When it comes to dividend investing, I rely on a simple strategy – be an owner. Basically, I want to be the owner of a business that produces and sells products that people use every day. The more reliant people are on these products, the better.
Furthermore, I want to be an owner of a company where people complain about its high product pricing all the time yet have a hard time switching to something else. This tells me that the company has key advantages over its competitors, a wide moat, or switching is simply not possible (the best kind!).
What does this mean? Consider your daily routines, what are some things you use on a daily basis? Take me for example, when I wake up in the morning I usually go take a hot shower. I rely on water and natural gas for a nice hot shower. We use Fortis for natural gas. While there are other independent natural gas suppliers available in BC, most of them use Fortis as the supplier. So we invest in Fortis.
After a shower, the whole family sits down to have breakfast together. Breakfast items are usually purchased at either Costco, Superstore, or local grocery stores, whichever provides the cheaper pricing. While the grocery sector is highly competitive, it makes sense to invest in a few of them, like Costco, Walmart, and Metro. We rely on Visa and Mastercard on these grocery purchases and most purchases, so we invest in Visa.
Many of the products that we use on a daily basis are produced by the likes of Procter & Gamble and Unilever, so I want to be an owner of these highly profitable companies.
We bank with TD and a local credit union. Although TD charges high monthly and trading fees, I have stuck with them since I was a teenager. Why? Because the other big Canadian banks charge just as much in terms of fees. Hence, I invest in Canadian banks rather than one of the Canadian bank ETFs.
When I work, especially working remotely for the last 18 months, I need the internet and a cellphone to do my job. Since Canada has one of the highest internet and cellphone costs in the world and people complain about the prices all the time (including me), investing in Canadian telecommunication companies like Telus, Rogers, BCE, and Shaw makes a lot of sense to me.
When I am out and about, I see maybe people using Apple iPhones and have heard people moving away from iPhones and switching back a few months later. It seems many people prefer Apple’s ecosystem and have a hard time switching to Android and/or Windows. So we invest in Apple.
Do you see how simple and effective this strategy is?
No wonder many of the best Canadian dividend stocks I picked out are companies that produce or sell products that Canadians rely on on a daily basis.
Be an owner
While this simple strategy applies to owning stocks, I think it can be generalized to the following statement:
To improve your financial well-being and build and increase your wealth, you need to be an owner. You need to own income-producing assets that appreciate value over time.
What do I mean by income-producing assets? Here are some examples:
- Real estate
For most people, it is easier to buy these assets, like stocks, real estate, bonds, and GICs. Some of these income-producing assets require time and energy to build up, like businesses, franchises, and royalties (I suppose you can buy businesses and franchises too but both will require some time and energy to manage).
The key thing in building wealth is to stick to a few of these income-producing assets as your core investing strategy rather than trying to own them all. Don’t get impatient and start switching back and forth between these income-producing assets. It’s important to get in line and stay in line.
Teaching kids about being an owner
As Baby T1.0 and Baby T2.0 get older, Mrs. T and I are teaching them this simple concept. Both kids enjoy watching Disney movies, buying toys from Walmart, playing LEGO, etc. Shortly after Baby T1.0 was born, we created a dividend portfolio for him by selecting 15 dividend-paying stocks using ShareOwners. After Baby T2.0 was born, we decided that this portfolio would be split evenly between the two kids.
Unfortunately, ShareOwner was purchased and closed by WealthSimple, resulting in this kids’ dividend portfolio disappearing. We still wanted to teach both kids about this important concept of being an owner, so we set up their investment account with WealthSimple Trade (under Mrs. T’s name). Both kids would put in equal amounts of money from their gift money to buy stocks.
- Check out my Questrade vs. Wealthsimple Trade review
- Should I consider switching to National Bank Direct Brokerage?
Rather than buying individual dividend stocks in this new WealthSimple Trade account and having to manage things for the two kids, we decided to go with a passive route by investing in XEQT, one of the all equity ETFs available in Canada. We also didn’t want to purchase individual dividend paying stocks because WealthSimple Trade currently doesn’t support dividend reinvestment plans.
Kids being kids, we have to keep reminding them that stock prices will go up and down in the short term, but over the long term, the price should increase. In addition to teaching them about the concept of being an owner, we’re also teaching them about time in the market.
So far, they seem to understand the ideas and want to put more money in their account whenever they receive gift money.
On a related side note, since LEGO remains a private company, both kids were extremely disappointed that they aren’t part owners of LEGO. If LEGO ever goes public one day, we definitely will invest money in it.
Summary – Be an owner
Investing and building wealth doesn’t have to be complicated. Find good businesses that make products that people use and depend on. Remember, invest for the long term. Investing is like a bar of soap. The more you touch and handle it, the smaller it gets.
Be an owner!