June 2020 Dividend Income Update

June 2020 Dividend Income Update

“Much of our savings in Canada literally goes to waste.  Keeping money in cash or bonds accomplishes little in the long term after tax and inflation.”

“I have certainly made investment mistakes.  Everybody makes mistakes and you don’t learn unless you make a few.”

“I believe that debt worldwide is so high that a sharp expansion of the money supply, which in time always causes inflation, is inevitable.”

“Taxation has never been fair, since government can only take from those who have money.”

“In the investment business you always have to look at the downside because that’s where your risk is.   Anybody can live with the upside!”

“Brokers make their money on commissions. So if an investor worked with a broker and bought Abbott Laboratories, the poor sap would make one commission in a lifetime, unless the client had new money to place.”

“Clearly, investors are operating in a jungle with some very vicious animals.”

Indeed we are Stephen! 

Gotta love those sage words of wisdom from a Canadian billionaire and business magnate. 

I read his book The Investment Zoo years ago and it’s one of a few dozen personal finance books I’ve actually kept on my shelf. I do so to remind me how I got started with dividend paying stocks and why I continue to hold them through some thick and currently thin times.

Vicious dividend cuts

In recent monthly posts, I’ve shared I’m not immune to dividend cuts in my Canadian stock portfolio. There have been dozens of dividend cuts in our Canadian market to date. Fortunately for me, there have only been three (3), but they do sting. Dividend cuts have reduced my annual dividend income by hundreds of dollars per year – cuts from H&R REIT (HR.UN), Inter Pipeline (IPL), and our major energy player Suncor (SU).

That said, I continue to hold these companies even though more dividend cuts across my portfolio are likely on their way…

Why on earth would I do that???

Key Reason #1: My investing timeline is years and decades into the future.

I buy and hold my stocks almost regardless of the price of today. In fact, in holding each of these stocks, I still earn at least one (1) full share of each company commission-free every month and quarter thanks to my dividend reinvestment plans (DRIPs) at my brokerage. I’m buying these shares at relatively speaking cheap prices.

If you aren’t already reinvesting your dividends – you should consider it.

“Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate return.” – Charlie Munger

I included this quote because it means the complete loss of capital from your investments going south should matter FAR more than any short-term gyrations in your portfolio. This includes any dividend cuts that you might incur. Given these three stocks above combined make up less than 3% of my overall investment portfolio (thanks to a diversified portfolio) I’m not overly concerned about their short term prices. Things will return, eventually, to greener pastures. It will however take some time. 

This is why I have and will likely always have an affinity to a basket of dividend paying stocks, to offset any small dividend cuts that can and do occur from time to time. This basket includes owning stocks from other sectors that offer low(er) volatility. You could argue these companies tend to be of higher quality in this COVID-19 environment that also pay consistent dividends over time.

While I will continue to hold IPL and SU for sure, HR.UN is a maybe, I will keep them for any upside potential to go along with my low-vol holdings in many other companies including some of those listed in BMO’s ZLB top-10 (ZLB = low volatility Canadian equity offering):

BMO ZLB

Image courtesy of BMO.

If you haven’t already mixed up some of your stock holdings to offer a blend of yield, growth and income, the time might be now to assess that.

Key Reason #2: I index invest for growth.

While I love my dividend stocks (to take advantage of the wonders of compound interest by reinvesting my dividend income and continuing to build on those investments over time), I also invest in some low-cost U.S. ETFs for growth.

I figure this “hybrid” approach to investing (as I like to call it) offers me the best of both worlds:

  • I earn dividend income, today, that I can reinvest to earn more income, AND 
  • I participate in a passive, lazy, low-cost ETF strategy that delivers long-term growth.

Beyond the non-registered and TFSA updates I provide in these monthly posts, our Registered Retirement Saving Plans (RRSPs) include more U.S. assets over time. I will add more U.S. assets later next year when I have RRSP room again.

These are some of the best low-cost ETFs for your RRSP too. 

June 2020 Dividend Income Update

In our prolonged low-interest rate environment, I have every reason to believe prospective early retirees like myself or those already retired are going to earn next to nothing when it comes to the historical returns from fixed income. This is not to say you shouldn’t own some bonds or cash. 

This means investors are going to have to learn with more stocks. 

