June 2019 Dividend Income Update
Welcome to my mid-year June 2019 dividend income update.
Six months down, six months to go in 2019. Time (and summer in Ottawa) is flying by…
For those of you new to these posts on my site, every month I discuss our approach to investing focusing on Canadian dividend paying stocks.
We believe buying and holding a number of Canadian dividend-paying stocks in our tax-free (thanks TFSA!) and non-registered accounts will, over time, provide us with the necessary income to realize semi-retirement. The income goal from our TFSAs and non-registered account is $30,000 per year.
It’s a big number but it’s achievable I think. I feel that way because these monthly income updates are demonstrating this.
Two big financial goals
I write about dividend investing often (every month on this site as part of these income updates) but it’s worth reminding readers this approach is just one method regarding how we invest as we kill off mortgage debt.
Essentially, we have two big money goals:
- Become debt-free. $0 debt. Ideally, never take on debt again once debt free.
- Own a $1 million investment portfolio (outside any existing workplace pension assets, excluding any of our home equity).
We believe, realizing goals #1 and #2 above will allow us to work on our terms, essentially making us financially independent in the coming years.
Had we not decided to buy the condo we now live in, I suspect we would have been semi-retired now in our 40s. FIRE (Financial Independence, Retire Early) is a pretty cool concept but home/condo ownership was important to us as part of our financial plan, so we continue to work full-time and pay off debt.
A frugal life of FIRE may or may not be right for you.
About the $30,000 income goal
Readers continue to ask me why I focus so much on dividend income and why we don’t discuss our RRSP assets very much – related to some semi-retirement dreams.
Well, my answer goes something like this:
- The passive income goal of $30,000 per year will provide tax-free and tax-efficient income for life – without needing to spend the capital or at least we can spend the capital on our own terms. I see it this way: $30,000 per year will pay for the following for as long as we live (2019 after-tax dollars):
- food/groceries, basic household supplies = $8,000 per year or $667/mo.
- condo utilities (heat, hydro, water, internet, cell phone bills) = $6,000 per year or $500/mo.
- condo property taxes = $6,000 per year or $500/mo.
- condo fees in Ottawa = $6,000 per year or $500/mo.
- 1 car expense (insurance ($50-100) + gas ($50-100) + car maintenance (flexible)) = $3,000 per year or $250/mo.
- healthcare costs (various).
Assuming just half of our portfolio increases their dividends over time, I’m confident this is enough income to provide the basic necessities of life even if inflation rises between 3-5% for decades.
- Certainly dividends are not magical but they are pretty darn good. You can quote me on that! The income derived from our portfolio will be our money to keep, to spend or reinvest on our own terms. This is why I like dividend income so much. I don’t have to worry about what management might do with their cash – as a shareholder of a dividend friendly company, I get some of it to do as I please without worrying about market timing or selling shares. A reader recently asked me:
What are your favourite or top-5 Canadian stocks?
Earlier this year, I bought some more of my favourite Canadian utility stocks. I’m glad I did. One of them is up almost 15% year to date.
- Investing this way is a form of forced savings. What I mean is, I’m striving for certain income-level in semi-retirement. Cash flow from our portfolio will be king. To achieve our cash flow requirement, I know that with a simple 4% rule: every $1,000 invested in a company that yields 4% in dividend income will pay me another $40 per year. So, every year as an example, my wife and I strive to max out our TFSA contribution room to invest in more Canadian dividend paying stocks. Earlier this year, in January 2019, we invested $12,000. That $12,000 invested will likely increase our dividend income by another $480 (give or take) by December 2019 – or at least $240 year to date. I can assure you this is happening when combined with dividend increases along the way:
- From December 2018 to end of January 2019, our dividend income jumped from $17,221 by over $500.
- From early February 2019 until now, our dividend income climbed again, by hundreds.
As of June 2019, we’re on pace to earn $18,900 this calendar year from those key accounts (TFSA and non-registered), about $100 more than just 30 days ago by sticking to our plan.
Wild isn’t it? I did nothing and our forward dividend income increased by $100 in just four weeks…
The simple combination of buying and holding Canadian stocks that pay stable and increasing dividends, and maxing out our tax-free investing accounts, every year, has done a world of good towards helping us realize some of our money goals.
Any new investments on the horizon?
Not really. Not now.
You might recall one of our 2019 money goals is to save yet another bit of money to max out TFSA contribution room for January 2020. We’re a little behind on that particular savings goal (based on the recent condo move and expenses related to that), but we hope to make up that savings in the fall.
With dividend reinvestment plans for most of the stocks we own on autopilot, shares DRIPping commission-free every month and quarter, we might just surpass $19,500 in dividend income from our non-registered and TFSA accounts by the end of 2019.
As always with my plan, I’ll keep you posted!
I hope you are realizing some of your mid-year goals. Let me know when you have questions about ours and I will do my best to answer them.
See you on the site!