July 2020 Dividend Income Update

July 2020 Dividend Income Update

I am a big fan of keeping it simple when it comes to investing.

I recall a quote attributed to famous investors Warren Buffett and Peter Lynch went something like this:

If you’re going to invest in a company, pick one that any idiot could run – because someday an idiot will probably run it.

Funny comment. But there is some truth here. I mean, with all the wealth that Buffett has, certainly he can hire and fire any portfolio manager and CEO he wants.

The rest of us aren’t so lucky.

So, if you’re going to invest in stocks for the long-run, my thesis is to generally gravitate to owning established companies that have a long history of growing earnings, surviving many market calamities, and ideally, that pay a sustainable and growing dividend.

My plan and my investment approach

Since the 2008-2009 Great Financial Recession, I’ve been a hybrid investor. 

  • I’ve owned primarily Canadian dividend paying stocks inside my/our Tax Free Savings Accounts (TFSAs) for growing dividend income; I also own such stocks in my taxable account, 

AND

  • We own (increasingly for the former) a mix of low-cost U.S. Exchange Traded Funds (ETFs), some Canadian ETFs, some Canadian stocks, and some U.S. stocks inside our Registered Retirement Savings Plans (RRSPs).

You can read about some of my holdings that I keep updated on this page here.

You can find some taxable investing considerations on this page as well.

What does this have to do with simplicity again?

In a word: oligopoly.

One of the major reasons why I invest the way I do when it comes to our Canadian market (since 2008-2009) is because of that oligopoly: “few sellers”. In Canada, we have a few major industries that dominate our economy by a few major companies in those sectors. Generally, oligopolies have high barriers to entry. For example, it would be very expensive to build a new railway network to anything remotely comparable to what Canadian National Railway (CNR) has done:

CNR mapImage from CNR website. I am a CNR shareholder.

I figure people will always want some products shipped by rail – so I invest in those companies. People want to borrow lots of money to buy homes and condos in expensive Canadian cities – so they need a bank to borrow from. I invest in those companies. People love their air conditioning in the hot, muggy summer and enjoy staying warm in the cold, Canadian winter, so I own companies that deliver those services as well – energy and utility companies. You get the idea. 

I try and buy Canadian companies that people need consistent products and services from to live their modern lives. Hopefully no idiot will ever run these companies! πŸ™‚

July 2020 Dividend Income Update

While I did write about some vicious dividend cuts in my Canadian portfolio, there are bright spots this year:

  • Algonquin Power (AQN) raised their dividend in May during the start of this COVID-19 pandemic, and
  • Capital Power (CPX) recently raised their dividend (last week) by >6%.

Although these raises have not fully offset the losses incurred with my dividend income this calendar year, they have buffered it. A good reminder when it comes to stock investing to take both the ups and downs…investing is a long term commitment and endeavour.

As of end of July 2020, here is where we stand:

July 2020 Dividend Income Update

Some interpretations to glean from the chart:

Without any new capital invested since January 2020, to put that passive income in perspective:

  • That’s earning $2.33 per hour of every hour of every day ($20,425/8,760 hours (24 hours x ~365 days)) even in my sleep.
  • It’s the equivalent of earning $9.82 per hour assuming I work a 40-hour work week ($20,425/2,080 hours (40 hours x 52 weeks)). That’s a $0.03 per hour raise in the last 4 weeks.

When to spend dividend income???

Dividends

A number of readers have emailed me this summer to discuss various semi-retirement or retirement income sources, including dividend income, and have asked me what my draw down strategy might be in semi-retirement. 

I suspect they are asking because they have similar future plans or are striving to execute on those plans right now…

You know, I’ve actually given that a TON of thought. Here is my initial thinking right now (even though I’m still a few years away from executing on this plan myself):

  • 50s – start drawing down our RRSPs/RRIFs + “live off dividends” in taxable account
    • In our 50s, while working part-time, we’ll make strategic withdrawals from our RRSPs. With some part-time work, these RRSP withdrawals should be minimal (i.e., likely about 4-5% of RRSP portfolio value) as we transition from full-time work to part-time work. We expect to make this transition as soon as our mortgage debt is gone. Part-time work in our 50s is expected to cover some semi-retirement “fun stuff” like travel. RRSP withdrawals will need to cover basic living expenses in a debt-free condo. 
    • By withdrawing assets from our RRSPs, slowly, it will reduce this deferred tax liability. 
  • 60s – continue to deplete RRSP assets + take workplace pensions + continue to spend non-registered dividends
    • In our 60s, maybe working part-time still (?) we’ll continue to deplete our RRSP assets. We’ll also draw down non-registered dividend income at this time.
    • Likely by our early or mid-60s, our small workplace pensions will kick in. There is also a desire to take our CPP and/or OAS around age 65. In fact, there is the potential for us to delay our CPP until age 70. I hope to have more posts on this, in the future.

