August 2017 Dividend Income Update
Welcome to my latest dividend income update.
For those of you new to these posts on my site, every month I discuss our approach to investing focusing on Canadian dividend paying stocks. We believe buying and holding a number of Canadian dividend-paying stocks in our tax-free (thanks TFSA) and non-registered accounts will, over time, provide some steady monthly income for future wants and needs in retirement.
Geez…better late than never with this post eh? Hard to believe there are only a few months left in 2017 – and September is half gone now…
Time to put the pedal down and get things done – including realizing our financial goals. Anyhow, back to this post…
Last month was kind to our Canadian stock portfolio. Some selected highlights:
Royal Bank increased their dividend by $0.04 per share (which translated into a $50 per year cash for life raise for us).
CIBC also increased their dividend recently, now $1.30 per share, also providing more future cash flow for an early retirement.
While dividends are never guaranteed (and total return is always important), I must admit, getting a raise for doing nothing except remaining a shareholder regardless of the stock price is a pretty good gig. This makes our investment plan rather boring.
We buy a number of Canadian stocks, some of them listed here, and hold them. We don’t trade, we don’t chase hot stocks and we don’t panic or sell when we hear bad company news. Inside our non-registered account we collect dividends. Those dividends are saved up over time to fund new stock purchases, once or twice per year. Inside our beloved TFSAs we collect dividends and reinvest those dividends every month and quarter for future income. That’s about as exciting as it gets in these accounts – sorry to disappoint. (Note: RRSPs are managed this way – not included in these updates.) If I want excitement, I’ll go watch the Senators play or the REDBLACKS play (and consume a few cold pints in the process). Watching and monitoring the Canadian stock portion of our portfolio is as exciting as watching grass grow. And like growing grass, as long as you don’t cut into it, it will continue to grow.
We’re optimistic if we keep maxing out our TFSAs every year, reinvesting most dividends paid and with any money left over we invest inside our non-registered accounts, we’ll come close to reaching $15,000 in dividend income per year in a few short months. This would be exactly halfway to our passive income goal for an early retirement.
So far, so good. I’ll share another update next month. Thanks for reading and sharing.
Got comments or questions about this part of our financial plan? Let me know. Happy to answer.
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
i sometimes get a little depressed reading the comments on here but then i gather my energy and cash in some stock and book another adventure. i’ve been retired for 11 years (60) and my wife and i have pretty well done everything on our bucket list although we have had to chuck a few things in our fxxxxt it bucket! my withdrawal rate has not been to any particular plan/rate and we’ve been very lucky that the market has not crashed during this time. i gave up worrying about things i can’t control and just live life to the fullest that this old body will allow. i love reading all the comments and do sometimes start to worry but “oh well” time for another adventure! (by the way as it has been said many times here ” RETIRE DEBT FREE”!!!!!!
@gary: fxxxxt it bucket! — I’m stealing this for personal use. Dumping all the Loonies from the ‘Swear Jar’ into the new ‘FXXX IT! BUCKET’.
re: RETIRE DEBT FREE
I’ll second that commotion, but, being me I’ll play the devil… I would agree one probably should *enter* retirement without any debt to service. However, if one plans to *exit* retirement with an empty bank account, then I would say debt could serve you exceptionally well in the laters years of your life. If you own your home outright, you could suck your HELOC dry and live comfortably for perhaps another 5 years. Maxing out credit cards etc could also be beneficial (make sure your spouse has life insurance to cover repayment!). Which leads to a rather morbid form of retirement funding of which I’ve only read about a couple of times…taking out life insurance on your parents. Hey, if Walmart can take out life insurance on their employees…
Bottom line, debt is a tool, but too many people view it as an anchor. Lot’s of options.
love your posts SST! they are always informative and well thought out. those are some very interesting suggestions for debt. i can’t afford loonies just quarters! lol.
SST, let me know when you have that crystal ball perfected so I’ll know when we’re both going to die to put that play into practice.
Warts and all a reverse mortgage might an easier thing to consider in that case.
Debt CAN be a tool and it CAN be an anchor.
