Have you ever wondered what it would be like to sit at home and relax while reading a good book, go play some golf or travel about our vast country and get paid to do so?
Have you ever wondered how you can enjoy some of the “good life” living off some checks that arrive regularly into your mailbox or bank account without working?
Well, I have to confess that I don’t know that feeling today but I’m convinced I’m going to someday thanks to investing in established companies across many sectors that have a strong history of paying dividends.
Companies that make profits can do a few things: pay some of those earnings to shareholders (dividends), reinvest earnings and grow the business, pay down debt or buy back company shares so remaining shares can earn higher future profits. Canadian Capitalist reminded us about this some weeks ago – and you know he’s right.
Dividends aren’t the be all and end all but geez, they are pretty amazing for investors.
As a dividend-investor, I must never lose sight of the risks direct stock ownership means. Apple was close to a dud 10-years ago and some experts wrote-off that company. I guess they were wrong. Apple is now a media and investor darling. Nortel, well, you know the story. There are certainly risks to be had as a dividend-investor, more so than an indexer.
However the more I re-read some of my favourite books like The Investment Zoo and The Single Best Investment and visit my favourite blogs each week like Dividend Ninja, Dividend Growth Investor, Dividend Guy, The Wealthy Canadian and Susan Brunner to name a few, the more I realize a diversified set of dividend-paying stocks can be an outstanding investment strategy. Heck, if you have enough stocks like some bloggers have you might not need any other investment strategy because you’re almost indexing.
Last month, I reported companies like Emera (EMA) and Bank of Montreal (BMO) paid us dividends. This month: same scene, different companies thank you very much. We got more commission-free shares over the last month from our friends at Sun Life, Enbridge and H&R REIT. All dividends were reinvested to increase our projected dividend income for the 2011 calendar year to just under $5,100. Slowly but surely, our passive dividend income is rising.
I’m thankful for the way my investments have been behaving because even good to great companies can come and go. I know there are risks with dividend-paying stocks and I know I need to diversify more because trouble can be just around the corner. However, some of the companies we own have paid dividends for 20, 30, 50, 100 or even 150 years. Past performance is never a recipe for the future but sometimes folks history is all we have.
I will never be able to entirely set and forget my dividend-investing approach but I really don’t mind. Dividend investing does take some active work but the dividends don’t, they’re pretty passive, and that’s rather exciting 🙂
Are you a fan of dividend-paying stocks? If so, which ones do you own?
If you don’t own dividend-paying stocks, what are you investing in instead?
Share your comments!
Thanks for the mention. It truly is a great feeling when i log into my brokerage accounts in the morning and see dividends neatly deposited in my account. It would be an even greater feeling when these dividend checks pay for all of your expenses.
Best of luck in your dividend income journey!
Dividend Growth Investor
@DGI,
I hear ya, re: watching dividends neatly deposited in the account. Few things in life are better than watching your money work for you, so you can exit the rat race 🙂
Your comment gives me a good opportunity to say:
Keep up the outstanding work on your blog, your posts are killer and the company analyses are great! Dividend Ninja, The Wealthy Canadian and other Canucks here in Canada really appreciate the thorough work you do on your dividend stock analyses.
Hopefully my dividend income will only rise over time DGI. Thanks for the support!
Cheers,
Mark
Apple is quite the story… and yep, I sure wouldn’t mind getting some cheques in the mail, or online. But not working? Nah, I’ll always want to be doing something productive… let’s just say that it’s one thing to get out of the corporate rat race, and another to be working for yourself, and for me it’s that rat race that really doesn’t appeal so much to me. 😉
Hey Kevin,
Apple is indeed a great story. I definitely want to get out of the rat race, and into something more productive and satisfying, simply I can’t get there yet. I guess that’s what I’m striving for. I will probably always work, just not at what I’m doing today 😉
You?
Thanks for your comment, I know you’re busy and great of you to stop by!
To be honest, I find it hard to believe that MCD and KO will have a steady expansion in the future… I mean who still drinks five Coke a day ?! (except Warren)
And MCD that markets fast food for kids…
Same thing as MO I guess as People won’t quit smoking during next recession.
