Why I’m still planning to live off dividends and distributions
Some time ago…yours truly wrote a controversial post about the intent to live off dividends and distributions form our portfolio. I know some investors don’t agree with my approach and I can see why.
When I mention “living off dividends” some readers in the past have mentioned the following to me:
“The trouble with a “live off the dividends” approach is that I’d have to save too much in order to create my desired retirement income. For example, I’d need to save between $2.5M and $3M in order to generate $90,000 per year in dividend income. Alternatively, I could get the same $90,000 per year by simply withdrawing from a portfolio of $1.45M (assuming 5% annual growth and the portfolio lasts 30 years).”
“Some of the big banks’ income funds have proven to have unsustainable distributions.”
“Your universe starts to shrink if you demand an average dividend rate of 4% or higher from your stocks. I prefer to own everything and withdraw dividends plus retained earnings (in the form of capital gains) as I see fit. The way I see it, I’m living off retained earnings whether I get them in the form of dividends or capital gains. I don’t see why I need to limit myself to dividends in order to preserve capital.”
No doubt this remains a polarizing topic.
Regardless of how others feel about this subject, I continue to believe that saving and investing until we reach our crossover point is something to aspire to – to retire comfortably. For us, that’s owning a paid off home/being debt-free AND owning a $1 million personal investment portfolio. (This portfolio excludes our small workplace pensions and any future value government benefits.) We’re over halfway there.
Why do this?
We’re striving to live off the dividends and distributions generated by our investment portfolio for the following reasons:
- There are simply too many unknowns about the future. Having ample capital for our financial future will give us many options.
- If we are able to keep our capital intact we don’t need to worry as much about when to sell shares or ETF units when markets don’t cooperate.
- Saving and investing this way is my form of forced savings – there is motivation to reach our $1 million portfolio goal and spend the income from it.
A few years back I asked other bloggers and investors about “living off dividends” after I wrote about our plans to do just that. You can revisit those older articles here:
One of those investors was Dividend Earner and his article was posted here.
I caught up with Dividend Earner recently to ask him how his investing goals have changed (if at all), how close is he to reaching his own crossover point, and what’s he’s investing in these days.
Dividend Earner, welcome back! What’s new?
From a dividend investing strategy perspective, not much has changed.
My current focus is on dividend growth during the wealth accumulation years. My dividend income is fully re-invested as of writing this but I am considering getting it all in cash to choose where to deploy income earned every month. I will generate $1,000 per account within a couple of months and based on the market fluctuations, I could probably sprinkle it around more.
With my focus on dividend growth, it has me looking at U.S. stocks more. Right now, my exposure to U.S. stocks is about 53% and growing. In fact, 80% of my RRSP account is in U.S. holdings. I am now considering holding U.S. stocks outside of my RRSP. “WHAT?” some of you might think … sure….but consider the total return expectation. If I hold a low yield U.S. stock inside my TFSA and pay the withholding tax (you can read about withholding taxes on this dividend page here on Mark’s page) it’s not a major impact on the total return while potentially realizing significant gains.
The biggest change since our last interview was to realize that my accounts with U.S. stocks (such as my RRSP) have outperformed all of my Canadian accounts by additional 3% in my annual rate of return. In Canada, banks have been, in general, the best performers from a dividend stock perspective. I cannot have a portfolio of just banks (that would be irresponsible) although I guarantee you that bank employees have a lot riding on their employee stock programs. A company-biased portfolio is a regular water cooler topic at the office!
Do you still intend to “live off dividends”?
I certainly do.
It’s my primary retirement plan. While you may need more than a withdrawal rate strategy, why aim low? Why not attempt to reach this primary goal and fallback to a withdrawal strategy later? (Mark – I agree).
The reality is I don’t know how long I will live and money does go a long way to help if there are medical complications. I do want to skip the line for procedures if I need to and am able to financially.
Back of napkins math – my goal is to earn $60,000 per year in dividends by 2024. That’s only 6 years from now and it’s based on a growth of 21% annually in dividend from both new money added and the dividend growth. The $60,000 target also includes owning perennial low yield stocks like Canadian National Railway, Visa or Costco. The portfolio is not loaded with high yield stocks.
Can I retire sooner? It’s on my mind but not for 4 years at least. It’s not far away and I will be helping my kids with university shortly.
Do you have a crossover point like I do? If so, what is that?
$60,000 is my goal at the moment.
I will always have a year’s worth of cash ready when I stop working (note: see a similar idea I have about our cash wedge in retirement) but I’m not settled on any sort of fixed income approach or a ratio matching your age approach. I may be bolder than others and be completely in equities. High yield holdings, especially Canadian ones, have only been a disappointment over the past 5 years. Many simply dropped their dividends and there is little to no growth.
I am starting to strategize my approach. At the moment, banks are the most appealing with both good yields and good growth with the telcos not far behind from a Canadian perspective.
What are you investing in these days?
I’m buying U.S. industrial stocks along with U.S. healthcare stocks. When choosing a stock, I start with Dividend Achievers and review the dividend growth and Chowder Rule. I also review my current list of 26 stocks and assess which ones to add more money to. Every now and then I reassess if there is a better option for the underperformers in my portfolio. It’s pretty boring but it’s effective. My portfolio returns since 2009 is consistently above the indexes.
