Dividend Investors: How to Get the Income You Want

Don’t want to pay more than you want for a quality dividend stock, such as Bank of Nova Scotia (TSX:BNS)(NYSE:BNS)? Try this strategy.

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I’m assuming you’re here to build a portfolio of dividend stocks. Before you start investing, you should have a diversified list of quality dividend payers you want to own. Let’s say Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is on your list. What price is it “low enough” to buy it?

The dividend is your guide

A simple way to figure out the price range to buy at is to decide how much income (the yield) you want to generate from an investment. Of course, the income should be reasonable for the amount you are investing.

The bank pays a quarterly dividend of $0.72 per share, totaling an annual payout of $2.88 per share. If you want to generate an annual income of $288, buying 100 shares would suffice, but at what price should you buy?

The table below displays Bank of Nova Scotia’s yield based on changing prices. Of course, the lower the price, the higher the yield.

Price Yield Invested Capital on 100 Shares
$52 5.5% $5,200
$54 5.3% $5,400
$56 5.1% $5,600
$58 5.0% $5,800
$60 4.8% $6,000
$62 4.6% $6,200
$64 4.5% $6,400

The fact that Bank of Nova Scotia yielded 5.4% earlier in the year was an anomaly, seeing as the bank typically yielded 4-4.5% in the last five years. We can’t jump into a time machine to get the +5% yield, but we can prepare for the future. The recent yield range would suggest that the current yield of 4.5% is not a bad entry point for the bank. So, long-term investors can consider buying some shares.

However, if you want to spend your precious investment dollars more carefully, you might want to wait for the higher yield of 4.8% or even 5% before buying some shares. From the table above, for each 0.2% yield higher you are able to buy shares, you save $200 on your initial investment.


Investors should only consider this strategy for quality large-cap dividend stocks, such as the Big Five banks, including Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, and Canadian Imperial Bank of Commerce, the big utilities, including Fortis Inc., Canadian Utilities Limited, and Emera Inc., and the big telecoms, including BCE Inc., Rogers Communications Inc., and Telus Corporation.


Investors should not rush into buying even the highest-quality companies, because the lower the price you pay, the higher the yield and the more income you get. By buying at a lower cost, you also lower the risk of investing.

Setting your desired yield range (that translates to your desired price range) ahead of time can reduce the chance of buying emotionally and paying more than you want for your desired dividend stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of CANADIAN UTILITIES LTD., CL.A, NV, FORTIS INC, Royal Bank of Canada (USA), TELUS (USA), Bank of Nova Scotia (USA), and Toronto-Dominion Bank (USA). The Motley Fool owns shares of ROGERS COMMUNICATIONS INC. CL B NV. Rogers Communications is a recommendation of Stock Advisor Canada.

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