January 2018 Dividend Income Update
Welcome to my first dividend income update for 2018!
For those of you new to these posts on my site, for the last few years, every month I discuss our approach to investing using Canadian dividend paying stocks. **Warning** that approach, while effective, is rather boring. I hope you read on anyhow 🙂
Many years ago, we decided to take a hybrid approach to investing:
- One approach – we own a number of Canadian dividend paying stocks for income and growth. About 30 stocks actually. We believe buying and holding this bundle 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.
- Two – the second pillar of our investing approach – we own a few low-cost Exchange Traded Funds (ETFs). We do so for extra diversification to own stocks far beyond Canada’s borders using U.S. listed-ETFs inside our Registered Retirement Savings Plans (RRSPs). In putting these ETFs inside this account, and re-investing the distributions paid from these ETFs every quarter, we are focusing on long-term growth.
Along with a handful of U.S. dividend paying stocks held tightly inside our RRSPs with those ETFs (stocks such as AT&T, Verizon, Procter & Gamble, Johnson & Johnson to name a few), that’s about all we own.
These updates focus exclusively on our Canadian dividend paying stock journey using our TFSAs and non-registered account. I suppose I could include income updates from other accounts but I’m lazy when it comes to currency conversion and other factors for such updates. For now, you’ll just have to deal with these updates the way they are and ask me questions about anything else!!
Why dividend investing?
I could write many posts about this, and I have – I believe it works for me, but the answers to this question are many:
- The income received from these companies we own is real; I do not have to hope for just stock price gains to fund our retirement. I see the cash coming into the account. It grows over time to buy more shares. I also see the money used to buy more shares commission-free thanks to dividend reinvestment plans that many companies establish and maintain.
- I can count on many of these companies to increase their dividends over time, helping to protect us from inflation. Just as an example, here are the companies that recently increased their dividends within the last month!
These increases occurred at the time when the stock market was supposedly “crashing” by losing over 1,000 points in a single day. People were thinking the financial sky was falling, again. Honestly, who cares. This is what stock markets do. They go up, they go WAY down and they tend to go up again over time. Get used to it.
Are there other reasons to invest the way we do? Why yes there are….!
- With our dividend income investing approach, seeing the income flow in each month and quarter (and the capital appreciation from these companies over time), that helps me stick to an investing plan I believe in. This psychological factor is huge. Investing guru Preet Banerjee told me personal financial success is 90% psychology and about 8% math. The missing 2% is a quirky reminder of the insignificance of the math. Sticking with a plan is important and the same goes for you. Financial plans come before financial products after all.
There are also other benefits of holding dividend paying stocks directly:
- I can control the portfolio turnover, or lack thereof, with a buy-and-hold approach for many our companies. I don’t have to pay a money management fee for someone else to do that.
- Dividend-growing companies tend to be solid performers so you get dividends AND like I mentioned above, capital gains over time.
- Dividends might make you re-consider selling a stock at the wrong time, at the first word of bad news for an example. Don’t sell. Buy more!!! You should celebrate falling prices as a long-term dividend stock investor.
- Dividends instill management discipline, you can read Warren Buffett’s older 2012 shareholder report here for evidence of that. (Buffett and his shareholder reports will be forever more famous than I will.)
Those are just some of the reasons I/we own dividend paying stocks – and we’ll continue to do so.
Thanks to dividend increases over the last month and healthy contributions to our TFSAs at the start of this calendar year, our dividend income as part of these updates is approaching $15,700 per year.
To put that income into perspective, without touching the capital OR using any money saved from our other retirement accounts, that income should pay for the following for life:
- Enbridge gas bill – we are now earning enough dividend income from Enbridge stock each year to pay for the Enbridge gas we use in our house.
- Hydro bill. Between various stocks, our hydro bill is covered today and going-forward by dividend income.
- Property taxes. Even if property taxes increased by more than inflation, our dividend income should offsite those taxes, for life.
We’re now more than halfway to our income goal thanks to over a decade of dedicated monthly savings; no trading and remaining patient with our financial plan. Buy, hold and hold some more.
With all this praise of dividend investing mentioned above, I need to tell you dividend paying stocks provide no guarantees; companies cut dividends, change their dividend reinvestment plans and in some other rare cases, cancel their dividends altogether. These things have happened to me and they can happen to you. Stock selection is not without risk. In fact, no investment is without risk. That said, I feel as long as we own established companies that have rewarded shareholders long-term, we diversify our stock selections across many Canadian companies, I believe it’s a sensible income-oriented strategy that ties in very, very well with our low-cost ETF investing approach.
What will the rest of 2018 bring?
Let’s hope for more dividend increases in the months to come from our Canadian banks in particular. More dividend income from those companies (and others) would mean more shares could be reinvested for free and more money that can be reinvested for free will deliver more income over time. This is the beauty of compounding in action. We should all take advantage of that to build wealth in any way we can.
Thanks for being a fan of these updates. Comment and share away. Good luck to you with your investing plans throughout 2018 and stay tuned for mine.