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.
How do I rebalance my entire portfolio? Consider this guest post I put up on my friend’s site here.
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?
I would like to pick up BAM,BEP,BIP and BOX but can never figure out which account it should go into. If I put them in my TFSA will I pay tax or should they go into my RRSP or Non Reg accounts?
FWIW Paul I prefer holding CDN stocks that pay dividends in USD $$ inside my RRSP. I also know many investors that hold such companies, including the Brookfield companies inside their TFSA as well. Non-registered you need to be careful, I think; there are adjusted costs to be tracked AND you have more that just dividends to worry about, you might have return of capital and other from limited partnerships (i.e., BEP, BIP).
When in doubt, consider filling up the RRSP and TFSA before non-registered investing. This seems to make the most sense to me and something I try and practice myself.
Any tax accountant you could bounce your plan off of?
Oops … shifting a stock, not stick
Don’t forget if you are stuck for cash you can always make a contribution in kind from your TFSA to your RSP…shifting a stick from one account to the other…assuming you have RSP room and the beauty is the extra TFSA room the following year…but I guess you know all this ?
Yes, you can move money tax-free from TFSA to RRSP. No room in RRSP to do that though.
Hey Mark, maybe I missed it but what will you do with your dividends now that they’re not being reinvested? Will you put that into a new position every few months/year? Thanks!
Hey Owen…I let the cash build up and use that money earned to fund our TFSAs, invest more in RRSPs or pay down our mortgage more. I also might use the money this year to start saving for a car. I do also use it to buy more positions that I have and want more of. Lately, it will be more utilities and telco stocks, maybe more Bell in particular.
Gotcha. Good way to simplify things.
a question about REITs: what is your approach to determining which ones to buy? do you hold a certain number? and they are most efficient in a TFSA or RSP? and not so much in a non-taxable account or am I wrong about this(I think most Reits have their distributions as income? so would be taxed at your marginal rate?
if you were a holder of a stock that was in a capital loss position i.e. think energy or insurance, would you be inclined to average down and buy more shares or hold and look and look at other opportunities to put your money?
I’ve largely unbundled my REITs Sue. I own most of the same holdings as ZRE, VRE, and XRE directly.
I find REITs are most efficient (less tax headaches I mean) inside the TFSA or RRSP myself. In a taxable account I have to deal with ACB (Adjusted Cost Base) and those calculations can be time consuming and tricky. I avoid that tax mess in registered accounts. Each REIT has it’s own distributions, return of capital, interest and capital gains (or various forms of).
I have one stock in a capital loss position (energy, CPG). I continue to hold it since I can eventually offset capital gains with that loss if/when I realize it. We’ll see!
Other than maxing out TFSAs + RRSPs, and paying down our mortgage, we invest in a taxable account and spend our money and live our life. 🙂 That approach doesn’t work for everyone but we enjoy our plan and it works for us.
Lately I’ve been buying a few here and there but it’s been tough to make significant buys given how high the market is right now. Will it go down? Probably, but who knows when. DRIPs in a taxable account would be a bit of a pain to track. I’m just setting up my first taxable account now and I’ll probably try to keep it simple (Canadian div stocks) with a long term buy and hold strategy
Sounds like a plan Dan. I’ve been fortunate to have a maxed out TFSA and RRSP for a few years now, so taxable with CDN dividend paying stocks I believe is the way to go. Good luck with your saving and investing.
Dividends are my favorite, so I won’t argue much with you! Canadian dividend ETFs could have been an option too, but as you approach semi-retirement, your plan is more than defendable! Also, plans evolve through time and a good investor will adjust. So very good that you were able to do so!
Thanks Mike! Good to hear from you.
Wow Mark, $14,600 in annual dividends (and that’s not including the US ETF dividends right)? Damn, I have a lot of work to do in the upcoming years!
