December 2018 Dividend Income Update

December 2018 Dividend Income Update

Welcome to my latest dividend income update – my final one for 2018!

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.

Hard to believe 2019 is right in front of us but before we look ahead let’s look back to see how we did last month and over the last calendar year with our investing approach.

I’ll also take some time in this post to answer a few reader questions that I’ve received over the last few months.

Two big financial goals

I write about dividend investing often; as in every month, but I want to remind you this investing approach is part of a broader financial plan for us.  If I were to distill our financial goals down, there are really two BIG ones we are chasing:

1. Become debt-free. $0 debt.  Ideally, never take on debt again once debt free.
2. Own a $1 million investment portfolio (outside any existing workplace pension assets, excluding any of our home equity).

We believe, realizing goals #1 and #2 will allow us to work on our terms, essentially making us financially independent.  We could largely live off dividends as part of semi-retirement; spend just the dividend income derived from our portfolio and not worry (too much) about market volatility or gyrations with any stock market price changes across our portfolio over time.

When do you expect to realize these goals?

A reader recently asked:

Mark, I’m a new follower.  Congratulations on your progress to date.  You write about your dividend income journey and killing your mortgage debt.  Do you think you’ll realize both of these goals at the same time?  At what age do you think you’ll realize these goals?  Thanks for your answers as we make our own plans.

Thanks for your questions!  Ah yes, if I could only predict the future!

If I had to guess, as long as we keep maxing out contributions to our TFSAs every year (I’ll maximize my TFSA first thanks) and strive to maximize contributions to both RRSP accounts every year, I figure with any stock market cooperation (i.e., rising prices over time) we’ll realize our investment portfolio goal in about five years – before I’m 50.

Killing the mortgage might occur around the same time although we’re likely to make some lump sum payments in 2019 and thereafter, so maybe we can kill this beast off sooner.

About the $30,000 income goal

Another reader recently asked:

Mark, your $30,000 per year dividend income goal from your dividends page highlights this is planned income from your non-registered account and TFSAs with your wife?  Have you considered including your RRSP dividend income for us readers so we could see the grand total?

Thanks for your question.  I get this one a lot and I answered it back in July this year as well.

To clarify for all, our passive income goal of earning $30,000 per year is linked to our TFSAs and non-registered accounts.  It does not include income that could be, rather, will be generated by our RRSP assets.

Why?

Well, the biggest reason is I’ve always reported it this way so I guess I’m too lazy to change it now!

The other reason I report it this way is because I know we’re definitely going to draw down our RRSP assets in semi-retirement.  We believe we’ll keep our capital intact for our non-registered account and TFSAs for some time to come.

The order of drawing down one’s assets in retirement is not an easy equation.  There are many retirement income considerations to think about here.

With some RRSP withdrawals in our 50s and 60s, killing those accounts before age 70, plus earning $30,000 per year from the rest of our portfolio that I write about every month, we believe that’s enough assets to cover our basic living expenses – we can stop full-time work by our early 50s.  We will however work part-time to keep our minds and bodies active once we hit our financial goals. That’s the game plan…

Previous Updates

In my last update, I reported some great progress towards our ultimate dividend income goal.

In fact, when I compare our income update to December 2017 we made HUGE strides – largely from sticking to our investment plan that included contributions to our TFSAs at the start of year.

Recession worries?

With all the recession chatter and market instability, one could argue it might be best to sit on cash into 2019.  Not us, we will invest.  That’s been our plan every year and this year should be no exception.  Besides, I cannot predict what markets will or won’t do.  Sure, we’ll keep some cash handy if prices decline further but getting invested and stay invested has gotten us this far.

2018 dividend increases

In terms of dividend increases, 2018 has very kind to us even when markets overall were not for price appreciation.  We got raises from the following companies in 2018, among others:

• Bank of Montreal (BMO)
• Bank of Nova Scotia (BNS)
• Bell Canada (BCE)
• Brookfield Infrastructure Partners (BIP)
• Canadian National Railway (CNR)
• CIBC (CM)
• Emera (EMA)
• Enbridge (ENB)
• Fortis (FTS)
• Great-West Life (GWO)
• Johnson & Johnson (JNJ)
• Manulife (MFC)
• Procter & Gamble (PG)
• Riocan (REI.UN)
• Royal Bank (RY)
• Suncor (SU)
• Sunlife (SLF)
• TD Bank
• Telus (T)
• TransCanada Corp (TRP)

We own a mix of Canadian and U.S. holdings.

Mark, have you changed your mind about buying more ETFs as you get older – to diversify risk away from Canada?

No, no big changes because I’ve already started to do that.  Great question.

While I believe our current basket of 32 Canadian stocks is fine to cover the Canadian market, largely the same stocks the big funds in Canada own anyhow (see examples here) I know Canada only represents somewhere in the range of 3-4% of the global market.  Therefore, if you only focus on Canada you might be missing out on healthy returns from around the world.

So, to avoid our fear of missing out, we own some stable blue-chip U.S. dividend paying stocks (see the ones above) and some U.S. listed-ETFs like VTI. We put those assets in our RRSPs for many reasons listed here.

Over time I know I will own more U.S. ETF units or some Canadian-listed funds like VXC or XAW in our RRSP – so we can own thousands of stocks from around the world for long-term growth, making the portfolio almost bulletproof through equity diversification. 

Owning either VXC or XAW I will avoid currency conversions.

Back to the December 2018 dividend income update – where did we end up?

Buy and holding Canadian dividend paying stocks for the long-run has been part of our game plan for almost a decade now – I have no intention of changing that approach, other than to own more units of U.S. ETFs going forward.

With dividend reinvestment plans for most of the stocks we own on autopilot, shares DRIPping commission-free every month and quarter, we managed to end the 2018 calendar year with about $17,221 earned in dividend income from our non-registered and TFSA accounts.  I’m very optimistic that if we keep doing what we’re doing, we have a chance of surpassing $19,000 or more by the end of 2019.

You can read more about how I built our dividend income portfolio here.

A great year of progress overall.  We’re proud of what we have accomplished while killing some debt and taking some trips as well.  I look forward to sharing updates on this income journey and much more in 2019.

Best wishes to you for your financial year ahead.  Happy New Year!  See you on the site!

What do you make of my game plan to own dividend paying stocks and ETFs for the long-run?  Too risky?   Not bold enough?  Got questions about my income journey?  Ask away.   Thanks for being a fan – Mark