I enjoyed this quote from David Chilton in Jonathan Chevreau’s recent article so much I figured I’d lead off with it for this month’s dividend income update.
“Invariably, Chilton told me, the portfolios that had done the best over the long haul were of individual blue-chip Canadian stocks bought a long time ago and never sold. More often than not, they simply reinvested the dividends into more of the same stock.”
Jonathan Chevreau went on to write:
“I was reminded of this conversation a few weeks ago when an investor who had read one of my online pieces emailed me to remind me of the virtues of DRIPs, or dividend reinvestment plans. Not that I needed reminding. I use DRIPs in my own portfolio, both for individual stocks and for some ETFs. They’re practically idiot-proof, automatic, and cost-effective, since you incur no trading costs when the dividends are reinvested.”
Same approach here Jon…
For the past few years, I’ve bought and held many Canadian companies but only those companies (outside of owning Exchange Traded Funds (ETFs)) that pay dividends.
The result of these purchases, letting companies do the work in our investing accounts is this: we’re on pace to earn $9,175 this calendar year as part of our retirement fund. This will occur if we continue to reinvest the dividends paid by the Canadian companies we own, if these companies don’t cut or eliminate their dividends entirely, along with reinvesting the distributions paid from a couple of ETFs in our portfolio. You might recall this is our long-term goal.
Using Dividend Reinvestment Plans (DRIPs) for most of our investments is a plan that’s working for us but this approach is not without risks. Individual companies first of all can go belly-up, probably the worst-case scenario. Individual companies can also cut their dividend or eliminate their dividend entirely; hopefully this does not happen to any of our holdings going-forward. These real-life risks are just some of the reasons why we’re indexing the rest of our portfolio now and we’ll index invest more going-forward – it will reduce our risks and the tempting rewards that individual stocks present to investors, including me.
There is no such thing as a risk-free investment. I do however expect this dull, downright boring approach to reinvesting dividends paid from many Canadian dividend paying stocks will yield the income we require years down the road to fund our part of retirement. Stay tuned for updates next month.