But seriously, great job in achieving that. Really inspires me to save more and keep investing. I wish I can say in the near future that I have a similar portfolio size! Keep up the good work. = )
Thanks Peter. We’ve done a fair bit of saving and investing over the years, it’s what our plan calls for, and we’ll continue it as best as possible.
Since a lot of us PF bloggers have gone the indexing route, I think it’s great that you’re sticking to your dividend investing guns to give people a different perspective. I’d be surprised if you don’t outperform many of us indexers actually because you are well diversified and well-researched on your strategy.
That said, indexing is probably a much safer and efficient strategy for most Canadians. Those willing to treat investing like a serious hobby though can learn a lot from watching how you do it.
Thanks Stephen. Yup, sticking to my plan as everyone along with their cousin believes indexed ETFs are the holy grail for investing 🙂
Hard to say my friend if I will outperform but my focus in the next 10 years is different than others – I’m striving to obtain decent income, that is steady, from a portfolio that should be around $1 M. I think it’s possible and given we’re halfway there I’m confident we can do it. I appreciate the kind words.
Hi. How do i transfer my drip stock to a tfsa?
Pauline: If you have them with the same broker, just ask them to do the transfer, assuming you have contribution space. If the stocks are with a different broker, your broker should be able to request the transfer of the even number of shares, which will probably have to go into a non-reg first.
Check out this post and let me know if you have any questions….oldie but a goodie 🙂
Thanks for being a fan.
When talking about Canadian equities I think the taxes we pay on the (50% of marginal on any gains and bankable loses) are comparatively pretty minor. Really the savings in s TFSA when considering these products can be pretty minor.
The MAIN reason I like my TFSA is that I just don’t have to deal with the paper work of tracking adjusted cost base. That’s pretty sweet. Maybe I’m lazy but I just use the ACB that TDW reports. I’m sure it’s close enough.
PS remember you’re 50% to your financial goal in terms of money but likely 2/3 of the way there in terms of time. Magic of exponential growth and all…. 😉
Registered accounts are great for this None – avoid ACB. Totally agree. You’re not lazy, you’re normal – I suspect nobody loves tracking ACB if they don’t have to 🙂
when you purchase shares like you just have done with BCE and EMA do you have a minimum # of shares you would buy like at least a board lot or less?
do you ever get considered that post 2010
the markets have done well and do you expect your dividend generation may become less
over time if dividends get cut or suspended? Is capital preservation a concern as well?
editing my own comment- “do you ever get concerned that post 2010”, not considered, I meant to say concerned 🙂
All good. Well, it is a possibility, dividend paying stocks have done well over the last 8 years or so but then again, if I could predict the future I would be retired by now. 🙂
The way I see it, maybe flawed, full of overconfidence, hindsight bias, etc. but many of the companies I own have paid dividends for generations AND happen to be the same companies held by major pension plans, mutual funds and ETFs. If I can cut out the fees, why not? Now, will some companies not perform well? Probably. Will some of those companies continue to flourish? Probably. This is why owning the top-30 or so stocks in Canada, provides some level of assurance they shouldn’t all go under at the same time. Could it happen? Maybe. I dunno. But if most of Canada’s biggest stocks all stop paying dividends and capital gains, at the same time, we have HUGE issues beyond financial ones 🙂
(Like Trump’s small fingers on a nuke button!)
I don’t although I tend to buy when I have at least $1,000 (ideally at least $2,000) to invest. I do this for a couple of years. One, I try and keep my transaction costs low (<0.5%). Two, I put some research into what I buy and when I buy it so I need to make the gain/effort worth my time.
I rebalance my portfolio largely this way: rebalance by adding more cash and investing at certain times.
Inside TFSA and non-regsitered – we invest to try and align to the TSX Composite Index. For example, take the iShares ETF XIC product. A popular product with many index investors. The TSX Index (and XIC) has a breakdown of roughly: 35% financials (think banks and life insurance companies), 20% energy (think Enbridge, Suncor, Canadian Natural Resources and more), 12% materials (think mostly mining companies), and a lesser amount of industrials, telecommunications companies and Real Estate Investment Trusts (REITs).
