EP67: 5 Banks Paying Dividends for Over 100 Years

In this episode, I cover 5 Canadian banks that have been paying dividends for more than 100 years.

I cover the following topics in this episode:
- What are dividends?
- How to make money with dividends
- Over 100 years of dividend payments
- Dividend consistency is key
- 2007-2008 financial crisis
- 5 Canadian bank dividend's during 2008-2010
- Our approach to dividend investing

Link to DividendPower's blog post: https://www.dividendpower.org/canadian-100-years-dividends/

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Transcript

Speaker 1: 0:00

In this episode we'll look at the five largest Canadian banks that have been paying dividends for over 100 years. When it comes to dividend investing, consistency is key. Hi, my name is Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. A quick special thanks to my friend at dividendpowerorg for inspiring me to make this episode today. I'm going to put a link down below in the description to a blog article that he recently wrote about Canadian companies that have been paying dividends for over 100 years. So thanks again to dividendpower. Now let's get started with our episode Today. I'm going to cover four topics, and the first topic is going to be what are dividends? So a quick review. The next topic will look at how to make money with dividends, with a real-life example using one of the Canadian banks. The third topic is going to be looking at the list of the five Canadian banks that have been paying dividends for more than 100 years, and the fourth topic is to look at the importance of consistent dividends as they come in. So let's get started with topic number one what are dividends? So dividends are essentially the company sharing its profits with you, the shareholder, and in this example, let's say, a company is paying a dividend of $1 per share and you own a thousand shares, you will receive $1,000 every year for as long as you own those shares and as long as the company continues to pay the dividend, regardless of the stock price. Stock prices go up and down all the time, but the dividends are paid based on the number of shares you own and the money is deposited directly into your trading account as cash. So you can spend that money if you wish. You can spend those dividends or you can reinvest them back into other stocks that pay dividends, and that's a great way to compound your dividend growth. So now let's move on to our next topic then. So how do you make money with dividends? So there's two ways. Number one, of course, is collecting the dividend itself and, like I said before, the dividend is going to be paid based on the number of shares you own. And then the second most important thing here is the dividend increases. So every time a company increases its dividend, that's more money in your pocket. Now, looking at our example we just looked at earlier, if a company is paying a dividend of $1 per share and you own a thousand shares, you'll get $1,000 every year for as long as you own those shares, but if the company increases that dividend to, let's say, $2 a share, then you're going to start earning $2,000 a year on those dividends that you own. So every time the dividend goes up, more money goes into your pocket.

Speaker 1: 3:13

So now let's take a look at a real life example which illustrates the power of collecting dividends over time and having those dividends increase over time as well. So we're going to look at a Canadian bank, cbc. This is the fifth largest bank in Canada. They were founded in 1867. They have a little over 48,000 employees and a market cap, as of this recording, is a little over $57 billion. So let's take a look at this example. Let's say in 2010, you had $9,585 to invest and let's say you put that in CIBC shares and you can see on the screen the share price at the time was $31.95. And let's say you purchased 300 shares. So we multiply the 300 shares by the share price back in 2010. And you can see that your total investment at the time would have been $9,585. Now let's take a look at what would have happened to that investment. Would it have grown over time or would it have gone down? So now we're going to take a look at this example with CIBC. So you can see on the screen there's a lot of numbers here, but I'm going to go through them step by step and you can see that back in 2010, the company was paying a dividend of $1.74 a share, and that's an annual dividend per share. You can see that the following year the dividend went up. The year after that it went up again. In fact, the dividend has gone up every single year for the last 14 years consecutively and today, as of this recording, the dividend is now $3.60 a share.

Speaker 1: 5:09

Now let's go back to 2010. So you can see that the share was $1.74 and the stock price, the purchase price, was $31.95 a share. So we're going to do some simple math here. We're going to take the dividend at the time divided by the purchase price and we're going to express that as a percentage, and you can see on the screen that it is 5.45%. So what does that really mean? That's the dividend yield. So that means that is your return on investment while you hold on to those shares. And again, stock prices can go up and down all the time, but in this example, your purchase price back in 2010 was $31.95. So that's not going to change, and the dividend back then was $1.74, so that's not going to change either. So the return on your investment back then was 5.45%. And what does that mean? Well, we take 5.45% of your initial investment, which was $9,585.

