Dividend Investing: Back to Basics

How does income investing actually work, and is it the right strategy for your investments? We take a look

Ian Tam, CFA 27 July, 2020 | 9:22AM

Pound notes

The recent wave of dividend cuts and sharp sell-off in income stocks and funds means that now is a good time for investors to stop and think about whether dividend investing actually make sense as a strategy. Here are three key things to consider:

Jam Today or Jam Tomorrow?

Let's take the example of two stocks, Company A and Company B. Company A does not pay a dividend and instead re-invests its earnings for future growth, whether through increasing efficiencies or innovating to bring new products to market. The eventual investment return provided by Company A comes when you sell the stock, if the company is successful at deploying that capital and turning a profit, thus commanding a higher company valuation. 

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Ian Tam, CFA  Iam Tam, CFA is Director of Investment Research at Morningstar Canada. 

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