Gary, I like that one too. fxxxxt it bucket!!!
Hey, if you know when it’s all going to be over, might as well spend as much as you want!!! Instead, I’d rather live a long and healthy life to extent possible.
(Time for a beer 🙂
Yes, we are also planning for a long life and working on staying healthy with eating, rest and exercise.
Gary, all comments are valid, as long as they are respectful of course!
I like your Fxxxt it bucket. Good on you. I hope to grow my list in the coming years.
Sorry select “Max” to see back to 1977
I don’t know when the market will adjust or really care. I think the ones who need to worry are those depend upon Capital Gains or those so-called 4% or other withdrawal rates, rather than dividends. Certainly dividends may get cut or not grow at previous rates, but if ones dividends exceed ones needs and they are tied to fairly dependable firms, its likely they will not drop to any degree, regardless of any market correction.
Look at the Long-term TSX chart: https://www.theglobeandmail.com/globe-investor/markets/indexes/chart/?q=TSX-I
Select “All” which goes back to 1977. There has been several corrections since 1977 and some major ones, but the long term trend continues to rise. What would it take to change that trend?
Based on what I know about you cannew, you couldn’t care less about your stock prices – it’s the cash flow that your capital generates – that is key. As long as that is growing month-over-month, who really cares – right?
I hope to be in your position, eventually 🙂
Mark
Just reminding those who don’t believe in Growing Income, but rely on Capital growth. The downturns can really affect them, especially if they are drawing down funds to meet expenses.
We certainly know you are happy with your strategy. That is very good to read and it seems you have done an excellent job meeting or exceeding your needs.
My take:
It works because you built a large enough pile to start with at your retirement age, and then chose all equity investments where income is likely to grow enough to exceed inflation. Few retirees will get to be in this position because they didn’t/couldn’t save that large a pile, or simply preferred to fully retire at an earlier age.
Most people will need to work on depleting some/all capital and probably should work on growing income with the remainder that works with their desired asset allocation. Others may have no desire to live only on investment income or less for many good reasons, and may develop a plan to prudently deplete capital & dividend growth, and a strategy to mitigate sequence of return risk with FI and/or cash wedge etc. My guess is most people don’t disbelieve in growing income but are relying on some capital growth and some income growth, some depletion of capital to meet their needs.
Well, you’ll surely have some comments on my next post then – re: focus on growing income. The suggestion by the reader is not the way I intend to go 🙂
I’ve read it and I will make some comments.
I would have known you wouldn’t take that direction even if you hadn’t mentioned it here first. It’s not where I intend on going either.
Thanks for reading as always…working through site comments.
re: TSX…the long term trend continues to rise. What would it take to change that trend?
Nothing with change that long-term trend. The TSX is an index which operates under a selection process and criteria. It’s a dynamic portfolio based upon production. They get to choose the most productive companies within our country. The long-term trend of any country should be greater production and thus reflected in their financial index. Indicies such as the Nikkei which have been perennially depressed are such (mostly) because of monetary policies rather than decreasing production.
This is both an advantage and disadvantage with index investing vs single-issuer investing. That said, the greater bulk of the TSX valuation is derived from a small percentage of listed companies (think 80/20 Rule). You could probably capture ~60% of the TSX returns by holding the top ~50 weighted components. The other listings don’t do much except to slow both the declines and accents of the entire index.
(oh boy…’ascent’…not ‘accent’…)
SST posted:
“Yeah, sorry for hijacking!
re: Are you not experiencing noticeable improvements regardless of what the “ratings” suggest?
For sure, it’s exactly as you put it, “It is definitely tighter, warmer and quieter” (air changes from 4 to 3, with only 2/3s recommended upgrades).
I’m not saying the improvements and upgrades are useless (e.g. our heating costs dropped by half), we would have done them regardless, it’s just that the “game” surrounding all these ‘eco/ener’ government rebates and initiatives and measurements is sloppy and dubious.
Kinda like producers of rice slapping their product with a meaningless “Gluten Free!” label just to sell to more rice.