After age 70, I could see us living off our small pension incomes and government benefits (CPP and OAS). The dividend income highlighted in these posts would be used for any “extras” in life and support long-term health care needs years down the road. I feel by contributing to our TFSAs consistently in the coming years and/or keeping any TFSA withdrawals until “near the end”, that income is both tax-free and can be easily managed in any estate plan.

You can read up on how best to manage beneficiaries for your TFSA, RRSP, RRIF and much more in this very comprehensive post here.  

Dividend income provides optionality

One of the great things about being a hybrid investor, and using dividend income as part of my plan, I feel is the optionality that comes with dividends. 

The more and more I consider our semi-retirement plan, I more I’m convinced this optionality will provide tremendous financial flexibility.

When you consider taxation, inflation, longevity risk, portfolio risk, changing spending needs and much more – there is far from any one-size-fits-all approach to draw down a portfolio. I intend to use some form of Variable Percentage Withdrawal (VPW) for my draw down plan.

I think it’s a solid one for you to consider.

Stay tuned to my blog to find out where we are after August dividends are paid in another month. In the meantime, I’ll have more investing and saving articles for you to enjoy and interact with me on.

As always, Happy Investing!

Mark

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe, join the journey to learn how I'm getting there and how you can get there too! Follow my on Twitter @myownadvisor.

32 Responses to "July 2020 Dividend Income Update"

  1. Looking great Mark. An increase of $65 in one month’s time is pretty fantastic! Congrats. Just about to tally our July dividend income, should receive over $2,300. πŸ™‚

    Reply
  2. Well done, Mark.

    As our expense reduced a lot this year due to coronavirus, this year our investment income so far surpassed our expense. But I do expect our expense up a lot once coronavirus goes away or being controlled.

    Reply
    1. Yes, our travel fund is pretty much non-existent! With good paying jobs we hope to kill our debt in the coming years as we continue to invest. In doing so, being debt-free and having a decent bank account to start semi-retirement with, we should be in good shape to have our desired financial freedom we’ve been working on for the last 10-15 years.

      Here’s hoping!

      Reply
      1. Same here, funny after 20 years of being road warriors my wife and I are loving being home bound. Will that change in 2.5 years when we retire (60 for her, 63 for me) hard to say. A lot will depend on how covid is doing. One thing we have done is build up our pool of retired friends, will be really nice to meet up during the week when Things are quieter 😎

        Good article on the concentrated performance of the stock market. Be curious to see what happe s when big tech is broken up.

        https://awealthofcommonsense.com/2020/08/concentrated-in-the-stock-market/

        Reply
          1. Hard to say on that one, but it’s reflective of how the stock market is becoming disconnected with the broader economy. If you want understand what’s happening today and I was the market I can’t recommend Steve Saretsky youtube channel enough. Is videos are about 10 minutes long and very very informative.

            Reply
            1. Will check out soon and see if they are a good fit for any upcoming Weekend Reading πŸ™‚ Thanks Rob.

              How are things in Germany? Still 3 years out from retirement? Are you considering coming back to Canada?

              Reply
  3. Nice article very inspiring.

    From your article ” People love their air conditioning in the hot, muggy summer and enjoy staying warm in the cold, Canadian winter” which company you invest for this sector?

    Also, how do you understand this taxation zoo of Certain account is there some good books or articles that I can read to understand it fully. It really messes up my head when it comes to Taxation, capital gain buying ETFs like TEC.TO which are Canadian ETF but having US stock and its tax repercussions and what not.

    Reply
  4. You state that you will withdraw from your RRSP in your 50s. I have been developing a good stable of dividend payers in my RRSP. They will soon be at the level of monthly RRSP income I hope to achieve. I had planned to just withdraw the dividends monthly and leave the ETFs alone to continue to pay me for decades. The government expects me to reduce the size of my RRSP over the years.

    Will you be converting your RRSPs to RRIFs at an early age? Do I withdraw from my RRSP and move it to my TFSA every year when my new TFSA contribution room becomes available by transferring stock?

    My current dividend income is $1.15 per hour. My dividend goal is $2.25 per hour I am not ready to quit work yet (I am really ready but I can’t afford to quit) but I do like to plan my retirement income strategy.

