November 2020 Dividend Income Update
It’s been quite the investing year.
Dividend increases, cuts, and the recent Canadian big-bank dividend freeze announcement just to name a few.
Looking bigger picture, back to March 2020, I couldn’t image this is where the stock markets would be at now:
And I think that is what is so impressive about my slight bias (I admit, and for the record, we all have biases…) to owning a basket of Canadian and U.S. dividend paying stocks, and indexing the rest.
It helps me with an investing plan I can largely stick with riding any market ups and downs, with minimal changes in direction.
Other investors have taken similar paths to financial independence by investing this way. One of them happens to be one my inspirational sites Million Dollar Journey.
Welcome to my latest monthly dividend income update.
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; creature of habit I guess and b) because I will eventually draw-down the capital inside our RRSPs as part of semi-retirement in the coming decades.
The appeal of semi-retirement, work optional
While I wouldn’t necessarily link my blog directly to any FIRE (Financial Independence, Retire Early) movement, I wouldn’t hesitate one second to link it to some very important financial independence concepts.
I prefer Financial Independence Work On Own Terms (FIWOOT) versus FIRE
- Live within your means.
- Pay yourself first.
- Invest regularly and stay invested.
- Try and be patient.
- Rinse and repeat #1-4 as long as possible.
You can read about my Financial Independence Plan here.
The idea of making “work optional” is very appealing to me in the coming years, and it’s becoming a reality through some long-term disciplined investing.
When we reach our personal Crossover Point, it will be interesting to see what employment decisions we do actually make. Certainly for now, I thoroughly enjoy my team, my role and my work. So does my wife and her role.
With no mortgage debt (which will be liberating unto itself in a few years), I believe the beauty of financial independence distills down to options and choices in life.
Countless readers have emailed me to highlight the joy they felt or continue to feel now that their decisions about time are not anchored by making money to pay for living expenses. Instead, they consult, they work part-time, they have turned a woodworking hobby into a small part-time job, or a host of other things…
Those examples have clearly sent strong signals to me over the years that working, for some, can be much more enjoyable when you don’t do it because you need the money.
Ultimately what financial independence delivers is choice – whatever those choices for you may be.
In an unknown future, persistence over time pays…
I really have no idea what my career might look like in another few years, although I have some vague plans on what that could mean.
For now, I will continue down my path of persistence. After all, time is required for compound growth to do its thing.
I found an interesting quote the other day on Morgan Housel’s site:
“The greatest shortcoming of the human race is our inability to understand the exponential function.” – Albert Bartlett, Physicist
So, I’ll continue to save a bit, invest money saved and enjoy the rest after that.
I will let any investments and compounding do their thing.
This means for me, I’m going to stay the course with dividend investing and indexing as my one-two investing punch.
November 2020 dividend income update
Even with a few dividend cuts in my portfolio that I’ve written about this year, our taxable and non-registered portfolio is still on pace to earn $20,800 this calendar year – with one month of compounding and time in the market to go.
That’s getting very close to what I thought our target might have been earlier this year – a target that would have been surpassed without those dividend cuts for certain.
We don’t dare touch or tap this income stream since we need it for the future semi-retirement reasons above.
To put that income into further perspective:
- If we weren’t reinvesting many dividends paid (but we are today), that income would cover our property taxes, condo fees and utility bills as key household expenses – including likely all inflationary costs for those things in the range of 2-3% per year, for life.
- $20,800 per year in dividends earned translates to earning roughly $2.37 per hour of every hour of every day ($20,800/8,760 hours (24 hours x ~365 days)) even in my sleep.
- That income earned per year could be considered earning the equivalent of exactly $10 per hour assuming I work a 40-hour work week ($20,800/2,080 hours (40 hours x 52 weeks)). Even better, some of that income is tax-free (thanks TFSA) and I won’t pay taxes on it again.
- That’s an increase of about $1,400 over this time last year based on TFSA contributions alone, during a pandemic no less. Once I factor in the latest Enbridge (ENB) dividend increase next month, for my forward dividend income, I suspect my total 2020 tally might even be higher and closer to my 2020 target.
The basic rule of compounding comes in four words: never interrupt it unnecessarily.
Thanks for reading,
Excellent progress Mark. I have questions that I’ve not seen discussed anywhere yet: once you’ve reached your goal and now need that dividend income to cover living expenses, when and how do you withdraw the cash, where do you put the cash prior to moving out of the investment account, and where do you put it once withdrawn from the account. Also, do you withdraw the cash at, say, the end of the year, so that you have $20K good to go for the next 12 months, or do you draw the cash each quarter and spend it as you go? You thoughts would be most welcome.
I’m now retired, and in January I’ll receive my first batch of dividend income about which I need to decide if I invest it or save it. I already have 2021 fully covered, so this would be funds for 2022.
