Have you ever wondered how an investment in a boring, blue chip company that pays dividends to share holders and periodically grows those dividends performs over long periods of time?
Welcome to the Invest and retire before you die series, where I explore the merits of long term investments in Canadian blue chip companies that pay and grow their dividends every year. I have seen these studies for American companies in the past and figured it would be nice for people to find something equivalent for Canadian ones. Notice that many Canadian blue chips companies are also listed in American exchanges and are therefore easily available to US investors.
If you are interested in other companies already discussed as part of this series, you can check out:
Invest and retire before you die - The Bank of Nova Scotia (BNS)
Why dividend payers and growers?
Revenue that is distributed to share holders is the hard proof that money is flowing in the business. It is hard to argue with cash that is periodically paid out to shareholders. In addition to that, dividends that are increased every year show the confidence that the management of a company has in the future operations of the business to sustain the new pay outs. Management knows how negatively, future dividend cuts are perceived by investors. That's why, when dividends are increased, they better make sure they can sustain them, which shows confidence. Increasing a dividend shows that the business is not only functional but that there is potential for sales and revenues to keep growing going forward.
Dividends are not only for old retirees but for anyone willing to make money as a long term investor. From 1930 to 2013 dividends were responsible for about 42% of Stock Markets returns.
Symbol: EMA.TO (Toronto Stock Exchange)
Taken from Google Finance:
"Emera Incorporated (Emera) is an energy and services company. The Company invests in electricity generation, transmission and distribution, gas transmission and utility energy services"
Emera belongs to the Utilities Sector which makes it a pretty defensive stock against market corrections. In the end people need electricity in their homes and will always need it in spite of market corrections and recessions in the economy. Emera returned +5.82% during the 2008 financial disaster while major indexes were losing 30% - 40% of their value. This kind of stable stock helps you mitigate temporary portfolio draw downs during crisis.
How would a $10,000 investment in EMA have fared in the last two decades?
Data from August 1, 1995 to October 17, 2014. That is 19.22 years. Numbers reflected in Canadian Dollars.
A $10,000 investment in EMA on August 1, 1995 with dividends reinvested in the stock would have been worth $62,264 on October 17, 2014. That is an Average Annual Return of 9.98% in a period that includes the 2000 dot com bubble burst, 9-11 terrorist attacks, Wars, the 2008 market correction (second worst in history), the 2011 debt ceiling issues in the US, the European debt debacle. Your initial investment would have been multiplied 6 times. You would own 1761 shares at the end of the period, each one of them paying you $1.452 a year in dividends for a total passive income of $2,557 per year.
But what if instead of buying once and forgetting you decided to contribute with additional purchases every year? What if instead of purchasing $10,000 worth of stock once, you decided to invest $5,000 every year?
Had you invested $5000 every year in EMA and reinvested all the dividends along the way, your investment would be worth around $292,827 and you would be the proud owner of around 8,281 shares of stock that would be paying you $12,024 every year in the form of dividends. Dividends that are favorably taxed in respect with normal income a.k.a salary. Dividends that provide you with cash flow without selling your shares, without giving away your ownership on the company.
A long term investment in EMA was a life changer and could very well be going forward. In full disclosure, I purchased 51 shares in 2013 and 45 shares in 2014 for a total position of 96 shares which I plan to hold for the next few years.
Related Articles:
Chapter 1 - Invest and retire before you die - The Bank of Nova Scotia (BNS)
Chapter 2 - Invest and retire before you die - Emera Inc (EMA)
Chapter 3 - Invest and retire before you die - RioCan Real Estate (REI.UN)
Chapter 4 - Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Chapter 5 - Invest and retire before you die - Enbridge (ENB)
Chapter 6 - Invest and retire before you die - TransCanada Corporation (TRP)
Chapter 7 - Invest and retire before you die - Suncor Energy (SU)
Chapter 8 - Invest and retire before you die - Toronto-Dominion Bank (TD)
Chapter 9 - Invest and retire before you die - Telus Corporation (T)
Chapter 10 - A basic Dividend Growth oriented Canadian Investment Portfolio
Welcome to the Invest and retire before you die series, where I explore the merits of long term investments in Canadian blue chip companies that pay and grow their dividends every year. I have seen these studies for American companies in the past and figured it would be nice for people to find something equivalent for Canadian ones. Notice that many Canadian blue chips companies are also listed in American exchanges and are therefore easily available to US investors.
