If you haven’t already, I encourage you to read these 50 tips that make you a better investor. One of those tips really resonated with me: dividends matter. The argument is that since the average return of the stock market is about 8%, every percentage point of yield you lock in puts the odds in your favour. A tip, which came up multiple times that complements with the idea of getting dividends, is to treat stocks as businesses that are run by real people.
Dividends aren’t foolproof. The board of directors of a company can review the dividend policy and decide to freeze, cut, or even eliminate dividends. However, if a company has been paying dividends for many years, investors can assume that it’s a stable business that is likely to continue paying dividends.
So, a big part of my stock portfolio is made up of quality businesses, which earn stable earnings or cash flows and pay consistently growing dividends.
Dividend yields I locked in recently
In the past few months I seized the market-dip opportunity and bought shares in Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP), ATCO Ltd. (TSX:ACO.X), Bank of Nova Scotia (TSX:BNS)(NYSE:BNS), and Dream Industrial Real Estate Invest Trst (TSX:DIR.UN).
Since Brookfield Infrastructure pays a U.S. dollar-denominated distribution, I locked in a 5.6% yield for my purchase based on a foreign exchange of US$1 to CAD$1.30. Thanks to ATCO’s recent dividend increase of 15.1%, I locked in a yield of 3.1% for my purchase. For my Bank of Nova Scotia buy, I locked in a solid 5% yield. Finally, for my Dream Industrial buy, I locked in a whopping 10.5% yield.
All of these companies have a history of paying dividends, and they all have increased their dividends for at least five consecutive years, except for Dream Industrial. In fact, I’m expecting a dividend increase soon from Brookfield Infrastructure and Bank of Nova Scotia.
“It’s time in the market and not timing the market”
This quote is popular; however, I did time these purchases in a way. The market was dipping when I bought them and, as a result, I got some high yields. On the other hand, if you look closer, you’ll notice that I did not catch the recent bottoms.
If I did, I would have locked in a yield of 6.1% for Brookfield Infrastructure, 3.4% for ATCO, 5.4% for Bank of Nova Scotia, and 11.1% for Dream Industrial.
I believe the quote is trying to convey the idea that you have to buy in order to get returns on your investments. In the long term, the short-term volatility would smooth out as long as you buy quality businesses, which become more valuable over time.
By buying quality dividend stocks on market dips, you can lock in dividend yields that help secure your return. Dividends help secure my returns. For the long term, I believe Brookfield Infrastructure, ATCO, Bank of Nova Scotia, and Dream Industrial are still good buys today.