The big Canadian banks have been reporting their earnings this week and all of them have not only beat earnings estimates, but also raised their dividends. Banks are literally in the business of making money and Canadian banks are some of the strongest in the world.
Instead of posting a bunch of numbers, I am including an excellent article by The Globe & Mail that shows how the Canadian banks “handily beat the S&P/TSX composite”.
I started buying shares of The Bank of Nova Scotia back in Nov. 2009 through their dividend reinvestment plan (DRIP). The real power of my investment has been that I reinvested my dividends, the dividend has increased over time and the income I get is favourable taxed because of the dividend tax credit.
When I first started buying shares, the share price was $48.91 and the annual dividend was $1.96 so I was getting an annual yield of 4%.
Someone buying the stock today is paying $52.20 and receiving an annual dividend of $2.28 for an annual yield of 4.37%.
But because my purchase price remains $48.91 and the dividend has increased over time to $2.28 my current yield on those early shares I bought is now 4.66%.
So you can see that in a short period of less than 3 years I have enjoyed a capital gain (share price raising) and an increase in my yield (dividend amount raising). And while 4.66% may not seem too exciting, it is a lot more than you would get from a savings account right now which are paying 1% or less (and being fully taxed as interest income).