[sa226]

After re-reading my first post, I realize that I sounded like an investing magazine talking about the hot new idea.

let me clarify a tad.

Of course there is risk with dividend investing, there is risk in the stock market. Also, the sky is blue. You have to do your due dilligence and research and select the right stocks to fit your strategy. You don't just jump into Enbridge because of its 6% yield, when thats clearly not sustainable. You want to seek out stocks with at least a 4% yield and a sustained history of raising its dividend in the ballpark of 8 to 10%. Also a payout ratio of ideally less than 75%. You also want to dig into where that payout ratio is coming from. Maybe its sustainable maybe its not. These parameters narrow the window greatly. You need to keep tabs on the company to make sure that they arent slashing the dividend, or cranking up the yield either. Those are signs of trouble.

It definitely relies heavily on a lengthy time horizon, the compounding doesn't really start to show until 7+ years.

The issues are diversification and taxation. The TSX isn't all that diversified, and we're subject to some additional taxation with US dividend stocks. Plus, even on the S&P companies with the sustainable yield and growth are limited as well, furthering the hit on a well diversified portfolio. While there are contribution issues with tax sheltered accounts, there isn't growth issues.

As a fake example, lets take Telus. Closed today at 46.01. Has a 4.89% yield.

Lets take a 15year horizon with an initial purchase of 225 shares for 10350$. Say over that time the stock grows a conservative 5% annually, and the dividend growth is a conservative 5% annually. With dividend reinvestment that initial 10350$ is now worth over 44000$ for a 10% roi. Not too bad for fairly conservative numbers.

Obviously you wouldn't just set it and forget it, you have to do the work and you can't just chase yield.

I'm far from a tax professional, so I don't know how the differing taxes affect those returns, but investing methods based purely on favorable taxes, also isn't the greatest idea.

Heh, l seem to sound like an investing magazine again.

I can't really speak to inflated prices on dividend stocks due to interest rates, but yes, your entry point could affect long term returns. But with a long term horizon, those things do have a higher chance of evening out.

Good discussion.