July 2017 Dividend Income Update
Welcome to my latest dividend income update.
For those of you new to these posts on my site, every month I discuss our approach to investing using Canadian dividend paying stocks. We believe buying and holding a number of Canadian dividend paying stocks in our tax-free (thanks TFSA) and non-registered accounts will, over time, provide some steady monthly income for future wants and needs in retirement.
As done in previous dividend income updates I’m going to answer a few reader questions about my investing approach – which I’m happy to answer as part of these updates.
Reader Question: Is your $30,000 in dividend income still a realistic goal?
To help realize this goal we strive to max out contributions to our Tax Free Savings Accounts (TFSAs) every year. (You should consider that or strive for that as well – just a suggestion.) Maxing out our TFSAs is a huge enabler to increasing our passive income. If we are successful this year, that’s $11,000 invested in early 2018. Give or take that amount will likely yield about (another) $440 or so in dividend income per year – moving us closer towards our big hairy audacious goal here. If we rinse and repeat this process for many years to come I suspect through TFSA contributions alone we’ll be much closer to this income goal.
Beyond contributions and new investment purchases, I believe there are dividend increases that should occur in our financial future. Take Enbridge for example. Although Enbridge was a bit late with their dividend increase from 2016, early in 2017 they did not disappoint shareholders – with a 10% increase. Many other companies we own also increased their dividends this year – there are likely more to come before the end of this year.
We also reinvest dividends paid. More dividends paid buy more company shares. More company shares pay more dividends. You get the idea!So, with contributions mainly to our TFSAs (and potentially some contributions and/or dividend increases in our non-registered account) coupled with dividend increases over time that should help us realize this income-oriented goal – one of our key long-term financial goals.
Reader Question: You own a non-registered account? Why? Shouldn’t you maximize contributions to your registered accounts first?
Great and very important question!
Yes, I hold a non-registered account and I only hold Canadian stocks inside this account. I’ve had this account for many years and thanks to dividend increases and price appreciation with the assets inside it, this account has been growing, which is nice. That said, a growing non-registered account while I am working full time has some tax issues associated with it – namely capital gains to deal with. I don’t want to sell assets in this account now since I’ll have to deal with those capital gains. I’ll do that at a later point in time. This non-registered account exists since my TFSA is maxed out (of contribution room) and so is my RRSP less some minor room in 2017. My wife has some RRSP contribution room left – that account should be maxed out within another year or so.
To your other question, shouldn’t you maximize contributions to your registered accounts first?
Yes. I highly recommend that to any investor – maximize all registered accounts first and then consider non-registered investing and/or paying down debt. Paying yourself first using the TFSA or RRSP is great – forget the debate on those accounts but you can always read about that here. Of course the latter, paying down debt, is a guaranteed rate of return. Doing so on your mortgage for example will likely save you thousands in borrowing costs on any journey to own your home from your mortgage lender.
Wrapping up, thanks for your questions. And thanks to Canadian companies that reward shareholders like us, whereby we can reinvest the dividends paid or buy more companies to move our future income higher, we’re on pace to earn over $14,800 this calendar year. Putting that income another way, that’s $1,234 per month in tax-efficient and tax-free income for life. We can’t spend this money now, it’s for our future, and slowly growing for that financial future.
On that note I have lots to think about with my wife in the coming years – how to better manage our investment portfolio. We do see evidence that buying and holding a broad basket of Canadian dividend paying stocks for income – is working as part of a much broader financial plan. As our financial plan evolves, I will keep you updated.
What’s your take on our dividend income journey? How do you invest? What do you do differently that we do? Share and comment away.