Why living off dividends still works for me – Dividend Earner
Passionate fans of this site know I’m a huge fan of dividend income.
And I’m certainly not alone in my thinking…
A few years back, I profiled some bloggers and asked them about their dividend income dreams. As part of a new series on my site, I figured I’d catch up with them to see how the last four years has gone.
Here was an update from The Dividend Guy – now earning a few thousand per year in dividends while he grows his online business.
Today’s post profiles Dividend Earner.
1. Welcome back! What has changed since 2015 (since our post together)?
My strategy has evolved Mark to focus on dividend growth and leverage the chowder rule in my dividend growth stock selection. It took some time to see the results but after the transformation of my portfolio (from mid- to high-dividend yield to lower dividend yield but consistent dividend growth), my dividend income has grown much faster.
Not only do I DRIP everywhere I can, like you Mark, which creates compound growth, my dividend also has an annual 10% growth on its own.
During the accumulation years, my portfolio growth is supercharged and I can be confident that when I decide to live from my dividend income, the dividend growth will also beat inflation and prevent me from dipping into my invested capital.
It’s not good enough to have a yield above inflation since that yield is your income. You need your overall yield to grow at or above the inflation rate.
2. How is your portfolio constructed now? What do you own? What accounts are you investing in?
My stocks are all blue-chip stocks that you read about here such as the Canadian banks (TSE:TD, TSE:RY) or the U.S. blue-chip giants (NYSE:JNJ, NYSE:ABBV, NASDAQ:AAPL, NASDAQ:MSFT).
Generally speaking, the Canadian market is limited in terms of selection and I supplement those holdings with U.S. investments. I do hold an ETF from time to time and it’s the Vanguard S&P 500 (TSE:VFV).
I’m a big fan of holding U.S. stocks as a Canadian investor. It’s a much bigger economy and I got over the exchange rate mental blocker. If our Canadian-U.S. exchange rate was to change, while it would have an impact, it still beats the Canadian stock market in term of performance. My ratio of CAD vs U.S. holdings in value is 50/50. It’s not a hard rule, it’s what it is. I use the Norbert Gambit with DLR and DLR.U to avoid the currency exchange cost with my discount brokerage.
I feel you have to invest in the U.S. market. You cannot find a company like Visa or MasterCard in Canada.
I use all of the accounts available between my wife and I to invest. Our RRSP is full and so are both TFSAs. I am now investing in a non-registered account.
3. Great work. So how close are you to achieving your dividend income goal? How much more to be invested and/or time will it take to realize your dividend income goal?
Statistically speaking, I am 6 years away from my goal – which is very exciting!
Below is the growth since 2010 and the forecasted growth based on past trends. 2019 is not done but with the dividend increases from January and February, I’m forecasting I will beat my target for this year.
My portfolio and dividend tracker allows me to really see where I have been and where I am going. My annual ROR (rate of return) is between 9%-10% on my portfolio since inception. I don’t see that changing.
4. Are you going to do anything differently going forward to help you realize your goal?
Honestly, I’ve already tried the high-yield investment approach with our RESP account and that was a fail.
I figured that if I was going to use the high-yield approach in retirement, I could test it out with our RESP account. It really didn’t work. The dividend income was high, but there was limited growth in account value.
I know now I need to optimize for some yield but also focus on dividend growth.
So, in the future, I may drop the stocks with a 1.5% dividend yield with a 15% dividend growth and invest in companies that offer a 3.5% dividend yield with a 9% dividend growth. In doing so, I may say goodbye to one of my largest holding like Canadian National Railway (TSE:CNR) or at least move from a 6% exposure to a 2% exposure.
Those portfolio changes would probably boost my dividend income to the $60K range 6 years from now.
5. Earning $60,000 per year, just from the dividends, would be very impressive. What do you think the biggest factor will be in helping you realize your goal?
The boring approach continues to work – so, stay boring when it comes to investing!
I will also keep my lifestyle in check. Watch the spending and keep investing.
Here are some rules that could apply to your readers Mark:
- Don’t over think your purchases. Investing is better than doing nothing.
- Don’t over analyze the price of the stock. Avoid trying to outsmart the purchase price.
- Buy the boring blue-chip stocks in Canada and the U.S.
- Make sure you know why you buy – it keeps your portfolio stress-free.
- Continue to invest regularly.
- DRIP everywhere – let compounding do its magic!
Dividend Earner’s approach to investing is very similar to mine – but he’s also doing more of what I strive to own, that is, own more U.S. assets. I’m doing this over time buy owning more low-cost U.S. ETFs. He is doing it by owning companies like Visa, MasterCard, Apple and more. Your mileage may vary.
Ultimately I think Dividend Earner is going to get to his goal because of his high savings rate and his ability to stick to a plan he believes in. Keeping a plan we believe in should really apply to all of us!
I want to thank Dividend Earner for sharing his update and how he’s investing today. See you on the site and thanks for being a big fan and supporter of this site.
What questions do you have for Dividend Earner? Have you considering investing this way – a mix of lower yield but higher dividend growth stocks?
Other investor profiles coming up – stay tuned!