January 2021 Dividend Income Update

January 2021 Dividend Income Update

Welcome to my first dividend income update for 2021!

For those of you new to these posts on my site, for many years now, every month I discuss our approach to investing using Canadian dividend paying stocks.

However, this year, for 2021 – things will be a bit different.

More on that later in the post.

To recap though, here is our overall hybrid investing approach across some key accounts:

  • Approach #1 – we own a number of stocks for income and growth across our portfolio. In fact, for these monthly updates that only focus on our taxable account and Tax Free Savings Accounts (TFSAs), we own 22 different Canadian stocks. We also have a new addition! More on that later like I mentioned…
  • Approach #2we’re owning more units of low-cost U.S. Exchange Traded Funds (ETFs) inside our RRSPs over time. We believe in doing so because investing this way provides extra portfolio diversification beyond Canada’s borders. We’ve been on a journey for a few years now to own more U.S. ETF units inside our RRSPs in particular for such diversification, and we hope to buy more ETF units as 2021 rolls on.

In fact, here are the 3 ETFs we specifically want to focus across our portfolio here.

Hybrid investing explained

I’ve coined the term hybrid-investing to describe my investing approach over ten years ago now because I believe it accurately describes what I’m trying to achieve long term:

A balanced blend of individual stocks and low-cost equity ETFs – for passive, growing income and diversified long-term growth.

We’ve devised this investing approach because it means nothing should really change as we transition to semi-retirement in the coming years, to start considering drawing on our portfolio we’ve worked so hard to build, while working on our own terms.

Forget “FIRE” people, financial independence and working at what you enjoy is what really matters!

I prefer Financial Independence Work On Own Terms (FIWOOT) versus FIRE

While we’ll have workplace pensions and some government benefits to look forward to it in the coming decades, we believe the ability to live off dividends (along with said work on our own terms) will absolutely provide us with the financial flexibility we need in semi-retirement, and desire.

My bucket approach for income and growth

For many, choosing a retirement income strategy is a difficult challenge.

There is really no consensus on how to draw down any portfolio.

For us, at least at this point in our investing careers, I think we’ve already figured part of that out in our current asset accumulation years.

We’ll employ a modified cash wedge / income bucket approach that looks something like this:

  1. Bucket 1 – keep about one years’ worth of living expenses in cash savings in case the market goes haywire as a modest emergency fund.
  2. Bucket 2 – keep about 50% of our portfolio invested in dividend-paying stocks from Canada and the U.S.
  • We’ll use that income generated from the stocks to pay for many living expenses.
  1. Bucket 3 – keep about 50% of our portfolio invested in a couple of low-cost, diversified, equity ETFs.
  • We’ll also use that income generated from the ETF assets to pay for many living expenses.

I have an updated cash wedge / income bucket table to share in future blogposts.

For now, you can read more about any cash wedge investing approach here.

Cash Wedge and Opening the Investment Taps

How is this hybrid investing approach helping our dividend income?

Immensely.

By formulating this income generation strategy over the years, I’ve found it has created some essential focus and investing discipline over time as well. Simply put, having this investing approach in place has put our semi-retirement dreams that much closer.

You may recall we ended December 2020 with earning $20,892 in dividend income in some key investing accounts – taxable and TFSAs specifically.

Well, thanks new 2021 TFSA contributions and assets purchased inside the TFSA last month, our forward dividend income for the year should be closer to $22,500 by the end of 2021. You can see our green target estimate in the chart below.

MOA - December 31, 2020 Final Dividend Income

As of this month, that forward income is already at $21,115.

To put that income more into perspective:

  • Almost half of that annual income is tax-free. Love it! Yes, you read that correctly. We will not pay tax on that income when we decide to withdraw monies from our TFSAs. 
  • 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.
  • $21,115 in forward dividend income per year has more than doubled in the last seven years. See the chart. The major investments we’ve made is maxing out TFSAs every year – that’s it. Compounding is now doing the rest of the work!
  • $21,115 in annual income translates to earning roughly $2.41 per hour of every hour of every day (income/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. Proof in practice!

Changes to the TFSA going forward

In 2021, we’ve gone even more boring with our investing if that was possible!

While I remain a huge fan of Canadian dividend paying stocks inside my taxable account and within our TFSAs, I took a departure for 2021 TFSA investing.

