Dividend Investing During Covid-19

Aside from the usual tax-efficiency of dividend income if held in a non-registered account, dividends account for a large percentage of the total return of an investment over the long term.  Typically, when a company declares or raises its dividend payout, it is an indication to investors that the management team is confident that its business will grow over time.  Dividend payments can also reduce the risk in a portfolio by offsetting some of the losses that can occur from a decline in the stock price.  History has shown that in past bear markets, dividend-paying stocks outperform when factoring in the dividend income in the total return.  In fact, in times like we’re seeing, with stock prices down over the last month, it’s a great time to ensure that you’re enrolled in a company’s dividend reinvestment plan, to take advantage of the lower prices.  The long term, compounding effect will surprise you.

The covid-19 fears are forcing governments and companies to take drastic measures, measures that would have been implausible just a month earlier.  A number of companies in Canada have opted to temporarily suspend dividends until more clarity is reached. This could be one quarter, or multiple quarters.  At this point, nobody knows.

When looking at Canadian stocks, the Canadian banks have been the most prolific dividend-payers, and dividend-growers, over time.  Would the Bank of Canada (BoC) mandate the same measures with the typically steadfast Canadian Banks?  During the financial crisis of 2008, the Canadian banks never wavered in their dividend payout, and the below piece intimates that it is unlikely the BoC will enact the same measures as the ECB.