Why Buy Stocks that Pay Dividends?
Updated: Sep 17, 2020
Can anyone buy shares of companies?
Yes, anyone can buy shares of large global corporations such as Starbucks, McDonalds, Bank of Nova Scotia and CN Rail. Look for companies that pay dividends. Dividend is money paid by a company to its shareholders out of its profits (Sales - Expenses). It could be paid monthly or every three months. Dividends are important to long-term investors. As a source of income, dividends can provide a consistent and reliable stream of cash to pay your monthly bills such as a cell phone bill. Many large companies also increase their dividends every year.
The top five Canadian banks have been paying and increasing their dividends for more than 150 years. Isn't that crazy?
Did you know that Bank of Montreal is Canada’s oldest bank? It was first incorporated in 1817, and started paying dividends in 1829. In its 190 year history of dividends, it hasn’t missed a single one. Bank of Nova Scotia and TD Bank have all paid dividends for more than 160 years.
You can pay your recurring bills with dividends starting today instead of waiting until you retire. Let’s say your cell phone plan costs you $60 per month. If so, it’d cost $720 per year. Most Canadian telecom companies such as BCE (Bell) provide a dividend yield of 4-5%. If so, you’d need to invest $14,400-18,000 to generate the income you need to replace that recurring bill. Never have to pay your cell bill again. That is cool.
The railways are a very profitable business. They make alot of money transporting stuff across North America and increase their prices every year. CN Rail is one of the largest rail companies in North America. CN Rail’s largest shareholder is Bill Gates who is also one of the richest people in the world and started Microsoft. CN Rail has a strong history of raising quarterly dividends:
March 10, 2020 $0.575
March 2, 2000 $0.03
CN Rail share price in 2000 was about $3. Today it's $139. Wow that is a serious increase!
Speaking of Bill Gates check out Microsoft. It was founded in 1975 making it one of the oldest technology companies. They launched Windows 95 back in 1995 and the rest is history. Like MS Office? Microsoft owns nearly 90% of the office suite market. Microsoft also owns Xbox, Minecraft and Linkedin. Check out its dividend history:
Sept. 14, 2020 $0.56
Jan. 16, 2003 $0.08
Microsoft's share price in 2003 was about $25. Today it's $205. Talk about compound growth.
Another company to look at is Starbucks. It costs Starbucks pennies to make Lattes that it sells for $5. Starbucks has over 30,600 coffee shops in 63 countries. The average Starbucks has over 500 customers walking into their stores everyday. Sometimes you have to just buy your coffee and focus on dividend increases. Starbucks quarterly cash dividends:
April 28, 2020 $0.41
April 23, 2010 $0.05
Starbucks share price was around $11 in 2010. Today it's $88!
Do you brush your teeth every morning? Colgate-Palmolive is global leader in the tooth paste and brush market, with a market share of 42.1% in the global toothpaste market and 32.3% in the manual toothbrush market. Think about that for a minute. Almost half the world wakes up and uses Colgate toothpaste.
The company has paid uninterrupted dividends on its stock since 1895 and has increased its dividends every year for 56 years. Dividend history:
April 17, 2020: $0.44
April 23, 1996: $0.06
Colgate-Palmolive share price was around $9 in 1996. Today it's $77!
This is why you buy solid companies that have a history of increasing their dividends. You make money 2 ways: Dividends and Capital Appreciation.