Don't buy just for the dividend. This is a good rule. Stocks with crashing values often path through a phase where the dividend yield is great on paper. The dividend has held while the stock price has dropped. This is not a buying opportunity. Sadly, but not unexpectedly, the dividend is often cut and both the stock price and the dividend tumble into the dumpster. As the rule says, don't buy just for the dividend. It can be ephemeral.
That said, a good stock with a good dividend has the dividend as an ally, a backstop to loss. Bank stocks rise and fall but the Canadian bank stocks have a history of retaining dividend payouts throughout each cycle. I own Royal, Scotiabank and TD. My BNS is down at the moment but its dividend looks secure.
Recently I bought Pembina Pipeline. Today my investment is down $405. Ouch. That said, my 400 shares will yield $912 in the coming year in dividends. With today's loss factored in, I am still $507 to the good. At the price I paid to buy this stock, the dividend is still delivering 2.76% on my investment.
Yes, I know, the stock may yet fall farther. Today's numbers are just a snap shot of how the math performs at the moment. It may not be as good tomorrow. But, and this is more likely, at some point in the relatively near future the math will be better, much better. If I had wanted to avoid volatility, I would have bought a GIC. But then I might have had to settle for as little as one percent on my money. Even with a $405 loss, I am still doing better than if I had bought a GIC to keep for a year.
End of Day Add: At market close today my total PPL loss stood at $368.99. Pembina made a gain today despite the overall market suffering a very small loss. I will try and remember to come back in a month and tell how my PPL purchase is working out.
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