Reader Questions – How I built my dividend portfolio

Reader Questions – How I built my dividend portfolio

Thanks good readers, I appreciate hearing from you and receiving your saving and investing questions.

If you’ve been following My Own Advisor for a while you’ll know I’m a hybrid investor.

I’m happy to own a few low-cost, diversified Exchange Traded Funds (ETFs) to grow my portfolio value over time.  I like (and own) these ETFs for their low-cost, transparency, ease of use and performance – because I know the ETFs I own are likely to beat the performance of most active mutual fund managers over time.

(Some high cost fund fees are going away albeit kicking and screaming!)

For the rest of my portfolio, I use dividend growth investing.  This approach by some might be considered another animal altogether but I would argue the high-level objectives of a dividend growth investor are similar to an index investor or ETF investor:

  • The mandate to buy and hold the same assets (dividend paying stocks) for many years on end.
  • The mandate to avoid trading; avoid portfolio turnover – keeping my commission costs low.
  • With dividend investing I’m striving for stock price growth but also growing income for my retirement needs. Dividends paid from my portfolio of 30+ companies can compound over time; paying out more dividends each month or quarter.
  • By owning the dividend growers I get paid to own these companies almost regardless of their stock price.  I avoid panic selling and other bad investor behaviour gaps.

Since the start of 2018, I’ve received many reader emails and questions.  I figured I’d open up and answer some of those questions today.  Let’s get into them.

I like your articles Mark.  It’s great to see you so passionate about investing.  I prefer ETFs myself.  With all the benefits that come from low-cost, ETF investing or being an indexed investor, why dividends still?   Do you have an article about how you built your portfolio and why?

Great questions!

I get it.  Not everyone loves dividends as much as I do.  Things makes personal finance, well, personal.  Here are my top reasons I still like dividend investing:

  • Dividends remain easy to understand.  I invest in these stocks, I stay invested, and I get paid for doing so and I get raises. Pretty simple.  Dividends remain tangible money I see coming into my account.  This is money (thanks to dividend reinvestment plans) that keeps growing higher and higher every month.
  • Dividend raises are helping me fight inflation. As consumer prices rise, the cost of living rises. Rising dividends can help combat the higher cost of living.   Don’t believe me?  Well, my home heating gas bill continues to go up year after year.  (I looked at that this weekend while doing my taxes over a few glasses of red wine.)  Thankfully with all these Enbridge dividend raises in recent years, we’re now earning enough from Enbridge dividends to pay for that heating bill!

Enbridge Dividends MOA

Image courtesy here.

  • Canadian dividend paying stocks remain tax-efficient. With my RRSP full of mostly U.S. assets (I have no more contribution room in my RRSP), I tend to keep Canadian dividend paying stocks in my TFSA and inside my non-registered account.  Although I prefer tax-free dividends (I have no more contribution room in my TFSA this year), in a taxable account Canadian dividend paying stocks are eligible for a dividend tax credit from our government.  This means taxation on dividends are favourable, it is a lower form of tax; lower than employment income and interest income.  This lower form of taxation will be even better when I’m not working!

Here’s how I built my dividend portfolio – and how you can too.

Don’t get me wrong reader, ETFs are great.  Especially the low-cost, diversified ETFs you can buy and hold.

However, I believe Canadian dividend stock investing can be simplified and made easy.

Mark, I’m considering money that should be used for retirement (and not for any short-term period of time), in 100% equities.  Is that too aggressive?

Well, I would say “it depends”.  It depends on:

  • What are your financial goals?
  • What is your tolerance for risk and volatility?
  • When do you need the money?
  • Can you stomach to see your portfolio value down, possibly, by tens of thousands of dollars at any given time?  Will you be tempted to sell equities when you see that?

Personally, before investing in any financial asset like any stock, bond, GIC, mutual fund, ETF or otherwise – put a financial plan in place first.   Here are some tips on what your financial plan should cover.