I’ll try and answer Bob given we are not yet semi-retired and don’t intend to for a few more years – we enjoy our jobs and roles…
1. We intend to “live off dividends” for the early years in semi-retirement. So, that means, working to cover some expenses and using dividends and distributions to cover the rest.
2. There will be no home per se (re: where do you put the cash prior to moving out of the investment account) other than a savings account. Dividends and distributions will add up in 1-year to cover living expenses, we’ll withdraw the money x3-4 times per year, and rinse and repeat for a few years. I don’t see us withdrawing more than $10K per RRSP each (no more than x3-4 times per year, so, say in $5K increments) starting in the early years assuming we still work part-time.
I know I’ll have much more to write about when it comes to our withdrawal plans in the coming years but I have advised my parents (70s) to take out what they think they’ll need at the start of every year from RRSPs to supplement their pensions – and leave all other money invested throughout the year. This way, it keeps their money invested, they don’t try and time any market, and they have a plan they can stick to, that minimizes fees.
Thanks for the info Mark. I discovered that unless we are receiving our RRSP money in the form of a regular payment from a RIFF or LIF, Questrade will charge us $50 (a de-registration fee) for each withdrawal. Keeping the number of withdrawals down could be an important consideration.
I totally agree Bob. I suspect when I start my draw down plans, I will probably only withdraw $$ from RRSP a few times per year max. I have instructed my parents to do the same and it saves $$ on transactions and it also keeps them invested to participate in any market recoveries. 2020 (end of year) was a great example of that.
Is that your plan as well?
Yes, that’s my planned approach. We’ll stay invested as long as possible, and pull from our cash reserves if the markets tumble right before we need to draw from our investments. Our cash reserves will eventually drop from five years spending to just one year.
That’s my thesis. At least 1-years’ worth of cash, liquid, ready to draw from at any time (~$50K) and then everything else plowed into the markets. When I stop working full-time or part-time, then maybe a GIC ladder but that’s a big maybe. My hope is living off dividends and ETF distributions, if that’s enough, without taking any CPP and/or OAS (since I will be too young still anyhow) I will know for sure we saved “enough”.
More to come on that subject for sure….in time!
Great post and congratulation on the milestone!
I was under the impression that one should invest the Canadian Dividend stock in the margin account, this way the amount on the T3 & T5 gets taxed differently at the year end and way into your retirement.
I personally am looking to open a TFSA account, fund it and be ready for a market (or even a sector) melt down to purchase LEAPs.
Can you please describe the process that you follow when putting new money into the market, do you do cost average on the stocks that are down?
love the blog.
I basically invest when I have the money to do so. I figure I can’t time the market, so why bother. Save up a bit, invest and move on with my life 🙂
Thanks for loving the blog!
INE looks interesting. I haven’t been doing much research on individual stocks. I agree with Jordan though, my whole TFSA is individual Canadian stocks, so I may as well look for something tasty to add in there. I love watching all you guys tracking your dividend income and increases over the year. Basically means I can be lazy and assume my portfolio is following along at a similar rate! LOL I’ve been using Wealthica for tracking and my monthly dividend income, but it’s polluted with distributions and interest income now so I don’t get an accurate div number. Cheers
LOL. Lurk away. Yes, tracking it is fun but I don’t like the dividend cuts. Really not sure how to invest in TFSA in 2021. ZQQ, XQQ are top of list for TFSA but I also might as well buy XUU since so much tech in S&P 500. There is INE and AQN for consider as well. Decisions, decisions.
BTW – flip me any podcast you want me to highlight for Weekend Reading soon. Happy to do so.
We have one more episode this year that is a combined FI Garage and Explore FI Canada release. Then we’re taking a break for a few weeks. Lot’s of great guests and topics lined up for the New Year though, so we’ll definitely be in touch.
Holiday cheers back at you,
Great stuff. Stay in touch and chat soon.
Hey Money Mechanic, you can filter to dividends only in Wealthica no?
Just had a look, and you can filter which accounts and assets are tracked on the income page. But I don’t see where you can specify only dividends. It does break it down in the graph, dividends, distributions and interest. But I’d have to go through those and remove the other interest payments that I get. I’m really just more interested in my total passive income now, that’s why I track other investments that are outside my trading accounts.
No matter so many things happened, 2020 still turns out great for you. Congrats.
I assume you did not include the ENB increase in your number? Once you include that one, would be very close to your target. But I am sure you will exceed your target in 2021.
Yes, the ENB tally should nudge it closer to $21K for the year but I suspect I’ll be short. If the dividend cuts didn’t happen I would have surpassed that target for sure.
Solid stuff Mark! Gotta love the new contribution room for TFSA coming up. We’re very excited about it.
Same, just not sure what to buy! Maybe some ZQQ or XQQ? Otherwise, INE for an individual stock maybe.
