Welcome to my latest dividend income update. 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 some Exchange Traded Funds (ETFs) to help reach financial freedom. There is more to my portfolio beyond these investments but this approach is a big part of it.
Outside of a few ETFs in my RRSP, I now own about 30 Canadian dividend paying stocks with no intention of selling any of them in the short-term, including this one that has cost me a few hundred bucks in losses to date. (I’m tempted to hold this lame duck until I can offset some capital gains next year). Let me know in a comment what you would do…
Over the last six years or so, I’ve picked my spots to buy then hold my Canadian dividend paying stocks. In my portfolio I now own:
• Multiple financial companies,
• Multiple energy and utility companies,
• Multiple material companies,
• Multiple telecommunications companies, and
• Multiple infrastructure companies.
I figure I’ve pretty much made up my own Canadian equity index fund. Going-forward I will continue to reinvest dividends paid from most of our companies owned to buy more shares commission-free each month and quarter. I’m predicting this portfolio should help us retire in about 15 years or less, as long as we continue to make steady monthly contributions to our Registered Retirement Savings Plans (RRSP) over the same timeframe.
Since my last update, our dividend income has increased but we don’t dare touch or spend any of the money earned since this is our retirement income fund. There will come a day when we can spend the money generated by our investments but that day is definitely not now. As long as the companies we own continue to pay dividends at their current rate, and we reinvest the dividends paid by many of these companies, I’m predicting our dividend income will be just over $9,000 this calendar year. This is almost 1/3 of the way towards our long-term goal.
Along with indexed Exchange Traded Funds (ETFs) my plan is to purchase many blue-chip companies when prices fall and hold those companies for decades; to eventually live off the income generated by the investments and avoid touching the capital until old age. We’ll see if prices fall or correct this fall. As an investor, I hope prices dive.
What are your thoughts on this part of our retirement plan? What do you think about my comment about wanting prices to crash? I’d love to hear some feedback.
I went through a similar situation with FAP (Aberdeen Asia Pacific) bought it between 7 and 7.50 and with QE it dropped at one point below 5.50 or about a 30% loss. Since this is a stock I plan to hold long term I took advantage of the drop to create a superficial loss which allowed me to basically wipe out all my dividend income for the year. Obviously in Canada you have to wait 30 days (I believe) so that makes it a bit harder.
Regarding whether to sell or hold is a tough one I asked David Stanley (Beating the TSX) whether he ever sold any stocks and he said no. In 25 years he had only one stock crash and burn (Laidlaw).
Secondly and this is going back quite a bit but I remember my Dad talking about TransCanada’s surprise dividend cut, wishing he had the money to pick up the stock. Of course the stock eventually did come back. So unless the stock is heading into bankruptcy (i.e. Yellow media) I’m inclined to towards holding it but not putting any more money into it (other than perhaps re-invested dividends).
Of course the flip argument is the money could be deployed into higher yielding investments but me thinks that is more suited to a money manager ploy than a buy and hold investor.
Slight edit: I did sell both IMG and Barrick Gold when they bounced on the dividend cut! but since then I’ve realized I’m not a trader and have moved on to buy and hold (mostly)
This is somewhat why I continue to hold Rob…holding out because the company has not/is not yet going under and as long as dividends are being paid, I can take that money and reinvest it elsewhere. There is a small opportunity cost here, but not very much and even then I might sell some next year to offset any capital gain.
Hindsight is always 20-20, especially in TransCanada’s case. I’m inclined to keep holding my one dud for a bit, will it be the right call? Time will tell!
Thanks for the comments Rob!
Does the $9000 include dividends in your RRSP? If it does, is this fair as a dividend inside an RRSP is not equal to a dividend outside of the RRSP.
If I am currently building my portfolio, I definitely want the market to drop. I would buy more shares for the same dollars!
When it comes to TA, I would sell as soon as possible and redeploy the funds. TA has bad assets (old), bad management, over paying the dividend and not growing. SELL AS FAST AS YOU CAN! One of my rules is to sell a stock if the dividend is cut.
Should you have some small growth stocks (5i could help) in your RRSP for diversification? It doesn’t matter how you earn the income in the RRSP as long as you
Hey John, no it does not. The dividends I report on are outside my RRSP, since I’m cognizant that part of my RRSP includes the long-term government loan I must pay back at some point.
