Those magnificent money multipliers

Let us now praise dividend-paying shares

Dreaming

of an enjoyable

retirement? Well, if you're my age, you have a long time to wait —and that’s the good news.

I’m serious. It’s good news. Because if you invest in stocks that pay dividends, you’re paid to wait. Companies that dole out a portion of their profits can be fruitful investments for a 30-ish person with many years to collect those payments.

Buy some solid dividend-paying stocks now and by the time we’re watching Tiger Woods on the Senior Tour, there’s a good chance you’ll have long ago recouped what you spent on the stock, and still have a steady stream of cheques arriving in the mail. If you want, you can make more money by selling your shares, of which you’ll still be in possession.

It’s a lot like buying a house to rent out. Sooner or later, the tenants will have paid off your mortgage on the place, and you can sell it or keep it for the income. Either way, you win.

“I’m a huge fan of dividends,” says Frank Wiginton, a 29-yearold Certified Financial Planner in Toronto. For one thing, dividend payouts usually indicate a company is profitable, and “the dividend income you generate is real money,” not just a paper gain.

In contrast, when you buy stocks that don’t pay dividends, you have to hope that someday someone will buy the shares off you at a profit. That’s the only way you’ll make money on nondividendstock. And while you wait for that opportunity ( which may never come) you get bupkis. Best bets for beginners Looking for your first dividendpaying shares? The banks can be a good place to start. According to research by George Vasic, stock- market strategist and chief economist for UBS Securities in Canada, all but one of Canada’s six biggest banks have raised their dividend every year since 1995. ( Canadian Imperial Bank of Commerce missed a year in 1999.)

On top of that, Mr. Vasic has found that the most consistent big dividend-payers generally outperform other stocks in longterm price appreciation.

Take Royal Bank of Canada. An investor who bought shares at the beginning of 2003 would have paid about $58 a share. Then, the bank offered a dividend of 40¢ a share every three months, giving it a dividend yield of 2.8% — meaning for every dollar you invest, you get 2.8¢ in dividends a year.

In the two-and- a- half years since then, Royal has raised its payout six times. The next dividend will be 64¢ a share, and by the time it arrives in November, our investor will have collected $6.09 a share in dividends — and as a bonus the stock price has risen past $80, for a potential capital gain of 38%

Sounds great. So of course there’s a catch.

“ For a young investor with not much money, it’s very difficult to diversify enough buying individual stocks for dividends,” Mr. Wiginton says.

With just 100 shares of Royal Bank costing about $8,000, it can be tough to stuff your portfolio with stock in more than a few companies.

Diversification is important because, for one thing, dividends are not guaranteed. A company’s board of directors can decide to raise, lower or even cancel a dividend, depending on the company’s current financial situation. That’s why it’s essential to check for a consistent payment record. You can usually find dividend history in the investor-relations section of a company’s Web site.

Also, beware companies that have a very high dividend yield, because that’s often a signal investors are worried about the company, says Dale Domian, a professor of finance at York University. When dividend yields are in the stratosphere, dividend cuts may not be far behind.

Also, just like any other stock, remember that dividend-paying shares can fall in value. Even Canada’s solid and stolid banks take hits. Last month CIBC agreed to pay a $2.4-billion settlement related to its involvement with Enron Corp., causing the bank’s shares to plunge 7.6% Aug. 3, and they still have not recovered.

If you owned CIBC prior to Aug. 3, this news may be tough to swallow. Then again, the new, lower share price could be a beautiful opportunity for those looking to buy CIBC, given its dividend yield of almost 4% — relatively high for a bank.

“ I wouldn’t have any objection to buying CIBC,” says Mr. Domian, who owns shares. On the other hand, Mr. Domian’s portfolio is well diversified — he owns shares in more than 200 Canadian companies.

For an investor starting out, an easier and cheaper way to diversify is via what are known as exchange-traded funds, Mr. Wiginton says.

Exchange-traded funds such iUnits, managed by Barclays Global Investors, mirror the holdings of indexes. Each unit is made up of fractions of shares in an industry or group of companies that appeals to you. If you want dividends, you can buy Barclays’ iFin units that represent the companies in the Toronto Stock Exchange’s financial index, home to the banks.

The units trade on the stock exchange just like shares. When bank stocks go up and down, so do your units. And when they pay dividends, you get your share.