Speaker 1: 6:18

And if you do the math, you can see that in the first year you would have received $522 in dividends. So that's essentially 5.4% of your initial investment, right? So that's how much money you would have gotten in dividends back then. Now you can see all the numbers for the last 14 years, but we're going to fast forward to 2024. So you can see the dividend has now gone up to $3.60. We divide that by the purchase price and you can see that your dividend yield based on your purchase price today is a little over 11%. And so today, in this year, you would receive a little over $1,000 in dividends.

Speaker 1: 7:01

So you can see, in 2010, you were only making $522 a year in dividends. Now you would be making a little over $1,000 in dividends from the same investment. Remember, you didn't buy more shares, you didn't increase your capital investment. That stayed the same, and you still own the same 300 shares in this example. Now, if we add up all the dividends received since 2010,. Just from this investment alone, you can see that it is over $11,300 in dividends. So that's pretty remarkable Because, keep in mind, your initial investment was $9,585. So, just from the dividends alone, you have more than made up covered your capital investment. So the risk now for this investment in this example, for you the risk would be zero Because you've already made your money back and more.

Speaker 1: 8:01

I haven't checked the stock price today. I think recently it was trading at $62 a share. Do you really care if it drops to maybe $58 tomorrow or $50 tomorrow? Not really, Because, again, the risk to you in this example has gone down to zero. You've already received the dividends, have covered all of your initial capital investment. And so now we look at this example as of this recording taking the share price today. Of course, the shares have gone up in price as well, including all the dividends earned since 2010, you can see that your initial investment of $9,585 would be worth almost $30,000 today, so that's pretty good. Even better is, 38% of that has come from the dividends, so that's huge. That is a huge portion of the total return on your investment, so that's pretty good. We've also seen other students who have taken the Simply Investing Course dividend investors who are making today $5,000 a year in dividends. Some of them are making $20,000. Some are making $60,000 a year in dividend income alone.

Speaker 1: 9:16

So the important thing here is that it takes time for the dividend growth to kick in, because you can see, year by year, the increase is incremental, right? The dividend goes up by a couple of pennies maybe 50 cents, 20 cents. That's not a huge increase, but over time those increases will add up and as you collect the dividends, your dividend yield will go up and, as we saw in the example with CIBC, you would now be earning double digit returns every year just for holding on to those shares. Now I know some of you and recently there's been some talk in the news about some dividend reductions and elimination of the dividend, where the company has stopped giving a dividend, and this is an important statement. So dividends are not guaranteed. Companies are under no legal obligation to pay you a dividend, so they can reduce the dividend any time they want or they can eliminate it altogether any time they want, and we saw that during COVID in March of 2020, when companies like Boeing, disney, general Motors completely eliminated the dividend. So if dividends are not guaranteed, then how do you have any confidence in investing in dividend stocks? So the important thing here is that we wanna look at a company's track record. How long have they been paying the dividend? Have they been increasing the dividend? Has it been five years, 10 years, 20, 30, 40, 50 years? How long has it been? Because the better the track record, the more confidence we can have in the future that the company will continue to pay the dividend.