Atta boy. Nice stuff Mark.
Every day that goes by the snowball effect increases!
Yes, coming along! Just got a HUGE bump to my RRSP that I don’t report. Another 200+ shares of BEPC due to their 3-for-2 stock-split.
Mighty fine. That’s one stock and a sector that has been on a crazy tear.
Would like some but so hard to justify at these prices.
Yes, re: BEPC. Tempted to get some ZQQ or XQQ for TFSA. Thoughts? Could be a nice growth kicker and diversifier.
I want to add some growth to my TFSA too, after realized that I will not touch TFSAs for a very long time. Hesitating to add Nasdaq at this time though. Should not timing the market, I know. But with all those IPOs going crazy I smell similar smoke like 2000. While I want to have growth in TFSA, I don’t want to risk too much for the capital loss.
Right now considering MRU, ATD.B and CNR for TFSA. Not decided yet.
Experts thought the NASDAQ was high in the summer 🙂 Ah well, I will consider my options!
Thanks for the kind words May and those CDN, lower-volatility choices are very good. Big fan of CNR and ATD.B in particular.
Can’t go wrong with regards to growth. The entry point price now certainly is high. But as you know I’m also itchy on this too. And usually I am wrong on trying to time markets. LOL
Yes, very tempted to buy some ZQQ or XQQ and leave it be. I could do that for my wife’s account and buy more AQN or INE for me. We’ll see!
Congratulations Mark. Great that you still made 99% of your 2020 goal in the middle of a pandemic and with a few dividend cuts. In a few weeks when you add in that new TFSA money you’ll be well on the way towards that 2021 goal. Would you consider tapping your cash reserve or increase contributions to make up the $200 difference? You would likely need between $4000 – $5000 and I think there are still a few good Canadian companies paying an attractive yield.
I might 🙂 The challenge is, I only have funds in my taxable account to deploy. What would you do?
TFSA room is ready to go!! Will update my goals post on that in the coming week or so.
I would look to see if any of the stocks in my TFSA are in a strong profit position and consider harvesting that stock to purchase another similar stock that is paying a better yield.
You are trying to generate more dividends by moving money from a low yield to a higher yield. The higher yield might indicate that stock is on sale. If one bank stock is paying 4% (RY) and the other bank stock is paying 5.25% (BNS) which one do you want to buy today? Why would I not want to trade one quality dividend stock with a low yield for another quality dividend stock with a higher yield? Think Dogs of the Dow/TSX strategy. As I DGI investor I say the stock price doesn’t bother, that I don’t care if the value goes up or down as long as the dividends are steady. But when I see a large profit sitting there, doing nothing, mocking me – that bothers me. Selling a bank to buy a bank with a better yield is likely safer then selling a bank to buy an O&G stock paying 7-9%, that would be chasing yield.
Hummm, that could be interesting. I guess I see the TFSA time to rebalance the portfolio. New funds to buy some other sectors if you wish. Trying to keep CDN banks <20% of total, overall portfolio. Ideally, eventually, closer to 10% at time of semi-retirement.
I really don’t care if the price goes up and down either. I’ve learned to live with stocks for a bit and the rollercoaster.
Definitely not buying any O&G stocks. Likely renewables like INE or AQN if I was going a sector route.
Some good points and a great primer on those focusing on dividend yield, and on what stocks “might” be better value.
I would counter that RY is of higher quality (a wide moat stock) than BNS and that over time it likely earns that premium of a higher price and lower yield. I understand it can be argued this might be a better entry point for BNS since yield is about 30% higher than 10 yr avg and RY is about 8% lower than 10 yr avg.
I’m also guessing Mark also considers best total return vs. chasing higher yield now to look good on the chart. Maybe I’m wrong on that. I certainly do.
CAGR % 25yr 10 yr 5 yr
RY 15.01 11.78 12.02
BNS 13.06 5.47 7.27
10 yr dividend growth rate %
Same thought here. On the other hand, that’s for holding a stock for the long term. Buying the banks with yields higher than long-term average can be considered as timing the market. Although I am very bad at timing the market and try not to do so, people being able to do that right could benefit a lot from it.
I have all six big banks but would like to switch to RY, TD and NA only in the future.
I’m terrible at timing. So, I just invest when I have $$ 🙂
Working well so far.
RBull I knew I should have used stock A and stock B and not real world examples! LOL You bring up an excellent point about diving deeper in your analysis. Thanks for that.
We don’t know what he holds but has mentioned he wants to eventually reduce bank holdings. He also regularly writes on which new stocks he wants to buy. If he has been investing in TFSA since the beginning he likely has positions in profit. The profit does not generate any dividend income. At what point do you realize profit and convert it to dividend income? Do you take profit now to rebalance and perhaps diversify or do you wait until you are retired and begin converting DRIP’s and profit to income?