In my own portfolio, based on the plan we’ve devised, I’ve decided that we should be at 100% equities until retirement.  This allows us to take advantage of as much stock market growth as possible in our asset accumulation years.  In our asset preservation years, that allocation to stocks might change.  I’ll tell you where I get there!

Mark, we’re thinking of using a robo-advisor for the convenience it provides.  But if I were to go DIY (do it yourself like you), I am also considering an all-in-one fund like Vanguard VGRO or iShares CBN.  Is that sensible?

I wish I could tell you exactly what to do and how it could work out for you, but I can’t because honestly, I don’t know what the future holds for any investor – including me.

I can tell you that using a robo-advisor is an excellent choice for at least some of your portfolio because not only do you get low-cost products to buy and hold, you also get some built-in money management advice with the service.  Slaying your investing demons (bad investing behaviour) is not easy, and I fight it.  I think getting professional investing advice AND assurance you’re in the best financial funds to suit your financial objectives is value for money.

Have a read of these articles below about robo-advisors to help you make a decision.

Hassle-free investing in here.

Robo-advisors demystified.

Get help to train your investing brain with a robo-advisor.

Want a SmartFolio?  Consider this great solution here.

That Vanguard or iShares fund above looks like solid all-in-one fund.  I think DIY investors who no longer want to be constantly watching the markets may gravitate to either.  Also, for any new investor, they could consider these products for an all-in-one introduction to investing; holding a fund of funds that provides both low-cost and diversification right out the box – something all investors should keep top of mind!

The markets are acting iffy nowadays.  Should I wait a while before making the plunge?  I keep hearing a correction might occur – maybe it’s best to hold out investing until then?  Buy low right?  What are you doing Mark?

Here are my thoughts:

  • I have no idea what the market will do tomorrow, or next week, or next month, or next year.
  • I have no idea how big or how small a market correction might be.
  • I have no idea how long any market correction might last; could be a month, many months, a year of “down markets” or even more.
  • I have no idea what the short-term investing future holds.
  • I do have confidence that, over many years of staying invested in equities, stocks should perform better than bonds; bonds are likely to provide some small return over cash; cash is good in a savings account for emergencies and other “what ifs” in life.

This means I believe, the best time to invest was and will always be – yesterday.

What I am doing?

Here is a picture we took in Portugal last fall.  I enjoy a nice glass of port now and then too!

Porto Portugal

I hope that provides some insight.

Here are some other reader questions I’ve answered over the last couple of years.  Those blogposts will probably provide more insight as well.

Essential saving and investing advice.

How do you rebalance your portfolio?

Help – just getting started!

Thanks for being a fan.

To all readers, keep your questions coming and I appreciate your support.

Mark

Mark Seed is the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $500,000 - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

19 Responses to "Reader Questions – How I built my dividend portfolio"

  1. I am wondering if that “red” wine you were drinking was not really a white that was tinted red by your frustration at the amount of taxes you were/are paying for government ineptitude and waste? Think Phoenix, cancellation of the helicopter deal way back when, new fighter jet purchase farce, etc, etc. And if you are in Ontario the cancellation of those semi completed generating plants and the farce of payments to wind/solar farms for un-needed electricity. I heard it was a win Wynn situation (excuse the pun)
    I have nothing against taxes and paying my share. It is just frustrating to see the waste because of ineptitude. And then everyone wants a raise,
    So any way you can to reduce taxes such as income from dividends, RRSP & TFSA accounts I am all for. Heck, maybe you can grow it enough to be able to afford an offshore tax haven or villa in Portugal.,

    RICARDO

    Reply
    1. Tell me how you really feel! Kidding aside Ricardo, our government is a mess; Ontario and federally. We’ve kicked the debt can down the road so far, I feel my generation (Gen X) and the next are going to pay for it – severely via taxation.