How does all this relate to dividends? I guess like you said, “the payback time frame will be significant…we played the long game.” Investing in a 2% dividend now might grow to be a 20% dividend upon retirement. Close enough?”
Well good to hear there were positive results but shame it wasn’t a better experience for you. It was fine for us-maybe it had something to do with the evaluator and the fact I had some industry contacts. Growing dividends is always good, and since I’m already retired even more so.
Is everyone ready for a pull back? It always happens and we are over due – or do you think the tsx is on the verge to make a good move up (its not done so much as of yet – this year). If you leave alone and continue to collect the Divs – you will be fine. (you are investing for income, right?).
Mike — as much as I enjoy your style, this is kind of dangerous thinking: ready for a pull back? …If you leave alone and continue to collect the Divs – you will be fine.”
It’s all tied together — stock price, credit worthiness, debt servicing, bond obligations, earnings, dividend payouts… All one has to do is take a look at the decisions of energy companies during the last oil collapse. Dividends are not a stand-alone metric, they are the net result of all other inputs; the caboose getting dragged along by the engine.
Even if a pull back doesn’t incite dividend cuts, it could effect future dividend increases (e.g. MOA might not hit his 2023 goal due to reduced dividend growth). As much as dividends are “boring” investing, it’s always a good idea to pay attention to what’s going on around the dividend (e.g. the 35-year era of declining rates/increasing dividends has ended…what’s next?).
It also depends on many other factors. Like, your age (how many years to go b4 retirement and needing the Divs). If your younger – you can hold tight and weather the storm (maybe buy more if you have the xtra cash). However, if you are in your 60’s – what is best to do? IMO its tough to know when the pull back will occur and how deep it will be and how long it will last. Therefore what is best? Do you hold tight – collect the Divs and adjust your living standards if they get cut? Keep in mind people in their 60s have other Fixed Income (CPP, OAS and maybe GIS).
*** SST, I enjoy reading your comments and glad to see you never took that vacation. LOL
What I am doing right now is increasing allocation percentage of bonds and cash, so I can rebalance and buy equity if the market goes down.
Raising cash myself % of portfolio. Where I can! That includes for 2018 TFSA contribution. Need $11K for that.
Agreed….”MOA might not hit his 2023 goal due to reduced dividend growth).”
Time will tell. Dividends are good and juicy but not everything.
No idea on this market or any others. Am ready with a written plan if they do move down otherwise it’s regular business-
monitor, rebalance, top up TFSA.
Dividends sure, but also FI, cash, and work pension too. Govt pension money down the road somewhere???
“…monitor, rebalance, top up TFSA.” Rinse and repeat.
Not quite but I’m saving cash just in case!
Hope so 🙂
Mark,
You state: “Inside our non-registered account we collect dividends. Those dividends are saved up over time to fund new stock purchases, once or twice per year. Inside our beloved TFSAs we collect dividends and reinvest those dividends every month and quarter for future income.”
Why do you collect dividends and fund new purchases once or twice a year instead of letting them drip automatically ?
Hi Bonnie,
Great question. These previous updates might help explain:
https://www.myownadvisor.ca/may-2017-dividend-income-update/
https://www.myownadvisor.ca/april-2017-dividend-income-update/
DRIPping automatically inside a taxable account is a headache when it comes to ACB. Let me know if you have more questions.
Mike’s comment on cleaning house is indicative of the culture of “stuff” which has grown over the last (probably) 30 years. In the US alone, there is ~250 billion sqft of residential floor space; there is also ~2.5 billion sqft of self-storage space. That’s basically 5 sqft of junk per household, or, more graphically, like having 1,250,000 junk-filled houses scattered across the country.
That’s a lot of wasted space and money. However, the problem is most likely double that because the reason the storage space is used is because the initial living space is packed full! So really, there’s probably like 2.5 million houses worth of stuff in the US. Yikes.
Using Mike’s baseline, that’s $12.5 billion dollars worth of stuff just laying around… (head shake emoji)
(that’s about $40 for every man, woman, and child in America!)
