Welcome to my final dividend income update for 2013. For those of you new to these posts on my site, every month I discuss my approach to investing using dividend paying stocks and how reinvesting the dividends paid from the Canadian companies I own are helping me reach financial freedom. You can check out my previous dividend income update here.
For investors who don’t tinker with their portfolios very much, and thus follow a passive investing strategy, 2013 should have been a great year. The S&P/TSX composite index closed the year around 13,600 even with the battered gold sector dragging it down. The S&P/TSX gained close to 10% for 2013. State-side the market did much better. The Dow closed the year shy of 16,600 realizing a gain of about 26% for 2013. The S&P index had almost a 30% gain in 2013, its best year in over 15 years. Using low-cost products that follow the market, index investors would have had a fine 2013 campaign. This doesn’t mean people like me using a hybrid approach, indexing and dividend investing, didn’t have a good year as well.
As you might know from reading other dividend income updates on my site, I hold many Canadian companies that were part of that 10% S&P/TSX market gain and a few large U.S. stocks that fueled the >25% gains south of the border. Some Canadian stocks that did rather well in 2013 in my portfolio include TD Bank, National Bank and Sun Life which all had gains close to 20%. Using this free calculator (thanks to the team at PWL Capital) I calculated my return for holding a bunch of boring Canadian bank, energy and telco stocks was about 13% in 2013.
I haven’t calculated my returns in my RRSP (considering I don’t include this account in these income updates) but I suspect it’s somewhere between 10% and what VTI did for investors in 2013, since a good portion of my RRSP account holds VTI. This is something I want to improve upon in 2014, track my returns against a relative benchmark index. Michael James recently wrote about this and so did Robb Engen. This broad market Exchange Traded Fund (ETF) invests in over 3,600 U.S. stocks and costs next to nothing to do so. VTI returns in 2013 associated with net asset values rocked to about 33%.
What does this all mean for dividend income earned in 2013? Thanks to Canadian companies that pay regular dividends and tend to increase them every year we earned $7,645 this calendar year from our investments in tax-efficient and tax-free accounts. Compare that to where we started 2013 it was a significant step forward for us and pretty much bang on with my prediction.
If we max out our TFSAs in 2014 like I think we can and reinvest most dividends paid throughout 2014, I could foresee us earning close to $9,000 in dividend income 12 months from now. That would put us to closer to this retirement goal, retirement that is hopefully no more than 15 years away.
Are you tracking your progress to financial independence? If so, how is your progress coming along? Got any comments or questions for my plan?