September 2023 Dividend Income Update

September 2023 Dividend Income Update

Welcome to a new dividend income update!

As many readers know, we have a hybrid investing / two-pronged approach to investing, an investing path we’ve taken for about 15 years now:

  1. We invest in Canadian and U.S. dividend paying stocks – that focus on income.
  2. We invest in low-cost equity ETFs – that deliver a bias of long-term growth. 

You can read more about what we own and why when it comes to individual stocks on this page here.

We do not invest in fads like covered call ETFs, as an example. Our return with low-cost ETFs vs. covered calls is the blue-line below vs. the covered call red-line. Your mileage may vary. 

Weekend Reading – Covered Calls Edition

Beyond stocks and equity ETFs, this is a good time to remind you that we always keep some cash on hand to buy more stocks (and equity ETFs) when the market tanks.

In the coming months, we might get a better chance of that…new TFSA contribution room is opening up in less than 10 weeks!

Overall, when we do invest in any individual stocks, we prefer stocks with:

  • An established dividend history.
  • Growing company earnings per share.
  • Companies that have a moaty competitive advantage.

Weekend Reading – Building a moaty stock portfolio

September 2023 Dividend Income Update

For this month’s update, I figured I would answer a few reader questions. I love getting them and I enjoy answering them. Keep them coming folks!

Let’s go!

Mark, I watched your TD webinar recently, I really enjoyed that. I wonder why other investors are not focused on total return? Thoughts?

Great question.

I don’t know.

First off, I must say, I still love my dividend stocks in Canada in particular. To say dividends don’t matter at all to me would be a foolish statement. I like income from my/our portfolio and years ago I decided to unbundle any Canadian ETF for income. 

Have you considered unbundling your Canadian ETF for income?

In doing so, my returns meet or exceed the TSX index. I can also meet or exceed the returns of the TSX at times since I don’t have a money manager to pay. Again, your mileage may vary…

Dividends matter to me like capital gains matter, like share buybacks matter, like good companies paying down debt matter, like company growth matters too.

To be fair, many Canadian DIY investors (not just me!) have focused on investing in dividend paying and dividend growth stocks for years. Some DIY investors have been widely success at it. In fact, a few select DIY investors I’ve been in touch with over years now earn well over $100,000 per year from their portfolio, and growing, thanks to their dividend income. So, dividends can really, really, really matter…

via GIPHY

Dividends are a great way to fill up your bank account. I don’t deny that. Beyond registered income, many DIY investors also have some tax-efficient income to report to CRA too, if we own Canadian dividend paying stocks in a taxable account. (We do.)

Dividend Tax Credit 101

Yet I am not a dividend or nothing investor.

Again, I fully admit I’ve always had a bias to getting paid instead of creating my own dividends, especially when it comes to Canadian stocks. 

There are other successful DIY investors I know that enjoy creating their own dividends from timely stock sales and/or ETF sales – since they follow a total return approach. 

In contrast to traditional income-oriented strategies, like dividend investing, the total return approach generates income from capital gains in addition to portfolio yield. When combined with a prudent spending rule, a total return investing strategy could have several advantages compared with the income approach:

  1. Portfolio diversification. Total return strategies tend to be much more diversfied across asset classes. As such, they may hold up better during stock market shocks.
  2. Tax efficiency. Investors with a total return approach may pay less in taxes because part of their payment comes from capital gains, which are taxed at a lower rate than income.
  3. More control over the timing of portfolio withdrawals. With a total return strategy, investors may have more peace of mind because they can spend from capital gains in addition to portfolio yield. 

The danger in an income-only approach is potentially a lack of diversification I referenced in the recent TD webinar with my other webinar panelists. I just personally don’t believe that owning only Canadian banks, utilities and pipelines are a good, diversified portfolio. Nice starters for sure. I’ve always invested beyond those sectors myself.

An alternative to any all-dividends approach is to consider total return, including a mix of bonds (as you wish) but more importantly investing in a range of industries and geographies.

“The punchline in a total return approach is you get returns from potentially three key income sources: interest, dividends, and capital gains – not just one.”

I will close this thought by saying that while income and yield from stocks is great, dividends unto themselves ignores other investment choices that could yield (pun intended) greater wealth-building results. 

Mark, with inflation sustained, are you still considering semi-retirement in the coming year or so?

100%.

Life is short, time is precious.

To be very clear, I don’t want to retire and never work again. That makes little sense to me and how I’m wired.

In semi-retirement, I/we simply want to work more on our own terms.

It is my sincere hope I can work part-time with my current employer, in a similar role (?), and continue my tenure there but time will tell if that works out. A decision needs to be made in a few months. I’ll keep ya posted…

Mark, are you worried about dividend cuts? Something like AQN could happen again with these higher yields, right?

It could. 

But I’m also very optimistic that while Canadian utilties, pipelines, telco and bank stocks in particular have been hit hard this year, not every company is going to cut their dividend and certainly a collection of companies like this is not going to overturn their dividend policies all at once.

More importantly, total return matters.

So, worse case for the income only crowd, some companies cut a dividend, investor sentiment and expectations change, and such Canadian moaty stocks focus on capital gains instead vs. any sort of clear dividend policy.

