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.