Submitted by nsscadmin on
Our “Timing the Market or Time in the Market?” blog series continues with a look at dividends.
As we wrote in a previous post, “dividends are paid to shareholders who invest in equities. Dividend payouts depend on the profits of the company. Companies are not obligated to pay their shareholders dividends and can choose to use their profits for other company purposes. This could include paying down debt, or growing the business through investments in new infrastructure or machinery, employees, etc. Larger companies often payout consistent dividends to try and attract investors, while smaller companies often prefer to avoid paying dividends and instead re-invest their profits into growing the company.”
On the surface dividends may not look like much. For example, a random dividend paying stock we selected paid $0.21 per share during its last quarterly dividend. The price of that stock at publication time was $34.83. If you were to purchase 100 units in this ETF for $3483 and if the dividend remained at $0.21 you would receive $21 that next quarter. Again, that may not seem like very much, but overtime it can start to add up.
If you were to receive $21 per quarter for your units you would receive $84 each year. Again, not a lot to write home about. But, what if you were to use those dividends and some extra contributions to your account to purchase more units? If you were to increase your holdings to 200 shares over time your yearly dividends would increase to $168. For 300 shares you’re looking at $252. For 500 shares your yearly dividends would be $420. And that’s not taking into account any potential increase in dividends and the increase in value of your units which could be sold in the future for a capital gain.
The Commission does not provide advice, and we’re not advising anyone to purchase dividend paying investments. What we are trying to show with this example is how dividend investing works and how it may be right for your portfolio. If you’re thinking about investing in dividend paying investments, make sure you examine the risk and how they fit, or potentially don’t fit, into your portfolio and your financial goals both short and long term.