Huh, March dividend income update? But it’s almost May?
I know, I’m a little late with the dividend income update post but such is life. Things get busy. In the last couple of weeks…work has been very busy, we renovated a bathroom and painted our master bedroom at home, I took a week-long course in Las Vegas and I’ve been home long enough to pack for another trip. The last three weeks have been a blur.
When you’re busy, time flies. You blink and March becomes April which approaches May. Thankfully, as fast as time seems to travel these days most of my investment portfolio doesn’t seem to go anywhere too fast – what I mean is – my portfolio travels at a rather boring and predictable pace upwards, plodding along, money making money thanks to my investment strategy.
You see, part of my investment portfolio is invested in indexed products. Index investing works because while active mutual fund management might beat the stock market some of the time, most of the time it will fail; especially when fund money management fees are added to the equation. Indexing on the other hand allows investors to capture the returns of the markets less miniscule fees, with very low effort and minimal risk. So, as the markets and the indexes they follow go so goes my investment portfolio – which suits me just fine. I figure if Warren Buffett has this to say about indexing over active mutual fund management then most of us should stand up and take notice:
“The best way in my view is to just buy a low-cost index fund and keep buying it regularly over time, because you’ll be buying into a wonderful industry, which in effect is all of American industry,” Buffett told a CNBC anchor.
“If you have 2% a year of your funds being eaten up by fees you’re going to have a hard time matching an index fund in my view,” Buffett said. “People ought to sit back and relax and keep accumulating over time.”
As a dance partner to my indexed approach I have chosen to invest in dividend paying stocks directly. While this may seem in conflict with my indexing approach, I believe dividend investing is actually a perfect partner to indexing. I select blue-chip companies that anchor the stocks markets in Canada and the U.S., I buy these companies at reasonable prices and then I continue to “relax” as Buffett says I should while dividends get paid each month or quarter. Whenever dividends are paid by these companies, I reinvest the dividends paid, accumulating my ownership in these blue-chip stocks incrementally over time. With any money left over after dividends are paid, I save up and buy new companies at reasonable prices, diversifying my portfolio. Selecting blue-chip companies for your portfolio does not have to be rocket science, I’ve written about this a few times.
Years ago, I started off my dividend investing journey with one company, Enbridge (ENB). I invested a few thousand dollars in ENB in 2008. It was an aggressive move and a lot of money (for me at least) but the years since that purchase have proven this was a smart move; some risks can have a reward. My return on ENB since 2008 has been quite good and I expect this company among others will continue to deliver handsome dividends and some capital appreciation for years to come. Which brings me to this…by owning a diverse portfolio of Canadian and U.S. stocks that have paid dividends for decades if not generations I believe you can achieve near market returns with low risk as well.
There will always be companies that outperform the stock market but identifying those darlings in advance is difficult, not to mention time-consuming with added risk. I prefer not to play that game because a) I’m not good at it and b) I have my own game plan. With indexing, I ride market returns less microscopic fees. With dividend investing, I have an increasing pipeline of retirement income coming thanks to profitable blue-chip companies like banks, telcoms, energy producers, Real Estate Investment Trusts (REITs) and retailers. Thanks to the TFSA, most of this retirement income will be tax-free.
Working towards my retirement goals, to have a paid off home in about 9 years in my 40s and a healthy retirement income portfolio to live from, this past March I calculated my dividend income increased by about $70 over February. This doesn’t sound like much but come year-end, I am hopeful this income will be about $1,000 more than last year based on buying and holding established companies that pay dividends. Our long-term goal seems within reach as long as we continue to pay down debt and avoid deviating from our investment plan.
Thanks for following my dividend income journey.
How are your retirement goals coming along? What is your plan? Got any feedback on my plan?
I love it when one of the greatest stock pickers of all time tell us to invest in index funds. I seriously don’t understand why people that want to invest in mutual funds don’t just by shares of Berk B instead!
Your investing plan is Ninja Approved! (in case you’re looking for approval). Kidding aside, and as you already know, I like the diversified approach between using both strategies!
Thing is, the econmoic indicators are all showing the end of a business cycle. Markets are going to go down at some point – you’ll be glad with the dividend approach when that happens + the Bond ETFs.
As Andrew Hallam says, those bonds will give you dry-powder, to buy cheap stocks when markets tank. 😉
The Dividend Ninja
I can see what you mean by having a diverse portfolio and I wish I knew the right picks but I’m not magician, that’s for sure. I’d likely do what you suggest at first and that is to go with what we already know and what has historically paid back decent dividends. I think $70 is better than nothing and it will all add up no matter what way you look at it. Still learning,
Vegas was…interesting as always. Been there before. That is quite the town, nothing like it on earth I suspect. The best part of Vegas is all the characters you meet. There are some very interesting folk in that town.
Regarding the investing, I see why some folks don’t index. However, if you want a diversified portfolio, cheaply and a way to passively invest in the market, I see no better option.
That said, I too have enjoyed some solid returns with my dividend portfolio. Without any capital appreciation, I think my portfolio yields around 4%. At last count, I have about 28 different CDN companies and 9 U.S. companies in my portfolio. I think that’s decent diversification but I’m biased. 🙂
Whatever is working for you Steve, just keep doing it! BTW – you going to CPFC13?