How Canadians’ Incomes and Wealth Changed During the Pandemic

Statistics Canada recently released some data measuring changes to household incomes, expenditures, savings rates, assets and liabilities during the pandemic.

I decided to create a few graphs to illustrate their findings.

Before we get to the graphs, here are some of Stats Canada’s key findings:

  • Disposable income declined for most households in the fourth quarter of 2020, with the largest losses for the lowest-income earners (-10.2%).
  • Despite declines in disposable income in the fourth quarter, all households recorded higher income in 2020 compared with 2019.
  • In 2020, the lowest-income earners saw their net worth grow more than that of other households. These gains were driven by larger increases in real estate assets that outpaced increases in mortgage debt.
  • Lower-income households reduced their non-mortgage debt by more than other households, also contributing to their higher gains in net worth in 2020.

Household incomes rose for all income brackets during the pandemic:

As you might expect, spending declined:

This allowed many Canadians to save more. Note, however, those in lower income quintiles still have negative savings rates:

Higher incomes, less spending and greater savings helped propel net worth. Of course, Canadians’ net worth also got a big boost from rising real estate and financial asset values:

Finally, Canadians are exiting this pandemic in a better financial position than when they entered:

Life Work

UBI: A Modern Day Utopia?
Income Investing Investing

Data Visualizations on 8 Canadian Utility Stocks

Another gem provided by This time data visualizations featuring Canadian utility stocks including Fortis, Emera, Algonquin Power, Canadian Utilities, Northland Power, Hydro One, Captial Power and Transalta Corp.

Income Investing Investing

Canadian Natural Resources Increases Dividend by 11%

Canadian Natural Resources Limited (TSX: CNQ) (NYSE: CNQ) announces its Board of Directors has declared a quarterly cash dividend on its common shares of C$0.47 (forty-seven cents) per common share. The dividend will be payable on April 5, 2021 to shareholders of record at the close of business on March 19, 2021.

From CNQ’s recent Q4 2020 earnings announcement:

“The sustainability of our free cash flow generation provides the Board of Directors confidence to increase our dividend by 11% to $1.88 per share annually, marking the 21st consecutive year of dividend increases representing a CAGR of 20% since inception. The 2021 capital budget of approximately $3.2 billion drives targeted annual production growth of approximately 61,000 BOE/d, at the mid-point of our production range, from 2020 levels and robust free cash flow generation. At the current 2021 annual strip pricing of approximately US$57 WTI per barrel, the Company targets to generate significant annual free cash flow of approximately $4.9 billion to $5.4 billion, after our capital program and increased dividend. As a result, our balance sheet is targeted to strengthen further in 2021, with year end debt to adjusted EBITDA targeted to improve to approximately 1.2x and debt to book capitalization targeted to improve to approximately 29%, at the mid-point of the targeted free cash flow range. Subsequent to year end, in March 2021 the Board of Directors authorized management, subject to acceptance by the TSX, to repurchase shares under a Normal Course Issuer Bid (“NCIB”), equal to options exercised throughout the coming year, in order to eliminate dilution for shareholders. Our strong financial position, unique long life low decline asset base and effective and efficient operations continue to generate long-term shareholder value.”

Income Investing

S&P/TSX 60 Constituent Dividend Yields

I updated the data to March 4, 2021. The table includes forward dividend yield, p/e ratios, ex dividend dates, price to book and price to sales for all S&P/TSX 60 constituents.

Income Investing

30 Canadian Stocks That Raised Dividends in 2021

The relentless drum beat of quarterly dividend payments continues for many Canadian companies. Despite the challenging economic climate, many Canadian companies have actually increased dividends so far this year (2021). Many by a substantial amount.

Check out these 30 Canadian companies that have raised dividends so far in 2021 (as of the end of February):

Aecon Group (TSX:ARE) increased their quarterly dividend by $0.015, now up to $0.175/share. This represents a 9% increase. (Source)

ECN Capital (TSX:ECN) increases annual dividend from $0.10 to $0.12. (Source)

CCL Industries (TSX:CCL.B) increased their quarterly dividend from $0.18 to $0.21/share, up by 16.7%. (Source)

Quebecor (TSX:QBR.B) announced a 38% increase to its quarterly dividend, from $0.20 to $0.275/share. (Source)

Maple Leaf Foods Inc. (TSX: MFI) bumped up its quarterly dividend from $0.16 to $0.18/share, an increase of 12.5%. (Source)

Guardian Capital Group Limited (TSX: GCG; GCG.A) increases dividend by 13%. (Source)

Alamos Gold (TSX:AGI) increases dividend by 25% to $0.025 USD per quarter. (Source)

Stantec (TSX:STN) raised annualized dividend raised by 6.5%. (Source)

