hey guys it's adrian here the canadian in a t-shirt and today i'll be breaking down why
i love dividend investing especially now during a recession investing in dividends offers a ton of
benefits both financial and psychological that can really help us survive and thrive during a market
downturn when the markets are down i don't panic and sell i use it as an opportunity to buy more
quality dividend stocks at a discount as you've seen in many of my past videos and that's exactly
what i'm doing right now in my portfolio let's get this out of the way i'm not saying that you should
only buy dividend stocks one of the pillars of my investing mindset is diversification you don't
ever want to put all your eggs in one basket so you don't have to choose one strategy or the other
you can do both i invest in etfs and individual stocks i invest in dividends and growth stocks i
look for passive income and capital appreciation there are always opportunities to be found
especially during a market crash and dividends are one of the best things you can do with your money
this is chapter 10 of my millennial investing guide my videos with the light green thumbnails
so click the pop-up at the top right to learn the basics of stocks etfs reits and how to invest
during a market crash in particular make sure you watch my dividends explained video where
i break down how dividends work their benefits and what to look for when choosing dividends as
a quick recap when you own a stock you own a small piece of that company stocks can earn you money in
two ways capital gains and dividends capital gains are simple if you buy the stock at a low price and
years later it grows in value you can sell that stock for a profit that profit is called a capital
gain but some stocks can also earn you money just for holding on to them that's called a dividend
dividends are a percentage of a company's profits that they pay out to its investors
like you and you don't have to do anything to earn this money you don't have to sell your stocks or
work for the company as long as you own at least one share of a company you will receive a dividend
dividends are the easiest source of passive income you literally make money in your sleep
you can think of dividends as an incentive to encourage you to invest for the long term
because they are paying you throughout the year with capital gains you only make money
once the moment you decide to sell your stock but with dividends you get paid many times every three
months or every month that's one of my favorite things about dividend stocks you are never wasting
time even during a market crash when your stocks are down across the board your dividend stocks are
still earning you money but when growth stocks are down they are not doing anything for you
as an example let's look at a growth stock like facebook now called meta over the past 10 years
right now facebook is at a low point its stock is worth about 168 dollars per share this stock is
worth the exact same amount as it was five years ago back in august 2017. so in effect these past
five years were wasted during these five years you didn't earn any money holding on to your shares
if you bought facebook stock five years ago you would be in the exact same position as if you
bought the stock today you weren't compensated at all during those five years for holding on
you just wasted time and you're right back to where you started in fact you're actually worse
off because of inflation your 168 dollars today is worth less than it was five years ago with growth
stocks the only way to make money is to sell your shares for a profit but we want to invest in the
long term which is why you probably didn't sell during these five years eventually facebook will
recover and if you hold the stock for another 10 years you will likely make a nice profit
but those five years were still wasted time and that sucks you know how hard you work for your
money so you want your money working just as hard for you and with dividends your money is
always working 24 7. there's never any wasted time let's compare our example to a dividend stock
like cibc cibc is also down right now to a recent low of sixty dollars per share
again this is the same price it was five years ago back in 2017. so in terms of capital gains
it's the same as facebook it hasn't made any capital gains in these past five years but
cibc also pays out a generous dividend every single year so this time was not wasted with a
dividend stock you don't have to sell your shares to earn money just by holding onto cibc stock over
these past five years you've been earning between four percent and six percent every single year
and pure passive income and if you bought the shares at the lowest point during the 2020 crash
you would have locked in an 8 dividend yield because you took advantage of the discounted
prices i'll come back to this point later in the video that's why i love dividends whether the
market is going up down or sideways i still earn money and i am always being rewarded for my time
another great thing is that dividend stocks are usually more reliable dependable and less risky
investments than gross stocks remember the only way to make money with a growth stock
is to sell it for more than you bought it for because of this the price of growth stocks can
easily be manipulated over inflated and driven by emotion people who are heavily invested in these
speculative stocks can hype it up on youtube or reddit and convince enough people that the stock
is shooting to the moon even though the company is fundamentally not worth that much and the company
might not even make a profit even large well-known companies can be overinflated like this remember
in my video on how to analyze stocks i went over the importance of the price to earnings ratio
and saw that even giants like shopify and tesla can be massively overvalued and when reality kicks
in the hype bubble bursts and we can see these stocks plummet 50 60 70 with dividends this is
far less common because dividend stocks tend to be less volatile and valued fairly and here's why a
dividend isn't money that appears out of thin air a dividend is a percentage of a company's profits
meaning that a company needs to make a profit to pay a dividend in the first place
a company only starts paying dividends once they have a long history of consistent and
reliable income that's why dividend stocks tend to be well established industry leaders
we call these blue chip stocks companies that have been around for decades they always earn a profit
and they grow at a steady rate year after year they're not going to double in value overnight but
they aren't likely to plummet either those are the companies you want to own and since they have such
a long track record the market knows how much they are worth and how much their dividend yield should
be so every year they earn more income more profit the company is worth more so the share price grows
as the share price grows they also increase the dividend to keep the yield relatively steady this
is a simplified explanation but essentially all of these metrics are working in balance to keep
the dividend stock from swinging wildly up and down in value but let's say that a viral youtuber
was able to hype up a dividend stock like cibc and cause the share price to double overnight
this would throw off the balance investors expect cibc to pay a dividend yield around four percent
but now the share price has doubled so the dividend yield is reduced by half
