Canada’s banks were cautioning investors for some time about a slowdown in profits. I really don’t know why. In this third-quarter alone, the country’s big six banks earned over $8 billion. It was thanks to those earnings, they decided to increase dividends across the board and I was a lucky recipient for 4 out of those 5 increases.
I recognize many Canadians are quick to loathe our banking system, for their service fees and various surcharges. The fact is, banks are involved in variety of businesses and only about 5% of their revenue stream is associated with banking fees. The majority of big-bank revenue is derived from, and you probably guessed this, lending activities. Banks extend loans to individuals and businesses to facilitate the purchase of homes and cars or new equipment and facilities respectively. Given our ultra-low interest rate environment over the years, the more Canadians have borrowed the more the banks have earned so to complain about this just realize you and I only need to look so far into the mirror to understand part of the issue. Excessive or sustainable borrowing activities aside, I believe successful banks, love ‘em or hate ‘em are good for our Canadian economy. Most Canadians shareholders either directly or indirectly though mutual funds, Exchange Traded Funds (ETFs) or pension plans. Our banks employ close to 300,000 Canadians and many charities and non-profit organizations receive tens of thousands of dollars per year in donations and sponsorship. They are healthy for the Canadian economy and equally healthy in my portfolio.
Factoring in recent bank dividend increases, I calculated we’re on pace to earn about $6,100 in dividend income this year. This surpasses my expectation of $6,000 I’ve reported on for a few months.
Our dividend income portfolio is now compromised of 25 Canadian companies (including a few banks) that have a history of paying consistent dividends. These companies are in our non-registered and tax-free accounts, the latter we will continue to leverage more over time to generate most of our income tax-free. Exchange Traded Funds are also in our broader portfolio, in other registered accounts, as are U.S. dividend paying stocks but I don’t include those values in these income updates. This is because my reports focus on how I’m building a tax-efficient and tax-free dividend income portfolio to earn $30,000 CDN from Canadian companies that will fund our retirement dreams.
When buying stocks directly, the quality of the company is a priority. If you have a long holding period, while short-term volatility for all companies will be experienced, the longevity of the quality company should prevail. This includes Canadian banks. This quality + time formula combined with diversification across many Canadian companies in my portfolio, should allow me to reach my dreams. I’ll keep you posted.
How is your portfolio coming along? How are you reaching for your retirement dreams?
@My Own Advisor
Thanks for responding. I have read many blogs like yourself. Brunner, Ninja , Boomer and Echo and Garth Turner. I have also read David Chilton, Millionair Teacher, Derek Foster, Rob from the globe and mail, Couch potato.
Millionaire Teacher was very well done, one of my favourites. I interact with Andrew Hallam now and again via email. Great guy.
Back to you, what specific help are you looking for, for your portfolio?
Thanks for responding and the info you gave. I apologize if it seemed I was impatient. I have much to learn. Read, read, read. Sometimes its overload. Thanks again.
No sweat. I have more information to send you but my laptop out of commmission, you might have to wait for it. Hopefully you can stay patient for a couple of weeks! What books have you read on investing? I can give you some of my favourites.
Good for you, I’d be happy with 6k a year and you’ve raised some good points about our Canadian Banks although I’m the first to complain about fees because I never had to pay for most back home! Mr.CBB
Thanks CBB. Canadian banks aren’t the be all, end all, but they are pretty darn good for returns.
I was hoping you could respond to my comments. Thanks
Congrats on your new milestone.
I hit $6k of dividend/distribution income near January last year. But I’ve now decided to shake things up a bit and start writing covered calls myself in addition to my REIT heavy holdings. If you have a stomach for an underlying holding that’s quite volatile, the call premiums are fantastic. You can get an extra 5-10% return on top of XIU by selling the right covered calls. And the sweet part about CC writing: you collect the option premium right up front, so you can invest it straight away, or use it to fund your monthly expenses.
Thanks very much. Glad you are following along…tell others about my site as well!
Kidding aside, the CC strategy I’ve never gotten into. I’ve talked to Derek Foster about it a bit…he’s given me some insight into that strategy. I just don’t know if that is for me. I’m really a conservative investor, anti-risk. I’ve got a few REITs….why not hold those directly? Why not hold XIU directly?
Thanks for responding. I know you need more info on my plans. I’m 56, retired, married ( pension is about 61 k a year ). My wife and I have about 90k in laddered GIC’s and about 90 k in the dreaded segragated mutuals with a DSC. Not to happy with the funds outcome. I tell my financial clown I need some bonds and he has me in equity funds. My DSC is till August 2015. This clown is family on my wife’s side. Sorry for ranting. I can continue on with my saga but I’ll give it a rest for a bit. Waiting for your response. Thanks in advance.
