October 2010 Dividend Income Update

In last month’s dividend income update, I said the following:

“We might add more to our BNS position, maybe another $50 or $100 if we can but even if we don’t, I bet our dividend income will increase again – regardless of what Mr. Market does. I look forward to sharing that with you.”

Well, Mr. Market had a decent run until today, but regardless of how Mr. Market feels today we’re happy – because our stocks are paying dividends and our dividends are buying more stock. Our dividend income has moved up.

This month alone, we had or will have in a matter of days, the following Canadian companies pay us: Bank of Nova Scotia, BCE, CIBC, TransAlta and TransCanada. That’s in addition to RioCan and H&R REITs who pay us every month 🙂

My post today reminds me what Tom Connolly has posted on his site, DividendGrowth.ca:

“First you have to know about dividend growth investing and understand how dividend growth builds wealth. Second you have to believe it works. Third you have to resist the temptation of ‘story’ stocks, to control your behaviour and finally you need the patience to execute the strategy (to wait for the value buy price, and then wait for the dividends to grow). Nothing spectacular will happen in the short term. Good luck.”

My portfolio doesn’t have what many DIY investors might consider the best of the best dividend-payers, but I think it’s a decent start. I’m working on it. It’s a journey, not a get rich scheme I remind myself. Dividend investing is part of my retirement strategy, not the full-meal deal. I’ll make mistakes, and I’ll move on. I’ll learn from them…

Some stocks like TransAlta (TA) have very high payout ratios and run the slight risk of cutting dividends by a few cents if earnings don’t keep pace. Until that happens, dividends are paid. Other stocks like Sun Life have been beaten up since the recession started and are having a hard time rebounding amongst some sector peers (such as Great-West Life Co.). In the meantime, dividends are paid. Until major dividend cuts happen we need to hold the line. I need to remind myself there will always be threats to the system; stories of better performers, analysts and skeptics that write-off many companies when signs financial trouble arises.  You “shouldn’t own those” because “you should own these” they say. That’s fine. I won’t sell anything until I’ve been handed a very significant reason to do so. If nothing more, risks of TA and SLF remind me that my small basket of stocks should be further diversified, not sold. My small basket needs to be more like a full shopping cart, and unlike a trip to WalMart on a weekend, I enjoy this type of shopping. Buying Emera (EMA), Fortis (FTS), and Crescent Point Energy (CPG) are some fine examples of shiny products I can see down my shopping aisle. We’ll save over the many months that follow and try to buy those payers when the time is right. Until the sky gets very dark, we’re going to enjoy our $4,200+ in dividend income this year, but only for a bit, because its quickly reinvested to buy more stock.

This year’s stars could be next year’s duds but in the end, dividends never lie. Companies can either to afford to pay their shareholders or they can’t. As long as my companies consistently pay, I think it pays to consistently own them. Overall, we just need to stick to the plan; buy and hold established companies that have a history of paying dividends. Simple plan, extraordinary results over time.

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe and join the journey. Learn how I'm getting there and how you can get there too!

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