August 2016 Dividend Income Update

How many stocks should you own?  That’s a question I receive often.

My answer: it depends!

If you’re an indexer the answer is probably as many as possible.  In The Investor’s Manifesto author William Bernstein wrote: “since we cannot predict in advance which stock and bond asset classes will perform the best, we diversify.”

That makes sense.

Investors can reduce the risks that come with individual stock ownership by owing the whole market not just a few select companies.  This seems like a smart thing to do, so I follow Bernstein’s advice.  Sort of.

I believe the Canadian market is not very diverse though.  I wrote as much here suggesting investors should consider unbundling their Canadian ETF for income – eventually.  That process has already started for me.  I’ve created my own Canadian dividend ETF essentially.  Going this route I won’t have to worry about ongoing money management fees or MERs for the Canadian portion of my portfolio.  Your mileage may vary.

For the rest of our portfolio, outside a few U.S. stocks for dividend income, we invest in low-cost Exchange Traded Funds (ETFs) that cost us little money to own and they provide us a small stream of quarterly distributions that are always reinvested for future income.  These ETFs hold thousands of stocks from around the world.  They provide that aforementioned diversification Mr. Bernstein says I need outside Canada.

As a buy-and-hold dividend investor I’ve been very comfortable to date with my Canadian holdings.  Yes, I’ve had some unfortunate dividend cuts from cyclical oil and gas stocks over the last year but even those days are numbered I believe.  What goes down, goes up again, eventually – and I’ll hold until then.

For the rest of our portfolio the dividends just come in, get reinvested, and we don’t think about it.

This time last year I wrote:

“Thanks to Canadian companies that continue to reward shareholders like myself and give us a raise now and then, we’re on pace to earn almost $11,300 one year later.  We are only one-third along our journey to meet this retirement goal but I’m confident with more DRIPping and more saving in 2016, we’ll get there eventually and be able to leave the workforce behind in another decade or so.”

This plan remains intact.  With no changes, we can expect to earn just over $12,800 this year.

Indexing has been good to us but so has our boring basket of Canadian dividend paying stocks.

How are your retirement plans coming along?  What are you investing in for the income you need?

31 Responses to "August 2016 Dividend Income Update"

  1. Mark, I find it ironic to read this post with the quote from William Bernstein and then your response to it, given your stance on bonds!

    It’s always good to read you’re making progress with your goals. Good luck to you and to all.

    1. Ha. I was wondering who might pick up on that? 🙂

      I believe in diversification, I do, but because I have a pension that’s “a big bond” and I feel I don’t need to own individual bonds.

      Yes, the progress is slow but on the upward incline.

      1. LOL, leave it to me! Yes, I know your take on your pension as a “big bond”, and I’m in no way suggesting that is wrong, at least in your accumulation phase. I too was 100% equities for that period, but just wanted to point out the irony with your reference.

        However, I’m not sure William Bernstein differentiates for those with DB pensions or not when speaking about diversity of asset allocations and investments for ones invest able assets. In any case most retired Canadians have DB pensions of some kind- CPP and/or OAS, other than initially for early retirees, but most will probably still choose a more balanced approach with their investments like Bernstein advocates.

        It has been an easy ride people with a lot of CDN equities during the past ~8 years, recovering from a huge dump, and with interest rates at all time lows especially driving up blue chip/lower volatility stocks and better dividend payers.

        Upward incline is always good when it comes to investing. Cheers.

        1. Kidding aside, I would agree Bernstein probably doesn’t consider pensions as a bond.

          The real test for dividend investors is coming. What happens when the market crashes again. It will happen, I just don’t know when.

            1. I’m thinking so. I don’t think we’ll see negative interest rates but prolonged interest rates, for another decade or more, will erode any possibility of decent bond yields. We’re already seeing what the last seven years has brought. I can’t imagine what the next 10 years of slow growth might look like.

  2. Great work Mark!
    Many facets to look at when you are aging.
    I am pulling OAS now and still working. Company does not want me to retire so they keep on paying me.
    Now because of this as well as dividend income my OAS is being clawed back by some $2.5K per year. So in addition to the taxation, although favorable, on the divs, I get penalized for making over the OAS salary cap.
    So there are some trade offs to working past 65.
    Dividends, along with the salry, contribute to the OAS clawback making one wonder if it is worth while to contine working. Going forward i will start to transfer some of the taxable portfolio into the RRSP and TFSA so that will help reduce my overall net income and therfore increase my OAS payout
    While I get to continue to contribute to my RRSP and can afford to top up the TFSA I do pay the OAS premium for “making too much money”. Depending on your salary this may or may not apply to you.
    Staying in the workforce is also increasing the eventual payout for the CPP/QPP as I delay my start date and increasing my RRSP and TFSA portfolio worth by being able to coninue to contribute (RRSP)
    Up to you to figure out when you want to pull the pay plug and go off line so to stay.
    I will also have to thank the bosses for letting me cross more one thing off the bucket list which i would not have done if I were retired.