$15k a year dividend income that’s great! I like how you have a chart tracking your progress and comparing whether you are on track. I think I might be closing in on $6K a year which is a far way from my goal lol. It’s hard balancing growth vs dividend investing but am opting for more growth at present.
Look at your car insurance and see if that can be cut down. We cut 13% off ours by making a few changes. Also look at your home insurance to see if any savings can be made there. Every little change here and there added up to over 7K in yearly savings for us. (it really does add up). If you have a landline phone with bell and a cell phone, why? Save $400 more a year and cut the bell line. Look at your data usage on your cell phone and and cut it down (we saved $240 more a year). Close your basement vents and cut your hydro/gas bills down. Change a main light fixture to an LED light. Only do laundry after 7pm or on weekends and save 50% on hydro…etc etc. There is savings everywhere.
There is not much more left for me to do in order to cut more living expenses unless we sell our large home. (not ready to do that as we cant find a better place than what we have at a cheaper price/cost). However, we have been talking about selling our suv and buying something better on gas to save another $800 yearly. (premium gas is 17 cents a litre more than reg – wife hates paying for gas. Might wait a year to see if an electric suv comes out with longer range. *This might be our last ice vehicle.
Thanks for that Mike. You must have a luxury SUV if it takes premium. I have 1 vehicle that does as well.
We’re up on everything you’ve suggested and much more for quite a few years now. We might be the poster people for frugal living for everyday things- ie on a few things- buy mostly used clothes, big garden so lots of pickling/freezing, most basic cell package (no data), flyer scan/bargain shop, all newer energy efficient aplliances/htr/lights (dryer rarely used), I do almost all car maintenance/repairs and home handyman stuff, VOIP landline =$20/yr, insurance 17% less than anything on kanetix.ca & insurancehotline.com & high deductibles, make all our own beer and wine, 32 yr home totally renoed/enlarged = passive solar, heavily insulated, heat pumps & ETS units home Energy rated 86 (exceeds R2000 stds), half of 1 garage is rented in winter to pay electric/heat (separate meter). If we can save we’re on it – within reason and without obsessing.
We could actually save some $$ but it would be in the hundreds $ and we’d have to give up a few things we value or encounter some inconvenience = not worth it. Or we’d have to give up our house we recently moved to, or the toys, or travel. These are things we planned for and wanted in retirement (our discretionary luxury priorities) so not interested in giving them up for many years or unless Mr. Market or our health dictate otherwise.
re: home Energy rated 86…
I have to chime in on the whole home energy rating scheme. It’s kinda bogus.
RBull, I’m sure your house is sealed up as tight as your wallet, this isn’t a slight towards you, but those administering the ratings.
I’ll give you a run-down of my historical experience with the various “energy” protocols:
1. moved into the house; initial test done (under the Liberal programme); energy rating 48 with a possible increase to 68.
2. performed 12% of the recommended upgrades; final test results = 72 (Huh?!)
3. house tested again 5 years later (under the new Conservative programme = the exact same old Liberal programme); 43 rating (10% less than the house with zero upgrades!).
4. performed an additional 50% of the initial recommended upgrades (now at 62%); final test results = 57;
5. more improvements and upgrades netted 20% less “energy efficiency”…???
A. 12% upgrades = 50% energy improvement
B. 50% upgrades = 32% energy improvement…or a 20% energy loss…
The EXACT same “EnerGuide” tests were performed all four times…with four different results.
If it’s performed on a closed system, like an appliance, it might be worth something, but when done on a house…it’s useless.
SST, ha on the wallet comment. You’ll have to trust me that you know not of what you speak.
SST, too bad your energy experience was useless. My experience with energy ratings is quite different and has been very useful. Perhaps the very low starting point of your home created more variability, or did the methodology change or were human variables big factors. Those are strange results. Are you not experiencing noticeable improvements regardless of what the “ratings” suggest? I expect energy efficiency isn’t nearly as important for you as for us, given the opposite coasts we live on.
