Welcome to my latest dividend income update. For those of you new to these posts on my site, every month I discuss my approach to investing using Canadian dividend paying stocks and Exchange Traded Funds (ETFs), and how reinvesting the dividends and distributions paid from these Canadian holdings are helping us reach financial freedom.
Before the progress update some changes to announce…
- I no longer hold any Canadian ETFs inside our TFSAs (as part of these updates). So, the introduction going forward should really something like this:
For those of you new to these posts on my site, every month I discuss my approach to investing using Canadian dividend paying stocks. We believe investing in a diverse set of Canadian dividend paying stocks will help us reach financial freedom.
*I just heard all indexers gasp!*
You might ask – why did I do this? Why did I sell our Canadian ETFs?
A few reasons. One, the market was in my opinion near its peak. Although I cannot predict the future, the past indicated the fund I held was close to its 52-week high. If I’m going to sell any assets, I might as well sell near the top. Two, I’m striving for more dividend income from my portfolio; not relying on capital gains in our Canadian stock portfolio as we approach semi-retirement. In addition to other assets (i.e., RRSPs, future pension income from work; that are not part of these updates), we’re now more than halfway to realizing other semi-retirement dreams. We’re basically building up our “income machine” for next 10 years to live from. Three and likely the most important factor, I wanted to rebalance my portfolio. I was getting overweight in Canadian financials (whether they were held directly or via an ETF). I wanted to increase my assets in the utilities and telecommunications sectors – so I bought more of those stocks. EMA and BCE specifically.
With this change we’re now 100% Canadian stocks and REITs inside our TFSAs and non-registered account. We’ve basically created our own Canadian dividend fund (with no money management fees to worry about). We hold about 30-40 stocks in that DIY dividend fund – in the allocations we want. These are Canadian banks, utilities, telecommunications, energy and pipeline companies and Real Estate Investment Trusts (REITs). Some of these companies have been paying dividends for 50, 100 or even 150 years. My guess is they’ll continue to pay dividends and distributions for many more years to come. They’ll probably increase dividends and distributions as well – an even bigger bonus.
Is this approach for everyone? Probably not. But this approach seems to be working for us and that’s what matters…
- I’ve decided to stop reinvesting dividends in my taxable account.
While I love reinvesting dividends, I’m finding it difficult to keep my Adjusted Cost Base (ACB) tracking up to date. I need this for Canada Revenue Agency (CRA) reporting if/when I sell my stocks to calculate capital gains (or losses). By shutting off the dividend reinvestment plans (DRIPs) in my taxable account I have essentially frozen my book values. I’ll still need to keep ACB information but it will be less time consuming and one less financial item to worry about. Besides, it’s not like I’m totally giving up the magic of compounding – we have many stocks inside our TFSAs whereby dividends are reinvested every month and quarter. I’ll continue to DRIP all stocks inside our TFSAs since money that makes money can make more money. That’s even better when the money is TAX FREE!
So, to summarize where we stand:
- We intend to hold 30-40 Canadian stocks (no ETFs or other funds) inside our TFSAs and non-registered account for growing dividend income. This is what these updates are all about.
- To fund other retirement needs and wants we hold predominantly U.S. stocks and U.S.-listed ETFs inside our RRSPs. This provides diversification beyond Canada’s borders and long-term tax-deferred growth. I do not (yet) include this information as part of these updates. I might change my mind at some point!
Thanks to the Canadian companies we own, we’re on pace to earn just over $14,600 in dividend income this calendar year. This is money we don’t dare touch because it’s earmarked for our financial future to pay for expenses when we’re not working someday. Getting paid (and getting some raises from time to time) for doing nothing but staying invested feels good. Dividend investing provides cold hard cash into our bank account. This is money we will eventually use. I believe this approach is a great complement to assets held inside our RRSPs, some small workplace pensions in our financial future, and owning a paid off home. Regarding the latter, no debt will feel good. I almost can’t imagine the freedom… We’re less than five years away from debt chains. In future blogposts I’ll keep you posted.
What’s your financial plan looking like? What do you make of my changes? Have you decided to invest for income or do you just focus on indexing for total returns?