1&t=92135&newpost=1328177

        Personally, I don’t think dividend investing is for me right now. I will turn to it though when I want to create more of a passive income stream. I don’t think you’ll agree with me but I think this line sums it up well: “Dividend stock” investing only makes sense on the assumption that the companies that pay dividends have a systematic difference in management philosophy that leads to better returns. If you believe this, then dividend stocks are for you! :)

        • Tax consequences do not concern me. All my investments right now are in registered accounts, mostly in my tax free savings account and a little in my tax-deferred RRSP. And the tax laws are beyond my interest, they are subject to change without my input and as of now I do not have taxable income, nor do I have enough money to exceed the contribution room on my registered accounts. With time this will change though.

          In your example the value of my investment goes down, but you are looking at the value logically. When a company pays a dividend the share prices do not decrease in the amount of the dividend. It would make sense if it did but it can be agreed upon that many nonsensical factors affect stock prices more than the actual money a company has. The mythical company’s value on paper decreased $100 but buyers of the stock would likely demand it because of the payout so in reality the share price would not drop $10. It might drop $1, at which case your investment increased in value. The share price is determined by so many things that a payout does not contribute exclusively or solely to that number.

          I can agree it is not for everyone. All things being considered it might not be right for me. I like it however and I should be able to enjoy what I do with my money. that enjoyment is worth 1% a year it is costing me for a couple years. I am also moving into more index funds, dividends are something I look for in a stock, not a high yield or anything but a sustainable payout showing the company values shareholders and has enough profits to be able to afford to give away money. I also want passive income later in life, and because of growing dividends my investment into dividend stocks now will provide greater income (yield on cost) than it would if I sold my investments in 20 years and bought dividend stocks for income.

          Again, dividends and capital appreciation are not an either or proposition.

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