“If I am currently building my portfolio, I definitely want the market to drop. I would buy more shares for the same dollars!”
Heck ya 🙂
On the topic of TA, I might wait a bit longer and sell later this year. Alternatively I’m considering using the capital loss to offset some gains next year for a TFSA contribution in 2015. I haven’t really decided yet but I certainly see your point about selling TA in general. *sigh*
Thanks for the comment,
Well done! I look at the RRSP the same way.
Have you ever considered not using the RRSP? You loose all the benefits of capital gains, dividend gross up and at 71you have a very large taxable income forced on you which may put you into a higher tax bracket. It’s an interesting question with lots of calculations.
One last comment on TA….. could you make more money taking the $24.50 by selling TA now and buying something else? If not, stick with it. I think you can
Keep it up.
I had fat finger problem with the TA share price. It should be$12.46 instead of $24.50.
Thanks John, a LONG ways from the passive income goal of about $30k goal but getting there.
I have considered not using the RRSP but I see benefits of using it now, given our incomes, and then tax-deferred growth of course. If we are lucky enough to retire early, I can see winding down the RRSPs until we tap any small pension plan. Any money we don’t spend in the RRSPs goes to fund the TFSAs. I won’t wait until 71 to collapse the RRSP, I’m almost convinced of this. I wrote about these considerations in a previous post here:
You’re probably right about TA, selling and making money on something else! Believe me, I think about that often.
I was thinking the same thing about hoping the prices dive soon. It’s about time! I would just continue to hold the stock. That’s just me.
I probably will for some time Daisy. Thanks for the comment and advice.
Nice job! I see many of the FI bloggers tracking their dividends… I however do not… directly anyways. I used to track many things, but now I find myself tracking 2 key metrics, among having data to compute much more should I ever need to. I guess the reasons I do not calculate dividends, is because I have many types of assets, so I find I keep track more of our net worth. What we try to do is have it grow at a rate of about 10-12%, although for all my future calculations I only assume a worst cast of 7%. This number accounts for taxes, expenses, basically the difference to what we have to what we had. as long as it is growing in the range I tweak very little. If it goes up say +2% or more from my range, then we sell some of what we have to cover any borrowed sums… likewise if it goes down from our range we borrow some money and invest it… Sell high, buy low. Now maybe it is because I have almost 17years worth of this type of data (I track each penny in and out each day), which might sound crazy, but really I shows me our trends and what we might expect in future should a major expense creep in. The second number I track is current year returns for our investable assets vs. historical returns to know whether they are trending higher or lower, which again triggers me when to buy or sell a holding/asset type… I guess in the end we each have our ways… So I cannot say how much in dividends we have made (a quick look tells me $9K+ whatever my wife’s RRSP mutual fund distribution will be – last year was 13K?, but I can say that ytd, our net worth has grown net, 7.41% (it was higher, but we replaced a car, so needed to pull some cash), and that our investable assets have returned 14.5% ytd, which may not mean much to others, but it makes me quite content, as if I look at our expected living expenses for the year, and we’ve already covered that.. My point here is to suggest if you want to know your true financial position, calculating only dividends might delay your retirement further than required. As one of my stock holdings tag line goes, “You’re richer than you think” – Cheers, and sorry for the long comment.
Don’t apologize for long comments Phil. You’re welcome to type as much as you want…
Net worth is a great metric, but I must say I do prefer cash flow from investments since that’s more tangible to live from.
You have 17 years worth of transaction data? Wow, that does sound crazy but no doubt you can see the trends by now. That’s pretty darn impressive, meticulous and nerdy 🙂
YTD return of 14.5% is good. I think XIU is 14.8% so you’re right on the mark when it comes to how Canadian blue-chippers have done. If you earn what the indexes do, you’re probably doing better than most when you account for bad investing behaviour, taxation and money-management fees to high-priced mutual fund salespersons that don’t deserve it.
