Canadian Dividend Investors
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Site Overview
It’s true that money is not the most important thing in life,
but money does affect everything that is important to life.
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The purpose of this guide is to explain how Canadians can invest their savings so that the dividend income generated by their investments will cover their costs of living, making them financially independent. A hard copy of the book can be purchased by contacting the author by email at: bruce.smith@telus.net
Many Canadians understand the need to save and invest for retirement but find it impossible to do because of the demands of family and career. Moreover, for anyone who does not have a financial background or experience, the task can seem overwhelming. It is not surprising then, that many Canadians turn the management of their retirement savings over to professional money managers, only to discover after several decades that the value of their investments is insufficient to support them in retirement and they must continue working.
In my opinion, this disappointing outcome occurs because most financial institutions and money managers make the mistake of concentrating their (and your) attention on unpredictable market price movements and capital gains, rather than on the more stable and predictable dividends.
Unpredictable Market Prices and the Rise of Index Funds
Market price movements are volatile and unpredictable, due to a myriad of factors including market sentiment, economic conditions, company performance, geopolitical events, and investor behavior. Even the most financially stable companies, such as banks, experience volatility in their stock prices, making their market price movements impossible to predict.
Research demonstrated that price volatility can be mitigated by diversifying your investments among different companies, industries and countries. This finding led to the development of mutual funds and exchange traded funds (ETFs) which contain anywhere from 20 to several hundred companies and which are managed by full time money managers, who charge a percentage of the value of the fund for their services. Mutual funds and ETFs made investing in the stock markets possible for the general public and such funds have become a popular choice.
Financial researchers found that that the majority of mutual funds and ETFs underperformed their respective benchmark market indices, which prompted the creation of index funds. Index funds hold the same companies as their benchmark market index, which guarantees that the fund will deliver the same annual return as the market index, minus a small management fee. In the 1980s, computer programs began to be used to automatically update the index funds to match any changes in their respective benchmark indices, with the result that the cost to manage index funds fell dramatically.
For those folks who have no interest in managing their investments, index funds are certainly a convenient way of investing their savings. The problem with index funds is that the total return of the fund is unpredictable, because the movement of market indices are unpredictable. For example, the figure below shows the daily closing market prices of the iShares XIU index fund, from 2010 to 2025. This fund, which started trading on the Toronto Stock Exchange in 1990, emulates the S&P/TSX 60 Index and is now the largest index fund in Canada.
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The Limitation of Index funds
The total return on an investment in an index fund, such as XIU will depend primarily on the market price at the time you purchase shares of the fund, and the price you receive when you sell your shares. Suppose you purchased a share of XIU in January 2015 at a price of $21.00 per share and sold them 5 years later in January 2020, at a price of ($22.00). During that 5-year interval, XIU paid a total of $3.40 in dividends. Your average annual total return (capital gain plus dividends) over the 5-year interval would have been about 4%, which is very poor, especially considering that inflation during that same period was about 2%.The following table summarizes your average annual total return (dividends plus capital gains) for XIU for three different time intervals:
As indicated in the table, the average annual total return on your investment, could range from a dismal 4% per year to a spectacular 14% per year, depending on when you purchase the shares and when you sell them. Unfortunately, after you buy the shares of an index fund, your return is unpredictable because the future price of the shares is unpredictable. This is the case for any index fund, simply because future movements of whatever market index the fund emulates, are unpredictable.
It is no wonder that many people are convinced that investing in equities is the same as gambling. And it is, if you focus on market prices and price movements, in an attempt to realize capital gains. Fortunately, there is a much more reliable and less stressful investing strategy, and it begins by focusing your attention on dividends.
The Predictability of Dividends
The stability and predictability of the annual dividends paid by companies varies by industry. For example, the following chart presents the annual dividends paid by Teck Resources (TECHB), a Canadian mining company, from 2010 through to January 2025. As shown, the annual dividend paid by Teck Resources varied significantly and unpredictably, primarily because world prices for copper and zinc, which account for about 85% of the company’s production and profitability, are variable and unpredictable.
In contrast, the chart below shows that the annual dividends paid by the Royal Bank of Canada (RY) have increased steadily and consistently during the same period of time, and it is reasonable to expect that this trend will continue, at least for the next few years.
Imagine if you could identify a small number of companies, like the Royal Bank, that have a history of consistently paying their shareholders a growing dividend over several decades. You could create an investment portfolio that would generate a stable and reasonably predictable dividend income that would gradually increase to cover your costs of living, making you financially independent. Most importantly, your annual dividend income would be independent of market price movements and the vagaries of the stock market.
This website explains how you can create such a portfolio, either on your own or working with a financial advisor.
1. This quote is widely attributed to Robert Kiyosakiy, a motivational speaker and financial educator who has written over 25 books, the most well known being "Rich Dad, Poor Dad"..
1. This quote is widely attributed to Robert Kiyosaki, a motivational speaker and financial educator. who has written over 25 books, the most well-known being “Rich Dad Poor Dad”.