Most travel rewards credit card issuers hit pause on their generous welcome bonus offers when the pandemic shut down global travel last March. What good are perks like airport lounge passes and priority boarding when nobody is traveling?

American Express consistently offers some of the most generous benefits, including luxury travel perks with its iconic Platinum Card. Existing Platinum Cardholders (like me) were pleased to see an extraordinary effort by Amex to keep loyal customers happy by offering easily attainable statement credits.

In addition to providing its annual $200 travel credit, Amex offered two $200 statement credits on grocery purchases. This helped ease the pain of paying a $699 annual fee without receiving typical travel perks like Priority Pass lounge access and elevated hotel status.

As more countries look to ease travel restrictions we can finally look forward to booking – not just dreaming about – that next trip. American Express has launched its Best Offers Yet with new welcome offers on seven Amex travel cards. They’re not just for new customers, but existing cardholders can take advantage of extra bonus points on spending throughout the summer.

To say I’m excited about this development is an understatement. Here’s a quick rundown of the new offers:

American Express Platinum Card

Earn 70,000 Membership Rewards points when you spend $6,000 in the first six months. Plus, earn a total of 10x points for every $1 in eligible eats and drinks purchases (groceries, dining) in Canada for the first six months, up to a maximum of 50,000 points. Finally, you can also earn an additional 30,000 points when you make a purchase between 14 to 17 months of Cardmembership. That’s a total of up to 150,000 bonus points. Offer ends on August 3, 2021.

Sign-up for the Amex Platinum Card here.

American Express Membership Rewards points are incredibly flexible. My preference is to transfer the points to Aeroplan where I believe I can reasonably earn 2 cents per mile. That means if I earn the full 150,000 bonus points I can turn that into $3,000 in flight rewards.

Need I remind you that Aeroplan did away with fuel surcharges on Air Canada flight redemptions so now you can redeem your Aeroplan miles for good value on flights and pay very little in terms of fees and taxes.

American Express Business Platinum Card

This one isn’t new – it’s the same offer I shared several weeks ago. Business owners can sign up for the American Express Business Platinum Card and earn up to 100,000 in Membership Rewards points when they spend $10,000 in the first three months. A tall order, for sure, but doable if you out a lot of charges through on your business card each month (or have a large one-time expense due shortly).

Sign up for the Amex Business Platinum Card here.

Again, I’d transfer these points to Aeroplan and strive to earn 2 cents per mile on flight reward redemptions. That’s $2,000 in travel rewards value.

Marriott Bonvoy

Earn 65,000 Marriott Bonvoy points when you spend $3,000 in the first six months. Plus, earn a total of 5x points for every $1 in eligible eats & drinks purchases (groceries, dining) in Canada for the first six months, up to a maximum of 25,000 points. You can also earn an additional 15,000 points when you make a purchase within 14 to 17 months of Cardmembership. They can earn a total of up to 105,000 bonus points. Offer ends on August 3, 2021.

Sign up for the Marriott Bonvoy card here.

I value Marriott Bonvoy rewards at 0.9 cents per point, so the full 105,000 points would be worth ~$945. 

American Express Aeroplan Reserve Card

This is a new one for me (I just signed up for it yesterday) but it might be the most lucrative of the bunch.

Earn up to 100,000 Aeroplan points + 10x points on eligible eats & drinks (groceries and dining), up to 50,000 points. Also, enjoy benefits like Maple Leaf Lounge access, an annual Worldwide Companion Pass, and priority airport services.

The annual fee is a steep $599 ($100 less than the Amex Platinum Card) but I like this offer slightly better because it won’t take as long to earn the full welcome bonus (six months).

Sign up for the Amex Aeroplan Reserve Card here.

This Week’s Recap:

Earlier in the week I wrote about some misguided thinking around dividend investing that got the pot stirring.

Over on Young & Thrifty I wrote an evidence-based guide to successful investing. There’s a longer e-book version that should come out soon as well. I’ll keep you posted.

From the archives: Here’s a realistic retirement income target.

Summer Reading List:

I haven’t read as much as I wanted to over the past 16 months (doom scrolling Twitter might have had something to do with it), but I’ve powered through a couple of excellent books recently and have two more in the queue for later this summer.

The Data Detective: Ten easy rules to make sense of statistics. A fantastic book by Tim Harford about why we need good, reliable statistics in our lives.

