Over the last couple of weeks, several people have talked to me about dividend-paying stocks. Even my daughter, who doesn’t do any stock investing.  She saw a couple of reels on Instagram about this topic.  She sent me a text saying I should be investing in companies like Royal Bank, or Toronto Dominion Bank.  (I invest mostly in Canadian Stocks) She pointed out that they were paying dividends of over a $1.00 per share.  I appreciate that my kids are looking out for dad.

When I first started investing in stocks I did everything that you are not supposed to do.  I didn’t start with at least $10,000.00 I started with $500.00.  That was also in the days of paying $26.00 a trade.   I didn’t invest in BLUE CHIP stocks I invested in PENNY stocks.   Both things are major sins against conventional wisdom.  I was lucky, and my first few trades did quite well.  After stock investing for over 20 years, I still break most of the conventional rules.  It is no different when it comes to dividends, Conventional wisdom says you should only buy a “BLUE CHIP stock for dividends.  (ie. Royal Bank or Toronto Dominion bank as an example)  But is this really good advice for everyone??

On the whole it it is not BAD advice.  But there is more involved than a simple YES or NO. The biggest question is “How much money do you have to invest?”  Are you investing $10,000.00 or $1000.00. Why is this important?

There are 2 things that determine how much actual money you get when a dividend is declared.  They are; 1) The number of shares you own; 2) How much is the dividend per share. Because the dividend paid, is paid on each share that you own.  For example; if the dividend is $1.00 PER SHARE, and you own 10 shares then you get $10.00. If you own 1000 shares then you get $1,000.00.  The number of shares you own, makes a big difference.  Conversely if the dividend is $0.50 a share, and you have 10 shares you get $5.00.  If you own 1000 shares then you get $500.00.  So the amount of the dividend looks important as well.  But looks can be deceiving.

There is another key factor for dividends.  How often are the Dividends paid.  Monthly?(once every month) Quarterly? ( once every 3 months) Semi Annually? (twice a year) or Annually? (once a year)  With all of these variations it is very hard to compare which stock is a better buy than another.  Because in the end, what you are looking for, is the most actual dollars you get paid!

Do only BLUE CHIP stocks pay a dividend?  NO!! There are many so called PENNY Stocks that also pay a Dividend.  But their dividends are not in the $1.00 per share range.  So why would I invest in them? Let me show you an example

From this chart you can see that the number of shares you own, coupled with the frequency  the dividend is paid, can more than make up for a lower per share dividend.  Compare BTB Real Estate with Royal Bank. At the end of the year BTB’s dividend payment is only $0.72 less than Royal Bank.  (Just a note, I own all three of the Penny Stocks.)

This does not take into consideration the DRIP feature of many dividend stocks. DRIP is Dividend Re-Investment Program.  The value of your Dividend buys you addition shares of the company, often at a reduced rate (1%-3%) and there is no commission charged.  Using BTB as an example. If we have 290 shares that would give us $7.25 in dividends a month. Using the DRIP we would get two additional shares and $0.35 a month.  So next month we would get dividends on 292 shares. If nothing changes through the year you would have 12 extra shares and received $4.20 in cash.

My advice; if you don’t need the cash each month, ALWAYS take the DRIP.

If you want more info on dividend Strategies please email me at diywealtheducation@gmail.com  I also do a spreadsheet on the top Canadian dividend paying stocks and rank them.  the ranking is for both Monthly and Quarterly paying stocks. Would be glad to share it with you for free.