We have had 2 different homes tested and with the same tester both times. Our last one (R2000 home) came in at ER rating of 83, air changes of 1.25 and with the minimum recomendations (I sealed interior of windows, some rim joists in utility unfinished area of basement, propane line to fireplace, attic hatch etc with caulk/spray foam/accoustical sealant IIRC about $75 cost. Test was reperformed and went to rating of 84, air changes of 1.11, (a model of consistency), and enough (+10%) to provide a decent rebate after also also being paid for 4 toilet (HET) replacements.
This home is much harder to do a fair comparison because we also added a section onto it, and did an overall extensive renovation. However rating went from 74 to 86 and air changes from 4.50 to 2.11. It is definitely tighter, warmer and quieter. The payback time frame will be significant, and difficult to quanitfy due to other renovations but here we played the long game. “Bogus” or “useless” – not here – we are pleased with the results. YMMV
Apologies for the thread rob to those not interested.
Yeah, sorry for hijacking!
re: Are you not experiencing noticeable improvements regardless of what the “ratings” suggest?
For sure, it’s exactly as you put it, “It is definitely tighter, warmer and quieter” (air changes from 4 to 3, with only 2/3s recommended upgrades).
I’m not saying the improvements and upgrades are useless (e.g. our heating costs dropped by half), we would have done them regardless, it’s just that the “game” surrounding all these ‘eco/ener’ government rebates and initiatives and measurements is sloppy and dubious.
Kinda like producers of rice slapping their product with a meaningless “Gluten Free!” label just to sell to more rice.
How does all this relate to dividends? I guess like you said, “the payback time frame will be significant…we played the long game.” Investing in a 2% dividend now might grow to be a 20% dividend upon retirement. Close enough? 😉
Excellent progress Mark. Well done!. You’re proof boring can work very well when it comes to investing.
Mike, very well done too. Geez, that’s a lot of “stuff” you don’t use and an even more incredible amount of low hanging fruit annual expenses you cut!! We’ve regularly done the kijiji/yard sale thing and kept a fairly tight rein on non discretionary expenses (perhaps more so now in retirement) so no gains of significance to be had.
I said my small piece on the Kornel thing and have resisted piling on.
Boring investing approaches live right here RBull. Have a good week. Chat soon.
Ha, they live here too.
Look forward to it. We had some good news recently.
re: $3,400 –> $15,000
This might be the first time I’ve written this — well done! A great 16% annual growth in dividend payouts (considering the average individual div growth rate of your stocks is probably ~10%). Keep it up and you’ll hit your $30,000/2023 target no problem. Any calculations on what the organic growth of divs is vs growth with/from additional capital? Or is that just a nerd type thing and next to meaningless within your plan?
re: Royal Bank increased their dividend by $0.04 per share (which translated into a $50 per year cash for life raise for us).
Got some nitpicking to do, esp. concerning your statement: “a $50 per year cash for life”. This might be a high probability but it is in no way a certainty. Reflected in your following statement: “While dividends are never guaranteed…”, and the analysis from the most recent MDJ:
“Home Capital Group (HCG)…had a very strong track record of dividend increases (18 years in a row)…the company suspended their dividends in May.”
You can’t have a “never guaranteed cash for life raise”.
Considering the recent turmoil on your site brought on by less than straight-forward communication, perhaps more attention to realistic and truer statements. No one is perfect, however, as with the press, if you are going to publish for public consumption, then you kinda have an obligation and responsibility to get it right (e.g. a beginner investor might think an established dividend is “for life”, yet future dividend increases are “never guaranteed”). There is no reason to not utilize proper language and accounts, especially if one of your intents is to educate.
I think the recent turmoil (Kornel) was a good thing. It shed light on the fact that you can not believe everything you read. Kornel is not retired and he should not be providing others with “this is how I did it – I can help you do the same” – we all know that!. Mark was trying to give him a free plug and a (seo) link back to his site. It did not help Kornel! – but Mark’s post on Kornel was a good thing! It got me involved :). (FYI: I am retired, have no debt, do not need to work, have no pensions and live off Divs. BUT…I did not do this in my 30s – so not too exciting and no need for me to start a blog over – but never less, I did get it done! I am financially free!)
I have no problem with the comments, overall.