Globe and Mail columnist John Heinzl recently answered a reader question (subscribers) related to this theme, on the subject of Enbridge’s juicy dividend yield. John suggests not to lose any sleep over Enbridge:

“Enbridge’s growing earnings, in turn, should support future dividend increases, while preserving the company’s investment-grade credit ratings and keeping its dividend payout ratio within its target range of 60 per cent to 70 per cent of distributable cash flow per share, the company said. (Enbridge defines DCF as operating cash flow, minus preferred share dividends, maintenance capital expenditures and other unusual and non-operating items.)”

and…

“Still, investors should temper their expectations for dividend growth. Until a few years ago, Enbridge was hiking its payout at double-digit percentage rates annually, but future raises will likely be in the low single digits. Mr. Catellier projects that the annual dividend will increase by 3.1 per cent to $3.66 for 2024, which is in line with the 3.2-per-cent raise that Enbridge announced last November.”

Dividends are a way to fill up any bank account. Capital gains work tremendously well too.

September 2023 Dividend Income Update

Well, time for our Projected Annual Dividend Income (PADI) update:

September 2023 Dividend Income Update

Image, with thanks: Pexels, Daniel Jurin.

Some notes:

  • That income is averaging just over $117 per day. 
  • A reminder this is income from our taxable accounts (x2) and RRSPs (x2) – income we expect to earn this year assuming no dividends get cut and/or no additional dividend increases occur and/or I/we don’t buy anything else for the rest of the year. 🙂 Honestly, I probably can’t afford to buy anything this year since we’re saving up for January 2024 TFSA contribution room right now…. 
  • Another reminder we don’t include any TFSAs (x2) in this tally since we won’t be touching those assets for potentially another 20-25 years. 

Established readers will also remember we do a few things to support this income inching higher each month:

  1. We remain invested. I suggest you do the same. This way, you’ll get more dividend increases if and when they occur. 
  2. We invest new cash when we have it. 
  3. We try and avoid selling stocks where possible even if a dividend cut occurs to avoid tinkering with the portfolio, although I did sell off some AQN earlier this year but I retained some as well.

September 2023 portfolio changes

As I wrap this post, keen readers will notice that our income this month is quite a bit higher in just one month!

Well, we received dividend increases from Fortis (FTS) and Emera (EMA) in September that pushed our projected income higher without lifting a finger.

Between now and the end of 2023, I also expect small dividend increases from TD Bank (TD) and the aforementioned Enbridge (ENB). We might also see some special dividends from some Canadian oil and gas stocks too…

Thanks very much for reading and I welcome any comments or questions you might have!

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

6 Responses to "September 2023 Dividend Income Update"

  1. Hi Mark,
    Thanks for posting your September 2023 Dividend Income Update – I enjoy your articles and particularly look forward to your “Weekend Reading” editions. I’m not sure if you recall, but you helped me back in Sept. 2022 with some portfolio projections through your Cashflows & Portfolios site, which I found very useful. I will likely reach out in another year or so for an update. Regarding your dividend income strategy, we share a common approach wrt holdings (similar to others who embrace dividend growth investing, including Henry Mah, who I credit with setting me on the path with the strategy). I also regularly review dividend income across my RRSP (x2) and non-reg (x2) accounts, and also plan to postpone withdrawing from TFSAs until much later. I am curious about your thoughts on dividend income weighting between RRSP and non-reg accounts. I am currently sitting with a ~70% RRSP weighting in terms of dividend income (largely due to the opportunity to take advantage of RRSP matching plans with my employers), with the balance coming from non-reg and TFSAs. Currently I am focusing on building up my non-reg dividend income for future tax savings opportunities in retirement, recognizing I’ll increase my annual tax burden while continuing to work full-time. Aside from this relatively straightforward approach to optimizing my future income tax situation, are there any other strategies you’ve considered?

    Reply
    1. I do remember Justin…and happy to support you again! 🙂 Hopefully you got our annual email reminder – we sent it in September? We offer a deep discount to returning clients!

      Yes, many readers, clients, etc. express they are pretty happy with an NRT (non-reg. then RRSP, then finally TFSA) drawdown, or RNT, or a bit of both and only in very rare circumstances do I see the TFSA going first have any merit – usually only when debt is involved to be honest.

      I don’t think there is a right or wrong when it comes to taxable vs. RRSP income – it will all get taxed eventually. Certainly, ongoing, lower, modest taxable income is OK and preferred since it’s absolutely wise to take advantage of any RRSP matching plans with your employer(s). That said, once the RRSP is maxed out, you can certainly consider taxable investing and any focus on lower-yielding, higher growth stocks makes more sense in a taxable account. The fact that both my wife and I have taxable accounts, will be a form of income splitting since we can be strategic when we sell those assets. 🙂

      I hope that provides some insights but happy to chat more too.
      Mark

      Reply
      1. Thank you for the insight, Mark, much appreciated. Also thanks for the reminder regarding the C&P projections discount – I’ll go back to my emails in September (it seems I’m never up to date on email traffic.).

        Justin

        Reply
  2. Hello Mark: Thank you for the regular updates of your portfolio: the information is helpful. I also follow a regular practice of updating our portfolio on a monthly basis. This is a part of effectively monitoring our portfolio /dividend progress and status. In this way, highlighted information is noted and if necessary adjustments may be made.Sometimes , opportunities come to our attention where enhancements may be taken to improve the income and quality of our portfolio.Unfortunately, I am not skilled in Excel , so a far amount of ” paper” recording is necessary.
    This past while has been an opportunity to add to several favoured dividend / yield equities at higher than average yields and raise our overall cost basis a little. A substantial capital gain is embedded in a number of equities that have been held for several decades. Overall, we are very grateful for our financial security and the ability to be helpful to family members and our chosen charities.

    Reply

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