Speaker 1: 11:04

So that brings us to the third topic in our episode today, which is we're now gonna look at the five largest banks in Canada that have been paying dividends for more than a hundred years. So that is an impressive track record. So let's get started. We're gonna start with the first company on our list, which is Bank of Montreal. This is a large bank. All of these banks operate in the United States as well, and in other countries as well, outside of Canada. We're gonna start with Bank of Montreal because they have been paying the dividend for the longest time, since 1829. The second longest is Bank of Nova Scotia 1833. Then we go to the Toronto Dominion Bank. The TD Bank has been paying a dividend since 1856. And then our CIBC Bank that we were looking at has been paying a dividend since 1868. And finally, the Royal Bank of Canada has been paying a dividend since 1870. So this is an impressive track record. Let's take a look at each of these banks one by one, so we're gonna go in the same order with the company that started paying the dividend first and then work our way down. So the first company on our list is Bank of Montreal, founded in 1817, has over 55,000 employees, a market cap, as of this recording, of about $93 billion, and it is the third largest bank in Canada by market cap. Bank of Montreal has been paying a dividend for 195 years. So I'm gonna say that again, because this is important they have been paying a dividend for 195 years and they started in 1829. So that is an impressive track record and one that's important to us as dividend investors, because we rely on the dividends to provide us with a source of investment income.

Speaker 1: 13:15

Let's move on to our next bank, which is Scotia Bank. They are the fourth largest bank in Canada by market cap. The bank was founded in 1832. They have a little over 89,000 employees, market cap is over $76 billion and they've been paying a dividend for 191 years, since 1833. Let's move on to TD Bank, the second largest bank in Canada by market cap, founded in 1855. They have a little over 103,000 employees, a market cap of over $149 billion and they've been paying a dividend for 168 years, since 1856. And let's move on to CIBC, which we covered a little earlier in this episode is the fifth largest bank in Canada by market cap, founded in 1867, over 48,000 employees, market cap of $57 billion, and they've been paying a dividend for 156 years, since 1868.

Speaker 1: 14:23

Think about how many market recessions, how many market crashes we've had in the last 100 years. Think about even recently with COVID, march of 2020, when the market tanked with 2008,. 2009 financial crisis. The market tanked In 1911, the New York Stock Exchange was closed for a number of days and the markets tanked. So history is full of instances in events in the world that have caused stock markets to decline, but yet companies like these have been paying dividends for almost well.

Speaker 1: 15:03

If we look at Bank of Montreal, almost 200 years of paying dividends. So that's an incredible track record. Let's get on to our last bank on the list here, which is the Royal Bank of Canada, rbc. They are the largest bank in Canada by market cap. Their market cap is a little over 186 billion dollars. They were founded in 1864. They have over 91,000 employees and they've been paying a dividend for 154 years, since 1870. So there you have it. You can see on the screen. We've got all the five banks listed. Bank of Montreal is on its way to all over almost 200 years of dividends, right there at 195. So let's wait a couple more years and they'll be. If they continue to pay the dividend, they'll surpass the 200 year mark. Bank of Nova Scotia is in second place at 191 years of dividend increases. So that is again an impressive track record.

Speaker 1: 16:10

What's important here to remember is the consistency of the dividend, because it makes it more reliable. Right, and that's our last topic in today's episode, is consistency, and what does that give us? What does that provide us? It provides us with confidence as dividend investors when we look at that. It gives us confidence that these companies will continue to pay dividends to us in the future and hopefully increase them.

Speaker 1: 16:38

I'm going to give you a real quick example to illustrate the importance of consistency. So if we were looking at two companies to invest in, company A and company B, you can see up on the screen. We're going to keep this example, real simple Stock price is the same, the dividend is the same, payout ratio is the same, the debt is the same, so everything else is the same. Let's assume they're in the same industry, in the same sector. So, all things considered equal, which company would you invest in? Company A or company B? Now, there's one difference Company A has been paying a dividend since 1874. So 150 years of paying dividends. Company B just started paying a dividend three years ago, in 2021. So which company are you going to invest your hard-earned money in? Assuming all things considered, equal, right? So company A is going to be probably a safer option to invest in Because they've been paying a dividend for 150 years. We don't know what's going to happen with company B next year. Are they going to still pay the dividend? Are they going to reduce it? Are they going to eliminate it altogether? Will they pay us a dividend for the next 5, 10, 15, 20, 30 years? We don't know, but company A gives us the confidence that they will continue to pay the dividend.

