March 2014 Dividend Income Update

Welcome to another dividend income update.  For those of you new to these posts on my site, every month I discuss my approach to investing using dividend paying stocks and how reinvesting the dividends paid from the Canadian companies I own are helping me reach financial freedom.   You can check out my previous dividend income update here.

As a long-term investor I don’t get too excited monitoring the portfolio. First of all, it’s not a huge sum of money yet and second, in the short-term, stock prices go up and down.  There is no point getting emotional over that stuff.  However over the past month I must say I am pleased with many holdings in the portfolio.  A couple of examples include Canadian Oil Sands (COS), approaching a 20% gain year-to-date and TD Bank (TD), a company that started the year at an adjusted stock split price of about $45 is approaching $52 per share.  Will the hot streaks continue?  Time will tell…

These companies (and many others in my portfolio) are long-term buy and hold positions I have no intention of selling even if and when there is a market correction.  I’m trying to learn from my past.  I used to buy penny stocks in my 20s, hoping they would skyrocket in value over time.  You can likely guess how those experiments turned out.

I also used to invest in pricy mutual funds, with management fees close to 2%.  Throughout my 20s, I simply had no clue how much these fund fees would eat into my investment returns.  In fact, here’s a quick example picking on the RBC Canadian Equity Fund:

  • Starting with $25,000 in this mutual fund, holding it over a 25-year investment period, contributing $5,000 annually, the final investment value would be about $330,000.

That’s great, but…..

  • Starting with the same $25,000, invested in a much lower cost TD Canadian Index e-series fund (just for example), holding it over the same 25-year investment period, contributing $5,000 annually, the final investment value would be almost $410,000.

You can play with the costs (and opportunity costs) of various mutual funds thanks to this calculator here.

What’s this tangent for?   All this stuff to say I’ve tried to become smarter and wiser where and when I invest my hard-earned dollars.   I try to:

  • Leverage the power of compounding; reinvest dividends whenever possible to make my portfolio grow faster.
  • Avoid timing the market, I’ve tried and I can’t do it.
  • Diversify my dividend holdings, because there are no sure-fire stock winners.  I diversify across companies, sectors, and countries.

Some of these simple rules have helped our portfolio grow to what it is today, a good start towards financial freedom.  Thanks to Canadian companies and Exchange Traded Funds (ETFs) that pay regular dividends and distributions we’re projected to earn $8,070 this calendar year.  I could foresee us earning close to $9,000 in dividend income if we keep saving, keep DRIPping and wait for good opportunities to buy more stocks.

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