Thank you so much Mark for your comments and insights. I sold some royal and bce today….locked in good gains. sold these in registered accounts because these were over 8% in our RRSP and TFSA accounts respectively. Will use those proceeds to buy a new couple of dividend stocks we don’t own
Interesting selection you have for Emira EMA- was this for your utilities component? I own it in my corp
My problem may be I may not be buying enough shares of anything to make the dividend generation worth it? I am assuming you may be rebalancing or topping up your existing stocks with these 1-2K purchases when you have the funds?
If you own banks… do you have duplicates in your registered and non registered accounts? My biases are with royal and TD- I know not too diversified ? But they have done exceptionally well for me
ETF XUT lists many of the top utilities in Canada, widely held by pension plans and other big funds. If you have a look at FTS and EMA, they have great dividend growth histories. Not a recommendation by any means but these companies have delivered good income for me and as long as we need electricity in Canada likely always will.
You are correct I rebalance by buying new companies or more of the same companies I own to get back into balance (i.e., 35% financials, 20% energy and the rest lower than that).
I do have some duplicates in across TFSA, RRSP and non-reg. accounts. I don’t mind that at all. The way I see it when it comes to dividend growth and steady income companies there are only about 40 or so worth owning in Canada.
Where can we see the list of everything in that portfolio?
I’d be interested in that list too. 🙂
I’ll work on it 🙂
All in good time Brett and thanks for being a fan. You can find many details here:
FWIW, I own many of the top-20 stocks in XIU directly. I also own a few U.S. ETFs like HDV for U.S. dividend income. In my next dividend income update I can consider sharing a bit more.
How are your investing plans coming along?
Thanks for sharing your recent update. Looks like you are still on pace to get a nice sum for your 2017 passive income. I have thought about shutting off the DRIP machine from time to time but still have it on for all my holdings. I still think it’s important to help keep that compounding machine working as fast as possible and that usually mean having a DRIP. Keep it up!
I think so. Thanks. If I only had stocks inside my registered accounts I wouldn’t shut off my DRIPs. At least this way I can be more strategic with my purchases. How is your journey coming along?
Can’t complain about my DGI journey. I just posted my April results and managed another year over year gain which makes me happy. Of course, that was despite several payout schedule changes from companies I hold. Love these updates.
Thanks DH. I will be over to your site to see your progress. Keep up the saving and investing.
Nice post. I only have a list of 21 Canadian dividend paying stocks in different sectors. E.g. banks, insurance, utilities, telcos, pipelines, reits, consumer discretionary/staple. I would like to eventually have up to 30 canadian dividend paying stocks but I haven’t found more canadian companies to add to my list. A few canadian companies, such as saputo etc, are too expensive at the moment to be in my list.
That is a challenge with individual stock investing, when to buy. At least with indexing you know today’s price is the best and most up to date price. Ideally it’s great to buy when equity markets are low in general but then you’re hoping and could be for a while. Good luck with your selections RN!
It is interesting how investing/saving has evolved and continues to evolve. Between new products (TFSAs, ETFs, RDSPs, online investing, etc) and changing government regulations (TFSAs, RRIFs, etc) one might have to, nay, will have to, make adjustments to ones plan on occasion. To think nothing will change would be a tad bit myopic IMO. Having options and being flexible may be paramount.
I think having options in any financial respect is just good planning. Being debt-free will be huge for us. All in good time; actively working on it. Until then earn money, save at least 10% net, invest and have some fun with the rest.
Like your adjustment and believe in the long-term it will achieve what you expect.
Well thanks! I’m doing what I can to build up the dividend income war chest for the next crash. It’s coming, eventually!
Good update Mark. Seems like some sound well thought moves that I’ve come to expect from you. Nice progress on the dividend $$$.
BCE and EMA are solid choices to top up outside of financials.
I’ve got some moves to make myself.
Me too!! ?