DREAM Unlimited Corp (TSX:DRM) increases quarterly dividend from $0.24 to $0.28 per annum. (Source)

Thomson Reuters (TSX: TRI) increased their annual dividend by $0.10, now up to $1.62 (US$). (Source)

Magna International (TSX:MG) bumped their quarterly dividend from $0.40 to $0.43/share, an 8% increase. (Source)

Newmont Corp (TSX:NGT) increases dividend by 38%. (Source)

TC Energy (TSX:TRP) increased their quarterly dividend by 7.4%, from $0.81 to $0.87/share. (Source)

Nutrien Ltd (TSX:NTR) increases dividend by 2% from $0.45 to $0.46 USD per quarter. (Source)

A&W Revenue Royalties Income Fund (TSE : AW.UN) monthly distribution rate will be increased from 10¢ per unit to 13.5¢ per unit beginning with the February distribution payable in March. (Source)

Brookfield Asset Management (TSX: BAM.A) bumped their quarterly dividend up to $0.13 (US$)/share, up by 8%. (Source)

Andrew Peller Limited (TSX:ADW.A) increases quarterly dividend by 5%. (Source)

FirstService (TSX:FSV) Declares 11% Increase to Quarterly Cash Dividend from $0.165 USD to $0.1825 USD per quarter. (Source)

Brookfield Renewable increases 5%. (Source)

BCE Inc. (TSX: BCE) announced a $0.17/share increase to its annual dividend, now sitting at $3.50 – a 5.1% increase. (Source)

Canaccord Genuity Group Inc (TSX:CF) increases dividend by 18% from $0.055 to $0.065 per quarter (Source)

Brookfield Infrastructure Partners (TSX: BIP.UN, BIPC) raises quarterly dividend by 5%. (Source)

Exco Technologies Ltd (TSX:XTC) Quarterly Dividend raised by 5.3%. (Source)

CN Railway (TSX: CNR) approved a quarterly dividend of $0.615/share, an increase of 7%. (Source)

Metro (TSE: MRU) bumped up its quarterly dividend from $0.225 to $0.25, an increase of 11.1%. (Source)

Richelieu Hardware (TSX:RCH ) increases Dividend by 4.9% to $0.07 for the first quarter of 2021 and payment of a special dividend of $0.0667. (Source)

ATCO Ltd (TSX:ACO.X) increases dividend by 3%. (Source)

Algoma Central Corporation (TSX: ALC), announced a quarterly dividend of $0.17/share. This represents a 31% increase from the previous quarter.

Urbana Corporation (TSX:URB) Increases Dividend By 12.5%. (Source)

Income Investing

The Irrelevance of Dividend Irrelevance

I recently had someone unsubscribe from this blog. That person was kind enough to let me know why – it was because I often endorse dividend growth investing.

This former-reader pointed to a behavioural bias called ‘mental accounting’ to demonstrate what they believe to be the flaw in dividend growth investing. Instead of separating returns into two forms – dividends + capital growth – this person argued that investors should focus on total returns. Moreover, by focusing on companies that pay growing dividends I am ignoring a large part of the market (e.g. the Teslas, Snowflakes of the world).

The funny thing is I actually agree with this person.

The ability to capture returns on a consistent, frequent basis helps many investors stay the course over the long run.

However, unlike the reader I believe that this behavioural ‘flaw’ is what helps dividend investors become BETTER long run investors.

The first thing people need to understand is investing is about what you take home at the end of the day. It’s about your personal returns on your account, relative to the risk you’re willing to take.

Most people start out believing they are ‘growth’ investors. That is, until they run into a bear market. Suddenly, they become ‘conservative’. People are allowed to change their minds. The problem is that these shifts create destructive financial behaviours.

In theory, the simplest, most efficient portfolio strategy might be to buy and hold a low-cost S&P 500 ETF. The problem is reality is messy.

In reality, the average investor dramatically underperforms the buy-and-hold S&P 500 portfolio over the long run. Why? Because they trade too frequently. They get excited after stock prices have run up (and buy) and then get scared after stocks have fallen (and sell). And then they sit in cash as the market rises again. Most investors buy HIGH and sell LOW.

I believe that dividend investing helps mitigate emotional trading. It is precisely because dividend investors separate their total returns into dividends + capital gains that keeps them from buying and selling on emotion.

I believe that dividend investing helps mitigate emotional trading.

Whether the markets are up or down, dividends still get paid. It is much easier to hang on to an investment if the positive reinforcement of dividends rewards you for doing so. Some refer to this phenomenon as ‘getting paid to wait’. In contrast, investors holding non-dividend paying stocks don’t receive that positive reinforcement.

The bottom line is that two similar investments might have the same expected total returns, but the characteristics of those returns have a significant impact on investor behaviour. The ability to capture returns on a consistent, frequent basis helps many investors stay the course over the long run.

