July 2012 Dividend Income Update
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?
@My Own Advisor
Problem is, consistent dividend increases were in the past, and everyone knows about them as well. It does not mean it will continue with the same dividend policy in the future, as nothing is guaranteed.
Fair point. Past performance is not indicative of future performance, but it’s all we got as a baseline. That said, I do worry about some of my holdings…like SLF and MFC.
Nice Update, Mark!
It’s always nice to see one’s dividend income increase without investing very much capital thanks to dividend increases and re-invested dividends.
Thanks Steve. I always look forward to reading you updates. We’re on the same path and it’s fun to view each others progress!
@The Dividend Ninja
SHOW ME THE DIVIDENDS, just watched Jerry McGuire yesterday
ha
@Rob
forgot link
Dividend Traps you must avoid
I also commented on it on my blog as well
Due to an inheritance (thanks Dad) my portfolio took a big jump so I’m in the process of looking my portfolio, what stocks I want and what ones I want to sell. I thought it was pretty straight forward, my Dad only bought CDN DRIP stocks (owned everyone available) and was planning on doing something similar.
But then I read a great article by Mike over at the Dividend Guy Blog about how to lose money with dividend stocks.He went on to create a seemly endless list of CDN and US stocks that have had negative returns over the past 5 years.
To say that it turned my world upside down would be a bit of an understatement (ok and a bit of an over statement by me:) ) but it made me really look again at my portfolio.
The other issue I’ve noticed and SP Brunner has commented on is dividend increases are slowing down as well.
Less of a worry if your 20 something, bigger worry if you 50 something.
You can definitely lose money with dividend paying stocks. I think the key is, pick ones that a) have been paying dividends for years, decades in fact and b) that frequently increase their dividends. If you hold these companies for years, and decades yet again, you’ll be fine.
Yes, dividend increases might be slowing down, but then, doesn’t that mean capital appreciation on the whole is going to slow down as well? If so, wouldn’t you rather get paid income vs. hoping the stock price appreciates?
If a 50-something owned all the stocks in XDV directly, or CDZ directly for that matter, and, had about 50% in bonds like XBB or a blend of CLF and CBO, they would have very little to worry about. If the market crashes on equities, there is absolutely nothing any individual investor can do, except not hold 100% equities in the first place.
Nice job Mark! I’m hoping that the banks (in particular BNS) increase their dividends next.
Thanks very much! Onward and upward…but I’m just trying to catch up to you and your husband!
Thanks for supporting the site.
Oh, I really hope so! I’ve got that one too! What about BMO? It’s been some time for them!!
Mark, I agree with you for the most part. Lately, I have been paying attention to stocks that are both undervalued — and pay sizable dividends as well. There are a few mutual funds that are market priced well below their NAV. SBN — which invests soley in BNS, managed by Sthrathbridge — is something around 20% less than NAV — and pays north of 7%. Also EIT.UN — see Canoe Financial is over 10% less than NAV — similar dividends.
There are also two exceptionally popular — and growing — restaurant chains in Canada that I bought because they are my favourites — AW.UN and BPF.UN (Boston Pizza). Both have done very very well and continue to grow in size and dividends — also high dividends.
I don’t invest in too many trusts, some of the ones you have referenced, but they certainly pay out some healthy dividends. Do you think they are sustainable? AW.UN and BPF.UN? Thoughts?
Thanks for the comment and checking out my site. Hope to see more comments from you soon!
Great article.
Thanks!
Awesome investment advice. I have paid hundreds of dollars for such advices but here I got ‘em free. Can’t thank you enough.
I’m just getting into more serious investing but going after dividend paying stocks makes a lot of sense to me. I just need to get around to starting my research to decide which companies I want to invest in.
Nice work, Mark. It sounds like the banks will be next in line for a dividend hike. I’m in buying mode now so I’m looking for some dividend stocks to add to my portfolio. Haven’t fallen in love with any particular stock yet.
I’m in! Show me the dividends