In late August Norman Rothery of StingInvestor.com wrote a column for the Globe and Mail about yields and dividend stocks. Mr. Rothery who is based in Canada used the S&P/TSX Composite for his research. If you had purchased an equal dollar amount of the dividend stocks in the S&P/TSX Composite Index you would have gained an average of 10.2% compounded annually. In number terms over 16 years a $100,000 would grow to $609,000.

A reason to invest in dividend stocks is not to invest in more highly speculative mining and energy companies which rarely pay dividends. Often you can do one or the other not both. Dividend stocks means not losing money, mining and energy stocks means you may double but you may also lose some if you are in the wrong part of the commodity cycle.

In Mr. Rothery’s research he found if you investments in dividend stocks begin to be very high yielding, you will eventually lose money. There are generally very good reasons why dividend stocks become high yielding relative to the other companies. High yielding means the stock price has declined but the dividend yield has remained consistent. Often something has happened to fundamentals of the company, but they are trying to turn the fortunes around and keep the dividend payments high. If they are not sustainable, the stock price will fall and if you own the stock you will lose money, both on the price of the stock and dividend yield which would have been cut. The trick according to Mr. Rothery is when the dividend yield becomes too high relative to others, find alternatives and move your investments.

Linking to dividend paying stocks, in life moderation is often the key to long term success. If you can live most of your life in moderation or a good balance and your investments reflect your lifestyle then over the long term you will be wealthier.

There are more questions than answers, till the next time – to raising questions.