Dividends4Life: Dividends pay better than interest

Dividends pay better than interest

Posted by D4L | Monday, April 11, 2011 | | 0 comments »

On an after-tax basis, Canadian dividends are generally worth 1.31 to 1.45 times more than the earnings on interest income. Case in point: an Ontario investor in the highest tax bracket would have to purchase a bond yielding 5.36% in order to achieve the same after-tax income generated from a stock with a 4.0% dividend yield.

Dividend investing has a number of benefits beyond tax efficiency. They may not be glamorous but dividends play an important role in the total return of a portfolio. Over the past 40 years, 58% of the returns earned in the MSCI World Index were attributable solely to dividends. Companies paying dividends tend to be more defensive in nature and much less sensitive to interest rate fluctuations, historically generating superior total returns on a lower risk basis compared to the overall market.

Source: BC Local News

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