How to Build Generational Wealth With Dividend Stocks

Before we begin I wanted to tell y’all about a terrific free resource created by a friend of the newsletter, Mike Heroux over at Retirement Loop.

Around here we mostly talk about individual dividend stocks. But they’re only one potential source of income in retirement. What about all the others?

Mike has you covered. He’s created The Canadian Retiree’s Guide to Income Producing Assets, a guide that takes you through the pros and cons of each source of potential income, why stretching for yield is often a trap, and who should use what. It’s a terrific resource, and it’s completely free.

Now to your regularly scheduled programming.

Anyone else have this masculine urge to build their own Berkshire Hathaway?

I’m not really talking about the owning whole businesses part. I just don’t think that most of us have the expertise to pull such a thing off. But that’s okay, because there are thousands and thousands of businesses that we can easily buy partial shares of.

That’s the beauty of the stock market, and one of the main reasons I’m so optimistic all the time. I have the opportunity to purchase shares in some of the planet’s best businesses using a magical device that lets me access the sum of man’s knowledge, and I can do it all from the toilet if I’d like.

I don’t do it because I’m all business all the time in the bathroom (imagine a worse room to hang out in), but still. What a time to be alive.

But that’s not enough for some of you. Inspired by some of Canada’s wealthiest families, you’re looking for even more. You want to create enough wealth that not only your children will benefit, but so will their children and their children. Generations of your progeny will visit your grave and thank you specifically for the leg up. Maybe they’ll have parties.

Or, at least that’s how it’s supposed to go. Oftentimes the next generation doesn’t cooperate and chooses instead to squander that meticulously built capital. The cash gets plowed into non-productive assets like vacation homes, new vehicles, and renovating perfectly good kitchens.

Seriously, nothing grinds my gears more than when one of those house shows spends $40,000 to make a perfectly cromulent kitchen 5% more functional and 15% prettier. No! That capital is precious!

And then my bank dividends come in, and I’m not so upset anymore.

Anyway, let’s dig deeper into generational wealth and go over a few different things you’ll want to think about, including how one would invest with this goal in mind, ways to structure the portfolio, how to ensure subsequent generations take care of things, and much more.

Everything else is just details until you take the all-important first step.

You first need to identify what the portfolio’s goals would be. It’s not enough to just accumulate a bunch of money and put it into a trust.

I’m not exaggerating when I say that I’ve encountered thousands of investors who have no overarching goal. They want to die with the most amount of money because they view money as a convenient scorecard. My number is higher than yours, therefore I win.

But money is a lousy scorecard. Having the biggest pile at the end of your life is meaningless when people come to your funeral just to make sure you’re actually dead.

If money sucks as a scorecard, then trying to accumulate the largest amount of it stinks as a long-term goal. Or, in generational wealth’s case, a loooooooooong-term goal. There needs to be more to the plan.

The first step is to determine just how long the money should last. Do you want it to continue on in perpetuity? Okay, but just remember how pyramids work. The third generation might not have that much on a per person basis, and the fourth generation is almost guaranteed to get seriously diluted.

If I were doing such a thing, I would only want the money to last another 50-75 years after my death. Any longer than that and the list of beneficiaries just gets too big.

From there you can then worry about the tactics that we’ll now talk about, including how to invest it, how to make sure your wishes get followed from beyond the grave, and more.

Let’s tackle the most fun part of the equation. Just how does one invest in order to maximize the chances of generational wealth?

This is where a lot of people might suggest the Canadian Dividend Investor (that’s me!) should pivot into growth stocks. Since we’re investing for a payoff decades from now, it’s best to look for the highest possible total return. Growth stocks offer that, or so the prevailing logic goes.

I tend to disagree, as y’all might expect. The evidence I’ve seen suggests that dividend growers do better over time versus pure growth stocks that choose to reinvest all their capital back into the company. I believe this is for two reasons:

As much as I love share buybacks, I’ll also admit that there’s a strong possibility that those can get screwed up too. Rather than pay a dividend, Adobe (NASDAQ:ADBE) has steadily repurchased shares for a decade now. The company really ramped up buybacks in 2023 and 2024, but especially in 2025.

Meanwhile, the stock did this over the last three years.

Every single one of those buybacks could’ve been done at a lower price if the company just waited until 2026.

I don’t want to pick too badly on Adobe, because there are other factors at play here. I’m generally a fan of the steady dollar cost averaging version of a share buyback — provided it also comes with a rising dividend. But this demonstrates the danger of putting non-dividend payers into our generational wealth portfolio. If the asset value falls we get nothing. At least with a dividend payer we’d get the income.

