September 2020 Dividend Income Update

September 2020 Dividend Income Update

Earlier this year on this blog, I wrote:

“Coming out of this crisis things will improve. They always do. They can certainly be better for you and me on an individual level too.”

I still feel that way even with so much turmoil in our world right now.

I remain optimistic. We are a resilient species. We can and will adapt. That is my hope…

Plans are good, but planning is everything

At the recent 2020 Canadian Financial Summit, I shared our personal finance plan and how we are still trying to get semi-retirement ready, and adapt, even during this pandemic.

While all plans at a point and time may be good, I continue to tout the merits of planning – the process of planning is essential for financial success let alone other things in life. As this pandemic has taught us, plans can and will be changed on you. So, it’s important to revisit any plans on a continual basis.

While there is no perfect personal finance plan to combat this pandemic (and please don’t let any advisor or other financial expert tell you otherwise, they are not perfect either), there are some good things you and I can do in our process of planning and re-planning to ensure our financial act is somewhat intact before unknown disaster strikes.

80,000 personal finance books and advice into simple bullets

I’ve read dozens of personal finance and psychology books on money over the years and I can distill those gazillion pages down into the following, simple, point-form bullets.

• You should work hard to get out of debt and stay out of debt.
• You should spend less than you make.
• You should establish and maintain an emergency fund. Ideally, at least a few months’ worth in cold-hard cash.
• You should make savings for investment purposes automatic.
• You should invest some of your savings for long-term growth; as in equities.
• Once invested in equities you should stay invested, without fail if you can help it.
• Once invested, you should keep your investing fees very low.
• You should diversify your investments across companies, countries and world economies – you should consider low-cost, diversified index funds “when in doubt” over random stock-picking.
• You should mind your taxes.
• You should obtain adequate life and disability insurance.
• You should continue to educate yourself since continuous improvement will keep your mind active.
• Money doesn’t mean much if you don’t have your health. You should do what you can to stay healthy.

Of course, these things are easier said than done. It takes time to ingrain habits.

September 2020 dividend income update

With that modest list in mind though, over time, we’ve checked off a number of these items on our list in order to focus on mortgage debt repayments (our biggest liability) and investing (our largest asset growth potential) in particular. For example:

You should establish and maintain an emergency fund. Ideally, at least a few months’ worth in cold-hard cash.

Long since done. Actually, in the coming years, we’re going to increase our cash savings as we work towards our semi-retirement cash wedge. You can read up about that below.

How much cash should you keep?

You should make savings for investment purposes automatic.

Done. We’ve been automating our savings since January (since both our Tax Free Savings Accounts (TFSAs) were maxed out in January 2020) for this year’s upcoming 2021 TFSA contribution room.

We should be “ready to go” as of January 1, 2021 for contributions.  

Once invested, you should keep your investing fees very low.

Also nailed. I only invest in low-cost funds. I own nothing higher than 20 basis points for the total expense ratio in my portfolio – that fund being Invesco QQQ ETF for a few years now. 

Image courtesy of Invesco. 

I own this fund to hopefully gain a small tech-stock growth kicker over time without worrying about whether Apple or Amazon or Microsoft will be the world’s largest tech company. I figure this fund will continue to rocket forward with time as our global technology demands evolve.

Money doesn’t mean much if you don’t have your health. You should do what you can to stay healthy.

I go for walks or bike rides daily. My wife and I are now doing yoga once per week. I hope to start doing more home workouts as the winter weather in Ottawa closes in.

Once invested in equities you should stay invested, without fail if you can help it.

Yup, doing that too. Market highs or lows and everything in between.

While experts will claim, in theory, a corporation should only seek to distribute after-tax cash to shareholders (dividends) when it has exhausted all capital expenditures that meet its required rate of return. That doesn’t mean dividends are a bad company policy decision.

I invest in dividend paying stocks for income and growth, and I invest in some low-cost Exchange Traded Funds (ETFs) for extra diversification, for capital appreciation. 

Thanks to this approach, I can now announce we’re trending to earn $20,660 this calendar year from dividends earned inside our taxable account and TFSAs. I’m hopeful no more dividend cuts will occur this year…so this should keep that target intact. But you never know! 

To put that forward dividend income in perspective:

• That’s like earning $2.36 per hour of every hour of every day (even in my sleep).
• In terms of an hourly wage, that’s like earning almost 10 bucks per hour assuming I work a 40-hour work week. Then again, some of that income is 100% tax-free (thanks TFSA)!!

Again, will some more stocks I own cut their dividends??

Likely.

This pandemic is not going away soon but I will continue to stick with my overall plan.

Dividend investing matters, because they support my plan, just like capital gains matter, share buybacks matter, paying down significant amounts of debt to increase shareholder value matter, and so on.

I’ll have another update next month. Thanks for reading.

Mark