You might already be aware that business capital can be managed in many ways. Management can decide to reinvest earnings and grow the business. Management can decide to buy back shares so each remaining share can earn a higher proportion of profits. Management can decide to pay down debt or my personal favourite, management can decide to pay some of their earnings to shareholders in the form of dividends. I prefer the latter because as an investor dividends are not only a source of passive income but they act as an important signal about a company’s financial health – I can narrow my investment choices – companies can either afford to pay dividends for decades or they can’t.
Since reading books like The Single Best Investment and The Lazy Investor among others, I formalized my investment plan years ago to include some dividend paying stocks to complement my index investing approach. Every month, I share my dividend income progress to demonstrate my commitment to this plan and where my successes or failures have been.
Some time ago I read that successful investing should entertain you as much as watching your clothes tumble through the dryer window. If you have many dividend paying stocks in your portfolio, it’s at least that much fun.
With dividends paid over decades and in some cases over generations, people no longer “tip” companies like Coca-Cola, Procter & Gamble, Bank of Montreal, Power Corporation or TransCanada. They don’t have to. Some of these companies have been paying dividends longer than I’ve been alive, and maybe you too, so my plan is to purchase these industry moguls at a fair price, do so over time to accumulate enough shares to start dividend reinvestment plans and then go back to watching my clothes tumble dry.
Since my last update, even if I didn’t include my small purchase in the aforementioned Power Corporation, my dividend income increased when compared to last month. After dividends were paid out and reinvested wherever possible, I’m on pace to earn $5,820 for the 2012 calendar year. Compare this to 2011 when we ended the year with just over $5,200. Although I’ve put some new money into my portfolio this year, for the most part, I’ve arrived at this point largely because of reinvested dividends and dividend increases – the latest one thanks to BCE. Take some time to check out my new sidebar “Retirement Dividend Income Goal” to view what my long term income objective is.
Dividends aren’t the be all and end all but based on these updates they are pretty darn good.
Any dividend paying stocks on your watch list? Any predictions on the next dividend increase from a Canadian company?