to only two percent for cibc to maintain their expected four percent yield they would have to
double their dividend overnight but they can't do that a dividend comes from the company's
profits they can't pay out more money to dividends than they bring in that's not sustainable and so
they'd have to cool off the share price and return everything to normal reasonable values this is a
very simplified artificial example but the point is that with established dividend stocks there
are a lot more checks and balances to keep the share price reasonable and valued fairly generally
speaking dividend stocks won't be as volatile it'll be a much smoother and gradual upward climb
they won't 10x in value but they won't crash and burn either that's what you want from long-term
investing boring and dependable no stress just peace of mind that leads us to our next benefit
the psychological boost of receiving dividends in your hand when your stock grows in value
you haven't made any money yet your capital gains are unrealized you're making money on paper but
you don't actually have any money until you decide to sell but when you receive a dividend that money
is real and it's yours that cash is in your pocket and no one can take it away from you even if the
market crashes tomorrow don't underestimate the psychological benefit of receiving passive income
every month or every quarter as humans we're still animals and it's difficult to delay gratification
especially when it comes to money everyone needs money and we need it now you can listen to a
youtuber a million times say that true wealth is built in the long term and that's true no question
but it's hard to put that money aside and hold on to hope that will be rewarded years down the line
we need to see results along the way dividends give us a mental boost that encourages us to keep
going when you receive a dividend that money is proof in your hand that you're on the right path
to building your financial future i've been investing for almost 10 years and still when i log
on to questrade and go to my account activity and see those dividends coming in almost at a weekly
basis now it gives me a thrill and a sense of pride it makes investing fun rather than a chore
that's why i'm always smiling in these videos in fact my favorite day of the month is the 15th why
because that's when i receive most of my monthly dividends from reits my real estate stocks and
to make it even better i reinvest those dividends to buy more shares using a drip that's where the
real fun begins now every single month i gain new shares totally on autopilot so every month
i receive more and more money it's compounding i'm not just receiving the same 100 payment every
month that would be linear growth but with a drip the first month i'll earn 100 next month i have
more shares so i own 103 dollars then 107 than 115 my rate of income is accelerating and that
is the power of exponential growth and that is how true wealth is built in the long run check out my
drips explained video where i illustrate the power of compounding dividends and i show you how to set
up a drip with questrade my favorite online broker and if you'd like to get started with questrade
click my referral link in the box below and you'll get 50 in commission free trade rebates for the
first 30 days when you sign up that basically means that your first 10 stock trades will be
commission free that saves you 50 plus i'll get a small referral bonus as well receiving that
steady passive income from dividends also makes it much easier to track your progress and manage your
retirement goals for me retirement is not an age i don't want to retire at 65. for me retirement
is when my passive income is enough to cover all of my living expenses at that point i can choose
to stop working i can literally sit on a beach all day making money in my sleep and my dividends
and rental income are enough to cover my lifestyle if i want extra money sure i can choose to keep
working part time but that's my choice and to me that is freedom tracking my dividend income
and seeing that number grow year after year is so rewarding and it gives me a rush of motivation
to keep going i've said it many times when markets are down i use it as an opportunity to buy more
quality stocks at a discounted price a big reason why is that i know that the companies are still
solid the drop in the share price is just driven by fear and panic so when the share price recovers
i will have made easy capital gains because i bought in at a low point but with dividend stocks
i get an extra benefit that's even more powerful i get to lock in that higher dividend yield and
i get this benefit every year for life not just a one-time capital gain let's go back to my crbc
example normally cibc pays out a dividend yield around four percent that's great and reliable
passive income as the share price grows over time we expect the dividend to grow as well to maintain
that four percent yield and so we have reliable capital appreciation and growing dividends
that's wonderful and that's enough to build long-term wealth but when the markets are down
we can add fuel to the fire and kick-start this growth the share price has dropped by 25
so with the same amount of money we can afford to buy 25 more shares and each of these extra
shares that we bought on discount pair the same dividend as the normal shares we bought years ago
so if we buy a thousand dollars worth of crbc stock right now on sale we're not just getting
the normal four percent dividend yield we're getting a higher dividend yield of 5.5 percent
because we're buying extra shares and even better we're locking in this higher dividend yield for
the rest of our lives because we'll always own those extra shares which pay us extra dividends
the dividend yield represents the annual income you'll receive on the money you're investing today
so when the share price drops use that as an opportunity to buy more shares on sale and lock
in that higher dividend yield of course this is only as long as the company is still secure
and the dividends are sustainable as i've talked about in my past videos but with a company like
cibc which has growing revenues and a low payout ratio those dividends are definitely sustainable
and they'll continue to increase those dividends year after year if you'd like to see exactly which
stocks i'm invested in companies like cibc and to help support my channel hit that join button
down below to gain access to my exclusive videos like my tvsa and rrsp portfolio reveal and to see
exactly what stocks i'm buying every few weeks but remember don't just blindly follow a random guy on
youtube everyone has their own financial goals and circumstances i don't want you to copy what i do
but i hope that seeing my portfolio might offer some guidance especially if you're just getting
started so there you have it those are some of the reasons why i love investing in dividends
especially during a market downturn with dividends your money is always working for you
you can count on reliable passive income giving you peace of mind and long-term growth and when
the market is down you get to benefit from both capital appreciation and locking in a higher
dividend yield thanks for watching guys be sure to like comment and subscribe if you found this
video helpful every thumbs up and comment really does help me build this channel here on youtube
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thanks everyone and i'll see you guys on the next episode of the canadian in a t-shirt bye guys