My strategy would be as follows. I would:

The bedrock of such a portfolio would consist of these 10 stocks that I identified as buy and hold forever candidates.

From there it would depend on how much time I have left on the planet. I’m almost 43 today, and I manage my portfolio assuming I’ll be around another 50 years. That’s a fine mindset for generational wealth. But if I were 80 and looking to to have my last cheque bounce, then I’d approach things much differently.

More importantly I’d approach managing such a portfolio much differently in a generational wealth scenario. You have to make sure your instructions are followed from beyond the graveeeeeeeeeeeeeee.

Spooky!

You have a few choices when it comes to the generational wealth management part. You can either:

Hey, maybe by the time we’re ready for such an exercise they’ll be able to upload our brain into a computer. You can manage it from the cloud. Then our offspring can find a new way to avoid visiting the grandparents.

The first step is to put the capital into some sort of formal trust structure. There are two different kinds. Inter vivos trusts are living trusts, meaning you contribute when you’re still alive. Testamentary trusts are created after you die through a will. The will leaves instructions and then the trust is drawn up.

Next the trust needs a trustee. It might be tempting to pick some sharp young investor, but picking a trustee comes down to much more than that. Trusts have to file tax returns each year, make sure the trust’s provincial registration remains compliant, and various other administrative tasks. These all cost money, which the trust will need to pay for. You’re looking for more of an organizer, rather than an investor. Besides, if we’re looking for a buy-and-hold approach, there won’t be many investment decisions to make.

There are two big advantages to trusts. The first is you can transfer assets to the trust without paying capital gains taxes. You kick the can down the road and eventually the trust has to pay those taxes. The second is you have a certain amount of control over the trust, since the trustee is forced to act in terms of the trust document.

The trust document can be as complicated or as simple as you’d like to make it. If you want to bar the trustee from selling anything and just holding forever, you can. If you want to make sure that the grandkids only spend the dividends, you can do that too. Simplicity is probably best here, but go ahead and put in whatever cockamamie rules you might fancy.

Here’s the big disadvantage to trusts. In our case you’re most likely creating a family trust. According to Government of Canada tax rules, every 21 years the assets in the trust are deemed to be sold at fair market value, and the tax must be paid.

This rule throws a big curveball into the whole generational wealth thing, but there is a workaround.

The trust can distribute the assets back to the beneficiaries before the 21 year rule at their cost base. The tax liability is then transferred to the beneficiaries — who can then defer it by holding onto their shares for a very long time and spending only the dividends.

The problem with this is after year 21 the trust loses all control of the underlying assets, which leaves the grandkids free to sell the shares. The generational wealth stops after just one generation.

There are a bunch of other trust details I can get into, but let’s not. Here’s what you need to know:

This makes a trust only a pretty good option for generational wealth. Which is about as good as we’re going to do here.

Here’s how I envision ideal generational wealth would look like:

Basically, you’re creating a family culture that will persist for generations afterwards, but in a more informal way. Your offspring recognize the value of the asset, shepherd it accordingly, hopefully add to it, and then repeat the process to their children. There are no formal rules in place because each generation recognizes the value in taking a long-term view.

There are a few families that have managed to do this. The Weston family has been building an empire for close to 150 years, and has significant holdings in retail and real estate, among others. Some family members are active in Canada and some are active in the UK, but the strategy and long-term thinking remains the same.

The Thomson family, the Irving family, and the Desmarais families have also managed to keep their wealth in the family for a multiple generations. And we can’t forget about the Saputo, McCain, and Sobey families, who have all built impressive food empires while keeping the kids involved. Although I’m the first to mention that the McCain family has had their share of problems.

Yes, these families use trusts and holding companies and whatnot, but it’s obvious the message has gotten through. Each generation acts like a responsible steward for the capital. They’re not holding money burning parties like the Vanderbilt heirs did.

The disadvantage to this strategy is just one or two short-term thinkers can screw up the entire plan

I applaud anyone who is trying to build generational wealth. Giving a financial gift to multiple generations is a wonderful legacy.

But this is not something that’s easy to execute. Trusts come with issues. Informal trusts might be better, but it’s easy for your grandkids to say one thing when you’re alive and then act completely differently when you’re not. Next thing you know the capital is squandered and they’ve hired an exorcist to get rid of your ghost.

Perhaps the simplest solution is the ticket here. Rather than trying to control things from beyond the grave, educate your family while you’re around and then give the money without any expectations. Hopefully the next generation will appreciate what your doing and take a long-term approach to the gift, all without the trust structure.