I guess what I was trying to suggest is that not all investments provide cash flow… For instance we have a chalet, which we use and do not rent, so no cash flow, but does increase in market value. We also have a sizable art collection, which again, does not generate cash flow. On the equity side I like investing in small cap stocks and growth momentum stocks… these again do not currently generate cash flow… all these items are great investments, and are equitable, but not from the standpoint of cash flow, which is why I prefer to track net worth growth. if net worth is increasing more than what we spend each year, well, that tells you something, and that is why I think net worth and it’s trend is our key metric. as to the meticulous and nerdy comment, my former product development engineer, specializing in quality and reliability for Stanley Black & Decker in their R & D Center… so yep, I’m almost as nerdy as they get – Cheers.
Fair points Phil, assets are much more than cash flow, agreed, I guess where I was coming from it that I cannot spend all assets, like your art collection (that I don’t have), cash flow can be spent.
I’ve always read small cap stocks have more upside (that other stocks), so I suppose if you can afford the risk it’s probably a good play.
Our net worth is also increasing but it’s largely a function of killing out fat mortgage debt 🙂
“…I guess where I was coming from it that I cannot spend all assets…” Ah, but that is sort of where you are wrong… In retirement maybe not all can be spent, but a good portion can be, as you down size or sell off assets that are no longer part of your lifestyle or within your physical capabilities. Our chalet, might one day pass to our son, but perhaps at some point we won’t need it if he is more successful than we, in which case that asset converts to potential cash flow. My main point was to open you up to understanding that although dividends are great and easy to keep track of to compare, there are many other asset classes or different types of equity that can be converted to cash in future. As to your mortgage your net worth might seem to be growing because of your mortgage payment now, but once it is paid and now the money isn’t going to someone else, it will begin to grow even faster… – Cheers.
Funny you wrote about selling the home Phil, I think my wife wants to do that as soon as we pay it off 🙂
Dividends are good/great but there is more to the asset story for sure.
Yeah, having a mortgage sucks – the biggest ball and chain ever 😉
Very impressive dividend income projected for the year. Excellent job. That’s why I love the FI community. People share and it inspires me and others. I’m looking to add some Canadian banks in the coming months. I know many are very strong and have been paying dividends for decades. Thanks for sharing your recent update. Nice to see a blend of stocks and ETF’s too.
Same DivHut, it’s great to read about others stories. I look forward to a fall correction 🙂 Thanks for stopping by and I appreciate your sincere comments.
Wow $9000!! That’s really impressive. My goal this year is $8k but I need more work to hit that number.
Thanks. Almost 1/3 of the way to the goal. Hopefully some more progress next month.
If I were you, regarding the stock that has made you lost a few hundred dollars, I think I’d wait until the stock price goes back up again to actually decide what to do with it. Then I will look up its historical price — if it looks good, I’d keep it, if not, I think I would just let it go.
I might just do that…it technically hasn’t “cost” me anything yet since I haven’t sold the dud but again, in a good way, if I sell next year I can claim a small capital loss to offset any gains. Good thinking and another consideration Poor Student – thanks for your comment.
Great job on the 9k in dividends. I’m on track for about 4k this year and I hope to double that once my mortgage is paid off. I’m also waiting for a bit of a correction to go shopping. Meanwhile the cash is building…
The plan is coming along, thanks for the support of the journey. Don’t bring on the correction just yet, I need to save more this fall!
Just wondering… how many stocks do you own? When you buy stocks, do you buy 100 shares at a time or how do you manage?
Whether it’s a stock or an ETF, I try and buy when I can keep my transaction costs to under 0.5%, so for an example: a $2,000 purchase with a $9.95 transaction fee.
I own about 30 Canadian stocks, 10 U.S. stocks and a couple of ETFs.
What options are there for an investor that doesn’t want to purchase individual stocks and would rather invest in ETFs? I would still like to collect dividends when I retire, but don’t feel comfortable choosing stocks. Would someone like me move my investments from equity ETFs to dividend ETFs after retirement?
That’s awesome! $9,000 in dividend income is mighty impressive. That’s $750/month, which could cover more than half of my expenses!
Keep up the great work, bud.
Thanks Jason. I keep telling my wife there is a LONG ways to go with the saving, the investing, the reinvesting but it’s clear the path is working. I appreciate the support.
Looking good. I love your strategy of stocks and ETFs to suit your needs.
Coming along, I have to catch up to you!
BTW – I can’t comment using my Name/URL on your site. Is there a way that can be fixed?