There are many themes out there when it comes to investing in the stock market. One of them being dividends.
Dividends are distributions of a portion of a company’s earnings to a specific group of shareholders. They are paid out of after-tax profits of the company and are taxed in a preferential manner to investors in Canada and the US (ie. Canadian investors get a tax break on dividends from Canadian companies, and same on the US side). Investors looking for income often want to focus primarily on dividend paying stocks for their entire portfolio.
In the real world there are things that happen that no one sees coming. Things like a credit crisis, or a global pandemic and global economic shut down. The reality is focusing solely on dividends can actually add more risk to your investment portfolio, risk that isn’t easily understood. Instead of focusing on dividends, consider investing in the broader market, capturing the aggregate of dividends without taking on the company specific risk of a high dividend paying company.
There used to be the “Drink Milk” commercials that told us we all needed to consume three glasses of milk a day to get the right amount of calcium. But, the commercials were funded by dairy producers that sell milk.. The reality is that we can get calcium from all kinds of foods and that if we eat a well-balanced diet we are most likely consuming the right amount of calcium anyways. Dividends are like calcium. Instead of focusing on dividend paying stocks you can just invest in the broader markets and capture the aggregate of all the dividends being paid.
Stay happy, stay safe, stay well!
The CM Group