March 2020 Dividend Income Update
“I look forward to sharing March dividend income updates and beyond with you – good, bad or indifferent!”
That was the statement in my February 2020 dividend income update.
My, my, my…have things changed…
Dividends while good are never guaranteed
As regular readers of this site are aware, I take a two-pronged approach to investing:
- I strive to build a passive income stream using our non-registered account and TFSAs, investing in mainly Canadian dividend paying stocks, and
- I strive to invest in U.S. stocks and low-cost ETFs inside our RRSPs, for income and growth.
These updates are and continue to be about that first bullet.
I focus on that reporting because a) I’ve always reported it that way for about 10 years now and b) because I will eventually draw-down the capital inside our RRSPs as part of our semi-retirement plan.
I continue to believe should the passive dividend income derived from our Canadian stocks in our non-registered account and TFSAs eventually exceed $30,000 per year, our long-term goal, I am confident without any debt my wife and I could semi-retire.
This is because I believe coupled with our RRSP assets and other savings we are pursuing we will have reached our Crossover Point.
Once all income from our invested capital comes close to matching our monthly expenses, I believe we’ll have enough money to change our working habits:
- We can work part-time or remain full-time.
- We could consider drawing-down our RRSP assets over a multi-year investment timeframe.
- We could “live off dividends” from our non-registered portfolio and keep TFSA assets intact for older age.
Basically, we would have financial options… That is the goal here.
Dividends can and do get cut – sigh
Since my February update, I’ve incurred one (1) significant dividend cut to my portfolio so far: Inter Pipeline (IPL). With that, Inter Pipeline’s decision to chop their dividend by a whopping 72% (as responsible as a decision that was) that slash hurt shareholders like myself who have enjoyed multiple years of dividend increases.
Dividends did double in the last 10 years. I’ve owned IPL for all of them including monthly dividends paid from 2019:
Data from Inter Pipeline.
So should I change my dividend investing approach?
With that dividend chop to my portfolio I’ve lost about $200 in annual dividend income for our key tax-efficient and tax-free accounts. Far from ideal.
Instead of our forward dividends from our non-registered and TFSA accounts looking like $20,600 for this calendar year it’s now looking like $20,410.
This of course assumes all companies will continue to pay their dividends as they normally would. Again, no guarantees. In fact, I do expect a few more stocks that I own might cut their dividends in the coming months. This is a significant economic catastrophe unfolding.
This begs a question: should I change my dividend investing approach?
My answer is a resounding “no” for a few key reasons:
- While scary this is actually a great pre-retirement income test for me. Although dividend cuts are not ideal, I’m embracing this market crisis as a HUGE opportunity to learn how I’m reacting and managing my portfolio. For years, I’ve considered the notion to “live off dividends” to some degree. This market climate is going to test that approach and my emotional resolve. Of course, in semi-retirement, I will have other market risk mitigation tactics in place (such as at least 1-years’ worth of expenses saved up in cash). Yet in living through things right now, I will clearly see what companies will cut their dividends and what companies won’t. That could be a great indicator for how to adjust my portfolio moving forward.
- Regardless of the outcome, I’m getting some stocks on sale right now. The beauty of participating in dividend reinvestment plans (DRIPs) is that whether the market is running hot or tanking I’m reinvesting my shares commission-free. So, during this economic crisis, thanks to DRIPs, I’m buying more shares without incurring any transaction costs at lower prices. I’m in my asset accumulation years after all – buying more shares at lower prices is a very good thing. If or rather when dividends are reinstated or increase again, and they will eventually, I’ll have purchased many more shares at far cheaper costs than I could have months before. While dividend cuts are far from ideal, I’m embracing this opportunity to buy more stocks at lower prices before they rise in value again.
Keeping an iron stomach and next steps
This economic collapse is by no means easy. I worry about the long-term economic impacts of this crisis. I worry about my job from time to time. I’m actually very concerned about the boarder economic implications of what’s happening including how on earth the tax base is going to pay for all this lost productivity…
It is my sincere hope leaders will start putting plans in place to get people working again in the next month or so. A recovery will take longer…
It never feels good to see your portfolio value tumble. There are likely more surprises to come…
But, market volatility even with some extremes is normal.
This is my third major correction as an investor. My first was when the tech bubble burst some 20 years ago. My second was living through The Great Recession just over a decade ago. Now, this crisis.
I can’t say what you must do for your portfolio but I continually remind myself why I need to stay invested.
This means I won’t be selling anything including any IPL stock. I will continue to hold this one.
As savings will allow, I will however be looking to add more shares in various companies. I’ve highlighted the sectors I am focusing on and why below:
- Utility companies – because people will always want to heat and cool their homes, enjoy electricity, use the internet and technology, and enjoy clean water.
- Healthcare companies – because people will always strive for (or least want to have) health.
March 2020 dividend income update
While March 2020 dividend income has dropped, we’re still doing pretty well thanks to many years of disciplined investing and saving for our future selves. It’s also comforting to know our overall dividend income continues to go up if I was to include other assets such as RRSP investments.
To put roughly $20,400 per year in tax-efficient and tax-free (thanks TFSA) money in perspective:
- Using a metric I started here on this site, that is gaining traction with other bloggers in terms of an hourly passive income rate:
- $20,400 per year in dividends earned translates to earning roughly $2.33 per hour of every hour of every day ($20,400/8,760 hours (24 hours x ~365 days)).
- In terms of an hourly wage:
- That dividend income earned per year could be considered earning the equivalent of $9.81 per hour assuming I work a 40-hour work week ($20,400/2,080 hours (40 hours x 52 weeks)). Then again, some of that income is tax-free (thanks TFSA).
Will more dividends get cut?
How might I need to alter my dividend income approach to “live off dividends” in semi-retirement?
Will I need to change my investing approach as larger market crises loom?
Lots of questions to be answered. We’ll see what the future holds. I will have another update in April. Until then, send me lots of comments on this post about your thoughts.
Stay well and stay at home,