October 2013 Dividend Income Update

Welcome to my latest dividend income update (better late than never) for October 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.

Last month, my update included some investing advice from a sharp economist whose opinions on investing I value greatly. This investor holds a few stocks in his portfolio but in recent years he has started to transition his portfolio out of multiple stocks into a focused basket of diversified, low-cost Exchange Traded Funds (ETFs).  I’ve hinted about my plans to do the same on this site and that transition will start to occur in 2014.  I’m going to begin this transition because I believe I now own enough Canadian dividend paying stocks (about 30) for dividend income and going forward, it will be much easier to invest using a passive approach than an active approach across my portfolio.

Indexing using ETFs makes sense to me for so many reasons:

  • Low costs – indexed ETFs are far cheaper than most actively managed mutual funds.
  • Market-like returns – less miniscule money management fees, I’ll get whatever the market returns.
  • High transparency – I can see exactly what stocks I own and in what proportions, using indexed ETFs.
  • Low effort – I can largely “set and forget” my retirement portfolio, except for some minor rebalancing once or twice per year.
  • Diversification – I can’t always afford the stocks I want in the quantities I want so buying an ETF, I get access to those stocks and hundreds more.

I have no intention of selling any of our current Canadian stocks but with most of these stocks DRIPping, the dividend income intended and needing to grow for retirement purposes is largely on autopilot now.  Sure, I might buy some new stocks for the portfolio in 2014 but I suspect those purchases will be rare.  For me, I’ve settled on this:   now that we own many of the largest, most liquid, established, dividend paying companies in Canada there’s no reason to speculate on future investments through individual stock picking exercises.

Thanks to Canadian companies that pay regular dividends (and ETFs that pay regular distributions) I’ve calculated we’re on pace to earn almost $7,400 by the end of this calendar year in dividend income.  This income is virtually a certainty as long as the dividends and distributions are paid at their current rate.  If dividends and distributions happen to increase, well, we’ll exceed that year-end target.  We don’t dare tap into this income now since this is for retirement purposes.  We’re still far away from reaching our goal of $30,000 in passive annual income for retirement purposes but we’re slowly marching in that direction.

What’s your take on my two-pronged approach to investing – using ETFs and dividend paying stocks? 

Filed in: Monthly Dividend Income Update

8 Responses to "October 2013 Dividend Income Update"

  1. I prefer the individual stock method, but I can understand the need/want to diversify and simplify. Wish I was at $7,400 in dividends for the year, but I’ll gladly take my $2,500+ and $3300+ on a forward 12-month basis.

  2. Yeah, I think more diversification is needed. This is largely because I’m close to zero bonds in my portfolio. Relying on just 10-20 stocks would be foolish. If I could afford to own 100+ stocks individually, I would but for now, low-cost ETFs do the trick.

    That said, I don’t intend to sell any of my 30+ stocks.

    Good luck with your passive income journey. I will check out your site this weekend for updates.

  3. Wow. $7,400 is great! You are 1/4 of the way there, that’s quite amazing if you think about it. Keep keeping a$$!

  4. Thanks very much. Your journey is very impressive. The race is on! :)

  5. Wow, $7400 is a decent amount of money. Even if your goals isn’t going to happen right away, looks like it’s becoming more of a reality. I am mostly invested in mutual funds but lately I have been looking into ETFs

  6. It’s getting there Daisy. I figure I’ll need $55,000 per year to retire on, without a mortgage payment. I’ve got some distance to go :)

    Good of you to look into ETFs.

  7. I am currently building up my (UK) portfolio, and will probably stay with the single prong approach for at least the near future.

    I think I would possibly change to a more passive approach when I have reached my Financial Independence as one of the first things I would like to do is spend a whole Winter season skiing (only do one week a year at present) which may mean I am less able to “keep an eye” on my portfolio. However, if I have selected the type of shares that as Warren Buffet would say could cope with the stock market being closed for a year I would not need to check the performance that often as the dividends should keep rolling in.

  1. […] Welcome to my latest dividend income update, my Christmas-is-approaching-very-fast-edition.   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. […]

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