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 focusing on dividend paying stocks and how reinvesting the dividends paid from the Canadian companies we own are helping us reach financial freedom. Check more details here.
This journey is boring…
…but recall boring is good when it comes to investing.
To recap our plan, although I’m a fan of owning low-cost, indexed Exchange Traded Funds (ETFs) – such as Vanguard’s Total Stock Market ETF – to further diversify our portfolio, we also focus on holding and DRIPping dozens of brand name Canadian companies in our non-registered accounts and Tax Free Savings Accounts (TFSAs).
Here’s our simple (and boring) approach to dividend investing:
- We buy established companies that have a modest to long history of paying dividends. We typically own the top holdings in ETF XIU (that is, Canadian banks, telcos, railroads, utilities, pipelines and more).
- Many of the stocks we own have paid dividends for decades, some of them for over 100 years.
- We reinvest all the dividends paid by these companies so whenever possible, money can make more money. DRIPping also helps keep the emotions out of investing.
That’s pretty much it with a few aforementioned exceptions (ETFs). In The Investor’s Manifesto author William Bernstein stated “since we cannot predict in advance which stock and bond asset classes will perform the best, we diversify.” We’ve put his words to use by holding a couple of indexed international ETFs in our portfolio – these products provide diversification via ownership in thousands of companies from around the world for a very low-cost. Other than a few indexed ETFs, we’re 100% stocks and we’re all about the dividends for future cash flow.
As a buy-and-hold dividend investor I’ve been very comfortable to date with my 30+ Canadian holdings. These are not companies I trade in and out of. We buy companies, we collect dividends from them, we reinvest dividends, and we relax. We don’t worry about the financial market noise. This approach to investing is not exciting but it does work.
The journey is rewarding…
This time last year I stated: should the companies we own continue to pay dividends at their current rate, with no changes, we could expect those companies to churn out just over $11,200 by the end of December 2015. Well, that happened, and more. As of this month, we’re on pace to earn $12,700 this calendar year from our dividend income machine. To put that amount in perspective, that income covers all our property taxes, home maintenance expenses and some of our utilities for the house, now and every year going forward without needing to spend the capital invested. Pretty good.
Thanks for reading.
Just an example to support the long term effect of dividend reinvesting for you.
Back around 2000, I received 287 shares in Sun Life when they demutualised and opted to reinvest dividends. My holdings are now up to 385 shares with a nice 3.8% dividend being paid.
Not bad for no effort “investing” and there is no incentive to spend the dividend cheques each quarter.
Solid Richard. I also own SLF and it’s nicely DRIPping for me every quarter. Well done. Buy and hold and collect cash and spend as you please.
Well done on the continued dividend income growth.
Would you sell your ETFs or your dividend stocks when it’s time to withdraw from stock holdings?
Don’t know yet 🙂 I’m not sure what the end game is!
There is only one “end game”. 🙂
Hi Mark, hope you are having a great summer.
I have some investments with TD, set up to use their e-series funds and also their US dollar investment account. My other account is with Scotia i-Trade and last year they introduced some great site improvements. The one I really like is showing your percentage dividend return on your cost basis, and also tracking and forecasting your total dividends for the month and year ahead and past.
I am happy not to have to do that myself anymore.
So far, so good. Thanks Barbara.
Interesting…percentage dividend return on your cost basis. I assume that is like yield on cost?
I’ve argued with myself on this subject several times. Should I be focusing on the ‘yield on cost’ or ‘current yield’? I used to just track current yield on the spreadsheet but now track both. I sort of look at the two when I am considering any kind of increase to my holdings.
I personally only care about current yield vs. yield on cost since you can have the yield on cost argument with any investment over time, including mutual funds, ETFs. etc. The only thing I tend to focus on is what I’m getting paid from my investments and what I get paid to cover expenses. So far, the dividend income will cover our property taxes every year for as long as we live here and at least $7,000 per year in home maintenance costs without ever touching the capital unless it’s on our terms.
Which I’m happy about 🙂
IMO yield on cost has little substance, it’s only a feel good (or bad) paper measure. Yield pays the bills, not YOC. Personally, I keep track of DGR firstly and TR secondly. My primary aim is to keep ahead of inflation with my growing stock dividend income. I also monitor my total returns to ensure my DGI strategy continues to perform well against the market over the long haul. So far, since initiating my DGI portfolio in mid 2008, I’d ahead on both counts.
That’s how I see it as well. Like net worth in some cases. Looks like on paper but may not actually provide you the income you are looking for. I mean, take two couples, with the same net worth of $1 M, both age 45.
One couple rents, but has $1 M in the bank.