I actually bought some ETF units. 400 units in fact – all iShares XAW.

I bought XAW because I eat my own cooking.

I told readers I wanted to invest beyond Canadian borders, and so I did.

With so much of my/our TFSAs filled with Canadian stocks, I felt it finally made sense to diversify away from our borders and invest ex-Canada in one of the lowest-cost funds around.

XAW is a simple way to own U.S., international and emerging market stocks in a *tax-free way (inside the TFSA).

Also, because U.S. stocks nor U.S.-listed ETFs receive no special tax-free status inside the TFSA (there are *withholding taxes to pay as you can read about on this page here), I felt it made sense to become lazier for growth-oriented purposes inside this tax-free account with a Canadian-listed ETF that invests abroad. 

(Note: *the real MER cost + withholding tax cost for Canadian-listed ETF XAW, that holds a mix of U.S. ETFs that invest in U.S. and international stocks is just under 0.60%).

While I have no intention of making any major stock moves within the TFSA, I do have the intention of adding more of this fund when 2022 TFSA contribution room comes around. Beyond the withholding tax, this ETF is just a simple way to invest in the world of stocks beyond Canadian borders.

So, for 2021 investing, things are a bit different but it’s really more of the same. We are sticking with our hybrid approach to investing to realize some of our dividend and distribution income goals.

We’re now about 70% “there” to realizing our multi-year investing dreams – with details about our actual holdings (and much more) on this dedicated Dividends page here.

Stay tuned for more monthly updates in 2021. I keep you updated each and every month!

As always, let me know your thoughts in a comment on the site. I read and try to reply to every one of them!

How are you investing inside your TFSA in 2021? How are you investing in general?

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 magical wonders for free over time!

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and I'm now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Subscribe and join the newsletter! Follow me on Twitter @myownadvisor.

39 Responses to "January 2021 Dividend Income Update"

  1. Hi Mark,

    I really enjoyed your article on creating your own dividend ETF, as well as this one. I’m always motivated to keep going when I see the amount of dividend income people can receive for life if they dedicate their time and money. I currently hold a mix of Canadian dividend stocks, as well as ETFs that mirror the S&P 500 and the NASDAQ 100. Are there any “must buy” dividend stocks that you consider right now? I like my mix right now, but I would like to add a couple more for further diversification (after doing my own research of course!)

    Thanks,
    Jordan

    Reply
    1. Gosh, I wish I knew the “must haves” for the coming decade.

      I know for me Jordan, I’m personally bullish on renewable stocks and have been for about a decade – so I’ve owned AQN, BEPC, CPX for many years now. I hope to add more over time. In fact, I like AQN so much it’s one stock in particular I want to buy more in 2021:
      https://www.myownadvisor.ca/5-stocks-i-want-to-buy-in-2021/

      Make sure your investments match your risk and objectives – that’s all I can say 🙂

      Thanks for being a fan and glad you enjoy the site.

      Reply
    1. Yes, I believe TFSAs will be my final withdrawals. It is not quite clear to me that taxable should be drawn down prior to RRSPs but I think that makes some sense since I can remove any taxable income first, then go with RRSPs, kill those, move as much RRSP assets into TFSAs, and keep TFSAs + CPP + OAS + my pension for latter years.

      I need to run a few projections to see 🙂

      Reply
      1. The question of RRSP or taxable first really depends on individual situations, I guess. If RRSP is not big size, tax-deferred growth as long as possible makes lots of sense.

        In our case, we have to melt down RRSP as we have a decent size of RRSP. The current plan is withdrawals from RRSP plus eligible dividends from the taxable accounts before 70. Most likely we will defer both CPP and OAS to 70 so that we can withdraw more from RRSP. Our target is the two RRSPs will have no more than 1M at 70.

        Yeah, to prepare for retirements, lots of projections required, a few might not be enough. LOL.

        Anyway, I figure if things going as planned, we should be financially independent at the end of this year, one year prior to my original plan. If we will retire at that time, still pending to decide.

        Reply
        1. Ya, it’s quite the puzzle.

          Since we intend to work part-time in our 50s, hopefully earn a bit of money, I suspect we’ll kill off our taxable account first or at least slowly – live off dividends for the first 5 or so years.
          We’ll start drawing down our RRSPs definitely by 60s.
          My wife will have a small pension.
          I will have a small pension.
          Then we have 20-years+ into CPP x2 already + OAS x2 at age 65.

