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?