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 using dividend paying stocks and how reinvesting the dividends paid from the companies I own are helping me reach financial freedom.
Thanks to the month of May, the S&P/TSX index is now in positive territory for the year, returning about 3%. Before that, the market was running rather flat in 2013. As an investor, I don’t worry at all about what the markets do over such a short time frame. Remember volatility can be a friend of yours. It can provide investors opportunities to buy stocks at lower prices although it’s tough to determine when these low prices are. As a long-term investor I’m not worried about volatility in my portfolio since price fluctuations will always occur. I’m focused on the big picture instead, a plan that extends out 10, 20 or more years out.
With that mindset I follow a simple recipe with our Tax Free Savings Accounts (TFSAs); save money, make contributions to it and make a purchase once every few months. I made one buy over the last couple months when I thought the price was right for me in Telus (T). We now have almost enough shares to DRIP this stock which should see the dividends reinvested every quarter to buy more shares automatically, free of charge.
After the tally for May was done, I calculated we’re on pace to earn about $6,940 this year in dividend income from our Canadian companies. That will happen as long as the companies we own keep paying dividends and we continue to reinvest the money paid by them. We continue to be a long ways away from our goal to use dividend income to pay for most of our retirement expenses but every month is a small step forward to that milestone.
I’ll be back with another update next month and in a future post, I’ll answer some frequently asked questions about my dividend income journey. Until that article comes up you can read more about my investing approach here and here.
You may want to “average in” rather than wait and put it all in at once. It’s up to you of course. (By average in, I mean say you want to pick up another 300 shares in BMO, you could buy 100 this week on the dip, and buy the next 200 over the summer if it continues to fall.)
If you’re planning to buy and hold for 10-20 years and you’ll be buying more each year along the way, you don’t need to agonize too much about when to get in. I bought BNS and watched it plummet and take a year to recover and then plummet again. But I don’t care: I bought it as a dividend income stream and it has tooted along paying every quarter and in fact raising the dividend periodically. So timing the market would not have made a huge difference to me. [Of course when I bought more, I was happy to buy it during the plummet. Everyone loves a bargain. : ) ]
Wow, that’s a lot of dividends. Congrats Mark!
I’ve been saving A LOT of capital waiting for the right time to invest. This latest slump in the markets has me ready to pull the trigger any day now!
Good man Steve! I hope to buy some more WFC or COP. The P/E ratio is still under 11 and 10 respectively.
Keep up the fantastic work! That’s almost $7,000 in annual income that you don’t have to work for. You have a little worker bee out there working a part-time job for you and sending you the checks. Great stuff! 🙂
The plan is coming together and I’m looking forward to crossing the $7k mark this summer! 🙂
Can’t spend a penny of this money though, it must always be reinvested at some point.
Great job Mark! Keep up the good work! It’s posts like these that inspire more people to invest on their own.
Thanks Kanwal. I appreciate the support.
Forgive the ignorance, but this line:
We now have almost enough shares to DRIP this stock which should see the dividends reinvested every quarter to buy more shares automatically, free of charge.
In a TFSA how do you drip Free of charge unless its synthetic? and if that’s the case would it still not incur a brokerage commission?
Thanks!! Was curious!
Thanks for your comment. Yes, I was referring to a synthetic DRIP.
There are really two types of DRIPs.
1) Full DRIPs with SPPs, whereby you can work with transfer agents to buy more shares commission-free or
2) Synthetic DRIPs, whereby you need to own enough shares so when dividends are paid, whole shares (1, 2, 3 or more) can be bought.
You can run synthetic DRIPs using non-registered accounts, TFSAs, RRSPs, RRIFs, etc. Synthetic DRIPs are also commission-free.
Sounds excellent! Congrats!
@CBB I think he means that until your dividend payment is large enough to purchase a “whole” share you can’t really DRIP it in a registered account. Synthetic DRIPs don’t allow you to buy “fractional” shares. So to DRIP Telus, you’d need a quarterly dividend payment of around $35-40, which would require having around 120 shares.
MOA, I think you’re doing better than you know. Have you checked your ‘fixed’ annual costs? (electricity, nat gas/heating oil, water, cable, internet, telephone/s, home insurance, gasoline, car insurance, property taxes, etc.) I suspect your dividends already cover about 50% or more of your predictable annual costs, not including food/clothing/medical/recreational costs which of course are much more difficult to estimate. Add some CPP or a pension and pretty soon what you’re saving for becomes an enjoyable quality of life rather than just staying alive.
Hey Bet Crooks!
Nice to see you back again…
Yes, I mean synthetic DRIPs, meaning, when dividends are paid, there is enough cash being paid whereby the dividend payment is large enough to purchase at least one “whole” share. Synthetic DRIPs are not like full DRIPs, where you can buy partial shares.
In my example, with Telus, the dividend by Telus is $0.34 CDN/quarter. That means, if I were to own 100 shares as of today, and say the dividend was paid today, I would be paid $34 as a result of owning my 100 Telus shares. The $34 I just got paid, is not enough as of today to buy more “whole” shares of Telus. this is because Telus stock is now about $35 (closed at $34.71 on June 10, 2013 actually) so I’d be a dollar short – literally 🙂
The thing will synthetic DRIPs is, if you own enough shares in a given company, the dividends get paid, the dividends buy more shares every quarter, the more shares pay out more dividends, the more dividends buy more shares, etc. You can see the compounding cycle at work without adding any new money. This is my plan.
Thanks for the kind words and yes, the plan is coming together.
I’ve definitely checked out fixed costs and what dividends would cover today, and as of now, I could likely pay my property taxes every year with dividends, along with my heating (natural gas) and electricity bills as well. I can’t cover cable, cell phones, insurance or vehicle costs yet but that is the plan. My plan is to earn enough in dividends to cover all fixed costs and groceries for us. The pension, the RRSP, and then government programs (CPP + OAS) will cover the rest of our retirement costs, mainly travel and entertainment. In fact, I’m planning to retire without relying on any government programs.
Looks like you had a good month of May! I am looking forward to the future post with FAQs. This is something I’m really interested in.
Thanks Daisy! Keep reading 🙂
I’ll be over to your site this week.
That sounds like another great month for you. I agree that looking at the big picture down the road is better than investing in worrying so much over the ups and downs. There will always be ups and downs so panicking about it will drive some nuts. I’m just reading more about DRIPS as I’m not too familiar about what you mean you have enough invested in Telus now to DRIP. Cheers
Hey Mr. CBB,
Did you check this page out?