I hear ya. More approach is very boring. What’s next for you? Any big plans for 2018 when it comes to investing, family, otherwise?
Avoid lifestyle inflation as I have been doing for the past 10 years and invest as much as I can. I invest close to 50% of my income. There are 2 big goals:
First, top up the spousal TFSA account.
Second, reduce the investment line of credit (LOC). I have had a line of credit for investing for a number of years and with interest rates going back up, I will be paying it off.
Mark – sounds like good goals and you’ve done very well to date for sure. Thanks to Dividend Earner for taking the time for another interview with me. I hope to have him back in the future 🙂
Do you have questions for Dividend Earner and his investing approach, his goals, other? Share away and leave a comment below. I’ll ask him to answer them!!
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. 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.
58, divorced (twice 🙂 one of which dented my portfolio significantly ) living in Ottawa
Also a fan of dividend investing for many of the reasons already mentioned in the posts above. However, I complement dividends with income from two rental properties, as a way to diversify my investments. Total passive income is $62,000 (36k dividends, 26k net rental), growing at a rate of ~4k/year. Hold 24 mostly Canadian dividend payers which, with their steady (so far) stream of income provide comfort when my equities portfolio experiences negative growth as in the last few months (and in a couple of past years). Best wishes to all. My investments portfolio is held 55%/45% personally and in my one person consulting business, respectively. It also includes a 5 year GIC ladder which i bolster every year in size.
This may not be appealing to many: i plan on having my passive income provide, in time, a stream of income to my two children. Exactly how i will structure that is work in progress.
Very well done – I like the stream of income and long-term, if you want?, you can always sell the rental, invest the proceeds, and have less stress in being a landlord while maintaining the income stream.
Selling the two rentals and investing the proceeds in bonds/gics (for right or for wrong i consider my RE a surrogate of those as it is) is in fact a real possibility, depending on lifestyle upon retirement. Thank you for the positive feedback and congratulations on your work here. I appreciate the respectful and open minded approach on your site, as much as the financial insight.
You’re most welcome. I’m certainly not a perfect investor but things are coming along for us. I hope the same for you and your rental decision.
Cheers….
“hold a lot of high dividend yield”
ah, okay, thanks. I think I now also understand the 2019 TFSA contribution numbers you mentioned. Was wondering about that. I hold EIF as well but I was late to get on board (May 2015) due to my work situation.
Yes it is. Both TFSA’s have about $80K each in stock in them. I hold a lot of high dividend yield western Canadian stocks in them, such as EIF, BPF, RNW, etc. I take out the dividends twice a month. Some pay on the 15th, some on the 31st. Which also keeps the income coming in regularly. In January I add up all the withdrawals for previous year to the yearly $5,500 and transfer an equal value of dividend stocks from my RSP to our TFSAs. One advantage to being retired is that I have the time to keep a close eye on each stock that I hold. If there is ever a missed dividend or reduced dividend I can get out quickly before the rest of the world notices. For example, I was probably the first one out of Crescent Point Energy when the oil market started to crash. I sold all my CPG stock the day they announced a reduction in dividends. I am a huge fan of EIF so I really have to watch myself when I analyse what they are doing. However I was so impressed with the way they handled the lies that short seller Marc Cohodes was spreading last year so that he could drop the stock price to fill his short sells. It didn’t work and I hope he is able to make back the money he lost on EIF by selling chickens from his Californian chicken ranch!
Great work having those TFSAs close to $80k each!
I’m happy to follow someone who is into the same investment strategy as I have been doing. However, unlike you and most of your contributes we are now walking the talk! My wife and I have been retired for 7 years. On April 13, 2018 we will have broken the $1,000/month tax free dividend income level! This is a major milestone and not something we had planned when we were working towards retiring at age 55. Back then we had no idea there would be a way to live off of tax free income because there was no such thing as a TFSA.
In 2005 at the age of 50 we sold all our stocks and bought bonds to insure a guaranteed income for when we planned retire in 5 years. However we lucked out when the market crashed 3 years later. When I saw that Canadian bank stocks had taken a beating by international investors who did not understand the difference between the Canadian and American banking systems, I sold the bonds and bought Canadian bank stocks. Within less than a year the bank stocks had doubled in price and I sold them; doubling my portfolio!
I then bought stocks that paid monthly dividends. After losing $10K on Yellow Pages, I refined my portfolio to stocks in companies that I can easily watch. Local stocks are the best. Boston Pizza has restaurants in my area and I occasionally visit to get a ‘feel’ of the business. Things such as upgrading, specials and lack of maintenance can easily be noted to help in deciding whether to sell or buy more stock. As I live in Manitoba one of my best, and maybe luckiest investments, in the monthly paid dividend market is Exchange Income Corporation (EIF). They have an incredible team who somehow manages to buy and develop companies who have great ideas. One of the latest is Provincial Aerospace that does off shore surveillance and now has contracts with governments around the world. EIF has a perfect record of paying monthly dividends at a rate of around 6%. The reason I am writing this today is that EIF and their increase in dividends paid this month has put us over the $1,000/month TAX FREE level.
