February 2016 Dividend Income Update
Welcome to my latest dividend income update for 2016. For those of you new to these posts on my site, every month I discuss my approach to investing using Canadian dividend paying stocks and Exchange Traded Funds (ETFs), and how reinvesting the dividends and distributions paid from these Canadian holdings are helping us reach financial freedom.
Last month I wrote about looking back, reflecting upon the progress we’ve made. While the overall journey has been rather good the road to (future) financial prosperity has been filled with bumps.
Looking at the glass half-empty…
With this investing approach there is caution, meaning risk I need to remind you about. Over the last few months, many Canadian stocks have been hit rather hard in my portfolio.
This makes the idea of “living off dividends and distributions” concerning, to a small degree. Then again, there are some positives to selecting companies that have paid dividends for decades or generations and weathering any current market storm; many of them are likely to increase their dividend the following year, or at some point; so there is a glass half-full perspective.
Looking at the glass half-full…
- Despite Keystone XL dying a slow death, TransCanada (TRP) increased its dividend by 9% recently.
- Canadian National Railway (CNR) announced a 20% dividend hike in January.
- Bell Canada (BCE) increased their dividend by 5% in February.
- Brookfield Renewable Energy Partners (BEP.UN) and Brookfield Infrastructure Partners (BIP.UN) bumped up their dividend this year.
- Manulife (MFC) increased their dividend in February.
- Royal Bank (RY) increased their dividend recently.
- TD Bank (TD) and CIBC (CM) raised their dividend late last month.
- And the list goes on…
With all dividends and distributions paid to buy more Canadian stock shares (and Canadian ETF units) commission-free, even with some recent dividend cuts our forward dividends are now projected to be about $12,150 this calendar year – as long as no further dividend cuts occur (and conversely) and as long as the companies and ETF products we own keep paying us. Investing in a diverse basket of Canadian dividend paying stocks is what I call a get wealthy eventually strategy so we remain patient and stay invested – time in the market is our friend.
I’ll keep you updated where we get later this year as we strive towards this longer-term early retirement goal, a goal we hope is less than 10 years away. Wish us luck and thanks for reading.
$12,150 this calendar year is awesome!
BTW, Husky (HSE) is still paying a dividend but instead of in cash it’s being paid in stock.
According to Husky’s website:
“This stock dividend will be satisfied by the issuance of a fraction of one common share as a dividend on each common share that is outstanding on the stated record date. The newly issued stock dividend common shares will be issued from Husky’s Treasury to the shareholders through Computershare.”
It’s coming along. Thanks Kanwal and good to hear from you. Nice re-design of your site. Who did that? Impressive.
Yes, that’s $12k per year I never have to work for again!!!
I can’t touch the money as you know, it’s for retirement spending so it needs to snowball and be added to for another 10 years.
Time can be your friend I guess for the buy and hold theory… I have a bit of a different thought on it though and weed my flowers more regularly… I also have no issue pruning some of the more awesome flowers and use the proceeds as seed money for new additions… Gardens are beautiful, but they do require up keep. I will say though I do have more time to spend on it and as such can be rewarded at times for the extra work. Case in point I’ve held CSU for a few years now and sold it off because hell, the graph looked too perfect. realized a tidy profit and what do you know the market takes a bit of a dive and well so did CSU… interesting bought it back at a $100/share less and sold half again when it popped back in short order. I like the theory of buy and hold, but unfortunately I’m attracted to growth rather than stability… So I play the game… TCK.B was another one to play the past few months… bought it the end of last year at $6, and sold it last week for $9… a 50% return O.o In a few years we’ll need to compare 😉 In the end there are an infinite number of ways to attempt to get from point A to point B… if you watch the graphs, you can follow the herds patterns – Cheers
Good to hear from you Phil. Still retired?!
I think time can be your friend as most stocks will go up, then down, then up and sideways for some time, but I hear what you are saying with some pruning and weeding in your portfolio.
Yes, at some point, we’ll need to compare notes although I’m still working and you’re not, so I have some catching up to do!
Still retired, and the more I learn to read through the investment industry BS the more certain I can remain here. Find the time, and it will reward you 😛 – Cheers.
LOL. No doubt. Good to hear from you Phil. We should meet up at some point!
Wouldn’t buying an ETF like XIU make more sense? They also have dividend increase and fee you pay is about 0.06%. You don’t have single stock or have to really worry about a dividend cut.
I’m new to this so don’t kill me.
Valid question Andrew and I actually do own XIU. I also own a few other stocks directly and because of that, I do not pay any ETF money management fee. Over time, I will probably sell off some of my stocks and move towards owning more XIU. I am already indexing more to diversify and reduce risk (i.e., not dividend cuts to worry about, although there may be distribution fluctuations).
Whether one owns a stock directly or through some kind of fund, a dividend cut is a dividend cut. Stay in the market long enough and it will happen to all. I’ve had the misfortune to “invest” in some dogs (Crocus here in Manitoba for example) that burnt a hole in the portfolio. Live and learn. While on the subject of dividend increases, it should be noted that the movement in the C$ may also have some effect. For Example, BAM.A and BPY.UN recently announced dividend increases but with an appreciating C$ it may not seem like it. Had the dividend increase not taken place it might appear to be a dividend cut.
Yeah, that sucks Lloyd, live and learn and move on, as you say.
Great news about BAM.A and BPY.UN recently. The way I see it, while some companies will cut their dividend from time to time, I believe many companies will continue to hike their dividends and things will work out in the end. Our plan is solid, I just need to stay the course!
Sorry to hear about the dividend cuts, Mark. But good to see that a majority of your holdings have been raising dividends. Keep that forward expected annual yield growing!
I’m trying R2R! That’s the risk with some individual stock selection – you will lose from time to time and potentially underperform the market.