    Reply
    1. That’s the plan Beth – work part-time in our 50s and withdraw from RRSPs before:
      1) winding down taxable account
      2) touching small workplace pensions, and
      3) not old enough for CPP nor OAS.

      I’m not sure yet if I will want to convert RRSPs to RRIFs. It’s the same difference from a tax perspective and I can be more strategic with my RRSP withdrawals vs. forced minimums for RRIF. I’m not quite “there yet” in terms of the income I’ll need from RRSPs per year to cover basic expenses but I’m thinking if I “live off dividends” from RRSPs in the early years I can preserve that RRSP nest egg a bit and let the capital grow.

      I will likely try and fund my TFSA going forward with either RRSP withdrawals or withdrawals from taxable to TFSA or part-time income. I would like to have some options!

      Hope that provides some insights.

      Reply
      1. Awesome dividend income! I just sold my ipl at a loss today. Didnt want to hold it anymore. Thankfully, I only have a small position.
        Next to go is suncor but that can wait.

        Reply
        1. Ha. Ya, lots of folks I know hold SU. I have <0.5% of our portfolio in IPL so happy to ride out. It’s already up a few % since their dividend cut around $8 in late-March. Now over $13 I recall. It will come back to $20 or so soon enough once people realize they need to heat their homes this winter with natural gas. πŸ™‚

          How is the rest of your portfolio coming along?

          Reply
  5. Hi Mark and all. I have been searching for good value (bargain) stocks this time around and lately interested in adding health care. I have invested in chartrwell retirement homes which I like but recently looked into Extendicare (EXE) and Sienna Senior Living (SIA). They are at good prices right now especially EXE.

    They pay high dividents (between 8.3 and 9%) which is higher than my liking but these are essential services and I feel that they can only do better once they deal with what needs to be done. Looking more for a 1 to 5 year investment.

    What are your thoughts on these two?

    Spyros

    Reply
    1. I think Chartwell REIT is good and SIA has a high yield so maybe a dividend cut coming? Definitely beaten up with COVID-19. I think any yield over 7% for sustained quarters is not good and unsustainable much longer.

      I don’t own SIA or EXE at this time. I do own <0.5% of my portfolio in CSH.UN though. I DRIP x1 share per month of that one so I like it!

      Reply
      1. Yah they both have high yields, one over 8 and the other over 9. I am also not a fan of such high yields but because they are beaten up right now thought a good buy being essential services and on government payroll.

        I like Chartwell because they keep it more simple and I think the yield is just over 6%.

        Thanks for the feedback Mark.

        Reply
        1. I have a very small position in CSH.UN as well. Maybe a few hundred shares only but yes, they keep it simple and should be a recession-proof business with the generational wealth transfer happening – wealthy Boomers getting old! πŸ™‚

          Reply
  6. Great work Mark! 68% towards your semi-retirement goal, that’s fantastic. What are your plans during semi-retirement? How many days a week do you plan to work?

    Reply
    1. Hopefully 3 days per week. Work doesn’t know yet but I know my boss reads my blog πŸ™‚

      Kidding aside, my boss is very supportive of me and knows I strive to be semi-retired in a few years. Hopefully they will keep me on part-time and doing that for a few years will be ideal. We’ll see!

      How are things with you? Busy summer with kids?
      Mark

      Reply
      1. Nice, great that your boss reads the blog and is supportive! Part-time is ideal, keeps the mind active, there’s some socialization, and you still have lots of free time to do what you want!

        Yup, busy summer with kids but preschool will start soon so hopefully that buys me 1.5-2 hours of sanity during the day. Haha.

        Reply
        1. I’m not sure how much she reads it but I know she knows about it as do others at work and it was a big reason why I finally decided to show my face, name, etc. on the site. I figured if folks at work knew about it, I enjoyed running it, it was “who I was” then no point in being anonymous any longer!

          Ya, no doubt you are busy. I see the marked up walls on Twitter from the kids’ toys. Hang in πŸ™‚

          Reply
  7. nice mark!

    got to love seeing that hourly rate… keep it up

    Interesting to read about your draw down strategy. I have read similar things elsewhere, but sometimes find myself questioning the rrsp sales. The American stocks have just been dominating the Canadian ones and also offer more variety of solid blue chips. From a tax perspective it makes sense but I dunno if I would want to be selling those solid dividend kings… lol

    I guess that will be the hard part once we get there…

    keep it up Mark
    Cheers

    Reply

Post Comment