Sorry if this sounds like a dumb question. I’m pretty new to Dividends. Seeing the low returns makes me wonder why people invest in them. Could anyone share some clarity? Why invest 300k in dividends when I can invest that into a business and make it all back plus more while dividends only give around 3k a month? Is it simply because dividends aren’t a risk while a business can be?
Ralph Al: Well you are looking for companies that grow and pay dividends at the same time But some people would rather have both Regular Income and growth This is not one or the other
Ricky Silver: Strong companies will raise their dividend over time. So a company yeilding 2% could yield 20-30% when held for extended periods of time
Bernie Klunder: Possible, but realistically, it would take decades for a 2% yielder to achieve a 20-30% yield on cost.
Kevin Devers: Bernie Klunder at 29 years with a growth rate of 10% you would be achieving a 35% yield on cost. Plus capital appreciation. It’s not a get rich quick scheme.
Bernie Klunder: Kevin not to say its impossible but there there are currently zero companies which have maintained 10% annual increases for 29 years. The only company to have consistently increased 10% annually for over 20 years is TJX @ 21 years. ROST, the next lon…See more
Compound Annual Growth Rate of Dividends: Which companies have increased their…
Dave Gonsalves: Bernie Klunder I know people holding Canadian banks for 25-30 years yielding well over 20% plus massive capital gains
Bernie Klunder: Thats certainly possible. There are only a few companies who have paid dividends for over 100 years like the “big 5” Canadian banks. They’ve outperformed Buffett over the past 20 years. Most Canadian investors own at least one of them.
Bob Ward: Bernie Klunder no one said you have to hold the same stocks forever. You need to watch your investments everyday. Your pc or smart phone is a good place to keep up to date
Bernie Klunder: Not sure I follow Bob. No one said you have to hold forever but, that said, the best investors are the long term buy and holders. I wouldn’t advise monitoring everyday unless you’re trading. Its too easy to get spooked by market noise and then make irrational moves.
Kevin Martin: Bernie Klunder what are the BIG 5 Canadian banks?
Dave Gonsalves: Kevin Martin Royal Bank, TD, CIBC, ScotiaBank and Bank of Montreal
Bernie Klunder: Dave Gonsalves as Dave said above. The tickers are RY, TD, CM, BNS and BMO.
Kevin Martin: Dave Gonsalves thanks!
Jon Wheeler: Tough to go wrong with the Canadian banks, they are almost all of my financial exposure. Looking to buy some BLK on the next big market-wide selloff and I’ll probably be set.
Helen Sriubiskis: If you invest $300K with an average yield of 4%, you would receive $12K/year in dividends, not $3K, as you stated. Matt Shaver
Rob Macleod: He said 3k a month
Matt Shaver: I updated the post. Thank you for noticing that Helen Sriubiskis.
Ross Dahlke: Often, companies with the highest growth in share values are also those with the highest dividend growth. More profits mean more dividends AND higher share appreciation. It’s when people get caught chasing yield and not dividend growth/ company performance that they have sub-optimal returns
Robert Bartlett: Intent is to buy companies that continually increase their pay out distribution. Therefore a 4% yield will have a much higher effective yield (yield on cost) later in life (15, 20, 30% perhaps). Later in life you now have an income stream provided without having to liquidate your capital position. Additionally this income stream has a different (lower) tax rate (qualified dividends) than ordinary income.
Vishal Bendre: There is a huge difference …. by investing you are earning passively vs running a businees needs an active participation!
Kyla Linnenkohl: Of course you could make more by investing in a business. That is a higher risk, as you stated, but the payout can be multiples of the original invested value. The beauty of dividends is that you can basically set it and forget it. Perfect if you have time on your side, plus a decent amount of capital to put away.
Jim King: If you buy 300K in dividend stocks and buy dividend champions ( google spreadsheet for that ), the dividends will increase over time. If you have set to DRIP, then those dividends will purchase more stock per year until such time as you sell or decide you want dividends for income stream only. As to risk, I have been burned on a few. Mattel comes to mind when they cut their dividend, so while dividend stocks are not without risk, I would say less risky than a new business. Unless you are willing to invest in higher yield, 3 K per month on 300 K is wildly optimistic.
Jan Nordanstål: Dividends will continue to boost your income without work (after the initial work to save up funds for the investment),if you start up and run a business you will have to work for the income.
James Newstead: Dividends are safer and more reliable, but yes you can definitely make more elsewhere, hence why I don’t focus on dividend stocks, as I’m 20. The MSCI World Momentum Index for example has averaged 11.22% growth/year since inception (1994), compared with 9.10%/year since inception (1995), for the high dividend yield index.
Robert Bartlett: There is certainly an age, risk tolerance and life stage rebalancing to be considered, as with any investment portfolio.
Jim Kane: Always think it terms of total return. Dividends are a part of it. Price appreciation is a part of it. Selling covered calls can be a part of it. And then pair that with the probability of achieving the result.
Jay Harper: Matt Shaver you gotta be Trolling…… Haha
Bernie Klunder: Half of business fail. Only a very low percentage of dividend growth stocks cut their dividends. Those that do raise their dividends regularly tend to increase at a pace exceeding inflation. Few can expect their working wages to increase at that kind of rate. When boiled down to risk its a no brainer to choose a basket of dividend growth stocks over investing in one business.