          We’ll continue to maximize contributions to our TFSAs every year from the coming decades and by age 60 or 65 – there is no need to save more for retirement – we’ll be done contributions to fund retirement for sure. It will be just moving funds around by then for tax optimization.

          Financially independent by the end of this year sounds great!

          Reply
    1. Well thanks! As a CPA, thoughts on holding this in a taxable account vs. TFSA Danish?

      Withholding taxes take a bit of a bite inside TFSA with any Canadian-listed ETF that holds U.S. stocks or ETFs but at least the growth is tax-free! 🙂

      Reply
      1. Honestly in my book, you’re in the clear! I typically don’t let every minutia of tax optimization drive my investing strategy. If you are happy with the overall returns, makes your life easy, fits your investor profile. I don’t think a few basis points in taxes will make or break anyone 🙂

        Reply
        1. I think so. I mean, unless you’ve got $100K inside XAW, then it might be more tax-efficient to debundle and move assets around inside TFSA, RRSP, etc. for optimization. Once I get closer to $50K invested with XAW, I will consider other options.

          I simply don’t think all decisions should be taxation related I guess is my punchline.

          Reply
  2. A little more research
    “The amount of your CPP retirement pension depends on different factors, such as:
    the age you decide to start your pension
    how much and for how long you contributed to the CPP
    your average earnings throughout your working life”

    “You can get an estimate of your monthly CPP retirement pension payments by logging into your My Service Canada Account.”
    RICARDO

    Reply
  3. @Chris
    One thing the FIRE or even the FIWOOT crowd should keep in mind is that your CPP or QPP benefits are based on your earnings. There is a maximum earning level which you need to attain over a certain number of years in order to obtain the maximum CPP/QPP and I believe OAS payout. You can check out your CPP/QPP payments with the respective agency. I caught them having omitted a complete year from my payments which was rectified when I sent them a copy of my tax filing for the year. It could have affected my payout upon retirement.
    So while FIRE and FIWOOT are laudable goals if that is what you want, you still have to check out all the details especially if you have minimal or no taxable salary for several years prior to filing for CPP/QPP/OAS
    The devil is in the details.

    RICARDO

    Reply
    1. @ricardo … on top of all of this, I maxed out CPP for over 20 years, been on the FIRE path for over 8 years and have done the reading & research. I’ve visited the My Service page several times. The extra little beauty of FIWOOT is that you make a small income to keep earning years going towards your CPP. Good catch on finding that year they missed on you, if it was a high earning year that was a big find.

      @Mark, is this all in a blog post as it is awesome stuff. I was looking at that dividend graph and seeing how high it is climbing and having a rough idea how much investments generate that kind of return is what spurred my question. Would hate to see you work so crazy hard and then have not spend what you think and then have a hill of capital that can’t be tackled. (great problem to have though) Thanks for the link, I’ll check it out.

      Reply
      1. Ha. Well, it’s not crazy high yet Chris. I suspect when the TFSA + RRSP (which I don’t report, need to keep some stuff private) + taxable gets to exceeding my expenses I will definitely stop working full-time.

        That could be within the next 3-5 or even 10 years markets willing. Who knows.

        I know for sure we want to work full-time to kill all debt while investing (maxing out TFSAs x2 + RRSPx x2).
        Once all debt is gone in 3.5 years and those accounts are also continually maxed out for the coming years as well, we’ll sit back and figure out “what’s next”.

        Glad you checked out the page. I put a lot of details there 🙂

        Reply
    2. Ricardo, OAS payments have nothing to do with earnings. OAS payments are computed on how many years you have lived in Canada after age 18. Forty years gives you the maximum benefit, even if you have never worked for pay in your life.

      For a year to count for CPP earnings, you have to earn a certain income. A minimal amount is not enough, unless it is a high enough minimum — right now that is set at $3500.

      Good for you in checking your record and finding an error. Haven’t found any in our Canadian records, but my husband has UK pension contributions and his last statement omitted two years in their calculation. He wrote them last May to fix it and still hasn’t heard back! And impossible to phone from Canada.