The other couple owns their Vancouver home worth $1.2 M but has $200,000 on their line of credit and no retirement savings.
I would rather be couple one.
“Yield pays the bills, not YOC.” – for sure!!
I see all that but (there has to be a ‘but’) arguably all investing is designed to make one feel good. If it doesn’t, why do it? I now track YOC, current yield, as well as income generated on each investment. The spreadsheet does it automatically when I enter in the closing numbers so it takes next to nothing as far as effort goes. I do have to adjust the “cost” after each DRIP but that is insignificant as far as time goes. I’m frequently looking at increasing positions as income is generated and I feel I get a better picture when I see the YOC next to the current yield for each investment. Not sure why, but it does. As an example, when I look at our BAM.A, the current yield at 1.5% looks kind pathetic but the YOC sitting at 4.65% is more reassuring. Sure it’s mostly an emotional response but positive validation works for me.
“I see the YOC next to the current yield for each investment. Not sure why, but it does.” You probably see the growth. If the elicits an emotional response and keeps you invested in a good way, that’s a good thing.
I also think that the current yield is the most relevant. But I like seeing the yield on cost and how it has gone up since purchase, especially since that account was my first venture into buying my own individual stocks, and in a troubled financial market.
When my juicy 9.75% strip bonds matured, it was hard to know what to do, so I bought banks. Earlier when a financial advisor took over my investments, he neglected to tell me that he wasn’t allowed to hold the strip bonds. I am glad they were left for me, then I could do it myself and eventually get rid of the middle man.
Well done Barbara!
Nicely done Mark, thanks for sharing. I’ve had another great year with my DGI portfolio of 2/3 Cdn 1/3 US stocks. My dividend income is up 15.2% in the past 12 months without adding in any new money. This beats the previous 12 month period by 2.8%. It’s awesome getting larger “wage” increases in retirement than I had in my working life 🙂
Thanks Bernie. The plan is slowly coming along. I look back at 2015, 2014 and we’ve made good progress – more than $1,000 per year each year. I am optimistic that we can reach $15k per year by the end of 2017. That will be close to covering all property taxes, all maintenance and all utilities for the house free and clear 🙂
Thanks for sharing Mark. You’re doing awesome bud.
Investing is fun and life changing. It’s relaxing to know that we hold High Quality Assets. Markets can roar up or fall down but the income will always arrive.
Keep hustling hard and cheers to our journey bro.
Thanks for the inspiration.
” should the companies we own continue to pay dividends at their current rate,” and I’m sure half have increased the dividend to date!
With 30 Cdn, you probably own the best of XIU and there are 30 I would not buy because they are cyclical, energy, do not pay dividends or have cut their dividend.
That’s what I like about the strategy, Income Growth that one can realistically use to forecast future income.
Although I’ve experienced some dividend cuts in recent years (HSE, CPG, D.UN), unfortunately, many other companies have grown their dividend – including BIP.UN very recently which is great.
When you hold ETFs and individual stocks aren’t you in danger of doubling your exposure to an individual stock? Or do you somehow compensate for this?
Good point John. I am in danger of double-exposure but I’m not worried about some of that. For example, if I own VTI, and Coca-Cola, then I own both, one indirectly and one directly. I limit this by keeping my allocation to any one stock to <5% and keeping more ETF units in my portfolio than owned by only one stock.
Although there is a plan to “live off dividends” I know I will eventually sell some stocks.
I quite enjoy your site and your weekend reading emails. I usually pull it up over Sunday morning coffee on the dock or table. Thanks for the effort. Cheers!
Thanks for the kind words – happy to hear you enjoy the posts over coffee of beers 🙂
Great progress Mark. That’s a good way of looking at your dividend income.
“congratulations” on paying the MER on your home( property tax, maintenance,and utilities) with dividend stocks.
This is a good thing? 🙂
Did or will you ever reveal the actual companies you own? The only reason I ask is because yes owning the top companies of XIU is a good start, but not all of them are good though. With a little bit of research you quickly learn that some are actually overpriced or are in serious jeopardy of cutting or dropping their dividends. So I guess in curious in what companies you own and when you bought in. That might seem personal but many bloggers have revealed that insight (e.g. Frugal Trader). sorry for the pointed questions but I’m always on the lookout for good dividend stocks and the more info the better.
Fair point RJ. I don’t disclose all my holdings and in what capacities since I already disclose a fair bit on this site. FrugalTrader remains somewhat anonymous.
The “good dividend stocks” I own are not surprising. As my post referred to think Canadian banks, telcos, utilities, pipelines and railroads. Like Monopoly. The rest of the stocks in XIU don’t really appeal to me very much.
Thanks for reading.