What is Dividend Investing?

Dividend investing is a long term “buy and hold” strategy where investors seek out and invest in companies that have a long history of regular dividend cash payment to their shareholders.  The great benefit of dividend investing is that it provides a long term stable stream of passive income. Typically thought of as an investment strategy for the retired, dividend investing primarily focuses on protection of the initial capital investment and generating a continuous stream of income for the future.


With the boom in stock prices since over the past decade dividend investing had fallen out of favor by the majority of Wall Street.  In fact massive gains in the stock market had some of the world’s most well know economist asking the question “Is buy and hold dead?” However the financial crisis of 2009 and the resulting mistrust that Main Street has shown towards Wall Street has brought dividend investing back to the forefront.  Considering most economists believe that the economy and even the most of the best performing stocks will be relatively flat over the next 2-5 years it is understandable why dividend investing is getting another look.  After all, isn’t it everyone’s dream to be paid to wait?

Dividend investors were far from immune from the pain of the 2009 financial crisis.  Most of the Canadian banks, which up to that point were considered bullet proof, saw massive drops in their share price. However, since the crisis 2 years ago stock prices have rebounded and in the meantime investors have continued to receive a constant stream of dividends coming their way every quarter.


Despite being a firm believer in dividend investing myself I do recognize that there are several shortfalls to this strategy.  First, one of the most common knocks on dividend investing is that by strictly focusing on dividend stocks investors will miss out on incredible growth opportunities.  Although it is true, dividend investor will also miss on the huge downswings that have the potential to crimple a portfolio. Dividend investors can still expect to make reasonable capital gain returns however they have a more realistic view of what kind of performance they can expect over the long term.   Secondly, many believe that dividend investors typically do not have a balanced portfolio.  Although this can be a real challenge, especially in a country like Canada where the vast majority of the dividend stocks are in the financial sector, with ETFs it is now much easier gain access to dividend stocks throughout the world without taking on currency risk or having to deal with foreign tax regulation.  Overall, as a dividend investor I’m looking for a strong company, with good management that is undervalued and will pay me a regular cash dividend.


Speculators on the other hand are only looking for a stock that they will be able to sell to somebody else at a higher price.  That is why I’m typically more interested in the income stream that will be generated from a stock rather then potential capital gain (or loss).  I don’t have the time, energy or stomach to follow the stock market every day.  By focusing on the income stream that I will generate from the stock, and ensuring that I do my research upfront I don’t have to actively track the stock and its performance on a day-to-day basis.


Here are my keys to finding identifying a successful dividend
1)      A long history of dividend payments and dividend growth
2)      Low debt
3)      Good Management


Over the coming weeks I will elaborate on exactly what I’m looking for in each of these categories and how I screen stocks to ensure that I’m maximize my return while minimizing my stress level.


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