No sweat. Sometimes, it takes me a few days to respond….I don’t make enough money off the blog yet to quit my day job 🙂
First up, you have a great pension! Many Canadians would kill to earn what you do in your mid-50s. The GICs are OK, I guess (I don’t invest in them…paltry returns) but I understand why many retirees own them because of the security. I’d rather have my money in a diverse basket of dividend paying stocks or broad market ETFs.
The money in the segragated mutuals I don’t get. No doubt you are not happy with the returns and I’m sorry to hear that. I would look into your DSC and see what the fees would be to cut bait. You don’t need to do it, but it’s worth the look, right? Don’t worry about ranting. I recall my family got into investing with some members of my family, and it didn’t turn out well. Talk about ranting after that with my family!
Congrats on the $6k income.
Now that you shared the great news, this calls for a cold one, I say we can settle it at CPFC – I’ll take a Coors or Bud.
Cheers, and congrats again!
Thanks man. Heck ya 🙂
Thanks man. Next stop, $7 K per year!
@My Own Advisor
You’re going to be thrilled when you’re making more in dividends than you were paid in your first job. And it’s coming for you!
I hope so Andrew. Thanks for the kind words of encouragement. You’ve always been very supportive and I don’t forget those things. Cheers!
Congrats. That is awesome. We are still building our portfolio so we haven’t hit those numbers yet but they are definitely a goal to reach for.
Over $6k in dividends is fantastic. It’ll be quite some time before I’m cashing checks like that. Congrats!
My retirement dreams are also being built with my portfolio…one brick at a time. It takes patience and perseverence, but the effort makes the reward that much sweeter.
Best wishes!
It’s taken me many years to get here Mantra…and many more until I reach my goal of $30,000 per year but the journey is on and I’m going to prove it can be done 🙂
One brick at a time indeed.
I know it’s cliche and has been uttered many times by Canadian dividend lovers over the years, but if you can’t beat the banks, then join ’em! Seriously, they have a huge competitive advantage in that they are an oligarchy. Through the good ole TSX 60 ETF I have substantial exposure to the banks and consequently I chuckle evilly (think Mr. Burns) whenever I see new fees enter into the equation knowing that eventually the profits will make their way back to me.
$6,100 in dividends! Money for nothing. You get to be a business owner without managing the businesses. I love it! Keep it up!
Hey Andrew! Thanks so much for stopping by! I appreciate the blog support. So far, so good with the dividends. I got some distance to go to catch up to you, Mr. Millionaire Teacher 🙂
I have a simple question. Can you also post how your total portfolio is doing compared to SPY, DIA, QQQ, and IWM? It’s great that you are getting $6,000 per year, but I think that the growth matters, too.
I have been reading you for awhile and have learned alot from you and other fellow bloggers. I was wondering if you could answer a question for me. If you had 2 thousand to invest, would you buy XUT or Fortis ? Thanks in advance. I don’t own any ETF’s or stocks yet but am hoping to start early next year. Have to get a few things lined up.
Hey unbalanced,
Glad to know you’ve been following my blog, keep coming back and leave a comment! If I had $2 K to invest, what would I invest in? To be honest, it depends. If my portfolio was small, probably an ETF like XIU or XBB. The former is a great low cost ETF and the latter is a great all-in-one bond fund. If I had tens of thousands already invested, I might consider buying an established company like FTS that pays consistent and rising dividends.
I believe for most investors, they are best suited to own ETFs, learn how they perform and how they follow the market. If after that, they want to dabble a bit in dividend paying stocks then so be it but long before you invest, you need to have a financial plan. These stocks must fit into your plan, like groceries fit into a particular long-term healthy eating plan.
@Unbalanced, do you have a financial plan? Knowing what your investing goals, objectives and risks are, can go a long ways to help you answer this question. Write me back and we can continue this dialogue. Better still, I will try and write a more detailed post about this, this fall.
For starters, congrats on your dividend income! $6000+ is fantastic, great work.
Bank stocks are a great investment. I do, however, dislike banks on a social level. No, not because of their usurious interest and fees — it’s a free market and some people are simply dumb enough to pay such fees. I dislike how the CMHC has guaranteed 600 billion in debt — mortgages and HELOCs — for the banks. It’s guaranteed their profits regardless of what happens. The banks responded by giving credit to anybody they could (logical, profitable response). Now, it’s wrecked our economy — created a housing bubble, drove up prices on everything from furniture to the labour of handymen. And now the reckoning is coming, but who will get hit? The average person (I’m not really sympathetic) and then, if the CMHC goes bankrupt (very possible — think Fannie Mae and Freddie Mac), taxpayers like you and me.
Hey Joe,
You’ve raised some great points…re: CMHC. Mind you, this is just one facet of how us taxpayers are “on the hook” for many things, CMHC debt is just part of the puzzle.
The way I see it, you might as well profit from this environment while and when you can. The reckoning is coming, yes at some point, but by owning some bank stocks now and into the future, I will be building a war chest for the end of days.