January 2022 Dividend Income Update
Quite the January for stock market volatility!
Or was it?
Welcome to my January 2022 dividend income update.
I hope the first few weeks of 2022 are treating you well…all things considered during the ongoing pandemic.
Why Dividend Income
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 and other assets for long-term wealth building – working towards semi-retirement.
I share my journey because I believe it’s one that can be replicated by you, if you wish.
Some time ago…yours truly wrote a controversial post about the intent to live off dividends and distributions from our portfolio.
Some time has passed on that post by my thinking and goals remain the same. In fact, I’m getting closer to my semi-retirement because I haven’t wavered from my hybrid investing process. More on that in a bit…
First, let’s back up to the controversy and offer a list why some investors couldn’t care less about my approach.
- The trouble with any “live off the dividends” approach is that you’d need to save too much to generate your desired income.
- Dividends are not magical – there is nothing special about them.
- A dollar of dividends is = a one-dollar increase in the stock price.
- Stock picking (with dividend stocks) is fraught with under performance of the index long-term.
- You can never possibly know long-term how dividends may or may not be paid by any company.
- And more and more and more…
In many respects these investors are not wrong.
You do need a bunch of capital to generate meaningful income.
Dividends are part of total returns.
Stock selection can seem overwhelming and could trigger index underperformance for some investors.
Hybrid investing explained
I’ve coined the term hybrid-investing to describe my investing approach, nearly 15 years ago, 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.
Here is our 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).
- Approach #2 – we’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.
In fact, here are the 3 ETFs we’ve been focusing on for a few years now.
My bucket approach is designed for ever growing income and appreciation
For many, choosing a retirement income strategy is a difficult challenge.
There is really no consensus on how to draw down any portfolio.
Yet I think I’ve figured out what can and will work for us, and what could work for you too.
We’ll employ a modified cash wedge / income bucket approach that looks something like this:
- Bucket 1 – keep about one years’ worth of living expenses in cash savings in case the market goes haywire as a modest emergency fund. We could effectively use some or all of this cash savings to provide for basic needs and wants, for a year, without spending dividends or distributions, without selling any assets, without doing anything with our portfolio really.
- 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 we own to pay for many day-to-day living expenses as we wish. We’ll eventually sell assets over time but we won’t be forced to do so.
- Bucket 3 – keep about 50% of our portfolio invested in a couple of low-cost, diversified, equity ETFs to take advantage of multi-decade stock market growth over the coming years. Historically, low-cost indexed ETFs will do that!
Our bucket approach in more detail looks something like this:
Essentially, live off dividends and distributions from taxable account, RRSPs, with some part-time work in semi-retirement. We’ll tap other income sources like CPP, OAS, our pensions, etc. when we get older.
Again, your mileage may vary.
January 2022 Dividend Income Update
Since our December 2021 dividend income update, we’ve essentially done nothing but max out our TFSA contribution room for 2022 as part of our 2022 financial goals.
Those goals include:
- Max out contributions to our Tax Free Savings Accounts (TFSAs) – now done!
- Max out contributions to our Registered Retirement Savings Plans (RRSPs) – work in progress!
- Continue to pay off our mortgage – work in progress!
- Initiate a larger emergency fund to start semi-retirement with – not started for 2022, yet.
Even with a rocky January, meh, I invested.
My long-term target is to earn about $30,000 per year via our non-registered account and from our TFSAs to consider starting semi-retirement with.
And…we are getting there!
Thanks to a few new dividend increases already in 2022, coupled with new TFSA contribution room whereby I purchased more low-cost ETF XAW, I am happy to report we are forecasting to earn close to $27,000 later this year in dividend income.
In fact, even assuming we get no further dividend decreases in our portfolio, we should easily earn $25,481 by the end of 2022 from capital invested inside our TFSAs and a non-registered accounts.
(RRSP assets are always ignored in these monthly dividend income updates, for privacy and other reasons. You can find more answers from readers on my FAQs page here.)
To put that juicy dividend income stream into perspective and context:
- Part of our portfolio is essentially a job – earning almost minimum wage.
- We earn about $1,000 per month in tax-free income from our portfolio.
- We earn $2.91 per hour of every hour of every day (income/8,760 hours (24 hours x ~365 days)) even in our sleep.
- We earn almost $70 per day from part of our portfolio; about 50% of that income is tax-free.
I can’t wait to see where we end up with more saving, more investing and more reinvesting our dividends and distributions later this year.
Thanks for reading and stay well.
You should consider ignorning the 4% rule for any early retirement planning.