“no debt, do not need to work” and no pensions but live off divis is sweet. I hope to have some form of “living off dividends” in our 50s and 60s.
Happy to profile how you got there 🙂
Cheers,
Mark
Well, it’s taken time SST. Lots of time. But slowly and surely the plan is coming together.
re: nitpicking to do – that’s fine. I can count on you for that!
Fair “$50 per year cash for life” and “dividends are never guaranteed…” is a bit contradictory. Point taken. I’ve had a few divi cuts over the years as well. CPG, D.UN. Not good but those have been largely offset by other dividend studs.
Can to share any insight again into what you own for readers/fans?
Hope you had a good weekend and continue to recover from your bike accident.
Mark
re: Can to share any insight again into what you own for readers/fans?
A handful of the usual Canadian suspects, held for Smith Manoeuvre purposes (50% of HELOC limit). Although with rates on the rise, the value of the SM is quickly coming to a close (not for my personal portfolio, just in general).
Then a few private equity investments, half of which are perpetual (e.g. oil wells*), half are term investments (e.g. real estate) due in the next couple of years. Not sure where I will throw that money when it’s cashed. I’m sure the price of debt at that time will play a part in my decision (e.g. investing in debt instruments vs. production instruments). Also have money in an on-going personal venture of a precious metals nature.
*(a great example of cuts — my initial payback on this play was 50%/yr…then oil tanked…but so did the C$, I get paid in US$. The two off-set each other so my dividend cut, although large, was greatly softened by the combination. It’s now around 30%/yr. Additionally, I also enter into investments with a learning mindset. So even if things go completely Pete Tong — which they have — I’m never fully devastated, my first-hand knowledge of the world has increased.)
I’ve ignored my gut in the past and missed out on putting money into sectors that have taken off over the last couple decades — touch screens immediately come to mind (there was a Canadian tech company back in the day who was doing all the cool touch screen effects for Hollywood movies at the time…I thought to myself – That’s pretty cool…I should invest!…but never did. How was I to know the iphone was just around the corner?!). Lasers, definitely shoulda gotten into lasers. However, I did get into Ballard Power for about a year, although well before it skyrocketed…and crashed… Yeah, definitely time to trust my gut again! Considering the tech sector dominates the revenue structure of my city (and province) — $4 billion from a city of 85,000 — I might go against my own investment practices and invest very locally!
re: Hope you had a good weekend and continue to recover from your bike accident.
Thanks for the ‘get well’! It’s been a total downer to have all this time off during the summer and not be able to do anything! (complainy emoji) I’m sure my increased frequency on here has been a downer for your readers too. But seriously, plenty of time to reflect and gain perspective, far more valuable than missed wages.
Nice growth Mark! Try this: Here is what I did over the last 3 months to raise another 5K to invest. I went into my garage and put aside anything I did not use in the last 12 months (to sell). Then we went through our entire house and if we had no use for something or did not use it in the last 5 months, we put it aside (to sell). Then we took pics of every single item we no longer needed and place them on sale online (kajiji). Then had a garage sale for the remaining smaller items and raised over $5K in 3 months. I treated this as a part time job (as I had to relist things over and over again to keep on the first page of kajiji listings.). In the process we cleaned up our house. The rooms look roomier and I can park my car in the garage again.
Also during this time, we pulled out all our monthly bills/expenses and look at ways to cut them all down. To our surprise, when we were done doing this – we cut out over $7K in yearly $$. We now have $600 more monthly to do what we want with (invest). To me this is like investing another $15K at 4% – without having to raise the $15k. ** Hope some of your readers do this!
error: Its like having another $175K at 4% = 7K yearly divs. without having to raise the $175K.
Np.
Thanks Mike. Funny you mentioned Kijiji. We’ve done some selling recently because my wife is on a kick of downsizing/wishes to downsize in the coming year or so. So, we sold extra coolers, some clothes of hers, and some furniture as well. The purge will continue and if we sell enough stuff/crap/materials we don’t need we’ll be able to fund part of our TFSA next year. Let the good times roll.
Cheers,
Mark