December 2017 Dividend Income Update
Welcome to my latest (and final) dividend income update for the 2017 calendar year. I hope 2018 will be good to you!
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 account will, over time, provide some steady monthly income for future wants and needs in retirement.
A new year is here and while more dividend increases are expected let’s take a look back and see where we ended up in 2017.
Check out this chart:
Not bad eh?
We ended 2017 earning $15,150 in dividend income for the year in the three key accounts I use for these updates – TFSAs and a non-registered account. We are now happily DRIPping the following stocks inside our TFSAs:
- Bank of Montreal (BMO)
- Bell Canada (BCE)
- Capital Power (CPX)
- Enbridge (ENB)
- Fortis (FTS)
- H&R REIT (HR.UN)
- Smart REIT (SRU.UN)
- Innergex Energy (INE)
- InterPipeline (IPL)
- Laurentian Bank (LB)
- National Bank (NA)
- Power Financial (PWF)
- Telus (T)
…and onwards and upwards we go in 2018!
Here are some of questions I get about my dividend investing approach – which I’m happy to answer as part of these updates.
Question #1 – I’m curious about your $30k dividend income target. What is your annual contribution?
The bulk of our contributions comes from maxing out our Tax Free Savings Accounts (TFSAs) every year. That means, for this 2018 year, we intend to invest $11,000 for our financial future. Give or take, about $11k invested will churn out about $400-500 per year in dividends. So, without any dividend increases for any of the stocks we own, we can likely assume our dividend income will be at least $400-$500 more this time next year.
(This is a good time to remind you we also invest in our Registered Retirement Savings Plans (RRSPs) but most of those assets are in U.S.-listed ETFs; and that income is not part of these updates. See question #2.)
Question #2 – Why don’t you include your U.S. assets in this update?
Fair point. I suppose I could, but then, that complicates things with a fluctuating U.S. and Canadian dollar exchange rate. In addition to that, these updates have historically focused on tax-free (TFSA) and tax-efficient (non-registered) dividends from Canadian stocks only. Third, while I could easily include projected RRSP-withdrawals as income for these updates I have no idea how I’m going to manage that yet. So, I simply don’t include that income in these updates – for now. Readers might convince me to change my mind. You’re welcome to try 🙂
Question #3 – Aren’t you concerned about diversification in your portfolio with only Canadian dividend paying stocks?
Yes and no.
I’ve created my own (no-fee) Canadian dividend ETF with the holdings we have – given some Canadian stock selection is not that difficult. So, no, I’m not concerned that this collection of Canadian companies is doomed to fail. If it does, that means other low-cost Canadian ETFs like XIU and XEI would also fail given their top-20 stocks (or so) are the same as mine. Heck, have you seen ETF VCE? The top-10 assets comprise over 50% of the holdings. If these top-10 companies fail Canada is doomed.
Doom and gloom aside I know investing only within Canada’s borders limits my worldwide diversification AND our ability to earn returns beyond Canada. Look at the U.S. market last year. An indexer in the U.S. market would have earned close to 20% return!. What I’m getting at is we invest heavily using U.S. stocks and some U.S.-listed ETFs inside our RRSPs. You can see some of my favourite low-cost U.S. ETFs here and here.
Question #4 – What other Canadian stocks do you invest in?
Question #5 – Do you reinvest dividends paid inside your non-registered account? Why or why not?
Not anymore. While I love reinvesting dividends, I found 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 I have to worry about by taking the dividends in cash. Besides, it’s not like I’m totally giving up the magic of compounding – we have many stocks inside our TFSAs (see above) 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.
So, to summarize where we stand:
- We intend to hold 30-40 Canadian dividend paying stocks (no Canadian ETFs or other funds) inside our TFSAs and non-registered account for growing dividend income for the foreseeable future. This is what these monthly updates are all about.
- To gain more diversification, we hold predominantly U.S. stocks and U.S.-listed ETFs inside our RRSPs.
That’s basically it.
We look forward to crossing another dividend milestone later this year ($16,000) and that will be 53% towards realizing a major financial goal.
Got questions? About our journey? About investing in general? Send them my way and I’ll do what I can to answer them. All the best for your investing journey in 2018!