And they will all outperform the market.
So it is definately not easy to keep away from these stocks for ethics reasons – Maybe I should!
PS : Sorry for my lack of skills in English (not my language!)
Dividend-paying stocks are a key component to my overall portfolio.
One thing that frustrates me is how some index investors discount individually held stocks by suggesting that ‘stock selecting’ is difficult. For the investor that focuses on large-cap companies that have a long-standing history of healthy dividend growth and capital appreciation, it can be a fairly straight-forward process.
Of course, there is never a guarantee of future performance (as MOA mentions), but buying into companies that you understand well can make the process fairly easy. Take KO-N, JNJ-N, BNS-T, REI.UN-T, ENB-T, SAP-T, & CU-T as examples.
Don’t get me wrong. I’m a fan of index investing and I’m in the process of dedicating a percentage of my portfolio to it, it’s just that the rationale that some people use doesn’t add up.
@Lazy Investor: McDonald’s wouldn’t qualify as a sin stock for me. Although I don’t have a position in it, the company’s dividend growth history is impressive. I’m also fine with alcohol and have shares in both Corby’s & Big Rock, but cigarettes is where I draw the line.
Great post MOA!
MOA,
Nothing like collecting a check without working. There are few things that feel quite the same as logging into the brokerage account to see a cash balance larger than it was yesterday.
Great job. Keep it up! I can’t wait to one day be where you’re at today.
@Mantra,
Geez, I’m not that far “ahead” of you! 😉
Besides it is not a short race for me but rather a marathon. We’re all running different course routes but our destination is the same: financial independence.
No doubt few things in life are as satisfying as seeing your money work for you so you don’t have to!
Keep up the great pace on your run – you’re making great strides!
I can’t buy MCD when I think of their unhealthy food!
But I change my mind when I think that they’ve raised their dividend every year since 1976.
I know, tough dilemma. Gets into some ethical investing questions. MCD as a stock, is great. As a food choice, not good!
SLF? Ouch today!
I know! Dang. I’m still going to hold my SLF, but it’s going to be a rough ride for a couple of years.
How are uber-low interest rates benefiting everyone again? I don’t get it. I really don’t. These low interest rates are ruining our economy. Just my opinion of course.
I can’t wait until I can kick back and not have to worry about working. Once you reach a certain point, it doesn’t even matter if the value of the investments fluctuate, so long as the dividends keep on rolling in. I agree with “My University Money”, if you start early, you almost can’t lose as long as you pick the right companies and re-balance (if necessary). Currently own BCE, TRP, CPG, REI.UN, BMO, SLF, SU for dividend payers. Would like to add MCD and KO, but I have no money left!
I hope it’s within the next 15 years for me but that’s being optimistic. Although, that would give me 25 years in a DB pension, my wife 25 years in a DC pension and hopefully a nice nest-egg between our RRSPs, TFSAs and other accounts. Could be done by early-50s.
Those are all good companies: BCE, TRP, CPG, REI.UN, BMO, SLF, SU. I too, would like own MCD but can’t afford it right now. Way too pricy. MCD is also not healthy!
Thanks for stopping by, see you again soon!
I think the key thing to remember in the whole dividend investing vs value investing vs indexing debate is that if you start early, are consistent, and diversify, you’re never going to lose in the long run. I think I might actually do a little a both going forward. Looking at a small-cap index, or a world index is a nice way to get instant diversification in addition to building a dividend income.
@MUM,
Well said: invest early, invest often, diversify over time and stay invested. This is exactly my recipe. Except, I didn’t start dividend investing until my early 30s. Oh well.
I’m glad I have a balanced approach, because with days like today whereby you hear the news about Sun Life, it puts a lump in my throat!
Thanks for checking in!
Great point about discussing the slow progress of dividends.
It is exciting to see the increase in the returns of DRIPs.
2011 Should see a return of over $2,500 just with dividends – this is all in my RRSP but I am more concerned with the reduction of trading fees and cutting costs so this DRIP is what the doctor ordered.
Amazing to look back at the path of Apple and Nortel though!