Speaker 1: 18:02

Let's take a look at a very specific example. I want to take you through a specific example in 2008, the financial crisis, because now we're going to take a look at the five Canadian banks and see how well or how poorly they performed back in 2008. For those of you old enough to remember, 2008 was not a good time for banks. We had a number of banks in the US go bankrupt, completely gone. Washington Mutual is one of the most famous examples, and the bank just went bankrupt In Canada. The five banks were kind of in a similar situation Not bankrupt, but not doing well. Here's a graph up on the screen the stock price chart for a Royal Bank of Canada. So this is the largest bank in Canada and you can see that in 2007, the stock was trading at $60 a share and then, by the time we get to 2009, it's half that price. It's trading at $29. So if you were just looking at the stock price, this would be terrible and we're not going to show it here in this episode. But you can look at the other four banks the Canadian banks that we talked about today, and their stock price graph looks identical. They all went down. 2008 was not a good time for banks and all those prices came down.

Speaker 1: 19:28

So let's take a look now at the dividend, because, as dividend investors, that's our focus. Our priority is the dividend, not the stock price. So now let's take a look at how the dividend did during one of the worst periods in history for banks. So we're going to start with Bank of Montreal. Okay, we're going the same order with the five banks that we just looked at. So we're going to start with Bank of Montreal, and you can see up on the screen in 2007, the dividend was $2.71.

Speaker 1: 20:01

In 2008, they increased the dividend, but then in 2008 was when all of the financial crisis, the problems started. So what the bank did is they didn't Cut the dividend, which is good for us as dividend investors, and they didn't reduce the dividend, which is also not good for dividend investors. So there was no reduction and there was no elimination of the dividend. They just kept it the same. So you can see, in 2009, the dividend didn't change. In 2010, the dividend didn't change. In 2011, the dividend didn't change.

Speaker 1: 20:34

Now most people would think, well, I'm going to sell the stock, the dividends going nowhere, right, and in hindsight, that would have been the wrong approach. If you just held on and Stuck with it, you could see that in 2012, the dividend went up not by much, it's only a two cents but then into 2013, the dividend went up again, and then it went up again and then, ever since 2012, the dividend has gone up every single year, consecutively for 12 years, and now we fast forward to 2024. As of this recording, you can see that the dividend is $6.04. So that is pretty impressive. It is a hundred twenty three percent increase since 2007.

Speaker 1: 21:23

Now let's take a look at Bank of Nova Scotia. You'll see a similar trend. You'll see in 2007 the dividend was $1.74. 2008 it went up a little bit. 2009 it went up, but then in 2009, in 2010, they kept it the same. There was no increase in the dividend, there was no reduction and there was no elimination of the dividend. So that's okay, that's fine. And then the dividend started going up and since 2011 it's been going up every year and currently it's sitting at $4.24, which is a hundred and forty four percent increase since 2007.

Speaker 1: 22:02

Now let's take a look at TD Bank same thing. So we're not going to go over all the numbers. You can see them up on the screen here. You can see that the bank also in 2009, 2010 did not. They kept the dividend the same. And Fast forward to 2024, you can see that their dividend has gone up 285 percent Since 2007. So remember, every dividend increase is more money in your pocket. So a 285 percent increase in your dividend income is incredible.

Speaker 1: 22:36

With CIBC, same thing From 2008 to 2010. They kept the dividend the same, but after that it kept going up. We can see a hundred thirty one percent increase since 2007. And finally, the Royal Bank of Canada Did the exact same thing as CIBC in 2008, 2009, 2010. They kept the dividend the same, didn't change, and then you can see that today the dividend is 203% higher than it was in 2007. So you'll notice something that's common to all five banks and I've got it highlighted on the screen for you right now In 2009 and 2010, all five banks had not changed their dividend. They kept it the same. So that's coincidence. I don't know, but I'm assuming they were all under the same financial pressure as all the other banks and they kept it the same, and we can see that the increases have been quite substantial since 2007.