We started retirement with about $400,000 in stock in my RSP and our TFSA’s. Every year in January I move about $40,000 from RSP, pay $12,000 in taxes, and put as much as possible into our TFSA’s. In 2019 the TFSA contribution should be $23,000, $5,500 + $5,500 + $12,000. I was hoping to have the $400,000 moved out of my RSP within 10 years, but due to the success of stocks that I mentioned above I still have over $200,000 left to remove from the RSP. And I definitely want to move it out within the next few years without paying huge amounts of taxes.
So I just want to let you know that living off dividends is possible and we are doing it now.
Heckuva comment – thanks.
“On April 13, 2018 we will have broken the $1,000/month tax free dividend income level!”
Impressive. We’re not there yet. We earn about ~ $7,500 per year from our TFSAs; about ~ $8,500 from our non-reg. account. Our goal is $30k eventually from these accounts:
https://www.myownadvisor.ca/dividends/
Smart call with the bank stocks, buy when there is blood in the streets as they say!
I don’t yet own EIF but I am considering it. Close to yielding 7% right now which seems high – I wonder if that is sustainable?
https://www.exchangeincomecorp.ca/dividend_history
“So I just want to let you know that living off dividends is possible and we are doing it now.”
Impressive and great to hear. I hope we can get there eventually – that will be nice.
Hey, another Manitoban!
I may be reading the post all wrong, is the $1K/month being generated only from your TFSAs?
Nice comments here, difficult to add anything to them, most everything is covered.
One other screening idea for picking my dividend stocks is looking back at how the stock fared in 2008-> forward. Was the dividend cut? Was it suspended? Did it it increase? How well did it bounce back from that bad time? Anything that fared well back then and is still strong today is worth considering as a good keeper. Like others I don’t really care about fluctuations in the price, A decent stable monthly income that you don’t have to have a watchful eye on constantly is my goal,
I believe that all successful approaches to investing are good. I understand some disagree with dividend investing and have other avenues they desire. I don’t really have a choice to go all divided, as the the workplace pension DC plan I have set up for our employees where i work, does not offer a true dividend offering. I have researched this and there really is no provider that will offer that. I think the main allure to dividend investing to me personally was seeing my monthly payout increasing + visibly snowballing. It gives you the impression that your’re really getting somewhere.
I hear ya Paul. I’m a fan of low-cost indexing and of course, dividend investing. There is value investing, momentum investing and other approaches as well. Heck, folks can invest in GICs only if they want.
At the end of the day, as long as folks are meeting their savings and investing and personal objectives (without hurting others in the process) then that’s all good.
Thanks for being a fan.
Wasn’t there a time when we were allowed by CRA to invest the kids “baby bonus” cheques in their name? I seem to recall there was something different if it could be proven that is where the money originated. There might have also been something about birthday gifts from relatives allowed as well. If this is still the case, could a person invest the child benefit payments directly (or as directly as possible) into an investment?
I recall that because my parents (now approaching 70) got the “baby bonus” checks and used them for my sister and I when we were younger. Dating myself as well, now approaching mid-40s (45) this summer. Well, I guess I’m not early 40s at 44 either 🙁
I don’t see why some parents couldn’t invest the monies given to them via the Canada Child Benefit.
https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-child-benefit-overview.html
“The Canada child benefit (CCB) is a tax-free monthly payment made to eligible families to help them with the cost of raising children under 18 years of age. The CCB might include the child disability benefit and any related provincial and territorial programs.”
I did some searching….Jamie Golombek says it can still be done….
http://business.financialpost.com/personal-finance/taxes/understanding-the-new-canada-child-benefit-and-other-tax-tips-for-parents
May, I had ready planned real estate for the kids. This is why I pushed for us to have at least two real estate rentals after my husband and I got married. Real estate is so expensive in this city, it’s hard for the young to buy nowadays.
The idea is that if we don’t need the money the kids will each get a rental property when we die, well, that is my idea, I haven’t talked to my husband yet to see what he thinks (cause he’ll think I’m setting up our kids to be losers and he’s absolutely right). Again, the kids are not to be told that the rentals will go to them. The primary house may go to them but only if we don’t need the money in our retirement years. They can live in the rentals if they are poor in their 20s but they are expected to make their own way after landing a full time job after they finish university (according to my husband). He is very adamant about this!
Yes, May, good idea, keep the accounts under my husband and my names. However, when you go to transfer the accounts to them there might be taxes involved, which is what I want to avoid.
My husband doesn’t want me giving the kids any ideas that they will have any financial support from us. He said he wants them to do something with their life and they need to study/work hard. He’s right. Hence, I can plan for them but I’m not allowed to tell them. This is why I mentioned above that they won’t be told until they are in their 40s. 🙂
The other thing I’m concerned about is what if they get a divorce and their ex-wife is entitled by law to take 50% of the money in the account I planned for them? My blood and sweat planning for my kids? Oh, the fun things I think about. 🙂
As you will not have any tax benefit, you can have an account reserved for them but not in their names?
You might have to help them to buy their first real estate. LOL.
@ILD: “My husband doesn’t want me giving the kids any ideas that they will have any financial support from us.”