So, in owning more stocks than bonds and by reinvesting my dividends paid today, I will avoid any short-term speculation and rely on my growing stream of dividend income coupled with RRSP growth to pave my path to financial independence. A goal I might add that is about 68% accomplished as of this month:

June 2020 Dividend Income Update

Without any money added since January 2020, to put that passive income in perspective:

  • That’s like earning $2.32 per hour of every hour of every day ($20,360/8,760 hours (24 hours x ~365 days)) even in my sleep.
  • It’s the equivalent of earning $9.79 per hour assuming I work a 40-hour work week ($20,360/2,080 hours (40 hours x 52 weeks)). Then again, some of that income is 100% tax-free (thanks TFSA).

In more practical terms, it is our hope excluding our future workplace pensions OR any RRSP assets, we believe this income from our non-registered account and from within our TFSAs (when we decide to draw it down that is) might cover our condo fees, property taxes, any utility bills at least, each year – for life.

Stay tuned to my blog to find out where we are after July dividends are paid. We should be trending higher for the 2020 calendar year as more dividends are reinvested but that assumes no more dividend cuts occur! 

Further reading:

You can see some of my stock holdings here. Our long-term goal is to earn $30,000 per year from these accounts.

These are dozens of articles about low-cost ETF investing and how I invest here.

Thanks for reading,

Mark

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe, join the journey to learn how I'm getting there and how you can get there too! Follow my on Twitter @myownadvisor.

23 Responses to "June 2020 Dividend Income Update"

    1. Thanks Bob! Nope, no new money added since January 2020 after TFSAs are maxed. You can see the bump in the chart from December 2019 to January 2020, that’s the only new money added. I have no TFSA room left!

      Cheers,
      Mark

      Reply
  1. Steady as the dividend ship goes, eh Mark?

    Like you, I’ve felt the cuts this year as well through my ETFs, but it hasn’t changed my game plan at all. I’m still buying at every opportunity and even though my dividend income is lower than forecast due to the cuts, it’s still trending in the right direction with the new capital being added.

    -DG Capital

    Reply
    1. Ya, not buying anything right now myself since TFSAs are full and RRSPs are full – no more room. I’m currently saving for contributions to all 4 accounts in the coming 2021 year. Need $12K ready to go for January 1!!

      All the best and hope your site got a bump in traffic recently from any link 🙂
      Cheers,
      Mark

      Reply
      1. I’m a buyer through-out the year, I contribute to my TFSA / RRSP / non-registered account every buy day based on an algorithm I’ve established a while back. How much capital gets allocated to each account differs based on market movements and other factors I’ve programmed in.

        Yes, I did! Every shoutout gets me closer to my goal 😀 I’m working on a new video explaining the factors that cause a stock market to go up over time and how we can use technical concepts to forecast future stock prices.

        Reply
        1. Good stuff! Ya, I’ve stopped contributing to my non-reg. for a few years now. I just focus on keeping our TFSAs and RRSPs maxed out and then I spend the rest 🙂

          Mark

          Reply
          1. Excellent!

            I’ve made it a habit to take a small percentage of my dividends from my non-registered account and use it for guilt free spending. Even though technically it creates a drag on growth but it’s a powerful concept and feeling to be able to spend the dividends even if I’m not FI.

            Reply
            1. That’s the thing eh? Invest that makes sense for you even in non-reg. I don’t contribute to my non-reg. due to a) higher income and b) TFSAs and RRSPs are maxed out and I intend to focus on those first. Sure, I could invest more inside my taxable account this year, reporting more dividend income, but I want to live my life as well and I figured in the coming years I will have “saved enough” anyhow to meet our needs.

              All saving and no spending makes Mark a dull boy!
              Cheers.

              Reply
  2. Hi Mark, thank you for your monthly dividend updates. It’s good to hear I’m not the only one suffering dividend cuts.

    My husband and I retired last year, and adjusted our portfolio to concentrate on mainly dividend paying stocks and ETF’s, with a few fixed income investments. Given the current market, we are grateful we went with that strategy.

    However, I have a question about rebalancing, if you don’t mind me asking. Is it necessary to rebalance our portfolio? I hesitate rebalancing because it would affect our monthly dividend payments. I would appreciate your expertise! Thank you 🙂

    Reply
    1. Yes, I’ve had three dividend cuts unfortunately but will continue to hold those stocks since I believe in their long-term prospects as part of our economy. Could I be long? Will they cut again or go under? Possibly but I hope not of course and I have <3% invested in those companies combined so I think that's worth my personal investment risk.

