Want higher yields on your investments? Want steady income? Don’t want to feel forced to spend the capital? Then you need to take on some investing risks. Not HUGE risks mind you, although this is just my opinion.
This is the world of owning dividend stocks for passive income and it doesn’t need to be a fool’s game. In fact, many Canadian dividend stocks are household names and have been paying dividends for generations:
- Bank of Montreal (BMO) – paid dividends since 1829.
- Bank of Nova Scotia (BNS) – paid dividends since 1832.
- TD (TD) – paid dividends since 1857.
- CIBC (CM) – paid dividends since 1868.
- Royal Bank (RY) – paid dividends since 1870.
- Bell Canada Enterprises (BCE) – paid dividends since 1880 (formal records date back to 1949).
- Laurentian Bank (LB) – paid dividends since 1886.
- Imperial Oil (IMO) – paid dividends since 1947.
- Canadian Utilities (CU) – paid dividends since 1950.
- Enbridge (ENB) – paid dividends since 1953.
- Fortis (FTS) – paid dividends since 1972.
The investing recipe for passive income from Canadian holdings can be rather straightforward.
Step 1. Consider owning some of the same Canadian stocks the big mutual funds and Exchange Traded Funds (ETFs) own. Really, I mean it. Here are the top-10 holdings from a major Canadian ETF. You’ll see some of the names below are the same in my list, and most of the other stocks I listed above are also held by this ETF.
Image courtesy of BlackRock.
Step 2. Be willing to do what the herd won’t do – that is – you need to be comfortable with price declines and BUY MORE SHARES instead of selling stocks when prices go lower. I’ve said before this thinking seems very unconventional but for successful investors, this is very conventional thinking.
Step 3. Avoid trading. Trading is not investing. These are different words for different reasons. Be willing buy then hold (and continue to hold) what you own unless the dividend is cut entirely or the fundamentals of the business change. When you sell a dividend stock (if ever) that is up to you; this is where some of the investing risk comes in.
Step 4. Diversify your holdings over time. Consider owning more than just Canadian banks, Enbridge and some of the other companies I listed above. That’s not much diversification. If you don’t diversify across multiple sectors and companies over time this is where more investing risk sets in. I cannot predict what companies will continue to pay dividends in the years ahead, raise them or cut them, and neither can you, so buyer beware.
Step 5. When in doubt about dividend investing and the risks it brings maybe you should invest how Andrew Hallam suggests we should in Millionaire Teacher and use “the 10% stock-picking solution…if you really can’t help yourself”. This means, set aside 10% of your portfolio for individual stocks or a collection of stocks and keep the remaining 90% in a diversified basket of indexes. That might work even better for you.
This is a perfect opportunity to point out why I have a hybrid approach to investing. You can read about that here and here. Although I’m passionate about passive income I KNOW individual stocks come with the risks above and more. So should you. We are indexing more because of those risks.
So along with indexing more, holding a basket of 30+ Canadian dividend stocks as part of our financial plan, I feel like we’re on a good path. We’re on pace to earn just over $11,000 this year in passive income that cannot be touched because it’s our retirement fund. All monies earned every month and quarter are reinvested into new shares. The approach is simple and it’s designed to meet our financial goals.
Thanks for reading these updates and being a loyal fan of our journey.
Any comments on our plan? What would you change?
Thanks. Maybe you can lay it out better and show where your dividend income comes from etc like some other blogs I visit now. Would make it more clear. Have a good day.
I’ll give that some consideration Jane, thanks for your comment.
Sorry but where is the update here? How much dividend income did you earn this month? I am new to this blog. Thanks
Trending close to $1,000 per month for retirement purposes Jane. Thanks for reading!
You know, with so many people preaching to “not follow the herd” these days when it comes to buying low and selling high … I’m wondering when the herd starts to become those people attempting to do exactly that. Do you think that could ever happen Mark?
I doubt it because most investors have known this is a good thing for generations yet so few people actually do it because of behavioural biases and emotions getting in the way. It’s like wanting to driving a car too fast in rush-hour traffic or not flossing your teeth. The majority of people don’t have the patience for these things I find. That could be just me 😉
That dividend income just keeps on growing! It’s great that over 1/3 of the way toward your goal. It looks like some of the dividend stocks that you mention are having a bit of a sale now!
I love it when stocks go on sale 🙂 Thanks for the support My Road – I do appreciate every comment I get including from investors like you.
11,000 in annual dividend income is nothing to sneeze at. This is roughly equivalent to someone working 30 hours/week every week at a part-time minimum wage job.
Plus, once you get the compounding process rolling, time is on your side.
Good luck in your investing journey!
Dividend Growth Investor
Thanks for the encouragement DGI, the plan is coming along. Our (eventual goal) is $30k per year and that will be our time to leave the workforce. We’re a long ways off but slowly we’re getting there.
Wow on track for $11,000 in dividend this year? That’s awesome Mark!
Hopefully more as dividends get increased and reinvested later this year. Slow and steady wins the race in another 10-12 years I hope for financial freedom. Continued success on your investing.
Good practical advise Mark.
Initiated my first position in Enbridge today. Unbelievable that back on December 4th it rallied close to 20% on the restructuring announcement. Distant memory now. What’s even more amazing is that Enbridge was +65 one month ago. On a $50b market cap, these are huge swings.
I tend not to worry about the huge swings, at least anymore. I see price declines as a great buying opportunity. I know some folks don’t agree with my thinking but that’s OK. Congrats on starting your dividend investing journey Dan; stay patient and vigilant.
Great update! Today would have been a great day to top up on some of those bank stocks given the biz nasty day!
Yup. Down day in the markets means potential buy days for stocks!