The best way around that is to teach them how to save and they can invest for their own future.
Our grandkids don’t understand investing, care about the price of their stock, aware that the price of the stocks go up and down or even what Compound Growth really means. What they do know is that the amount of the dividend income they receive every three months is higher than the previous amount. Even then they only look at the statements about once a year and are always surprised by how much its gone up. That’s why our grand daughter decided to add $100 each month as she now knows her quarterly income will grow even faster.
Okay thanks.
I had thought about the tax situation a few months ago. I was thinking of buying BRK-B and the iShare index fund that doesn’t give any distributions (they re-invest it back into the fund so the investor won’t have to pay dividend tax). 🙂
Thanks for your response Floridaiscalling.
My kids are still in elementary school. The youngest recently started school full time. Since time is on their side I would like them to get 55-60 years of compound time. Is it possible to open a brokerage account under each of their names now? Say deposit 10K into each of their accounts and just let it sit there and compound?
Actually, don’t tell them these accounts exist so they won’t withdraw from it. This forces them to study/work hard and make their own money. Tell them when they are in their 40s. 🙂
Yes, you can. But you will pay tax on these accounts if any income happens there. Tawcan has a couple blogs about this. Go to search his blog.
@ILD: Don’t believe you could open an account for kids under 18. That’s one of the reasons why I wrote the article that Mark was kind enough to post.
We started DRIP’s for each of our grandkids in 2006 with just one BNS share. Added funds periodically for them. It survived the financial crisis and has done extremely well for them. Grand daughter took over hers when she turned 18 and contributes $100/mo. Will continue with that amount then increase when she gets a full time job. No fees even on small investments.
The only side affect is that until they turn 18 you (or whoever opens the account in trust) must claim the dividends on your tax form, but it basically washes out with the DTC.
Okay Cannew, I’ll go back and read your post. Open the account “in trust” okay. I’ll inquire about that at the brokerages I use. I’m sorry, what do you mean “washes out with DTC”?
Did you pay any transfer tax or any type of tax when you went to transfer the account to your grand daughter when she reached 18 years old? Thanks.
My understanding is taxation is in the hands of the investor, not the minor, until transfers occurs of course.
DTC is the Dividend Tax Credit which is intended of offset the tax calculated on the grossed up dividends which one claims on their tax form.
There were no transfer fees or tax as they just removed my wife’s name and registered the stock in her name. She had to completed new application forms but that was it.
When the BNS share certificate was originally purchased we had in both names (mandatory). Then the In Trust DRIP account was opened with Computershare. Once completed its just a matter of sending in cheques to buy additional shares. BNS also had Direct Debit so the $100 automatically gets taken out of her bank monthly.
Here is more information about the dividend tax credit:
https://www.myownadvisor.ca/dividend-tax-credit-101/
I’ve actually set up some BMO stock to DRIP with BMO’s stock transfer agent for 3 of our nephews but my sister is not really interesting in following any of it. Too bad. These kids could be very wealthy in another 50 years if they keep at this. (They are not yet teenagers.)
Awe you’re such a good uncle!! Maybe you can help your nephews when they get a bit older, like 12? To help them get interested in investing.
If they will listen 🙂 Cheers.
Yes, I opened accounts for my 3 children when they were young. I did all 3 ITF (In trust for) accounts at the same time, so ages 6 months to 5 years. Had to line up to get them Social Insurance numbers, so I remember that ordeal with all 3 of them in tow.
I also collapsed them at the same time, when the youngest turned 19. The amounts weren’t that large, you could deposit the baby bonus, later changed to the Child Tax Benefit credit into them and also any gifts (we never had any gifts…). When I collapsed them, there were capital losses, which are still being carried forward on one of them.
Two of my kids have sizeable savings, even though they are still students, the middle one….well he has sizeable student loans. Two out of three ain’t bad. My daughter learned from me. Recently bought a stunning all silk designer dress for her grad formal. Cost was $12.50 at Value Village!
Well done Barbara – seems you have taught your kids well!
That is awesome Floridaiscalling!!! Did you use the same dividend growth strategy as Cannew (The Connolly Report)? Do you own any index funds? How many years did it take you to reach $72K in dividends?
ILoveDividends:
Thanks you! I own primarily, well almost exclusively equities, I think the only ETF I own is ZUT, maybe another one or two but that is it.
I would say I got very serious about this 15 years ago, prior to that I was focussed on increasing the total value of my investments versus investing for income. My first real investment that opened my eyes to income was in the early 2000’s when I bought 400 shares of RY for $24,000 and started seeing more shares added (and growing) every 3 months along with increasing dividends, today having only re-invested the dividends and of course, the dividend increases along the way (and there was a split but that doesn’t increase $ just share count) my RY is worth over $100,000 and pumps out income of over $4500 annually. What turned me on to this was an investment radio show commentator who told the story of how his father had told him to “invest in Canadian banks as it is better to be the lender than the borrower”. That made sense and really stuck with me
My strategy is a bit Bufftet-esque, that is, I buy what I think are great companies that have a history of sales/income growth, increasing dividends and don’t pay out too much of their DCF. That and they must be in a business that has a future. I do have some riskier/aggressive income investments such as DIV, EIF & CWX.