      Reply
  2. The value of DG growth investing can never be repeated too often and you’ve cover the topic nicely. You know I’m not only 100% Canadian equities, but believe in holding a Concentrated portfolio of 15 or less stocks. I don’t say that this is the best strategy, but for us it’s working fantastically. From our current 13 holdings we have had 8 dividend increases giving us a 4.02% Income increase for the year.
    Here’s an article on Passive Investing and it mentions some concerns as well:
    https://www.fool.ca/2018/03/04/passive-investing-may-be-here-to-stay-buy-these-stocks-to-take-advantage-of-the-trend/

    Reply
    1. I seem to recall you took some shots over having a fairly small number of holdings a while back cannew (I could just be confused though). I have a few more (around 25 stocks and two index funds) but some are in similar sectors (five banks and two other financial based for example) so I’m not that diversified either. I do have an under-construction GIC ladder and two DB pensions so I’m not concerned about diversity so much.

      How about you Mark? Do you have any over-weighted holdings or are you pretty well balanced?

      Reply
      1. I try and keep my CDN holdings inline with the TSX, although I hold far more utilities and telcos than the TSX.
        TSX as per XIC ETF:
        Financials – 35.20 (I’m probably closer to 40%)
        Energy – 18.21 (I’m about 25% if I include my pipeline stocks)
        Materials – 11.54 (0%)
        Industrials – 9.87 (I’m closer to 5%)
        Consumer Discretionary – 5.45 (0%)
        Telecommunications – 4.62 (I’m closer to 10%)
        Information Technology – 3.75 (0%)
        Utilities 3.68 (I’m closer to 10%)
        Consumer Staples – 3.66
        Real Estate – 2.99 (I’m closer to 10%)

        I have about 30 CDN stocks including my CDN REITs and I own a handful of U.S. stocks and a few low-cost ETFs like VYM and VXUS.

        Reply
          1. Not by income, correct. That’s my allocation related to CDN dividend paying stocks only (compared to two decimal places for the TSX sectors).

      2. Lloyd: Back when we held many more and a few funds, but over the years we slowly found that a small number of the stocks were the ones that grew their dividend consistently and their value grew better than our other holdings. It wasn’t much of a leap for us to realize that by sticking with those few we would have been much better off. Nothing has changed our opinion.

        Reply
    2. I know you favour concentration over diversification, and I’m not saying that is wrong at all, rather I feel I will do better long term if my portfolio is diversified – I don’t have to worry about one sector or one country for that matter going belly up!

      Reply
  3. Not sure if others can shed light on this. But – with ETFs that pay Divs – what I have noticed is – that they do not increase their Divs to unit holders when the stocks inside the ETF have increased them. This is one reason why I do not own ETFs and hold individual stocks.
    If trade wars hit in 2018 – the TSX will pull back.

    Reply
    1. That is correct Mike. There is no guarantee that ETFs that pay distributions will continue increasing them at the same rate as the stocks they own. In some cases, the distributions are flat for many months or even years.

      Reply
  4. Thanks, appreciated this post. I have a small amount of stocks but mostly ETFs and some REITs for the dividends. I’ve been thinking of beefing up my RRSP another $100/month or so (currently work group retirement plan has about $200/month) and I’ve kind of been thinking about the new Vanguard funds. You mentioned VGRO above and I’ve also looked at VBAL. Mostly I’m trying to decide if I should add a new ETF into the mix or stick with one of my current ones.

    Reply
  5. I have been reading your blog for eons and I have to say this is one of the best posts ever! You have answered questions that many of us have wondered, but didn’t have the truthful answers. Keep it up. Great job. Maybe you could have question/ answer once a month.

    Reply
  6. Great article. I appreciate the info now…and back when I started my investment journey and quickly moved through the stages of funds (ugh what WAS I thinking) to etf/index funds and finally found my home with dividend investing thanks to articles like yours.

    95% dividend stock investor.

    Folks ask if they should invest now or wait for the ‘coming’ correction. Well, last month I invested hubby’s pension payout after a job change. Next month the dividends will start rolling in. Waiting = no payout. So a serious no brainer for this dividend investor.

    Reply
    1. Thanks for the kind words Jayne. In my opinion, although I don’t know all the details, I think money invested sooner, as in a lump sum, is smart. Why?
      You cannot possibly predict the future so the sooner money is working for you, or your husband, the better.

      Reply

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