I’ve written this statement before on my site but dividend investing seems to be more popular than ever. There could be a few reasons for this…
Maybe investors are fed up with the meager returns that bonds and GICs have been providing for many years, to borrow a phrase from Rob McLister’s site, our “sustainably unsustainable” low interest rates seem to have no end in sight. Two, maybe more investors are going the do-it-yourself (DIY) investing route, using dividend paying stocks, because these investors have realized the high-priced mutual funds (that eat away at their portfolio values) tend to hold many of the same Canadian blue-chip stocks. Third, maybe investors are learning more and more to stay the course, sticking with brand-name stocks that have been around for decades and are subsequently avoiding more speculative smaller-cap stocks that trigger too much active trading and other bad habits. There are many more reasons I’m convinced but I know for me, established companies that pay consistent dividends seem to make sense.
To demonstrate the power of sticking to my plan, maxing out our Tax Free Savings Accounts (TFSAs) and making contributions to other accounts, this time last year we were on pace to earn just under $7k for the calendar year from dividend income. This year, we’re on pace to earn just over $8,400 thanks to monthly saving and investing habits along with dividend increases from many Canadian companies. The S&P/TSX has been red-hot of late and while the capital appreciation is great this doesn’t actually help my dividend reinvestment plans (DRIPs) very much – I’m buying more shares at higher prices every month and quarter. I might have to revisit turning off some DRIP taps soon contrary to what I’ve been doing for a few years now:
As long as the companies we own continue to pay dividends, even with only a few DRIPs running, our dividend income will increase later this year. This investing approach is a lot like a marathon in many respects, there are no shortcuts to finishing the race. It takes lots of time and lots of training. I’m willing to be patient and train my investing brain as much as I can.
“We can do anything we want to do if we stick to it long enough.”
-Helen Keller
What’s your take on the red-hot equity market of late? Has this changed your investing approach?
I’m nowhere near where you are when it comes to dividend income, but I would love to be there so my plan is to continue investing and DRIPing and hopefully be able to get there within the next 5 years or so. I have a long way to go!
Consider it a challenge Daisy! You’ll get there but it sounds like you have a very busy year.
Everyone is looking for a “safe” place to put their savings to work. Where else can you go but a safe dividend growing company? Not the banks or bonds with their tiny yields. KO, MCD and many other high quality companies all paying 3% or more. It beats a 0.5% return. Also, DRIPs are an awesome way to grow a position over time.
I firmly believe a basket of dividend paying companies, from a variety of sectors and from US and Canada, is a good way to invest. You may not necessarily “beat the index” this way, but this is also why I invest in indexed ETFs. I feel I get the best of both worlds. I’m a huge fan of DRIPs but I might turn off a few DRIP taps and get the cash for other purchases instead. Thanks for the comment DivHut!
Mark,
Congrats on all of your success thus far. $8,400 in dividend income this year is just fantastic. Slow and steady wins the race!
Best wishes.
Thanks Jason. I’m trying to save and invest wisely in top blue-chip companies. When in doubt, I invest in ETFs.
Wow! More than 8k in passive income sounds great. I agree that it’s hard to find value picks in this market. All the great stocks trade at all time highs…
Summer time usually offers opportunities to buy at better prices… (The sell in may and go away effect) We’ll see. I still bought shares in may and june but I hold 8k in cash in case… I was out of cash when the Dow dipped below 15500 last March and I don’t want to be cut naked again when such opportunities arise.
Keep going!
I need to save money and be more patient…everything is pricy.
I’m not sure people are subscribing to the “sell in May” mantra, people are buying at all-time highs, which makes me fearful. I guess I can wait and be patient Allan, not much choice!
Thanks for the comment.
That’s awesome that you’re projecting $8,400 in dividends for the year. Plus with some more increases and more capital invested that’s just going to continue to increase. I used to automatically reinvest into 95% of my holdings but just recently turned the auto-reinvest feature off. We’ll see how it goes after a quarter or two. But the key is that the dividends get reinvested.
We’re just over 25% to our goal JC. The plan is coming along but it’s a slow, patient process. Thanks for the encouragement on the journey.
I like Drip when they offer discount on shares but when they dont I think its best to pool your dividends to more selected buys of new positions or undervalued current positions. The hot markets right now have no effect on my current investing philosophy.
Good Day and Grind On!
Pooling dividends has benefits as well, no doubt. The markets have been hot so it’s tough to rebalance as a dividend investor. Much easier to rebalance as an indexer, buying the lagging index.
I like the idea that you get dividends paid into your account, let them accumulate for a bit and then you can buy more shares, which are kind of free if you think about it! You can then get more dividends on the extra shares you have, and it’s a never ending cycle of goodness. Love it.
I do a bit of both Nicola, I let cash come in (for future investments) but also DRIP many stocks, getting shares for free. I figure this is the best of both worlds! Thanks for the comment.
Nice job on the $8400 in passive dividend income. In my opinion, you just can’t go wrong holding a basket of blue-chip dividend paying stocks for the long term.
I don’t think so either 😉
As an alternative to drip, you can have the dividends accumulate as cash in your trading account. When it exceeds a thousand dollars or so, it is a large enough sum to open up a new holding without having the trading fee impact it too much.
The advantage to this, is that you can pick a low P/E stock to reinvest the div payments in. This keeps you from buying at higher and higher prices.
I may pursue this model more Bram, once I feel I have “enough” holdings in a particular sector or company, I will shut off the DRIP taps and let cash accumulate. I don’t make any purchases without having at least $1500-$2000 to invest, since the trading costs are too high (~1% of total purchase).
I’m hoping for a small correction this summer, stocks are expensive now.