As you point out RBull, you have to consider more than just yield. CAGR, dividend growth rate and consistency, payout ratio, total portfolio diversification all matter. It’s an interesting thought exercise.
Ha, all good Gruff! Thanks.
I’m quite sure I know what banks Mark holds. I hold the top 5 in weightings roughly in line with market cap and just let ’em run, unless way out of whack. Maybe what he is aiming for is not so much less CDN bank holdings but more US holdings (grow the pile) so that the balance and diversification is better, at least until decumulation time frame is reached.
You raise valid questions, although I think the goal for many isn’t just the highest dividend payouts especially when accumulating assets and still trying hard to grow that pile. It’s just a useful way to track progress towards a FI target.
Dividend payouts and dividend growth are part of profit, and drips from them buy more stock generating more income. Profit (capital growth) can also be utilized at an appropriate point in retirement for those planning to spend some or all capital. It’s not only about generating income. In retirement for me ultimately its income cash flow from dividends, distributions, interest, and capital- from diversified holdings and asset allocations. I just like to have a decent base of reliable income and lifestyle and investing flexibility to adapt easily to markets.
It seems difficult to stock pick and time markets so I’ll turn your comment around into at what point do you do that with each individual stock holding, and will doing that generate the best total return ultimately (including income payments)? Every time one stock or ETF has had a little more gain, and another has a little more yield? Probably not for me, and not without a deeper dive!
YMMV on all.
Ya, I see dividends are part of my overall plan but not the be all end all.
I fully intend to sell some assets (capital) in retirement, just not in the “early” years. So, in the early years I will live off dividends/distributions and then after I know I have enough income to live from, likely start selling some capital in the next 5-10 years after the first years have passed.
I’ve always felt dividends and capital gains are two sides of the same coin. You can’t have lots of either.
Still debating on TFSA room in 2021 – many choices for me including XQQ or ZQQ, XUU, XAW, INE, AQN, SMU.UN (Summit REIT). Decisions!
Pretty much same deal here.
And ya lotsa debating going on here too with TFSA and other accts.
I enjoy the fact we can have respectful discussion on this site. Thank you for that everyone. Agree with everything you said RBull. Mark asked what I would do to close the $200 shortfall on this update on his dividend income and I was responding in that specific context.
“at what point do you do that with each individual stock holding, and will doing that generate the best total return ultimately (including income payments)? Every time one stock or ETF has had a little more gain, and another has a little more yield?”
Not for me either. I am however looking at a few tweaks that would harvest profit, improve diversification and improve dividend income but I don’t make moves until I also deep dive. The goal of that account is specifically to generate dividend income and dividend growth. There are a few holdings that are not meeting that goal.
I agree on respectful discussion Gruff403. Fair enough on your response.
The goal for my TFSA is a bit different. Since it will be the last acct I tap in retirement I want to grow assets (max contributions, drip and no withdrawals in the meantime) using CDN companies, predominately ones that also pay growing dividends. I can easily turn that into income from dividends and capital when needed, and estimate that to begin in a very small way 12 years from now, and at a much higher level in 25 years from now.
Well, not sure to be honest Gruff. I will be likely short about $150 for my 2020 target once I add in ENB dividend increase later this month to my income update. So, do I try and invest at something at 4% yield (e.g., a bank, not that I will) to meet that goal (would be $3,750 I would need to invest for income) OR do I just say “forget it” and move along? Wait until TFSA 2021 room?
I’m thinking the latter.
Given our TFSAs and RRSPs x2 each are both maxed out, I’m in a fortunate predicament now whereby more taxable money invested in dividend paying stocks is hurting me tax wise. So, best to focus on capital gains in my taxable account going forward, if at all.
I have near-term plans to max out TFSAs in Jan. 2021 (not sure what to buy yet…I have a few ideas) and then try and max out RRSPs in March or April 2021. So, I figure if I do that and pay down my mortgage that’s very good even if I don’t meet some desired dividend income goals.
I’ll keep you posted of course via the blogposts!
When I first got on this journey, I thought FIRE was the be all end all. Slowly my mind has also shifted more towards the FIWOOT concept. I enjoy what I work on and want to continue to grow and develop in this area.
You’re creeping closer to that first 20k milestone 🙂 I’m still on track to earn between 5,800 – 6,000 in dividends on my end, just need some solid numbers from December.
Yes, over $20K for the year now and will update the chart in early 2021, should be close to $21K earned for 2020.
Congrats on your progress – well done!
The Income chart looks great, but it might have been even better if the markets had stayed down.
You are correct! 🙂
Lookin’ good buddy.
It seems more and more of us are doing the TFSA= Canadian Stocks and RRSPs – diversified etfs. So simple and it works.
Plus who has time to research 10k stocks…haha
Ha, I don’t! All the best Jordan. Keep up the great work yourself with XAW mixed with others.