If you are interested in other companies already discussed as part of this series, you can check out:
Invest and retire before you die - The Bank of Nova Scotia (BNS)
Why dividend payers and growers?
Revenue that is distributed to share holders is the hard proof that money is flowing in the business. It is hard to argue with cash that is periodically paid out to shareholders. In addition to that, dividends that are increased every year show the confidence that the management of a company has in the future operations of the business to sustain the new pay outs. Management knows how negatively, future dividend cuts are perceived by investors. That's why, when dividends are increased, they better make sure they can sustain them, which shows confidence. Increasing a dividend shows that the business is not only functional but that there is potential for sales and revenues to keep growing going forward.
Dividends are not only for old retirees but for anyone willing to make money as a long term investor. From 1930 to 2013 dividends were responsible for about 42% of Stock Markets returns.
An Investment in Emera Inc
Taken from Google Finance:
"Emera Incorporated (Emera) is an energy and services company. The Company invests in electricity generation, transmission and distribution, gas transmission and utility energy services"
Emera belongs to the Utilities Sector which makes it a pretty defensive stock against market corrections. In the end people need electricity in their homes and will always need it in spite of market corrections and recessions in the economy. Emera returned +5.82% during the 2008 financial disaster while major indexes were losing 30% - 40% of their value. This kind of stable stock helps you mitigate temporary portfolio draw downs during crisis.
How would a $10,000 investment in EMA have fared in the last two decades?
Data from August 1, 1995 to October 17, 2014. That is 19.22 years. Numbers reflected in Canadian Dollars.
A $10,000 investment in EMA on August 1, 1995 with dividends reinvested in the stock would have been worth $62,264 on October 17, 2014. That is an Average Annual Return of 9.98% in a period that includes the 2000 dot com bubble burst, 9-11 terrorist attacks, Wars, the 2008 market correction (second worst in history), the 2011 debt ceiling issues in the US, the European debt debacle. Your initial investment would have been multiplied 6 times. You would own 1761 shares at the end of the period, each one of them paying you $1.452 a year in dividends for a total passive income of $2,557 per year.
Comparison of an investment in EMA vs an investment in the S&P500 index
Had you invested $5000 every year in EMA and reinvested all the dividends along the way, your investment would be worth around $292,827 and you would be the proud owner of around 8,281 shares of stock that would be paying you $12,024 every year in the form of dividends. Dividends that are favorably taxed in respect with normal income a.k.a salary. Dividends that provide you with cash flow without selling your shares, without giving away your ownership on the company.
A long term investment in EMA was a life changer and could very well be going forward. In full disclosure, I purchased 51 shares in 2013 and 45 shares in 2014 for a total position of 96 shares which I plan to hold for the next few years.
Related Articles:
Chapter 1 - Invest and retire before you die - The Bank of Nova Scotia (BNS)
Chapter 2 - Invest and retire before you die - Emera Inc (EMA)
Chapter 3 - Invest and retire before you die - RioCan Real Estate (REI.UN)
Chapter 4 - Invest and retire before you die - Potash Corp. of Saskatchewan (POT)
Chapter 5 - Invest and retire before you die - Enbridge (ENB)
Chapter 6 - Invest and retire before you die - TransCanada Corporation (TRP)
Chapter 7 - Invest and retire before you die - Suncor Energy (SU)
Chapter 8 - Invest and retire before you die - Toronto-Dominion Bank (TD)
Chapter 9 - Invest and retire before you die - Telus Corporation (T)
Chapter 10 - A basic Dividend Growth oriented Canadian Investment Portfolio
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Great article. Emera also has a nice DRIP where you can receive shares instead of the cash at a maximum of 5% discount based on the previous 5 trading days prices. There are no commissions or brokerage fees either. They also offer an optional cash payment which can be made 4 times per year.
ReplyDeleteThanks for the feedback cubatogo2003. Wow I didn't know those details about their DRIPing program. My current quarterly dividend payments from Emera are not enough to cover the cost of one share, that's why I'm not DRIPing there yet. But this is very valuable information. Thanks for sharing!
DeleteCheers,
LT