Investing in dividend stocks

So I’ve been investing in the stock market for a couple of years now. And I’ve made mistakes early on, and the learning curve has been steep. I hope to share a few experiences with you. Bottom line is unless you’re ridiculously lucky, you’re not going to be an overnight millionaire. With that in mind, you should focus on longer term investments which will eventually provide you with financial freedom. This becomes more important as you get older, and financial freedom allows you to take better care of yourself with ageing problems such as healthcare costs and so forth.

So to get started, you need to have a stock broker. Basically you place an order with them, and they will actually buy the stock for you, or sell it. As I live in Canada, I use Questrade. Most big banks around the world will have an online brokerage, and in fact I initially used one of the online brokerages from one of Canada’s big 5 banks (CIBC’s Investor’s Edge). But I much prefer Questrade, especially because it’s free to buy ETFs (exchange traded funds). In the beginning I’ve tried to buy into the stocks that could be the next Google, and with the volatility, I’ve panic sold the stocks, only to see them skyrocket a few weeks later! Of course I’ve learnt a lot, and discovered how to be disciplined.

What I really believe in are stocks that pay me. Again, yes you could invest in the next Google or Amazon, but it’s hard and unlikely to hit the jackpot and become an overnight millionaire. Although I do put aside a small percentage in tech companies. Anyhow, I primarily invest in blue-chips, which are large cap well-established companies, such as Pepsi Co for example (one of Warren Buffett’s favourite investments). These companies have a good track-record and they distribute dividends i.e. they PAY YOU. This allows you to build up a passive stream of income. When finding stocks to buy, I highly recommend, as a beginner or if you only have a few thousand or less to invest, that you invest in an ETF. What is an ETF? Well to get started, in the stock market, there are indices. An index basically tracks the performance of a particular market. For example one of the oldest indices is the S&P500 index, which is an index created in 1923 by Standard and Poor, a company which gives out financial advice. This tracks essentially 500 of the biggest companies in the USA, which essentially is the US economy. One of Warren Buffett’s key advices for people is to invest in an index fund (from say the Vanguard corporation), which is a fund which holds all the 500 companies, and aims to track the S&P500 index. An ETF is basically that, but an ETF can be actively traded during the day like a regular stock of an individual company. In Canada, I hold XDIV from Blackrock: https://www.blackrock.com/ca/individual/en/products/287823/. This holds the big Canadian companies. Both Blackrock and Vanguard (https://investor.vanguard.com/etf/list#/etf/asset-class/month-end-returns) have nice ETFs. I prefer these over mutual funds or active managed funds because of the low fees. Vanguard and Blackrock are a good starting place.

However, if you’’ve done a bit of reading and research already, and you’re pretty confident, then you can pick and choose individual stocks. To me, this only makes sense if you have >$10,000 USD/CAD. Otherwise the cost of trading (commision fees) will drain you. I usually choose companies with a dividend yield of about 3.5-5%. But I also look at what the company does, and whether I believe that the business is viable and demand for their products and services will be there in the future. Also high dividend does not equate to successful company. I’ve built up my portfolio on a few sectors that I believe should be in dividend investment portfolio. They are banking, food, cell phones/communications and real estate. My favourites are (all Canadian):

Banking: Scotiabank

Food: Pizza Pizza

Cell phones: Telus and Bell

Real estate: RioCan

These all provide a dividend yield of about 4-5%. This sure beats the hell out of a Canadian bank savings account giving a return of 0.05%. In addition there can be capital appreciation (i.e. the stock value increases). You can easily find similar companies in the US, e.g. Restaurant Brands and Pepsi are two of Warren Buffett’s major investments. Again, don’t just look at the dividend yield, I aim for 3-5% and a good solid company. If you’re new with little money, try an ETF first and get comfortable with buying and selling with your stock broker.

This strategy allows the buildup of a passive income investment profile, taking you closer to financial freedom. Once you’ve started building up your financial portfolio, and you have excess money you can afford to lose, then you can begin picking individual stocks, and also picking riskier non-dividend paying stocks e.g. tech startups or cryptocurrency. I’ll talk about these in upcoming blogs.

All the best!

P.S. Below is a book from Benjamin Graham which you can get from Amazon. It is very useful to read to understand how to find companies of great value to invest in:

The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) (Collins Business Essentials)

Disclaimer: This post is my own personal opinion. I am not a professional financial adviser and am not responsible for your own investment outcomes. 

Disclosure: At the time of writing this post, I hold positions in some, but not all, of the above listed stocks.

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