You might already be aware business capital can be managed in many ways.
- Management can decide to reinvest earnings and grow the business.
- Management can decide to buy back shares so each remaining share can earn a higher proportion of profits.
- Management can decide to pay down debt.
- Management can decide to pay some of their earnings to shareholders in the form of dividends. This is my personal favourite as an investor.
With some companies I invest in, there are no “hot buys” that come to mind. People don’t “tip” companies like Coca-Cola, Procter & Gamble, Bank of Montreal, TD Bank, Power Corporation, Canadian Utilities or Enbridge. These companies have been providing investors with capital appreciation and healthy dividends for decades, if not generations in some cases. My bet is they will continue to do so. Along with indexed Exchange Traded Funds (ETFs) in my portfolio, my plan has been to purchase many blue-chip companies like the ones above at fair prices, and do so until I hold enough shares to activate synthetic DRIPs (dividend reinvestment plans) across my portfolio. Using synthetic dividend reinvestment plans at my discount broker, when dividends are paid, the money is reinvested to buy at least one new share commission-free every quarter. This cycle repeats until I tell my broker to “stop” the DRIPs – and in many cases I don’t intend to. This re-investment process for my Canadian stocks and ETFs is admittedly slow and not very exciting but I suspect it might get rather exciting in another 15 years when I can draw on this income for expenses.
Since my last update, our dividend income has increased but we don’t dare touch or spend any of the money earned since this is our retirement income fund. There should come a day when we can spend the money earned from our stocks and ETFs but it’s definitely not now.
As long as the Canadian companies and ETFs we own continue to pay dividends at their current rate, and we reinvest the dividends paid by many of these companies each month and quarter, I’m betting our dividend income will increase before the end of the calendar year. At the end of June, I’ve forecasted we’re on pace to earn about $8,800 this calendar year in dividend income. This is nowhere near our long-term goal but progress is being made in the right direction. Dividends aren’t the be-all-and-end-all but based on these monthly updates they are pretty darn good.
Are you working on any passive income for your retirement – using dividend paying stocks? If so, what’s your plan?
It sure is fun to look through the brokers statement to see those dividend payments coming in on a regular basis.
I follow a similar strategy, looking for stable dividend paying shares and ETFs. I also have kept a lot of high ‘dividend’ mutual funds from when I had a company RSP plan – they definitely no load and are mainly low fee funds from companies like Mawer and ph&n.
I am not as structured as you experts, I love to reinvest occasionally in the high dividend shares that have the ability to make a gambler weep. Not recommended unless you have much more expertise than I do.
You sound structured enough Richard. Mawer and PH&N have some great products for many investors, I would hesitate in recommending some of their products for some investors, like their all-in one stuff.
My approach is pretty boring isn’t it? No gambling here. I got burned on some penny stocks in my 20s. That hurt, not major losses, but a few hundred bucks to never do it again as a young guy.
Great job Mark! You gotta love that monthly passive income rolling in! Dividends are also a key piece of my retirement pie. Good luck on your journey to financial freedom.
Thanks! The journey is coming along. A long ways to go, but it’s nice to see the progress each month even if it is incremental.
I’d like to work on our income using dividend paying stocks but overcoming those fears of getting started is what holds me back. Today’s blog post that I wrote is a good reminder for me to step outside the box and start learning about what I need to do in order to take charge. You are still young and $8800 for the year is great Mark, well done mate. Continued success your way. Mr.CBB
I will check out your post Mr. CBB. I am relatively young, I wish I was investing like this in my late-20s. Such is life, live and learn…
On a similar path, though we do have some investments that are targeted at growth rather than income when I see opportunities. Many of my income investments are on DRIPs and am certainly focused on growing the annualized payments. I don’t track exact monthly payments, but rather a forward looking twelve month window as this is is good way to monitor progress towards our goal of having sufficient passive income to meet our needs. Since the income is all being reinvested in some fashion and it’s not at all required for current expenses it doesn’t really matter what the exact monthly payout is. So far year to date we’ve increased the annualized number by ~20%, so making good progress. The gains come from DRIPs, increasing dividends in a number of our holdings as well as additional investments. Our goal is to double this income number over the next 4-5 years at least partially supported by moving growth investments to income as well as further investments and of course the compounding existing income stream.
Great to hear from you gmf.
I only track monthly so I can do these updates…not really into detailed tracking actually. The forward-looking income is good enough. Increase by 20%? Geez, that’s great! If you can continue to invest and re-invest on top of that, I suspect you’ll be in great shape in another 4-5 years. Keep up the good work.
I don’t use DRIP but reinvest all the dividends, along my contributions over a year, into stocks. And the power of compound interest is always underestimated. It is a great way to retire well before 67. I will never understand the retired who need to destroy their capital to generate revenues with non dividend stocks. Dividends are the best of the two worlds; the common stocks and the bonds.
Good to hear from you farcodev. I think reinvesting dividends and distributions is a great way to make your portfolio work for you.
Oh yes exactly! And you are the perfect example of this. The more we accumulate, the more we become free 🙂
Heck ya 🙂
Well done, Mark. My plan is essentially the same – invest in blue chip companies that pay a dividend consistently to add to my retirement income. The companies that have a history of increasing dividends will especially come in handy to fight inflation when I eventually retire.
Sounds like we have a shared plan, Dan 🙂 Thanks for encouragement, I certainly believe I’m on the right track.