Of course, this doesn’t apply to 100% of investors. Some investors will have better control over their emotions and have the intestinal fortitude to ride the big waves. It is entirely possible these investors beat the market over the long run. However, the empirical evidence suggests most investors are not in this category and require behaviour management.

Dividend Policy is Irrelevant? Yes and No.

Does this mean all companies should pay dividends? Definitely not. Dividend and stock buyback policy depends on the opportunities faced by the company.

Some argue that dividend policy is irrelevant to investors (because they can create ‘home made’ dividends by selling shares) and to the valuation of a firm (because they can raise capital if needed). This is technically true…in theory.

However, like all academic theories it comes with a lot of assumptions. A big one is that corporations have a better use for cash than their shareholders, and by paying dividends the company would be forced to raise debt or equity capital. This is why a company like Tesla doesn’t pay a dividend. The company believes it can earn a better return on invested capital than its shareholders. Clearly, this alone doesn’t make Tesla a good or bad investment.

Now, if Tesla couldn’t earn a high return on capital and still chose not to return cash to shareholders, you would have to question its motives. Many corporations hoard cash to build empires for their executives. A bigger empire = more executive pay. But it doesn’t necessarily mean greater shareholder returns.

Well managed mature companies return excess cash to shareholders. Well managed growth companies do not.

Over the long run every company eventually matures and must return cash to shareholders. For this reason, one might say that over the long run dividends are the ONLY thing that matter.

Income Investing

Today’s Investment is Your Ticket to the Next Decade’s Dividend

When people begin their journey into dividend investing, they frequently mistakenly focus on what they can earn today.

For example, a $100,000 portfolio invested in a diversified portfolio of dividend stocks with a yield of 3% will earn $3,000 per year. Dividend investors see this immediate income as the goal, and often stretch to find higher yielding stocks to boost their current income. What they fail to understand is their long term income goals are often at odds of their current income needs.

Remember: the dividend that is paid today will grow over time.

The S&P 500 dividend has grown on average 6.01% per year since 1989. If you exclude 2009 – a once in a lifetime financial crisis – during which the dividend on the S&P 500 fell by over 21%, the average annual growth rate is 6.89%.

The long term growth of dividends is the key consideration for dividend growth investors. If your time horizon to retirement is 20 years, you’re investing today for the dividend you expect to receive then. Because higher dividend yields often come with lower growth rates, it can be counterproductive to your future income to focus on generating income today.

If your time horizon to retirement is 20 years, you’re investing today for the dividend you expect to receive then.

Below I provide 3 hypothetical examples of portfolios generating 2%, 3% and 4% current dividend yield growing at 10%, 7% and 4% respectively. The growth rates differ because companies that pay out less in dividends generally can use capital for better purposes (i.e. growth). (Of course, this relationship is better represented by the dividend payout ratio, but for argument’s sake most companies with lower dividend yields tend to have lower dividend payout ratios.) The faster the company grows, the faster it is able to grow dividends. I then carry these assumptions forward over 20 years to see what income is generated at retirement.

As you can see, the lower current dividend/higher growth rate combo wins over the alternatives. In 20 years, this portfolio (assuming no additional investments) would earn $12,232. That’s 12.23% yield on original cost of $100,000. In reality, most people would be re-investing dividends along the way, growing the capital base on which more dividends are earned. But I’ll stick to a super-simple example.

The 3% portfolio ended up earning $10,850 per year in 20 years and the 4% portfolio $8,427. The 2% portfolio provides 30% greater income in 20 years! Why? Because it came with higher growth rates.

While today it might feel like a 2% yield is pointless for a dividend growth investor, over the long run that portfolio could potentially generate much greater annual income.

I look at dividend investing like I’m paying for something I will get in the future. When you invest for dividends, you’re really gaining a lower-cost entry point for the dividend that you expect to receive some time in the future. The longer your time horizon, the greater that dividend will be.

The thing is, to generate tomorrow’s income you need to invest today. Because the price for that income rises all the time. If the portfolio yield remains a constant 2%, the portfolio generating $12,232 in 20 years will then cost over $1.1 million.


Why Deflation is Good for Bond Investors

Deflation is good for lenders. Inflation is good for borrowers. Why? It all has to do with the future real value of money.

If a dollar in the future is worth more than a dollar today, it becomes increasingly expensive (in real terms) to service debt and increasingly beneficial to receive coupon payments. When dollars become more valuable, purchasing power rises. This means you can buy more stuff with the same amount of money. (In reality, most of the time future dollars are worth less than today’s dollars due to inflation.)