The Premonition: A Pandemic Story. Michael Lewis wrote another masterpiece with this gripping story about the early stages of the pandemic in the United States and how a small group of visionaries worked to contain the virus despite the ignorance and lack of response from the federal administration.

The Bomber Mafia. Malcolm Gladwell’s latest work looks at the bombing of Tokyo and the deadliest night of the second world war.

Noise: A flaw in human judgement. Daniel Kahneman, Olivier Sibony, and Cass Sunstein explain how and why humans are so susceptible to noise in judgment – and what we can do about it.

Weekend Reading:

Our friends at Credit Card Genius always have the latest and greatest credit card offers and this time they have their own promotion offering a $100 Amazon gift card when you sign up for the BMO eclipse Visa Infinite Card or the Scotia Momentum Visa Infinite Card.

A lot of investors are headed for disappointing returns in the years ahead. Rob Carrick explains why.

The Irrelevant Investor Michael Batnick also says investor expectations are way out of whack with reality, with U.S. investors expecting 17.5% real returns over the long term.

Of Dollars and Data blogger Nick Magguilli answers the question, how much do you need to be financially independent.

Retirement Heaven or Hell author Mike Drak says we need to remember that smart retirement is about everything other than money:

“Unfortunately, most people have no idea about the type of lifestyle they want to enjoy in retirement.”

Michael James on Money wrote a good piece about the potential pitfalls of pursuing a perfect portfolio.

Diversification is key in the face of uncertainty. But does the classic 60/40 portfolio still make sense?

On a similar note, Millionaire Teacher Andrew Hallam explains what percentage you should have in stocks and bonds.

Online trading apps are drawing in millions of new and naive investors. Here’s how a generation of amateurs got hooked on high-risk trading.

Here’s a worthwhile read on whether you should consider selling your home and renting in retirement.

Finally, here’s a profile of our ‘down-the-street’ neighbours and their thriving fairy-tale cottage business. A terrific entrepreneurial story that I think is just getting started.

Enjoy the start of summer, everyone!

I’ve received an uptick in emails and comments from investors about dividends and so I thought I’d address some common misconceptions around dividend investing.

One reader in particular wanted to know if he should take the commuted value of his pension ($750,000) and put it all in Enbridge stock because it was yielding around 6.5%. That reminds me of the reader who, several years ago, asked if he should borrow money at 4% to buy Canadian Oil Sands stock that was paying an 8% dividend yield.

Related: How did that leveraged investment work out?

I shouldn’t have to tell you why it’s not sensible to put your entire retirement savings into one stock – dividend payer or not. 

Most comments were much more sensible and reflected what I perceive to be some misguided thinking about dividend investing.

Dividends + Price Growth = Magic?

Some companies pay a dividend to shareholders. Some do not. Investors shouldn’t have a preference either way.

Amazon doesn’t pay a dividend, focusing instead on reinvesting their profits back into their business for more growth opportunities. 

Apple, on the other hand, is awash in cash thanks to the tremendous success of the iPhone and decided to start paying a dividend in 2012. It likely cannot reinvest or grow fast enough to keep up with its cash flow and so it returns some of that cash to shareholders.

Investors shouldn’t prefer Apple to Amazon just because of Apple’s dividend policy. 

But what happens when a dividend is paid? The value of the company decreases by the amount of the dividend. That must be true, since the dividend didn’t just appear out of thin air – it came from the company’s earnings.

Company A and Company B are worth $10 each. Company A pays out a $1 dividend, while Company B does not. 

Company A is now worth $9, and its shareholders received $1. Company B is still worth $10 and its shareholders received $0.

But some investors do seem to think the dividend comes from thin air and that it does not reduce the value of the dividend paying company.

Consider this example: Let’s say expected stock returns are 8% per year. The average dividend yield from all stocks (both non-dividend payers and dividend payers) is around 2%. That leaves 6% to come from the increase in share prices or capital gains.

Shopify doesn’t pay a dividend. You could consider its expected annual return to be 8% (ignoring the extreme dispersion of possible outcomes for a single stock), but all 8% would come from increases to its share price.

Enbridge has a dividend yield of 6.5%. Should we expect its price to also increase by 8%? Of course not. It would be more reasonable to expect price growth of 1.5% (again, ignoring the extreme dispersion of possible outcomes).