I take advise from many sources among them BNN (until they started charging for the channel) but I do go to their site every day. I follow lots of Seeking Alpha contributors and, of course, My Own Advisor. Those and I read and learn as much as I can and make my buy decisions based on a majority of expert opinions. Simple as that.
Hope this helps and good luck and best wishes!
I wish I bought 400 shares of RY years ago 🙂
We only have about 300 shares today but it’s growing every quarter! Also, beyond that quote – own the company not the companies’ products.
I don’t watch BNN at all. I used to but I figure it’s largely financial noise aimed at driving eyeballs to the TV, not necessarily given the best financial low-cost advice to the masses. That would make for boring TV and likely a week’s worth of shows!
Love your site especially the Canadian focus – great job! I too am a live off my dividends/investments guy.
Over and above our CPP & OAS, I have planned and invested for an additional annual income of $72,000 all to come via, dividends/investment income, DRIP and dividend increases. As of this writing, our income from investments is $72,300 annually so we are just over my goal. Actually, I would like to be at $80,000 in annual investment income and I think/hope I will get there by the time I retire in June 2019. I have the usual Canadian suspects, ENB, ENF, PPL, ALA, MRG, RY, TD, NA, TRP, T, AP.UN, CRR.UN, AQN, PKI and some others which I will admit, I was aggressive with but those investments, I would like to think were, “informed decisions” based on research etc. I also have a significant amount of US dividend payers including, O, MO, MAIN, NRZ, some other US REIT’s etc as well as the Brookfield investment family including BAM, BIP, BPY, BEP and BRE – not sure if these are considered CDN or US? I have tried, as much as I can, to keep my selections to monthly payers and especially those that offer a DRIP, (like monthly payers not always possible) but best way I know to increase my yielding when a dividend increase is announced, I win twice!
Bottom line, depending on your $ requirements, lifestyle and retirement plans (and your portfolio size absolutely factors in), you can 100% live off your investments, just look at history, consider the future/potential and make smart selections that give you the most opportunity to increase your yield.
It can be done!
It’s so encouraging to see somebody has actually achieved the goal I set for myself: $72,000 annual income from investment income.
You have done a great job already. It’s still more than one year to your retirement. Best luck to your $80K goal.
Brookfield family is Canadian I believe. As their business is global wide, they distribute in US dollars. There are a few other stocks doing that too.
$72k per year in dividends? Wow. Do folks really need that much? 🙂
Brookfield is absolutely a Canadian family but has international assets. Built-in diversification.
I do not need that much for retirement. But if I want to retire today, then YES, having two young kids and without any other income, that would be how much I will need. But of course, another way thinking about this is that I can touch capitals before the kids go to university and I need less after that.
Anyway, it’s a goal to force me to focus more on saving and investing. I can still enjoy life even if I never get there.
No doubt May, you are doing very well for yourself I recall. Kudos.
Geez, well, I love when people love this site 🙂
“Over and above our CPP & OAS, I have planned and invested for an additional annual income of $72,000 all to come via, dividends/investment income, DRIP and dividend increases.”
WOW.
I too own ENB, ENF, PPL, (not ALA, MRG); RY, TD, NA, TRP, T, (not AP.UN, CRR.UN); AQN, PKI and many others not in your list.
I also own a nice suite of Brookfield companies (a CDN company) and I’m buying more where I can inside my RRSP: BIP, BEP, BPY, etc.
Our goal won’t be to live off dividends 100% but we feel $30k will be enough inside our TFSA and non-reg. account to be pretty close. If I add in our RRSPs (will be taxed mind you) I hope we’re close to $60k in another 10-years. That will be “enough” considering we have some small workplace pensions in our future. I will earn $27k per year from life at age 65.
Thanks for your contributions and reading – love it when fans come together 🙂
Mark
Tawcan is also another favourite blog of mine. Sorry I left you out by accident in the above comment. 🙂
Good interview Dividend Earner and Mark. Good detailed explanations Cannew. Thanks to all for wanting to share your knowledge and wisdom.
Mark and Dividend Earner’s websites are two of my favourite blogs. I learn so much from reading their posts and from reading the comments written by the contributers. Cannew, you should start a blog too. 🙂
@ILD: No need for me to start a blog as I often just repeat what I’ve learned from The Connolly Report. I know we would not be in the position we are, of earning more in dividends than our annual expenses, had I not followed his advice. He does not recommend stocks, but a strategy. I’m not suggesting others could not have done as well with their strategies, but I wasn’t. He’s been championing DG for 36 years. How many others can say the same of their strategies and been as successful.
Thanks for the kind words.
Tom Connolly has provided a great service for many years. It would be nice to talk stocks with him someday. I recall he lives in Kingston and might be a retired teacher.
Well thanks very much. Always great to hear from readers and I try and learn from others as well.
The previous email should be for cannew. Sorry about that!
You can easily identify them as I only Cdn Banks, Comm, Utilities, Pipelines and BIP which I consider a utility. I don’t recommend any stocks, just that one identify a group of the best DG stocks, Cdn or US and buy only from that group. Keep adding to them, hold, reinvest the dividends, don’t worry about allocation or rebalancing. Don’t feel you need to own every stock, don’t sell to take profits and don’t panic if the price drops, as long as they keep paying and growing their dividend.