Here’s an example: if I’ve lent out $100,000 in exchange for $10,000 annual payment plus principal at maturity, I would prefer those future payments to have greater real value. While I will receive $10,000 in all situations, the value of that $10,000 is affected by prevailing price trends. A deflationary price environment erodes the prices of goods and services, thereby making future dollars more valuable, benefiting lenders.

The following chart illustrates this concept:

If deflation is good for lenders, why wouldn’t banks seek to create a deflationary environment by reducing money supply? While deflation might benefit a single lender, widespread deflation would actually hurt lenders due to greater loan defaults. A deflationary spiral lowers prices, causing companies to cut production and reduce wages. This reduces aggregate demand, further pushing down prices. Asset prices decline are liquidated to cover rising cost of real debt, with many organizations forced into bankruptcy as asset values fall below liabilities.

Beyond this, our entire credit based economy is predicated on growth, of which inflation is a component. A combination of real growth (productivity growth + population growth) and inflation is required to cover aggregate interest costs within an economy. Since real growth is hard to create, inflation is the grease that keeps the economic wheels turning.

Income Investing Investing Wealth

New Year. Same Story.

December 31, 2020. We were all thankful that the worst year ever was finally over. Yet, so far 2021 is less than two weeks in and the drama is escalating.

I won’t get into the politics, because it’s the politics that is tearing us apart. Instead, I’ll focus on what we all agree on: this is some bullshit!

People are going broke, businesses are closing, folks are sick and dying. The population is at each others’ throats. Oh, and the climate is in slow collapse.

If there ever was a year to take personal responsibility, it’s 2021. Nobody is going to come fix your job, your marriage, your savings account. It’s up to each of us to make this a better world.

It wasn’t always this way. During the mid-20th century, most people could follow a predestined path that led to decent wealth and security. One didn’t really need to think or be different. You just needed to pick a direction and go. The baby boomer benefited from a post-war economic tide that lifted all boats. You had to f&ck up pretty bad to not do well as a boomer.

I don’t have to tell you those days are long gone.

Kids today enter the system saddled with debt because they were forced to get two masters degrees for an entry-level clerk job. Same job 50 years ago went to a high school grad. And that grad would then get married at 21, buy a house at 22 and support a nuclear family through to retirement on a single income and fat DB pension.

No more.

But you already knew this. You’ve seen the wealth disparity charts. Unless you’re one of the lucky ones, you’ve probably personally felt the pressures. I certainly have.

My story in 4 words: it’s all on me.

I have people depending on me to keep it together. Pay the bills, keep food on the table.

I have a successful career. But I fully realize it could end at any moment. I’ve seen dozens of my colleagues over the past 20 years hit a brick wall and never recover. This isn’t something people in their 20s know. Careers have an expiry date, and most end before planned retirement. This isn’t something most people decades ago had to consider.

If there’s one thing I want you to do this year, it’s this: consider what happens if your career ends next year, in 5 years, in 10 years. And when I say ‘end’ I mean END! Like your prospects are reduced down to shuffling coffees at the local diner.

How will you pay the rent and buy food?

With any luck, you have years to prepare. If you are young, you probably have many years of career growth ahead of you. But know this: 50 year old unemployed executives have few prospects. So prepare.

The simple answer many provide is to start a side hustle. Let me level with you. DumbWealth is my side hustle and I don’t make a dime. I do this as a labor of love and it’s still time-consuming and exhausting. I can’t imagine truly putting in an extra 4-5 hours a day after work (and life) to build a secondary source of income. I should, but who has the time or energy. Work, life, kids, exercise, chores. If you’re truly going to start a side hustle, one (or all) of these things inevitably gets neglected. You need a very understanding family and nearly infinite amounts of energy to build a viable side hustle.

OK, so why not take a hobby and try to make something of that?

Photography, painting, woodwork. Sounds great in theory, but turning a hobby into a business is a great way to kill that hobby. The business of photography is about 20% photography and 80% sales and marketing.

If you’re reading all this and saying “well, but…” then all the power to you. You might just be determined enough to pull it off. Some people are.

The rest of us need to build financial freedom in other ways. We need to save, invest and earn a little more at work. It’s a simple and powerful formula that most people neglect, either because it’s boring or they’re addicted to consumerism.

Cut your expenses, save as much as possible and invest that money in a portfolio that will eventually pay you for doing nothing. The income generated from an investment portfolio is probably the greatest gift we can give ourselves. It’s the one way to create a passive income without really doing much more than you’re already doing. You still work the same hours and have the same salary. You just need to sprinkle some planning and discipline onto your daily habits.

Start small, but start today. It’s a slow build that often leaves you questioning the plan. But keep at it and there should be a day when that investment portfolio earns enough to cover your basic needs if you were laid off. If all goes right, there might even be a day when that portfolio allows you to quit your job. That’s financial freedom.