The Dream Office dividend cut was tough but I think that’s the right long term decision. On the bright side, some companies continue to increase their dividends like clockworks. Very thankful for that.
Absolutely. Management made the right call to survive!
do you sell your stocks after a dividend cut or not. I sold POT at 22 and it’s upto 25 now
I typically do not sell my stocks after a dividend cut or slash. I buy and hold. If anything, I recoup the price appreciation on “the way back up” – like POT. The dividends will take some time for POT to come back, but they will, and in the meantime, I have bought this stock at a dirt cheap price.
My mistake wasn’t buying Potash. I was correct that the market had over-reacted when the cartel broke up. My mistake was in not really thinking through the process. Idea was to buy once it was clear it wasn’t going to drop further and sell it for 3-4 dollar gain. Instead I bought it and forgot about it, that was till the dividend got cut. That was a huge wake up call so I bit the bullet, sold and wrote it off to experience.
The other reason for selling was there were, and still are some great bargins out there, Why live with a stock that might take a decade If ever to recover when you can pick up a great stock on sale. With a growing dividend and some great upside. Buy and hold only works if you can buy the whole company.
That happens Rob, and thanks for sharing.
That’s the challenge I find with stock investing, that you don’t have with indexing – you don’t need to worry about bargins. The best price of the market is the current price (if you believe in EMH = Efficient Market Hypothesis). I believe the market is generally correct most of the time but behaviour drives the market, and behaviour is not always rational 🙂
I believe in buy and hold long term. A good case study will be POT for me.
Mark: Totally agree with you on holding! I found that when I narrowed down my holdings to a small number, those were the only ones I watched and had a constant buy level for. As you said if there was a dividend cut I accepted it because I already decided these were the stocks I’d hold forever and quite if there was a cut the buy price was often met and even went lower. That was the time to buy and increase ones average yield.
With a small number of stocks and ignoring all others it was easy to decide when to buy and have a constant watch for those levels.
We don’t typically sell stocks after a dividend cut or slash either. I tend to hold on to them and see where the stock goes.
Thanks for sharing Mark. There will always be bumps and bruises along the way but we must learn from our mistakes and hope to minimize the losses. I own all 3 of those you mention that cut and it goes to show that our selection process is crucial and moving forward, don’t put ourselves in that position again by only purchasing the highest quality of companies with proven track records. Also I like ETFs. Take care bud.
@DH: “don’t put ourselves in that position again by only purchasing the highest quality of companies with proven track records”
Sound advice! As a Dividend Growth investor, Avoid cyclical, commodity, energy.and High Yielding stocks!
Thanks for reading. It was disappointing to see the dividend cuts but then again, that’s what responsible management does when times get tough. Many stocks are DRIPping and so going forward, this is where I believe indexing will help me – I won’t need to worry about stock selection as much – just buy the index, and sleep easy.
Mark: With little to do I thought I’d look up the Vanguard VCN Canadian All Cap ETF.
It hold 231 stocks and in the past 2 years 41 have cut their dividend or 17.49%.
Of the top 50 holdings 7 cuts or 14%
No cuts in the top 20 holdings.
Still not a Buy and Sleep Easy fund with so many cuts.
Forgot to mention that 46 of the 231 pay nod dividend or 19.9% (most on the lower half)
So then your hope is capital gains, which is why I like my hybrid approach – some companies that pay provide income whereas others you are hoping for price appreciation over time.
I think VCN is a good product, low-cost, yields 2.6%, but I see where you are coming from Cannew.
If you are sold on indexing & the dividends are your major concern, why not buy the XDV, CDZ or XEI in Canada and perhaps DVY in the States?
Good question Brian.
I answered that one here:
At some point, if the portfolio gets too cumbersome with too many holdings, I might just throw in the towel and buy ETFs only but I’m not at that point yet.
I know you directed the question to Mark but if you or anyone else is interested in why I choose dividend growth stocks over dividend ETFs it’s because of the reliability and consistency of the dividend stream. In comparison to dividend growth stocks ETF income is quite lumpy, inconsistent and difficult to predict. This is quite graphic when I compare the annual dividend growth rates (DGRs) of CDZ, XDV, XEI to stocks on the Canadian Dividend All Star List. My calculations are shown below:
CDZ: 2008 +21.2% 2009 +6.2% 2010 +6.0% 2011 +58.5% 2012 -3.3% 2013 -40.7% 2014 +144.8% 2015 -11.0%
XDV: 2008 +21.3% 2009 +5.2% 2010 -7.2% 2011 +1.0% 2012 +109.9% 2013 -30.6% 2014 +4.1% 2015 -11.6%
XEI: 2012 +63.2% 2013 +51.3% 2014 +23.0% 2015 -41.2%
CDAS: 2008 +13.2% 2009 +5.1% 2010 +7.9% 2011 +14.9% 2012 +13.5% 2013 +11.6% 2014 +12.7% 2015 +10.3%
Granted the CDAS stocks had the lowest average annual overall DGR compared to CDZ, XDV and XEI but they had, by far, the most consistent DGRs all of which were positive. I don’t know about you but I think most would prefer the more reliable consistency of dividend growth stocks over ETFs for income & income growth, especially in retirement when investment income streams become more crucial in their budgeting.
Overall it’s been a good two month for increases. BNS announced an 2.86% increase and hopefully we’ll get a few more.
Your future income is still good.
It’a coming along – thanks cannew!
A good view that you give on “living off dividends”. It is no risk free strategy either and requires a lot of diversification.
Your forward looking dividend looks great. Good luck with your next 10 years of saving and investing.
I believe the “living off dividends” approach does required diversification for the reasons I mentioned, some dividend cuts can and do occur. Thanks for wishes, I hope in the next 10 years, we can make it Amber Tree!