I don’t plan to sell any of the 13.
@Jill: Check my post a few years ago on Marks site where I suggested small investments be in DRIP’s. Part two has 10 of my 13.
https://www.myownadvisor.ca/try-this-average-retirement-plan-to-wealth-part-1/
Thanks Cannew.
FWIW, I continue to own all those stocks still and more….(Four banks: Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank) + (Two communications: Bell Canada and Telus) + (Two pipelines: Enbridge and TransCanada) + (Two utilities: Emera and Fortis) +
(One insurance: Sun Life Financial). DRIPping all of them and in some cases multiple shares per quarter.
Just went back and re-read both parts (and comments) of cannew’s posts . My head is spinning because I can see where, without background knowledge of where a person is in life (personal, financial, age, health, ability, etc etc), it is incredibly difficult to say with certainty if any method is good to emulate. I love cannew’s path, but I can sort of see that he is in a position that any reasonable foreseeable risk is not likely to cause him a great deal of harm. If one has an investment income stream that can absorb an X% hit (you fill in the X), then so what if it ain’t that diversified. If any of the major banks in Canada go down (as in a Nortel situation) then likely everything has collapsed. Now, in theory, time can heal all wounds but if one is depending upon their full investment income stream then any hit could be serious if not catastrophic (hence the cash wedge back-up Mark uses).
So in all this rambling (sorry), I can see taking snippets of many plans/paths and consolidating them into a personal plan/path that fits the individual. And that doesn’t mean a plan/path can not change as circumstances warrant.
I gotta go for a walk to mull all this over.
I too love cannew’s path but I have deviated from it a bit with a few hundred shares in VYM for some U.S. holdings/extra diversification. That said, I continue to believe a basket of proven U.S. dividend paying stocks like JNJ, T, VZ, PG in the U.S. AND the same dividend “studs” in Canada (telcos, utilities, banks, pipelines) will generate great wealth over time.
I could be wrong of course but then again, PG just increased their dividend recently thanks very much 🙂
https://www.businesswire.com/news/home/20180410006298/en/PG-Declares-Dividend-Increase
“This dividend increase marks the 62nd consecutive year that P&G has increased its dividend, demonstrating its commitment to – and extending its long-term track record of – returning cash to shareholders. The Company expects total dividend payments to shareholders of nearly $7.5 billion in fiscal year 2018, bringing total dividends paid over the last decade to $65 billion. P&G has been paying a dividend for 128 consecutive years since its incorporation in 1890.”
While I do feel sorry for former Nortel employees I would hope they would see in hindsight that owning company stock, and putting all their eggs into one basket was rather foolish. Even if CIBC collapsed tomorrow (I hope that doesn’t happen of course) I will have thousands of dollars in dividends flowing in regardless without touching the capital.
Nortel would have never met amyones criteria of a good DG stock.
Never paid a dividend from what I recall, capital gains only.
@Lloyd: Thanks for your kind comments. I think many people Skim articles or jump on sections that strike some cord and missed the intent of the article, which was:
“This approach is intended for average people who do not have much money to invest, who cannot afford a thousand dollars or more to invest at one time, the same people who never thought of investing in stocks, or have put most of their money into costly big bank mutual funds or GICs.”
Quite a few years back some of my clients heard me comment about investing in stocks and said they could never afford to buy stocks on their salaries (working as bookkeepers, secretaries and general office staff), wouldn’t know where to start and it was too risky.
So I put together a course to show them that starting with as little as $25 a month they could invest in stocks and over time generate a growing income that would be much more than they would ever get from Mutuals, GIC’s and with little or no risk.
What was posted on Mark’s site was a condensed version.
Agreed:
https://www.myownadvisor.ca/drips/
I also had little money to invest in my late-20s and early 30s but investing in stocks can be done with $25 or $50 per month.
Mornin’ cannew. I think a LOT of people A) take things out of context, B) read stuff with a personal bias, C) fail to take into account the situation of the writer, and D) fail to read a comment as if it were given in a coffee shop setting.
Having said that, I wouldn’t have done what you did in my situation as A) I’m just too lazy to do all that work and B) I wouldn’t have the moxie to hold such a concentrated portfolio. I still love it, but I know I couldn’t do it and I likely wouldn’t recommend it to most people I know.
I don’t have the guts/moxie to hold only a dozen or so payers either, I hold at last count 32 CDN stocks/companies and about 10 U.S. + VYM. That’s it but that’s enough I think.
We hold 26 stocks (all on the Canadian market), one ETF, three of the TD e-series funds (Cdn, Euro and Dow) and a very large GIC ladder under construction. Some days I think our equities are too concentrated but then I consider that BAM.A and the other Brookfield holdings are fairly diversified AND the biggy is that we both have indexed DB pensions. I don’t know what I’d do if we didn’t have that safety net.
Indexed DB pensions…you’re rockin’ 🙂
Finally got here 🙂 Looks like I was right. That’s your Canadian economy in a nutshell.
