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 using dividend paying stocks and how reinvesting the dividends paid from the companies I own are helping me reach financial freedom.
What’s to like about dividends?
First, dividends provide regular cash flow. You get paid whether the stock price is up or down.
Second, dividends from Canadian stocks if held in non-registered accounts are taxed favourably, at much lower tax rates than interest income. If not unregistered, your Canadian dividends can be tax-deferred using a Registered Retirement Savings Account (RRSP) or better still in my opinion, tax-free using a Tax Free Savings Account (TFSA).
Thirdly, dividends are a sign of a company’s financial health. If companies can raise their dividend over time this means they have the profits to do so. You can’t fake dividend payments to shareholders, at least for long. Sure, companies can reward shareholders other ways, capital appreciation is a big one but the trick for the average investor is identifying what companies will appreciate and when.
Nothing is guaranteed including dividends but when it comes to investing I’m convinced holding a diverse set of Canadian dividend paying stocks across multiple sectors: financial, energy, materials, telecommunications, utilities and consumer goods for the long-term is a good strategy.
Since my last update, I have very little to report actually. My dividend stock portfolio is rather boring but keep reading…
During June, prices dropped, some by a few percent on news that a certain U.S. telco was coming to Canada to wipe out Rogers, Bell and Telus. If I had money to invest, I would have purchased shares in these companies (because the prices dropped) but unfortunately I didn’t have the cash to do so. Now that we’re into July, hopefully some prices will continue to come down and I can make a small purchase after other expenses are taken care of. In the meantime, I’ll just let companies like CIBC and the aforementioned BCE pay more dividends in July.
With dividends reinvested last month I should cross another income milestone in 2013 by a nickel: $7,000.05. If the companies I own continue to pay their dividends at their current rate, I will earn that amount by the end of the calendar year as part of my retirement fund; with over 25% of that amount free from tax thanks to TFSAs. As long as I stick to my plan, owning many of the same companies the big Exchange Traded Funds (ETFs) in Canada own, my strategy should work out well long-term. I’ll keep you updated next month.