December 2020 Dividend Income Update

December 2020 Dividend Income Update

Welcome to my final dividend income update for 2020.

Ugh, quite the year. But investing-wise, it was rather good surprisingly.

Before we look at the numbers, let’s revisit our general investing plan…

Approach #1 – we own a number of Canadian dividend paying stocks for income and growth in our taxable and tax free accounts

Advisors and other investors will continue to tell me that dividends do not matter unto themselves – although they are an important component of total equity returns. Very true.

But dividends (and therefore owning some Canadian dividend paying stocks) matter to me because this approach is helping me realize my investing dreams one year at a time.

Since my bias is to own some Canadian blue-chip stocks in a taxable account and inside our Tax Free Savings Accounts (TFSAs), I use low-cost Canadian ETF XIU as my benchmark.

I decided to compare my returns recently now that a decade has passed since I formalized this investing approach.

ETF Ticker/Account	10-years	MOA Comments
XIU	6.29%	XIU provides holdings to largest, top-60 stocks in Canada, arguably a blue-chip ETF.
MOA Non-Reg.	7.6%	Mix of Canadian banks, pipelines and utilities and telcos. I now own a 100% gain in AQN!
MOA TFSA 1	7.2%	As above but with some beaten-up REITs! Sigh.
MOA TFSA 2	7.3%

Data extracted from iShares on January 2, 2020, up to November 30, 2020 – over a few cups of morning coffee before watching World Junior Hockey. Used same time periods for comparison purposes. Given our December/Santa Claus rally, I wouldn’t be surprised if my returns are over 8% now at the time of this post. 

Over the last 5-years I’ve averaged 9% in my taxable account alone. 

My secret to these returns for the last 10 years???

Own some of the same top stocks the big funds own and reinvest all dividends paid.

Oh, and try not to trade stocks.   

That’s my strategy. 

My monthly updates are focused on this approach #1.

There is however another way we invest…

Approach #2 – we’re owning more units of low-cost U.S. Exchange Traded Funds (ETFs) inside our RRSPs over time. 

In our Canadian market (that continues to operate as an oligopoly), I think you can cherry-pick (a bit) the best stocks to own from XIU or other major Canadian funds. Again, see approach #1 above.

That said, I know I need to diversify away from Canadian borders so I’ve been working on that over time.

In recent years I’ve sold a few Canadian and U.S. stocks and moved that money into low-cost U.S. ETFs.

I wrote again about that update and approach here.

Lessons learned in diversification – reducing my Canadian home bias

I believe owning more low-cost U.S. ETF units (over time) for growth inside our RRSP accounts is a great complement to our growing passive dividend income machine above.

These are some great ETFs to own inside your RRSP here.

With our RRSP assets increasing with more U.S. content over time (I will make use of new RRSP contribution room later this spring and summer 2021…) it is my goal to have an equal 50/50 equity split between Canadian and U.S. content across our portfolio to enter semi-retirement with (in another 4 years or so).

December 2020 Dividend Income Update

These updates focus on just approach #1 (since that’s the way I started to report this income stream 10+ years ago), so I will continue to do that in 2021.

The big reveal!

Incredible. 

You can see I’ve targeted a new goal for the end of 2021. We’ll see if we get there!

Even after some dividend cuts in 2020 (including selling off pipeline stock IPL completely) our income increased thanks to reinvested dividends (inside our TFSAs only) and thanks to multiple dividend increases during the year.

I recall last year, between our taxable account and TFSAs, we received sustained dividend increases from 15 stocks. Only a few didn’t raise their dividend (such as BMO, BNS).

We ended 2020 by earning $20,892 in dividend income in some key investing accounts.

(We don’t dare touch this income stream. We need it for our semi-retirement plans in the coming years.)

As done for previous months in 2020, putting this income into perspective, this means:

• If we weren’t reinvesting many dividends paid (but of course we are today…) that income would cover our property taxes, condo fees and utility bills as key household expenses – including likely all inflationary costs for those things in the range of 2-3% per year, for life.
• $20,892 per year in dividends earned translates to earning roughly $2.38 per hour of every hour of every day ($20,892/8,760 hours (24 hours x ~365 days)) even in my sleep.

It has been said some of the most successful approaches to investing are essentially boring.

With this being my 11^th year of blogging and being a full-on DIY investor as My Own Advisor I couldn’t agree more.

Whether you choose to cherry-pick a bit from our Canadian economy, or just buy and hold a handful of low-cost ETFs from Canada or around the world, or you’re a hybrid investor like I am – the results should be clear:

The more time you remain in the market, the less money management fees you pay, the less you tinker with your portfolio, the more money you will undoubtedly have.

Thanks for reading and a Happy New Year of investing to you!

I’ll be back on the site with more content in the coming days. 

Mark

Further reading – how we got here:

My dedicated Dividends page.

My ETFs page about top funds to own, why and where to own them.

Why reinvested dividends and distributions works wonders over time!