Welcome to my latest dividend income update. For those of you new to these posts on my site, every month I discuss my approach to investing focusing on dividend paying stocks and how reinvesting the dividends paid from the Canadian companies we own are helping us reach financial freedom.
This month, I’ll recap our magic formula for growing our dividend income to $12,200 per calendar year since we changed our investing approach about six years ago.
Secret #1 – We buy Canadian blue-chip dividend paying stocks that have a history of paying shareholders for decades. Over time during my investing journey, I’ve learned to avoid high-yielding stocks and stocks with a short dividend payment history. There is too much risk. Instead we invest in these types of companies.
Secret #2 – We reinvest the dividends paid by these companies where possible, as much as possible. Like John Heinzl from the Globe and Mail, I don’t like having my dividends sitting around doing nothing – I put them to work every month and quarter – but I reinvest the dividends paid. (When you set up your dividend reinvestment plan (DRIP) at your brokerage you can typically only DRIP full shares (not partial shares of stocks.) After dividends buy at least one full share each month or quarter, I save the left over cash, and wait until a sufficient amount builds up to buy more stock that looks attractive. The way I see it, by reinvesting our dividends where possible, shares that produce more dividends buy more shares, and those shares will pay out more dividends next time. I hope you see the snowball effect here.
Secret #3 – We avoid selling our stocks, regardless how far the stock price might fall. This has been admittedly tough when it comes to the oil and gas sector over the last year but I remain true to our plan. It’s not easy to stay with a plan when some holdings are down 50%. The upside is those reinvested dividends I told you about are purchased when share prices are down (significantly) and we all know buying low is a good thing to do. This is certainly not a get rich quick plan. This is a get wealthy eventually plan.
Secret #4 – We own many of these companies inside our Tax Free Savings Accounts (TFSAs), some of these companies are non-registered investments. Every year we try to max out our TFSAs and put Canadian stocks in there. You can check out these reasons why – read this if you’re investing in U.S. stocks or Exchange Traded Funds (ETFs).
Those are our big secrets friends.
Other than the above, we really try to index invest in our Registered Retirement Savings Plans (RRSPs). Along with the passive income journey we are on, we also believe owning (and owning more over time) low-cost, broad market indexed ETF units are a great way to invest for extra diversification and the ability to ride market returns less tiny money management fees. You can check out some of my favourite ETFs here.
We have no idea what the future holds but every month, it seems staying the course is inching us closer to our goal. Our approach feels good and I’m looking forward to sharing our next update (for April) with you soon. Thanks for reading.
Ohhh the secrets are out (or not). 😉
Gotta love tax-free growth. Organic dividend growth and DRIP will do wonder in growing dividends moving forward, even if you don’t add another cent in the portfolio.
LOL 🙂 Yup, now other investors can copy me (or not).
Tax-free growth is pretty key in growing dividends overall and DRIP certainly helps grow dividends as well which can help take out the emotional impact of stock losses. Even if my stock falls, I’d be OK with it(assuming my due diligence still shows it as a solid investment even if the market doesn’t think so in the short term) since I’m buying more and more at a lower price through the DRIP process. Both are key to long term success.
I’m OK for stocks to fall in price JGG. Actually, I hope stock prices stay low for another 20 years and then skyrocket 🙂 Thanks for your comment.
Like you Mark I don’t really fuss over the day to day price of stocks for the most part. Mostly the only time I will look at stock prices is if there is a large cash balance after a contribution or an interest payment from one of the CDs. Then I will look to see if any of my holdings are in the lower half of the 52 week Hi/Lo. If it works, I’ll buy those.
I prefer to focus on the income the portfolio generates versus the theoretical value. Most stocks are DRIPped and any residual cash (due to whole shares only) is usually accumulated until I get enough to buy the minimum purchase for one of the TD e-series funds. If I know an interest payment is coming up shortly I’ll wait for that and then see what looks attractive.
Sadly we lost our cat this weekend…so I really don’t try and sweet the small stuff anymore… 🙁
I try and buy more stocks at 52-week lows. Otherwise, let them DRIP away as much as possible and save cash if the 52-week lows don’t appear.
Save first, then invest, after that is done, live off the rest. A very simple formula that seems to be working for us.
Like you, as you probably know by now, I also prefer to focus on the income the portfolio generates versus the theoretical value. As soon as our expenses are exceeded with the dividend income, we’ll quit the workforce which is hopefully 10 years out (very early 50s for us).
The Big Four Secrets! great to share these.
Secret #3 for sure is the most challenging to put in place: Not selling when the markets dump the stock! Oil has been a tough one in my portfolio as well.
Oil has been tough but I continue to hold some. I probably always will. Thanks for the support.
Mark: not only a great strategy, but better attitude. If you like the stocks you own, stick with them unless the company fails to meet your criteria for buying! Nice work.
Yes, the plan is coming along. Thanks for the support.
A succinct article demonstrating the (possible) power of NOT buying index funds/ETFs, but instead their components, as with your hybrid strategy:
What Is A Better Strategy – Invest In Berkshire, Or Buffett’s Stock Picks?
(Mark, have you ever run a test like this with your own portfolio?)
This has been pointed this out many times, that the majority of gains are produced by a minority of holdings.
From a personal POV, I own exactly two (2) Canadian public market stocks: 7.5% annual dividend, 14% annual return (7 yr), no fees; TSX fund: 3% dividend yield, 9.6% annual return (7 yr), minus fees. I would have made 70% less gains per year by diversifying.
If you choose to adopt this type of Pareto strategy, you might also want to piggyback some kind of trend strategy, as consolidation’s power is in the upswing, but diversification will save the day during a plummet.
Then again, if you have enough time, as both Buffett and Munger suggest, you should consolidate as much as possible.
SST:”Then again, if you have enough time, as both Buffett and Munger suggest, you should consolidate as much as possible.”
When I found the DG strategy that’s what I strove for and got our holdings down to 19 stocks. I’d still like to get rid of 2 but only if their price goes up. MPO that is when my portfolio only started being successful when I stopped trading and stuck with the core holding. Being retired for many years and no longer doing any trading, it’s continued to grow both my income and portfolio.