Sue Weed: Here is an article from a while back that may give you insight into why people do Dividend Growth Investing.http://theconservativeincomeinvestor.com/…/coca-cola…/
Coca-Cola Has Not Finished Minting Millionaires Yet | The Conservative Income Investor
Bill Bailey: Three important words… Growth, reinvest and compounding. Study those words and you will find your answer.
Matt Shaver: Thank you all so much for commenting on my post. I appreciate you all x100. I can’t wait to learn even more.
Bernie Klunder: Matt, I suggest you read “The Single Best Investment: Creating Wealth with Dividend Growth” by Lowell Miller and become familiar with the CCC lists.
Matt Shaver: Thank you for the kind suggestion Bernie Klunder. I will read that book asap.
Phuong Tran: What business?
Matt Shaver: Well right now I’m working on the MVP for my first app idea that I am seeking funding for. I’m a web developer, designer, entrepreneur and marketer.
Phuong Tran: If what you suggest is we should invest in small businesses, then what if they fail or go bankrupt? How am I going to get my money back? Small businesses or even startup have much higher risks than the stocks of the companies on the market, which can be considered established businesses.
Gwen Nguyen Mcalister: The answer is simple. Dividend income requires no work, while running a business might kill you in time and stress 😉 Money is not everything.
Matthew C. French: We sacrifice money for time, or time for money. Passive income is true freedom. Money and time back
Scott Williams: When you invest in dividends, you are investing in a business. The ones that have been able to increase dividends for 25 years or longer have a proven history of success with increasing profits, otherwise they couldn’t keep increasing dividends each year.
Mike Dodge: IMO, investing all that in a business is like putting all your eggs in one basket. DGI is basically the opposite of that. Plus with DGI, you get to hold on to the principal while you collect the dividends.
Richard Mauer: 50% of small businesses fail while with the quality of good dividend paying stocks would most likely never not pay a dividend let alone fail. Dividend stocks, as others have stated, cause much less stress than a business, even a successful business
Richard Mauer: Having said that, if you are driven, talented and business saavy, and YOUNG, go for it. Dividends stocks will always be there, but biz opportunities may not be.
Michael Morse: Since your new….forget the divy chasing. Learn how to invest in companies. Weed out good one’s from the bad. Look at a dividend as a bonus. But don’t sacrifice capital gains for a dividend. It’s okay to learn how to time the market. Most investors never take the time to learn thus they always say…nobody can time the market.
Darren Yoelin: Honestly, there’s some pretty bad advice in here. If you run a business and you can get a 10-20%+ annual return on an investment of capital, I would totally take that over investing in the stock market.Many of my clients have turned an investment of $10,000-50,000 into $1,000,000 plus in a matter of years through their business. That just doesn’t happen in public markets.Investing in public markets should only take place in a retirement account, or in a taxable account if you don’t have any private opportunities that provide returns in excess of 10% in my opinion.
Bernie Klunder: Thats a very big “if” Darren. At least half of businesses fail, many go to zero. I’ll take the safer odds with my blue chip dividend growth stocks.
Darren Yoelin: So you’re a young business owner. You have an opportunity to make an investment in your business, that will return 15% annually. Instead, you settle for the 3-5% expected return from the stock market? You’ll never make money that way.
Ralph Al: Of course By why can’t you do both
Darren Yoelin: You can Ralph, that’s why I said you should only invest in stocks if you don’t have opportunities to invest in your own business.
Bernie Klunder: More like an off chance to return 15% annually but 50% chance to lose it all vs a very real chance to return 10% annually in total returns over a lifetime.
Darren Yoelin: I’ve been investing in my own business for years, and all my returns have been safe and often exceed 50% annually. I’ve compounded my capital many times through my own business. When I have money that I can’t put to use, I put it in the stock market. …See more
Nick Lee: Also, a lot of people who have enough money to start a business aren’t risk adverse to do so. The stock market is a safer means of investment. But I do agree that owning your business is the best way to see exponential returns.
Bernie Klunder: Darren, good for you! Your success is not the norm for all businesses as you know. Simply investing in SPY has averaged 11.53% annually between 1928 to 2017. It can be good to reach for the sky but beware you may fall off the roof and crack your head. lol
Darren Yoelin: I understand you’re point. It can definitely be foolish to just blindly throw money at a business.But my point is that if you own a profitable business, or know what it takes to build one, I’d take an investment in a small business over the market an…See more
Darren Yoelin: If you invested in the Nasdaq (QQQ) in 2000, it would have taken you 15 years to get a positive return.
Jeremy Lvancevic: Darren Yoelin I agree for the most part. But you can only invest so much into your own business unless you really want to expand. Then you have to start considering your time lol. But generally yes, there are alternative investments people can do that would surprise them
Darren Yoelin: Yeah. Once marginal return on investment drops below 10%, for me, I put that capital to work in the market.
Darren Yoelin: Private equity has generally returned 20% or more over the last few decades. Absolutely crushed public markets.
Bernie Klunder: All good points. The key is to know your risk tolerance, go with what you’re more comfortable with, have and execute a plan and stick it out long term.
Avi Tanny: the trick is to do both-find decent dividends like RY and also invest in things similar to amazon
Phyllis Reisman: There are many ways to invest money. Not everyone wants to run a business…some people invest in already established businesses and companies..some people want to create their own business. The only guarantee for investments is in Treasuries, banks, and FDIC insured products. All the rest is subject to risk.