A Cash Wedge is great to maintain to navigate any market conditions.
You can see how close we are getting to our Financial Independence Plan here.
Check out what stocks you can consider owning to Beat the TSX from my updated BTSX page.
Here are some of our income needs and wants in semi-retirement.
Thanks for the details and helping guide those of us just heading down and already on this path. I am 50, and foolishly like most, I have learned, have always left my investments to my bank or employer. Fortunately, and in spite of ourselves, we seem to be in a good position for retirement and luckily moved our high MER investments to roboadvisors and under our own control before the fees bled us further.
Since the birth of Covid I had some time working from home and we got to focus on our plans for retirement and the future. It was only then I realized my smiling banker was a thief. Having since read many books (including Beat the Bank, 6 Pack Portfolio, Retirement Income for Life to name only a few), we have taken over our retirement 100%, and in our hands and after a year of DIY investing following the groundwork of “6 Pack Portfolio” we are now each bringing in on average $270 a month, and slowly cost averaging into our TFSAs. Your website, like the books I have mentioned has help guide us with more faith than a grinning banker (Cheshire Cat) ever did.
Thank you for the help, great advice and true trustworthy guidance. You have a couple of loyal followers here.
Corey, that is awesome thanks very much. Glad to hear those books worked out well for you…as has this site. Those books are good ones 🙂
I think you’ll be the one smiling more than your banker over time!
A bucket approach to investing is a good idea. Each investor has to find the approach best suited to their temperament. I’d like to comment on the objections people raise against dividend approach.
The trouble with any “live off the dividends” approach is that you’d need to save too much to generate your desired income. __This is a valid argument if you want to retire as early as possible.
Dividends are not magical – there is nothing special about them. __Well, yes they are, makes managers be more responsible with cashflow.
A dollar of dividends is = a one-dollar increase in the stock price. __Not necessarily, when companies make commitments to pay regular dividends they tend be more careful how they invest for growth.
Stock picking (with dividend stocks) is fraught with under performance of the index long-term. __Not at all. If you pick large cap solid companies they still have a lot of growth. The index gives you everything, good and bad.
You can never possibly know long-term how dividends may or may not be paid by any company. __ Look at Canadian banks and others, over 150 year history of paying dividends.
Great comments, a few replies!
I do agree, not all managers or companies are created equal, including what they do with their profits (i.e., dividends, buybacks, acquisitions, etc.)
“Stock picking (with dividend stocks) is fraught with under performance of the index long-term.”
I can’t tell you how many times I’ve heard that from a few devout indexers. I would be have retired 10 years if I had a nickel for every time….
Ah well 🙂 I march on like you and many other DIY investors.
I think it really depends on many factors. Like which account you are invested in, your personal income level, how much time you want to spend to manage your account, how long until you retire, etc. etc.
I have chosen DGI as I do want to live off dividends and I believe I could save enough for that. Also, I am close enough to retirement and I don’t want market volatility interfere with my retirement.
But for my kids, I would recommend straight index investment, and put their energy for a better career and enjoy life.
There you go Mark. Your EQB just announced a 51% dividend increase. Congratulations.
Wow. Nice. I didn’t see what much coming but oh well 🙂
You made my day!
Congrats Mark. I saw you raised your target. Originally it’s $30K. I am pretty sure you will exceed the new target by time.
I have contributed money to our TFSAs but didn’t buy anything yet. I feel nasdaq is still on the down path and want to wait a little longer to start a position of XQQ. There are quite some DGI stocks right now in our TFSAs. But I figure we actually might not need to withdraw money from TFSAs for a very long time so the investment horizon there can be very long. Technology is the future of the world. As it’s not a big amount I don’t want to bother with currency exchange.
Yes, I bumped it a bit since it seems to be the trajectory I am/we are on. We’ll see of course!
That’s my thinking as well: TFSAs are the “last to go” when it comes to my drawdown so I’m slowly gravitating a bit to owning more XAW or growth-oriented stuff inside TFSA now that meeting some income needs are near. XQQ or ZQQ could both be great CDN-listed funds for QQQ and I hear about you the currency exchange headaches.
Thanks for your comment.
That’s a great looking chart. And I like the bucket approach. I think you’ll be able to surpass $27,000 by year’s end if you continue this momentum. We are still early in 2022 so there are lots of companies that have yet to announce dividend increases. 🙂
Thanks for the reminder to top up my TFSA. I haven’t started yet this year, lol.
Ha, I have no doubt you’ll get to topping up your TFSA 🙂
Thanks for the kind words – I will keep you posted!