      Reply
      1. Thanks for the clarification on the OAS Barbara.
        I wasn’t quite sure on that one.
        Yes, as they approach retirement, everyone should verify for any errors on their employment records/contributions. It can make a difference on the payout. Better to verify beforehand rather than scramble once your payment are started. Then that would be a bureaucratic mess to 1) rectify the error and 2) re-adjust payments already made.
        No doubt that CRA is overloaded with many problems at this point. Phoenix, CERB, and other gov programs that need adjusting on the fly.

        Take care

        RICARDO

        Reply
            1. Thanks for your email and comments – just re-confirming here for others that yes, I agree, Service Canada and CRA are different agencies.

              Again, CRA is still overwhelmed irrespective of Service Canada. In fact, some CRA users are not seeing all their information right now and having login issues. About 100,000 accounts I recall. CRA has locked them. Not great.

              Take good care CK and I appreciate the updates.
              Mark

              Reply
  4. One thing I have never asked Bob about and now realized it reading your post, so I can ask you, what the heck are you going to do with that massive amount of capital? It appears for both of you as bloggers your intent is that your dividends will cover your cost of living? There is no way you will be able to burn off all that capital in your lifetimes if you have a strategy of only drawing dividends. Do you have a strategy for later in life for when you will have even more cash flowing in (cpp/oas), all those dividends, paid off mortgage and a huge stash of cash?

    The reason I asked is that with my FIWOOT I pulled the plug early knowing that sticking to the plan it looks like at 65 I will have way more money to live on easily than I have now. CPP/OAS & no mortgage in 15 years is going to be awesome. I don’t calculate it in my budget right now but is a reality of a future hedged buffer that will make life easy and why I’m doing my best to take advantage of my healthy years right now.

    Great round-up and loads of awesome info here, Cheers !

    Reply
    1. Well, I wouldn’t say it’s a massive amount of capital. If we get to $2 M invested + pensions, then I might have a different answer!!

      The cost of living in Ottawa, where we like it, is expensive. Property taxes here are high in the city/Ottawa in general. Those are $500 per month alone.

      Condo fees are a few hundred per month. We like to dine out and enjoy life that way – so that comes at a cost.

      Property taxes + condo fees + dinners out come to at least $1,200 per month. We haven’t eaten much else yet, no travel, no utilities, etc.

      Our base costs are likely $2,700 – $3,000 per month in semi-retirement. Travel, entertainment is beyond that.

      I think I’ll have no problem spending the capital in my 50s and 60s Chris. We have plans. Whether we can start travelling in few years internationally due to COVID is a different thing all together. The world has really changed.

      We absolutely have a strategy to draw down our portfolio. I highlight that a bit on our Dividends page when you scroll down.
      https://www.myownadvisor.ca/dividends/

      I will absolutely “eat” my capital in the coming decades as to have no debt, but to use TFSA capital and largely live off deferred OAS, CPP and my workplace pension “until the end” in our 70s+. Healthcare in retirement is a wild card. We need to plan for that.

      We should have no mortgage in 3.5 years.

      Great discussion 🙂

      Reply
    2. Chris, that is a really good question about the massive capital dividend investors accumulate. We were also planning a childless retirement like Mark, and wanted to have enough dividends to pay all expenses. Then the CPP and OAS would be bonuses at the end. If you have no one to leave your wealth to, what do you do? My plan was to use dividends, and 2% to 3% of capital to start drawing it down. That would let us retire earlier than just dividends. Well, as life happens we had a kid in our mid 40’s. I worked 10 years longer then expected, and we have more dividends then we planned for. I give shares to charities each year that are deductible from income, and you also don’t have to declare the capital gains on those shares. It’s a great way to do good and save on tax. And the capital at the end goes to the kid and charity. If you can’t use all up you just need to have a plan for that as well.

      Reply
      1. Thanks for sharing. I was hoping you’d write since I recall your withdrawal rate is rather low but very stable as to live off dividends per se a bit.

        Life does happen. Having an income stream is very important to my wife and I via part-time jobs and/or from the portfolio. It will give us financial options in our 50s and 60s. Everything might be a wildcard after that – you never know!

        Mark

        Reply
    1. I know investors that own that fund (as well as others) in both registered accounts TL – RRSP, TFSA. They do so for low-cost diversification outside of Canada.

      Is that the most tax-efficient way to invest? Probably not. Best to own CDN-listed ETFs that only invest in Canada inside the TFSA (low-cost, no withholding taxes) and best to own U.S.-listed assets inside the RRSP, LIRA only (since low-cost, also no withholding taxes) but I personally wouldn’t let this be any deciding factor about how to invest.

