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.