      I would think your mix of dividend paying stocks, low-cost ETFs for extra diversification, fixed income and cash (presumably you have a healthy or what-if fund) is likely aligned with what many fee-only advisors I know and work with would suggest.

      My personal, long-term plan is to have something like this:
      https://www.myownadvisor.ca/how-much-cash-should-you-keep/

      This means I will have a bucket for 1) cash, sitting there making some interest; 2) ETFs, delivering distributions and capital gains; 3) Dividend paying stocks, delivering income and gains as well albeit more risk for potential reward.

      In terms of rebalancing I have written about that here and will try and refresh that post over time. I basically try and keep my TSX stock portfolio inline with TSX 60 (ETF XIU) so <30% financials, ~20% energy and the rest a mix of other sectors.
      https://www.myownadvisor.ca/reader-questions-how-do-you-rebalance-your-portfolio/

      So, to answer the question, I think you should consider rebalancing your portfolio to align with your investment risk and goals. I do so by buying lagging stocks in some sectors to get back to what XIU roughly has – give or take a few %.

      I don't worry about my RRSP very much since I simply buy more U.S. ETFs like VYM, ITOT or even XUU more with time.

      That's my approach, your mileage might vary! Good luck!
      Mark

      Reply
      1. Wow Mark, you are awesome! Thank you so much for the detailed advice. I will read the links provided. You presumed correctly regarding our asset mix and cash, although it is our intent to build up the cash component even more. Thank you again, I don’t miss an email 🙂

        Reply
        1. Ha, good luck. I think they key is, always will be for any investor, invest to align to your values, goals and risk tolerance. If you can get those things remotely right, who cares about what others invest in or don’t. The only needs that need to matter when it comes to investing are your own.

          Cheers!
          Mark

          Reply
  3. It’s actually encouraging to see your dividend number slightly higher than last month and that you are over 2/3 of the way to target. Congratulations. My dividend income was $533 for June. My target going forward is to average $500 per month. The IPL cut messed that up and it was right on track. Best laid plans and all. See what happens going forward.

    Reply
    1. Yes, it is our hope that once non-reg. + x2 TFSA accounts churn out $30K per year in income, we will have “enough” to semi-retire. That’s always been a long-term goal of mine since coupled with RRSP assets that will be drawn down and any part-time work that should provide great financial flexibility I’ve been working towards for about 20 years now 🙂

      IPL hit me for a loss of a few hundred bucks in income per year unfortunately but things should return so I will hold this one long-term.

      The future is always cloudy!

      Reply
  4. It’s nice your dividend income begins to grow again.

    As we are staying home all this year and the kids cannot take many activities either, we have saved much more than 50% of our salary this year so far. But I am so busy working at home, still need to invest that money.

    Reply
    1. Good to hear from you May. Work going better for you?

      Yes, nice to see income rise again and hopefully that will continue. I’m counting on that cash flow in the coming years!
      Mark

      Reply
  5. Great job Mark!

    I am a bit discouraged with the recent performance of my dividend growth portfolio and I was wondering if you have any advice for me.

    I am a big fan of dividend investing and have been investing my money in dividend stocks (mostly Canadian) based on recommendations from the RFD forum “Investing Idea – Dividend Growth”. However, when I look at the performance of my stocks it has been abysmal so far. My total YTD rate of return is -10%; 3years:-0.1% and 5 years 1.9%. If I would have invested in global broad based index funds my returns would have been much better (5 years: ~8%).

    Any advice on what I should do? Stick to my investment strategy and hope for reversion to the mean? Sell all my dividend stocks and just buy VEQT?

    Reply
    1. Gosh Peter, hard to say. It’s been a tough year for many investors including some dividend investors who enjoy those dividends from Canadian banks and other companies. I mean, I’ve had three dividend cuts in my portfolio this year which is not fun but alas, nothing I can do about those cuts now.

      I think you find dividend investing challenging, your are lagging the market, etc. and unclear about your plan, I would revisit that first. If your financial plan says you want a more balanced approach, less market volatility with individual stocks, and near-market returns, VEQT all-in-one could be your ticket!

      Good luck with your decision. Not easy days and times to be an investor!
      Mark

      Reply

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