June 2012 Dividend Income Update
“A good investor has the courage to make choices. The stock market is a bit like a zoo. There are all kinds of animals there, from elephants to tigers to snakes to monkeys. You only need a few of the best species to build a good diversified portfolio that will provide sustainable, low-risk, high compound earnings.” – Stephen Jarislowsky, author of The Investment Zoo and octogenarian Canadian billionaire investor.
You might already know from reading my blog, I’m a fan of Stephen Jarislowsky. His book The Investment Zoo is one of my favourites and reading it (a few times over) helped to cement the approach I use for investing today, a portfolio of broad market ETFs and a mixture of Canadian and U.S. dividend paying stocks in various accounts.
In those accounts, I haven’t made many changes over the last month although I did increase my position in BPO. With the European market languishing, Brookfield Office Properties decided the time was right to break into the London, England financial district, making a $900-million dollar real estate purchase. I think Brookfield is making a very smart move here, buying low, just like us small-time investors should. I don’t have enough shares in BPO to DRIP yet but I’m getting close and that’s pretty exciting. This is because I tend to reinvest all dividends paid for almost every stock I own. Here are some great upsides of DRIPs:
- They provide dollar-cost averaging over time.
- They have no commission fees.
- They take advantage of compounding.
- They help take the emotion out of investing.
The last bullet is an important one, because I feel the more you can temper or better still, remove the reflexes linked to short-term stock market gyrations the better investor you will be. I hope I’m getting better at this. I guess this only makes sense, since if you don’t make a long term commitment to be invested, you run the risk of letting the enemy in the mirror sabotage your portfolio.
Long term, a fact is the growth of the stock market index will correlate with the growth of the businesses it represents, so you should either go along with that ride with broad market ETFs or own lots of stocks that make up the index.
My plan is to use a hybrid of both strategies – be a “hybrid investor” – so I feel like I’m getting the best of both worlds.
I haven’t seen many opportunities to buy low of late, so I’m waiting for markets to dip this summer before I make another purchase. I’ve got my eye on a few companies and if and when those company prices dip, I will buy them. Until that point, I’ll be happy to let my holdings do their thing, pay dividends that can be reinvested and let the income grow.
Including the small addition to my portfolio last month my dividend income increased when compared to May and I’m happy to see I’m on target to earn about $6,000 in dividend income this calendar year.
I don’t dare touch the capital that produces those dividends since this money is required is to help fund part of our retirement – about 15-20 years away.
What does an Investment Zoo have to do with you?
The stock market is indeed a zoo.
There are many animals out there that can cause you serious harm.
Outside of ETFs, my approach is to own only established species who offer a lower form of equity risk than others that also provide a dependable return in any jungle. That means I will own dividend paying and dividend growth stocks.
Some bloggers and financial advisors have criticized my approach to investing and many more might continue to do so. However, my income reports are proof this strategy works and with discipline and diversification over time, I’m confident it will continue to do so.
Way to go Mark! I love watching Dividends snowball 🙂
Your strategy is very similar to what I am trying to do. I am sure that you probably shaped my strategy a little bit. Like you I can already see it working. January I less than $8. In June I had over $20. I think this strategy of ours is very good for people like me who have a long time to accumulate investments and does not need the income for a while. Right now I am aiming to have my goal of at least $3,000 per month in 15 years.
Do you mind me asking how long you have been building your portfolio? I am sure that you have stated it before but I do not have the time to search for it.
Yes, we have a good strategy I think. The way I see it, there are only about 40 Canadian companies worth owning. They are listed in XIU, XDV, CDZ and all the big bank mutual funds as top holdings. Instead of paying fees, I might as well own them directly. Many of these companies have been paying dividends for 50, 100 or even 150 years. I’ll take my chances that, when combined, they will continue to do so 🙂
Yes, your blended ETF and dividend stock strategy will work in the long run because if it doesn’t, I’ll be the first to admit it on my blog.
A goal of $3,000 per month in 15 years would be VERY good for you. That means you’d need a portfolio value of $1 M yielding 3.6%, as you know. That’s pretty aggressive but it can be done. $3,000 per month, with a mortgage paid, you could certainly live off of.
My goal is $30,000 per year in another 15 years. I’ve been building my portfolio for about 10 years, another 15 to go.
Thanks for checking in. I will be over tonight to read your blog.
Getting there Peter. Long ways to go before I hit my ultimate goal of $30,000, but I have to start somewhere!
Thanks for the support of my journey.
$6000 sounds great -_-
Thanks for the comment. Not everyone is a fan of dividend investing, but I’d like to think the principles of indexing and dividend investing have a great deal in common if executed the same; stay invested for the long haul, keep your costs low, diversify over time.
Thanks for sharing this update Mark. I won’t be criticizing you for investment strategy. I know that’s not saying much considering how little I know about this stuff. Still, it sounds like a solid approach to me. I’ll be following along to learn more from you.