I have broken that mold and started focusing on the US stocks now while holding some of the Canadian usual suspects.
Hi Lloyd!
Great job! What 13 Canadian companies do you hold and would you still recommend them today?
@Lloyd: Our situation is 76, wife 74, Retired, Married, Edm, No DB pension, No Bonds, ETF’s, Mutuals, Preferred, REIT’s, or GIC’s. Just 100% Cdn equities (13 companies), cash and we Live off our Dividends plus cpp/oas. Did not get any Inheritance or earned Big bucks. In fact in 1999 the bank assessed our savings and investments and concluded we would run out of money if we retired at 65 and drew $60k per year. His advice was to save more and work longer. Glad we didn’t take his advice, though we still have are account at their bank.
Ha. Glad you didn’t take that advice either 🙂
Well done. You picked some good holdings. I can only assume the usual suspect (banks, some energy, and telcos).
Did you buy US stocks at all?
@DE: Yes I did hold some US stocks in our RRIF’s, but sold them when our dollar was extremely low and the price of the shares were high. I reinvested the money back into the current Cdn stocks I held and increased my yield considerably.
Great interview. Good to see another DGI from Vancouver area. 🙂
I echo Cannew’s view as well. You can’t just use the simplistic view of 4% yield based on your income target. It’s a bit more complicated than that. I suppose the “yield on cost” police will come out when we discuss this. I guess the simplistic view is that the market price of your portfolio would need to be significant. But the reality is, the principal amount might be a lot lower.
You are probably not expecting this comment from me but yield on cost is a poor metrics for comparison purposes. That’s why market yield is used when comparing investments. That’s just the reality.
I track yield on cost in my portfolio and I rarely use it. It doesn’t help make decisions. If I have an investment with $40K with a market yield of 2.4% and a yield on cost at 6.0% and I want to compare switching to another holding, which number do you use to compare? You have to use the 2.4% as it’s relevant to the current value of the holding. The other value I use is the dividend growth rate over the past 10 years. Yield on cost is not used when comparing.
I would love to hear an argument when yield on cost is a good metric.
@DE: “I would love to hear an argument when yield on cost is a good metric”
For those who invest to grow their income, it’s a metric which confirms that they are achieving their goal. Say one buys a stock which pays a 3.5% yield and has a history of increasing their dividend 5% to 8% per year. Over time one adds to that position trying to buy on the dips and they reinvest the dividends. Each purchase may not yield 3.5% or more but if they track their yield on their total investment (original purchases, plus reinvested amounts and new purchases) they will find that the yield on the income they receive might be 4%, 5% or even higher, even though the current market yield is still 3.5%.
Yes, Current yield is important when you wish to buy stocks but if one is retired and no longer investing, a growing yield on their Invested dollars is extremely pleasing.
@DE: “If I have an investment with $40K with a market yield of 2.4% and a yield on cost at 6.0% and I want to compare switching to another holding, which number do you use to compare?”
I think you are asking the wrong question. If a $40k investment, assuming that includes reinvested dividends and new purchases, is yielding 6% or $2,400/yr and growing why would you want to sell unless the stock no longer meets your DG criteria? Then you should sell or look at other stocks which do meet your criteria. If you invest for the long term there will be years when some holdings will under-preform, but that should not trigger a sell, but a buy.
I agree with you there. There is a lot of misunderstanding about yield on cost. The reality is if you want to stick to a safe withdrawal rate from your portfolio of 4%, and you need $90k a year, when you start you’ll need a capital base of $2.25 million regardless of whether the distribution is in the form of dividends alone or a mix of dividends and capital gains. If your portfolio has a dividend yield if 4%, (which would necessarily be a poorly diversified portfolio), $2.25 million will be enough, but you will need progressively more capital with lower dividend yields.
http://canadiancouchpotato.com/2011/02/02/debnking-dividend-myths-part-6/
Good to hear from you Grant. I know the YOC discussion can apply to ETFs as well, or any investment for that matter.
As you can see I’m sticking with my plan – dividends and a few ETFs like VYM. The income is growing, slowly. Thoughts?
Yes, for those of that like to focus on dividends, doing so for Canadian stocks and buying ETFs for US and international/emerging market stocks is a good strategy. I’d choose broad market ETFs, though, rather than dividend ETFs for greater diversification and, if in a taxable account, better tax efficiency, especially in the accumulation phase. I think in the US only about 40% of stocks pay dividends now, so you are missing out on opportunities if you have a dividend focused ETF, and because of low interest rates and the reach for yield, dividend stocks have been pushed up in price so now have high valuations and therefore low expected returns going forward.
I’ve thought about that Grant re: buying VTI vs. HDV or VYM but I’m planning to start withdrawing from the portfolio within 10 years (at least the income) so I need to consider how to get the cash out initially in retirement without selling units.
The phrase “live off the interest” has been used since I can recall getting involved in saving/investing. Interest or dividends, it makes little difference to the intent. The intent is to not have to access the principle and I see nothing wrong with that as a goal. I like reading about these folks with their blogs but it would be helpful to have a little more information. At least age but marital/family status, pension membership and even location would give a better overall picture.
I’m gonna try including info in the “Name” box to see how it comes through….
