Canadian Dividend Investors
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Is the Strategy Effective?
Anyone can talk the talk, but can he walk the walk?
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I am often asked to compare the dividend income generated by my portfolio with that generated by a comparable mutual fund or exchange-traded fund. The ten Canadian public companies listed in Figure 1 are the only companies I have held in my portfolio since 2010 and continue to hold at present (March 2025). The only reason I would consider selling shares in one of these companies was if I saw compelling evidence that the company might stop growing their dividend payments, or if I found a company with much better prospects than one of my current holdings.
Figure 1: The companies I held in my portfolio from January 2010 to March 2025.
I have never held any other types of investments in my portfolio, such as mutual funds, exchange-traded funds, preferred shares, shares in foreign companies or fixed-income investments, such as GICs, T-bills or bonds. No new funds were added, nor were funds withdrawn from my portfolio, except that any dividends paid by the companies in my portfolio were reinvested in the same companies.
Figure 2 presents a comparison between the annual dividends that have been generated for every $100 invested into my portfolio, (the red markers) with the annual dividends that would have been paid for every $100 invested in the iShares S&P/TSX 60 Index (ticker XIU) exchange traded fund (the blue markers), which emulates the S&P/TSX 60 Composite Index. Note that in both cases, no new funds were addied to either portfolio, except that any dividends were reinvested into the respective funds.
Figure 2: A comparison of the total annual dividends paid for every $100 invested in my portfolio with the total annual dividends paid for every $100 invested in the iShares XIU exchange traded fund.
For example, $100 invested in the ten companies in my portfolio had an average yield of 4.2% in 2010, so that the cash dividend paid in that year on every $100 invested was $4.20, while the same $100, had it been invested in XIU, would have paid a dividend of $2.50. By the end of 2025 (sixteen years later), the same $100 invested in my portfolio paid a dividend of $18.30, while the dividend paid by XIU had only grown to about $6.28.
There are two reasons why the dividends paid into my portfolio were higher than the dividends paid by XIU. Firstly, the ten companies in my portfolio were selected because they had relatively high dividend yields (4.2% on average) when purchased in 2010, as compared to the dividend yield for XIU (2.5%) in that same year.
Secondly, the ten companies in my portfolio grew their dividends at an average rate of 9.5% per year, from 2010 to 2025. In comparison, the approximately sixty companies in XIU grew their dividends at an average rate of about 6.0% per year during the same period.
The market prices of the companies in both portfolios fluctuated significantly during these years, in response to Mr. Market’s ever-changing and unpredictable mood swings. These price gyrations caused the market value (market price multiplied by the number of shares) of both portfolios to fluctuate significantly and unpredictably. These fluctuations in the market value of the companies in my portfolio were not of concern because the changes in market prices had no effect on the dividends paid by the companies in my portfolio.
The dividend income generated by my portfolio has been stable and predictable each year. Most importantly, since the dividend income is not affected by changes in the market price of the companies in my portfolio, the unpredictable behaviour of the stock market can be completely ignored.
1. According to The Phrase Finder, the earliest known use of this expression was printed in June 2021, in an Ohio newspaper called the Mansfield News.