Here’s a more diversified example featuring Vanguard’s VCN (Canadian equities, represented by the yellow line) versus iShares’ CDZ (Canadian dividend aristocrats, in blue):

Teasing out the high dividend paying stocks (CDZ) did not lead to higher returns over the last five years. In fact, this portfolio lagged the overall Canadian equity market by a fairly wide margin.

High yield stocks payout most if not all of their earnings to shareholders, leaving little to no cash for growth and acquisitions. 

The bottom line: Dividends aren’t magic. Dividend investors don’t get to have their cake (high capital gains) and eat it too (high dividends).

Yield on Cost

Some dividend investors use a useless metric called yield on cost to track their growing dividends over time.

An example is that you buy a dividend stock for $10,000 and it yields 4%. Over time the company increases its dividend, which increases the yield on your original investment. Some dividend investors claim to be receiving double-digit yields on their original investment.

But this isn’t how investing works. The stock doesn’t care what price you paid for it in the past. All that matters today is the current yield. 

Replacement for Bonds

One concerning trend is the notion that dividends are somehow a safe replacement for bonds. I get it, we’re in a low interest rate environment where bond yields have fallen well below 2%. But the idea of replacing bonds with stocks, even stocks that pay dividends, is incredibly risky.

Bonds do still play an important role in your portfolio. They’re the ballast that reduces the volatility of stocks. They tend to hold value during periods of falling stock prices, which is essential for rebalancing. And, they do offer a source of return.

Now, we can argue about the merits of holding long-term bonds in this environment. Perhaps a blend of short-term government bonds and high yield corporate bonds could be appropriate for your fixed income needs. 

But all you need to do is look at the above chart and see how sharply CDZ fell during the March 2020 crash to understand why dividend stocks are not even close to being a suitable replacement for bonds in your portfolio.

Avoid Spending Capital

Many investors dream about having a portfolio so large they could simply live off the dividends and never touch the capital. But in reality we can see that this is impossible to do in an RRSP, and it’s impractical in other accounts. Here’s why:

You must convert your RRSP to a RRIF at the end of the year in which you turn 71. The RRIF minimum mandatory withdrawal schedule forces you to take out ever increasing amounts, starting at 5.40% in your age 72 year.

Good luck finding stocks that pay dividends (consistently) at that high of a rate – and, no, your yield on cost still doesn’t count.

Related: Investing for income in your accumulation years

It’s more realistic to just spend the dividends in your taxable account. But this poses two problems:

One, you’ll likely need to save a lot more money than you think in order to generate enough dividend income to meet your spending needs (i.e. a $200,000 portfolio would only reasonably yield $8,000 per year).

Two, unless you plan on leaving a sizeable inheritance there will eventually come a point when you need to dip into the capital. Meanwhile, you may have missed out on spending during your good, healthy retirement years.

Retirees who take a total return approach can create their own dividend simply by selling shares (or ETF units) to generate their desired income.

Dividend Tax Credit

This one might be the most misunderstood reason to invest in dividend stocks. The allure of dividend investing might come from the stories we’ve heard about investors living off extremely tax friendly Canadian dividends – even earning up to $50,000 in tax-free dividends.

But how realistic is it that you can enjoy a life of tax-free dividend income?

You can’t have any other sources of income, like from a job or a pension or from a rental property. And you’d need a large non-registered investment portfolio (think $1M or more) filled with Canadian dividend paying stocks.

In the article above, the example investor retired in his 40s and has been living off his non-registered dividends tax-free. A fun scenario to dream about, but extremely rare in reality.

Finally, most retirees start collecting other (taxable) income streams in their 60s, such as CPP and OAS, which start to erode the tax benefits of Canadian dividends.

Final Thoughts

I was a dividend investor for many years before switching to index investing. I understand all of the behavioural arguments in favour of dividend investing. But there is still a lot of misguided thinking around dividend investing.

I hope this article helped dispel some of these myths and also showed you that investors shouldn’t have a preference for dividend paying companies over non-dividend payers, and that dividends are no substitute for bonds.

Dividends aren’t magic – they’re part of a stock’s total return. If you’re attracted to a high dividend yield then consider what you might be giving up in capital appreciation.