Speaker 1: 23:44

And then, when we go back to our example of CIBC we just looked at earlier in this episode, you can see that over time, with dividend increases, in the beginning the increases are very small and then, over time, as you reinvest those dividends into other stocks that pay dividends, you're going to make even more dividend income, and then it starts to have a snowball effect of the dividends compounding, and the longer you stay invested, the more you're going to receive in dividend income. And so we saw with the example of CIBC. Right, it was a $9,585 investment has now returned over $11,000 in dividends alone. And as long as the dividends keep coming in every year your dividend income in this example would go up. And if the company continues to increase the dividends like it's done for the last 12 years, then again your dividend income would go up.

Speaker 1: 24:42

So what's important here is the consistency and the reliability of the dividend income that's coming to you. Share prices go up and down all the time, so the value of your portfolio may shrink or grow, depending on if we're in a market downturn or the market is up, but we can't rely on the share price alone, because without the dividend then you're only relying on the share price, and the share price alone may not cover your living expenses, but the dividends can over time. So what does this mean? Should you? Does this mean that you should go out and buy any stock today that's been paying a dividend for a very long time and the short answer is no.

Speaker 1: 25:23

There's a couple more things we need to check right, and our approach to investing is to invest in quality, dividend paying stocks when they're priced low, so not just any stock that's paying a dividend. It has to be a quality stock and not just any quality stock. It has to be priced low. So how do you know, when you're looking at a stock, if it's priced low and how do you know if it's a quality stock? Well, for that I've created what I call the 12 rules of simply investing. You can see them up on the screen. This is your checklist. Before you invest in any stock, you want to make sure it passes all of the 12 rules, not just some of the rules. All of the 12 rules. Even if there's one failure, skip it, move on to something else. So you can see the 12 rules up on the screen here. We're going to quickly just go through them all right now.

Speaker 1: 26:14

Rule number one Do you understand how the company is making money? If not, skip it, move on to something else. Rule number two 20 years from now, will people still need its product and services? Rule number three does the company have a low-cost competitive advantage? Rule number four is the company recession proof? Rule number five is it profitable? Rule number six does it grow its dividend? And that's what we looked at in today's episode, and we saw examples of five Canadian banks the largest in Canada that have been paying dividends for more than a hundred years. Rule number seven can the company afford to pay the dividend? Rule number eight is the debt less than 70%? Rule number nine avoid any company with a recent dividend cut. Rule number ten does they buy back its own shares? Rule number 11? Is the stock priced low? So there's three things that we look for there, where you look at the PE ratio, we look at the current dividend yield compared to the 20 year average yield and we look at the PB ratio. If a stock meets all three conditions, then we consider the stock to be priced low and it passes. Rule number 11. And then rule number 12 keep your emotions out of investing.

Speaker 1: 27:26

So, for those of you that are interested, I've created the online simply investing course. It's a self-paced course, it's divided into 10 modules and it teaches you how to Become a successful dividend investor. Now, module one we cover the investing basics. Module two we cover the 12 rules of simply investing in detail with real-life examples. Module three we apply the 12 rules using a Google sheet. Module four I show you how to use the simply investing platform.

Speaker 1: 27:57

Module five Placing your first stock order step by step. Module six building and tracking your portfolio. Module seven when should you sell your stocks or should you sell them at all? So we cover that in module seven. Module eight reducing your fees and risk, especially if you own Mutual funds, index funds and ETFs. Module nine reduce Sorry. Module nine is your action plan to get started with investing right away.

Speaker 1: 28:26

And module 10 I answer your most frequently asked questions and we also have a platform that we've built. It's a web app which automatically applies the rules to over 6000 companies in the US and in Canada every single day, so you can immediately see which companies are priced low, which ones are priced high so you can ignore those, and which ones are quality Companies. Do they? Which are the rules they pass, which ones do they fail? So, if anybody's interested in both, if you're interested in the course or the platform, I do have a coupon code which will save you 10% off of the course and and the platform as well. The coupon code is save 10, sa, ve 1-0, and it'll save you 10% off of either the course or the platform. If you enjoyed today's episode, be sure to hit the subscribe button. We have a new episode out every week. Hit the like button as well and for more information, take a look at our website, simplyinvestingcom. Thanks for watching.