      The MER + withholding taxes for XAW in particular, inside the RRSP or TFSA is identical.

      Same goes for VEQT, VGRO, and XEQT, XGRO.

      As always, pros and cons to all types of investing!

      You can read more on my Dividends and ETFs pages on the site.

      Cheers,
      Mark

      Reply
  5. Did a bit more research Mark.
    “While the TFSA continues to provide tax-free growth for assets inside that account, you need to factor in the additional withholding taxes wrinkle depending upon the product you own. A second layer of U.S. withholding tax w ill apply when the Canadian ETF holds a U.S.-listed ETF of international stocks.”

    RICARDO

    Reply
    1. Yes, correct and thanks for that, I did update the post to clarify further. It should be noted that withholding tax is money you never see – it is withheld – so assets inside the TFSA that deliver income and growth remains tax free.

      Reply
  6. Check with your tax guru on this one Mark
    “to diversify away from our borders and invest ex-Canada in one of the lowest-cost funds around.
    XAW is a simple way to own U.S., international and emerging market stocks in a tax-free way (inside the TFSA).”
    Not positive about this but you just may get dinged for foreign companies even if they are within an ETF in you TFSA.
    Just like holding a US MLP in your RRSP. You’ll still get a US tax bite.

    RICARDO

    Reply
    1. Yes, fair, they are withholding taxes so taxes are withheld per se but the income and growth inside the TFSA is of course tax-free.

      But, to ensure I don’t confuse others I did put an asterisk to that withholding taxes comment on my site since for sure, a Canadian listed ETF that holds U.S. and international ETFs will experience withholding taxes both inside the RRSP and TFSA – there is no major cost advantage to owning U.S. ETFs or stocks inside the TFSA – might as well go CDN-listed.

      The RRSP is a different beast. Best to own U.S.-listed ETFs inside the RRSP although you certainly don’t have to! 🙂

      Good to call out and thanks for flagged that since I don’t want to confuse!

      Reply
  7. Thanks for the great review. Your strategy makes a lot of sense to me.

    Friends of mine in their early 60’s are wondering how much they need to retire. I realize that it depends on their cost of living and lifestyle.

    Are their any tools you can recommend that they can run some different scenarios? Thanks!

    Reply
  8. Excellent strategy Mark to add more into a lazy style but effective investing 🙂
    for me I’m going the other way but not by much I own 100% in broad etfs as i follow the CCP style of investing but two month ago i added my first single stock which is HIVE a bloackchain company here in Vancouver and it’s up more then 40% already but I’m not planning on adding more it’s just a way of diping my toes in crypto i guess but i still don’t like it because of the wild swings but i like the technology behind Blockchain, I also opened a Wealthsimple TFSA trading account and so far I’m loving it , the only con so far is the time that takes for me to transfer funds from my bank account into Wealthsimple because I’m used to TDDI with the instant transfer but my plan is to buy 4 Canadian dividend stocks one Utility I’m debating between AQN and FTS and one Teleco either Telus or Shaw and one Financial either one of the big Banks or Manulife and one energy which I believe is going to be Enbridge and maybe later add CNR to them.
    as you know Wealthsimple has 0$ commission on Canadian stocks so i can DCA every month few shares here and there and slowly build it up but I will keep the majority of my investment in Etfs specially in my RRSP.
    so yeah adding a little flavor to my portfolio i guess and i would like to hear your critics on my picks or any of the experience dividend stock investors here and i know there’s few of them 🙂
    Thanks

    Reply
    1. Yes, Wealthsimple Trade has $0 commission investing which is outstanding of course.

      I think adding a bit of flavour to our RRSP via some stocks that you might feel, will thrive, is great. The future is always a bit cloudy but I’m happy to own a few U.S. stocks inside that account for income and growth.

      Big fan of AQN, Telus and CNR on the CDN side. I fact, I bought a few in the summer and fall!
      https://www.myownadvisor.ca/5-stocks-i-bought-more-of-in-2020/

      Reply
  9. Sounds like some very good moves to readjust your investing with a little more diversification and simplicity but still sticking with the overall hybrid strategy.

    Reply
    1. Yes, that’s the plan and very much aligned to diversification away from some (not all!) Canadian individual stock risk as we approach some great personal portfolio milestones.

      Reply

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