Over the last few months, seems like every time I provide my dividend income update, I’m also talking about markets acting like a yo-yo. 200 points up. 400 points down. 100 points up.
To be honest, the ebbs and flows of the market don’t faze me much. Watching the market everyday is like focusing on waves in the ocean. There are always storms that create massive waves amongst still water days. I’m more concerned with the big body of water as a whole – and I don’t see anything different. I’ve learned the tide comes and goes with regular frequency so while it might be fun to talk about the big waves or the tide, the best thing investors can do is what surfers do, ride it out and have some fun while you’re at it.
My synthetic dividend reinvestment plans (DRIPs) are on autopilot – almost every company I own in my brokerage account pays enough dividends to be reinvested to buy at least one stock share each quarter. Examples this month were:
- Bell Canada (BCE)
- TransAlta (TA)
- TransCanada (TRP)
On a dividend note, I got a kick out of John Heinzl’s Globe and Mail article recently. It really resonated with me. In this article John discussed the satisfaction he got when he received his dividends:
“Why, just the other day I received a $52 dividend from Bank of Nova Scotia. The next day, Canadian Imperial Bank of Commerce handed me $87. The day after that, the nice folks at TransCanada Corp. credited my account for $151.20, and I got another $114.88 from one of my ETFs that invests in real estate investment trusts.”
He when on to describe exactly how I feel about this strategy: “I’m not rich – yet. But I’m seeing my dividends coming in, and I can assure you it’s pleasurable. And remember, this is at a time when stock markets are plunging.”
This month, my dividend income was about $420 in my unregistered and TFSA accounts, thanks to companies that pay to own them; companies I can reinvest all dividends paid and companies that I can’t, not yet. Next month and definitely next quarter, it should be higher. This is because I’ve managed to accumulate some CIBC stock with their transfer agent and I’m moving that to my brokerage account, to get all CIBC shares compounding every quarter and running on autopilot.
This is part of my long-term strategy to build up stock equity and also have some income to deploy elsewhere. Once I have enough shares in a dividend-payer to buy at least one whole share each quarter, I stop my full DRIPs running with the transfer agents and start running my synthetic DRIPs in my unregistered account. While I lose the ability to compound fractional stock shares (just one advantage of full DRIPs) I gain the cash in my brokerage account after the whole share(s) are purchased; the difference between the share reinvested and the total dividends paid. This way, I feel I get the best of both worlds, more full shares via my compounding machines and new income I can either:
- *use to paydown our line of credit or make lump sum mortgage prepayments (*this happens most often),
- use to buy new dividend payers,
- use to make optional cash purchases (OCPs) for other stocks I still have with transfer agents, or
- ^spend (^this doesn’t happen very often).
So far, the strategy seems to be working. Our strategy, using dividend-paying stocks for a portion of our retirement plan and how dividends in these companies are being reinvested each quarter, are helping us stay calm when some folks around us are gripped by market fear or doom and gloom.
Experts, including DIY success story Andrew Hallam agree, keeping your emotions in check is probably the most important prerequisite for becoming a successful investor. John Heinzl said as much in his Globe and Mail article I referenced above and Andrew Hallam said as much in an excerpt from his upcoming book The Millionaire Teacher that I read in the Summer 2011 edition of MoneySense Magazine.
I’m no expert myself, far from it. I’m no money management professional running some major institutional pension fund. I’m a novice investor, My Own Advisor, trying to build some retirement income and financial security like every other Canadian.
As always, I look forward to your comments!
Good stuff! The dividends keep rolling in, which get reinvested into equities with lower prices…so you get more shares for your dividends. Those increased shares lead to increased dividends and we start the cycle all over again. It’s like a ride I don’t ever wanna get off of. Who needs Six Flags?
@My University Money:
There’s no question about it. A lot of plays are looking frothy…however, the way things are going, we could see even better deals soon.
Man, looks like there will be some real dividend deals out there for value investors today. Everywhere you look there will be P/E ratios of 8-10 with juicy dividends. Any positions you guys are looking to get larger in?
I agree with the Passive Income Earner in that despite the markets getting hammered in recent days, a lot of the solid large-cap blue chips have been reporting increases in earnings.
Market turmoil rarely affects me as I’m in it like you – to ride things out for the long-run. The bulk of my equity positions are of the ‘buy & hold’ type. I did have to monitor a recent ‘exotic’ play I invested in (my Horizons BetaPro Global Gold Bear-HGD) and have since sold it at a modest gain.
I like your thought process centering around synthetic DRIPs and using the excess cash flow for paying debt, reinvesting elsewhere, or other personal matters. Despite losing out on fractional share purchases, you still get a DRIP in place but just in a slightly different way.
I figure every little bit counts whereby some monies can’t buy whole dividend shares, and instead, that cash can be used elsewhere. Cheers!