And please don’t dump your life savings into one individual stock!

Canada’s housing market continues to defy logic as prices have shot-up more than 40% on average across the country. Last spring, then CMHC boss Evan Siddall predicted that home prices would fall between 9-18% due to the economic impact of the pandemic. So, what happened?

One reason is that high income earners working from home bid up prices for detached houses in big cities, suburbs, and rural areas. Another reason is there simply isn’t enough inventory to keep up with demand – leading to bidding wars and bully offers. 

The lack of supply is a problem when you consider that Canada’s population growth slowed to a crawl in 2020, with more people leaving Canada than moving here after Q1 2020. When immigration picks up again post-pandemic, we should see an even larger demand for housing.

Real estate analyst Logan Mohtashami called this an unhealthy housing market when he appeared on the Animal Spirits podcast this week. He was referring to the US market, but the problems are even more widespread in Canada.

“This is a very unhealthy housing market because inventories are too low. We might only be up just a little bit year-over-year in existing home sales and we have 13-18% price appreciation. That is not a healthy market under any circumstances. You should not be competing with 10 to 12 people for a house. That’s not how it’s supposed to be.”

The entire episode is worth a listen. I agree with Logan when he says that the pandemic has pulled forward demand that we might not have seen for 2-3 years. But he also said this is not a credit crisis like the previous US housing boom. It’s legitimate demand, and supply needs to catch up before prices will cool off.

For a Canadian perspective, listen to the latest Mostly Money podcast with Preet Banerjee and real estate analyst Ben Rabidoux. He said, among other things, that:

• Most of the people who lost their jobs weren’t in a position to buy in the first place
• Those who were, tended to see their financial situations improve during the pandemic
• Lower interest rates have further increased debt servicing ability

Rabidoux also explains how the mortgage deferrals that hundreds of thousands of Canadian homeowners took advantage of during the early stages of the pandemic did not lead to massive delinquencies at all. In fact, Rabidoux said most people who deferred mortgage payments did so out of an abundance of caution rather than extreme financial hardship.

This Week’s Recap:

Earlier this week I shared how to create your own financial plan in eight easy steps. 

Many thanks to The Globe and Mail’s Rob Carrick for highlighting my article about what cards I carry in my wallet.

My wife and I go for our second doses next week as Alberta gears up for a full-scale re-opening by the end of the month. Call us cautiously optimistic about our two dose summer.

Promo of the Week:

Readers frequently ask where they should park their US cash. I never had a good answer until now. EQ Bank has launched a no-fee US Dollar account that pays 1% interest.

It claims to offer a competitive exchange rate, it’s CDIC insured, and you can send your US dollars to the US or abroad in just a few easy steps and with no hidden fees.

You’ll need to first open an EQ Savings Plus Account and then open the US Dollar account from your browser or EQ mobile app in just a few steps.

Weekend Reading:

Our friends at Credit Card Genius are offering a free $100 Amazon.ca gift card when you sign-up for Canada’s top cash back credit card – the Scotia Momentum Visa Infinite Card. This is a no-brainer, folks.

A Q&A with Purpose Financial’s Som Seif on his new retirement longevity fund and why Canada is falling behind on financial innovation.

Wealth means different things to different people, but one general rule is that if you’re still worried, you’re not wealthy.

A must-read article from Morningstar’s Ruth Saldanha on why retirement is about more than money:

“Money is important until it fulfills what you want. And then it doesn’t matter. Look at money as survival vs thriving. When you are in the mode of survival, money = happiness. When you reach the mode of thriving, you begin the comparison. At the point of comparison, it takes a lot of money to move the needle to higher amounts of happiness.”

The Humble Dollar blog says retirement can be the best time of our life — but only if we manage it right.

The 34% stock market crash in March 2020 lasted just 23 trading days. Is this the future of bear markets?

David Aston writes that it’s the end of the trail for these trailing commissions (DSCs) – and good riddance.

Many young people don’t need financial advice if they’ve developed good money habits. But with age comes greater complexity. Robin Powell looks at some reasons why you might turn to a trusted financial advisor.

Gen Y Money explores whether employee life insurance is enough. It’s not, usually. Don’t make the same life insurance mistake that I did.

Finally, another gem of a post by Morgan Housel who explains how to get the goalposts to stop moving.

Have a great weekend, everyone!