Stock Price Down? Count Your Dividends

Only care about the stock price when you buy or sell shares. Otherwise, focus on growing your dividend income!

| More on:
Young woman sat at laptop by a window

Image source: Getty Images.

Are you feeling down because your stock prices are down? Unless you’re planning to buy or sell shares of a stock, I encourage you to focus less on stock prices. Instead, count your dividends! By tallying up the dividend income you’re receiving, you can be less emotional and more rational about your investing decisions.

Not every dividend stock pays safe dividends. So, make sure to focus on safe dividend investing, which includes not overpaying for stocks, not just dividend safety. Dividends collected may be small in the beginning, but they can grow like a snowball rolling down the hill, especially when you incorporate dividend growth and contributions from regular savings.

The Rule of 72 approximates that dividend growth of 6% per year will double your dividend income about every 12 years. New contributions from your savings to your dividend portfolio will only accelerate your dividend income growth.

This is why I made it a habit to record additional annualized dividend income I’ll receive on new purchases, as it encourages me to focus on dividend generation and pay less attention to the changing stock price. What’s more essential is recording the actual dividends I receive every month in a spreadsheet and ultimately tallying up how much dividend income I receive in a year.

Here are some of my favourite stocks that are down in the last 12 months but have outperformed the Canadian stock market in the long run. Importantly, they trade at good valuations for purchase today and pay out safe dividends that will grow over time.

TD Total Return Level Chart

TD and XIU Total Return Level data by YCharts

TD stock

Toronto-Dominion Bank (TSX:TD) stock has declined about 7.5% in the last 12 months. However, it has outperformed the Canadian stock market, using iShares S&P/TSX 60 Index ETF as a proxy, by about 42% in the last decade.

For illustrative purposes, $10,000 invested in TD stock about 10 years ago would have paid out about $6,022 in dividends. TD stock continues to pay out safe dividends with a payout ratio of approximately 62% this year.

The same shares would pay out annualized dividend income of close to $857 today. Its payout ratio is higher than normal, but its earnings are still well over its dividend payments. Furthermore, it has a treasure chest of retained earnings that could act as a buffer for its dividend.

At $80.37 per share, TD stock trades at a discount of roughly 17% from its normal valuation and provides a decent dividend yield of almost 4.8%. For your reference, the Canadian bank stock’s five-year dividend-growth rate is 8.7%, which is quite good.

BIP.UN Total Return Level Chart

BIP.UN Total Return Level data by YCharts

Brookfield Infrastructure Partners

Brookfield Infrastructure Partners (TSX:BIP.UN) stock is down by about 23% in the last 12 months. However, it has outperformed the Canadian stock market by two times in the last decade.

At $43.25 per unit, BIP.UN is discounted by about 29% and offers a nice yield of 4.8%. The depressed units provide a fabulous opportunity to buy the wonderful business, which consists of a globally diversified portfolio of quality, long-life infrastructure assets that move or store energy, water, freight, passengers, and data. Notably, the dividend stock pays out U.S. dollar-denominated cash distributions so, in Canadian currency, Canadians would get more income when the greenback is strong against the loonie.

For illustration, US$10,000 invested in BIP.UN stock about 10 years ago would have paid out about US$7,852 in dividends. The same units would pay out annualized cash distributions of close to US$1,079 today. The top utility stock continues to pay out safe cash distributions with a payout ratio of 68% year to date. For your information, it targets a payout ratio of 60-70%.

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 has positions in Brookfield Infrastructure Partners and Toronto-Dominion Bank. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Dividend Stocks

Dividend Investors: Top Canadian Utility Stocks for September 2023

Here are two of the best dividend-paying Canadian utility stocks you can buy at a bargain in September 2023.

Read more »

money cash dividends
Dividend Stocks

Start Making Passive Income Immediately With This 6% Dividend Stock

Are you looking to earn passive income as early as next month? This dividend stock is a buy at its…

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

2 Wealthsimple Stocks With Market-Beating Potential

Passive investors, including beginners, can purchase two highly recommended Wealthsimple stocks with market-beating potential.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

Dividend Investors: 2 Oversold Canadian Stocks With Great Yields

Top TSX dividend stocks are on sale.

Read more »

Target. Stand out from the crowd
Dividend Stocks

TFSA Pension: Top Stocks to Target Total Returns

This strategy can help investors build retirement wealth.

Read more »

Profit dial turned up to maximum
Dividend Stocks

RRSP Investors: 2 Top TSX Stocks to Buy for Total Returns

These top TSX stocks look cheap today.

Read more »

Dividend Stocks

The Top Canadian REITs to Buy in September 2023

These two top Canadian REITs are highly reliable and offer significant long-term potential, making them some of the best to…

Read more »

dividends grow over time
Dividend Stocks

Where to Invest $500 in September 2023

Determining where to invest can be a daunting ask for some new investors. Fortunately, these two picks can make that…

Read more »