Sure thing. It makes it easier to relate.
Early 40s, married, one income, 2 kids, no pension coming my way, Vancouver.
No money problems, I have always been good with money.
I live below my means.
Bought our place in Vancouver before the crazy markets.
“Bought our place in Vancouver before the crazy markets.” Lucky guy 🙂
Comes through just fine!
Biggest misconception about DG: “I’d need to save between $2.5M and $3M in order to generate $90,000 per year in dividend income.”
I’m repeating myself but most do not understand that if one sticks with Quality DG stocks, ones which have paid dividends for years & years and have a long history or raising their dividends, you will earn more, much more in dividend income than the current yield of the stocks you own.
People always use today’s yield to calculate future income, such as a 4% yield today means you have invest $2.25Mil to get $90k today. But for those who are investing over time and have 15yr, 20yrs and more will invest various amounts and purchase the stocks at various prices.
With DG investing the idea is to stick with the best companies, try to buy when prices are low, reinvest the dividends to enhance compounding and hold for the rising income. If one is able to do that then over the long term the yield or income generated from the actual amount they invest will be much higher than what the current yield suggests.
Mark provides a monthly update on his dividend income, currently $16,150/yr. and his chart begins in 2008 or just short of 10 years. Mark I don’t want to pry but if you know how much you’ve invested since 2008 than divide the $16,150 by that amount to get your Yield on Investment. Then divide the $16,150 by the Market Value of those shares. I’ll bet there is a nice difference between the two yields and it will continue to expand as your portfolio grows and the companies keep increasing their dividend. Your etf’s will probably be a drag as most don’t have history of good distribution increases.
Using yield is fine, you just need to take into account growth and compound time. There are a number of variables that are needed to forecast with the right assumptions. The assumptions are often removed and the unfortunate standard by financial institutions is a 4% withdrawal rate.
Parameters to consider which makes the formula complex
* There is growth in stock appreciation (Market Return)
* There is dividend growth (the factored increase for the dividend)
* There is the time your money is at work growing with compounding
* There is the time when you are taking money out.
* There is savings for investment
Everyone needs to make their own calculation for that number you need based on your investment choices. You are right that you don’t need $2.5M to generate $90K but it also means you started many years ago on that plan for the compound growth to work. A good representation would be figuring out the reverse timeline on when was the best time to start 🙂 Unfortunately, when people ask for advice, they tend to start today and the numbers are scary for today. It’s not very motivating to tell someone the best time to start was 25 years ago …
I keep tracking and sharing my monthly dividend income to show how that goal can be reached.
@DE: Totally agree with your comments and there is no easy way to project as you say. People should avoid worrying about How Much they need and concentrate on How Much their investment will generate. They don’t have to start with a stock paying 5% or more because many of the great DG stocks never have yields above 2%. But if one looks back 10 or 15 years their dividend growth has equaled or exceeded 10%/year and one would have been much better investing in them rather than picking ones which yielded 5% or higher. As you say Time & DG are key factors.
As my time frame was 12 to 15 years I chose stocks where the starting yield was 3% to 4%, though I did chase yield to my regret.
However, I did concentrate on growing my income each year and eventually narrowed my holdings to 17 companies and finally 13.
Many investors today either haven’t been through 2008/2009 or they’ve forgotten what a major correction can do to ones market value and how long it took to recover. But through the worst my income continued to grow and grew faster as the market recovered.
@DE: “I keep tracking and sharing my monthly dividend income to show how that goal can be reached.”
I’ll ask you the same question I asked Mark. Calculate the Yield on your Income by what your total investment has been and compare it to the Market Value of your holdings. It’s not that the yield figure is important, but you will see that your yield on Total Investment (not YOC) is growing each year, as your income grows.
I mentioned earlier that many of the great DG stocks yields are always around 2%. But if they’ve increased their dividend each year than that means the price of the stock has risen to match the dividend growth rate. Check CNR as an example.
Cannew,
“If one is able to do that then over the long term the yield or income generated from the actual amount they invest will be much higher than what the current yield suggests.”
I have just figured that out from carefully staring at my portfolio with brokerage BMO. I was looking at the current yield they quote on a stock and realized that this info is the yield if I purchase shares TODAY, not the yield on my cost. (which is usually higher, except for a few stocks that have dipped quite a bit like Enbridge) I’m learning that your yield on cost will change every quarter with reinvested dividends,with new purchases, or with dividend raises or cuts. Too much math to get true accuracy quickly.
“I’m learning that your yield on cost will change every quarter with reinvested dividends,with new purchases, or with dividend raises or cuts.”
Correct.
It’s a good “feel good” measure but don’t assume it’s better than total return – that’s what matters long-term and you can with dividend paying stocks, get great long-term total return and juicy dividends as well.
I am following Dividend Earner too and nice to see him here. Very good interview.
Living off dividends and distributions is also my plan for retirement. I think the biggest reason for this is that focusing on income gives me better sleep. This year while the market down, my organic growth on forwarding income has already grown 3%. My original goal is also $60K as we don’t have any pension. Now I adjusted it to $60 if retire after the kids going to university, $72K before kids going to university.
I have some bond fund, not all equity. I am more conservative I guess.