    1. Sounds like you’re in a good place…you seem to enjoy working and the company wants to keep you.

      I will likely always work at something, this blog for example, but I’m optimistic saving early will provide choices later in life.

      If I stay in the workforce like you, I will also defer CPP until age 65, or later. Hard to know what the future holds!

  3. Keep it up Mark. You guys are doing awesome. You’re in a great place in building wealth. We’re very fortunate. Let’s enjoy the ride and enjoy our families as well. The journey is still long but I know we’re reach our goals and dreams. No doubt.
    Take care and keep up the great work. Cheers bro.

  4. Good work Mark. Slow & steady/buy & hold is indeed a good way to go.

    I’ve been retired for just over 3 years without any company pension and my wife was stay at home. Together we hold 27 individual stocks, 2 ETFs, and 2 mutual funds. It is a very focused, undiversified portfolio. All holdings are Canadian dividend income/growth with no regular bonds or GICs. The holdings are concentrated in financials, telcos, midstream, utilities, and REITs.. No oil & gas producers, no commodities, no consumer, no cyclicals. Definitely not for everyone but it has been working incredibly well for us.

    Even with all our cash withdrawals for expenses and our extra in-kind RRSP to non-reg transfers to try and draw down our RRSPs (and subsequent extra taxes), our total portfolio is still 23% larger than what it was when I retired. There’s been some wild daily swings but I never worry. I also very rarely sell or swap anything. I just hold, collect huge divys, and ignore the day to day.

    Bottom line is that I think dividend income/growth investing can work really well for retirees.

    1. Don, it’s these responses that make me smile…

      You’re on the path I hope to be on…. “27 individual stocks, 2 ETFs, and 2 mutual funds.”. Well, maybe except the mutuals unless they are Mawer 🙂

      So many indexers state my portfolio on the CDN side is not diversified. I own (like you), financials, telcos, utilities, and REITs. I don’t care. These companies provide cash flow and increasing cash flow at that.

      Your portfolio sounds very healthy and stable. Kudos. I never worry about the swings either. Things crash, buy more 🙂

  5. Couple of questions Mark. Do you consider the exchange rate on U.S. dollar dividends? And secondly, do you break down earnings into taxable and non-taxable? A dollar of income earned in a TFSA is likely worth more than a dollar earned in an RRSP when all is said and done.

    1. Actually…I don’t Lloyd. I should probably be more clear in my posts, this is dividend income from only our TFSAs and non-reg. accounts. My RRSP is full and out of contribution room with U.S. stocks and U.S-listed ETFs like VTI. These are not part of these updates, our RRSPs. We’re at the point now whereby we could withdraw in about $5k each out of each RRSP and never run out of money – distributions from VTI and U.S. stocks.

      I probably should include this in our updates but my posts have been historically about CDN stocks so I’ll keep it that way.

      I hope that helps clarify.

      I would agree with you, given the taxation, a dollar inside the TFSA is likely worth more than any U.S. dollar inside the RRSP.

      Cheers and back to a cold beer 🙂

  6. I’ll never complain about boring. Boring is steady, boring allows you to sleep well at night. Earning well over $12k in a year is a very real number that could go towards many yearly expenses one has. Congrats on simply staying the course.

    1. Yes, that’s $1,000 a month we’ll never run out of unless we want to. The plan is coming together nicely and that excludes any workplace pensions at age 55 – which is very good. Thanks for the support.

  7. How many stocks should one own? The answer is go with what you’re comfortable with according to your risk tolerance. I currently hold 35 stocks (10 US & 25 Cdn) and two mutual funds. I equal weight (roughly) by income. I believe there’s strength in numbers with stocks. I’ve only had a handful of cuts in my 8+ years of DGI but on the occasions it did happen my overall income stream hardly felt a bump and my annual income continued to increase. The effect would have been greater had I only owned a handful of stocks.

    Congrats on your success, per your update. I’ve done quite well myself despite not adding in any new money in retirement. Love the compounding dividend income!

    1. No doubt we own many of the same stocks Bernie. The CDN market is small. I’ve decided to slowly unbundle the CDN portfolio and own about 30-40 CDN stocks and for the most part, index invest everything else. I think that makes sense for our plan.

      For every dividend cut there is a dividend increase, or two.

      Thanks for the kind words about our update. These updates exclude our RRSPs. If we can get our CDN portfolio churning our goal of $30k per year excluding any RRSPs or pensions, we’ll be in a great place.

      Stay calm and dividend on. I just made that up 🙂

  8. Boring is good when investing for the long run!

    To answer the start question: open a few 1000 stocks. No idea how much!
    There are the few specific special ones in my play portfolio, they are the exception.

  9. Good work Mark. Slow & Steady, which if one checks back is what you Income has been doing this year.
    I still only hold the 17 Cdn stocks and our income continues to grow as your is. Later this year I’m planning to change my auto license plate to celebrate a milestone. Will send you a picture.


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