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Investor sticks to tried-and-true dividends

Individual investor Steve Wood

Steve Wood, 31

Occupation: Commercial journeyman electrician

Portfolio: Enbridge Inc. , Fortis Inc. , Toronto-Dominion Bank , Royal Bank of Canada , Great-West Lifeco Inc. , Rogers Communications Inc. and other blue-chip dividend stocks

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The investor

"After getting married I started to really focus on my future and when I looked at my nest egg, I thought it should have been a lot bigger," Steve Wood says. So he decided to investigate.

Mr. Wood ended up selling his mutual funds. "I learned how mutual fund fees were eating away at my return and decided to cut out the middleman by investing on my own."

What resonated with him instead was investing in dividend stocks. "I read a lot of books, magazines and websites about dividend investing, and learned a lot from Tom Connolly [publisher of The Connolly Report]and David Stanley [a retired professor who writes for Canadian MoneySaver]"

The approach

"My investment strategy is simple," Mr. Wood says. "I buy solid, blue-chip Canadian companies that pay growing dividends."

He prefers to buy when the stock price is lower than normal and the yield is high. Bear markets are thus often good times to buy shares in these types of companies.

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In addition, when looking for companies to invest in, he follows six rules. The companies should have:

  • Minimum dividend yield of 4 per cent
  • Low dividend payout ratio
  • Strong cash flow
  • Low debt
  • Strong history of dividend growth
  • Price-to-earnings ratio around 15 or lower

What Mr. Wood especially likes about dividends is the cushion they provide during bear markets. The income stream helps keep investment return up; also, weaker prices mean that dividend yields are higher, which tends to attract new buyers. Reinvesting dividends is important: "By reinvesting the dividends, my portfolio increases from compounded growth." He currently doesn't use dividend reinvestment plans (DRIPs), however. "When I receive dividends in my trading account, I pool them until I have enough money to buy dividend stocks that are attractively priced on my wish list."

Best move

"Investing in dividend-growth stocks."

Worst move

"Owning mutual funds all those years." Advice

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"Find an investing strategy that works for you and stick with it. If you use an investment adviser, make sure you find one that charges an hourly fee for their services to get unbiased, commission-free advice." Mr. Wood also discusses dividend investing on his blog, The Loonie Bin (

Special to The Globe and Mail

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