Why living off dividends still works for me – Tawcan
Passionate fans of this site know I’m a huge fan of dividend income, for many reasons:
- The income received from our Canadian and U.S. stocks is real money; I do not have to hope for just stock price gains to fund our retirement. There will be tangible income I can spend without selling stock shares.
- The dividend income earned inside our accounts helps me stick to an investing plan I believe in. This behavioural benefit is huge. Sticking to any plan, especially one you believe in, will save you money in transaction costs and help you avoid poorly timed investment decisions. Win-win.
- I can control the portfolio turnover, not a fund manager I have to pay.
- With my buy and hold and reinvest the dividends approach, I don’t have to pay a money management fee.
- Dividend-growing companies tend to be solid performers, so you get dividends and capital gains over time.
Those are just some of the reasons I/we own dividend paying stocks – and we’ll continue to do so.
A similar dream exists for many other dividend investors I know, even though other investors disagree with our dividend investing philosophies and approaches:
“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).”
The debates associated with focusing on income from your portfolio vs. a total return/draw down approach with a mix of stocks and bonds will rage on I’m sure – but I know what I’m focusing on in the coming years.
Other investors and bloggers are taking a similar approach: Tawcan is one of them.
I wanted to catch up with Tawcan (and other bloggers I profiled back then) to see where they are at.
As part of this series, check out Tawcan’s updates below!
- Bob, what has changed since 2015 (since our post together)?
On the blogging front, I no longer blog anonymously. I revealed my true identity back in 2017 and have not looked back. I have had a few media opportunities thanks to the reveal. I also have gotten recognized in public, a funny & weird experience I have to say.
On the personal front, life is busy. We have two very energetic toddlers now.
On the financial front, we have been continuing with our investing strategy – like you Mark – max out TFSAs, RRSPs, and since we have kids we also max out RESPs each year before contributing our taxable accounts. This simple strategy but very aggressive saving strategy seems to be working as our dividend income went from slightly over $10,000 in 2015 to almost $19,000 in 2018 and our net worth has grown over that period too.
- How is your portfolio constructed now? What do you own?
Our portfolio is still constructed the same ways as it was in 2015, except we now own a few more individual dividend stocks.
We are currently investing in 63 dividend stocks and 2 index ETFs. Out of the 63 dividend stocks that we own, 22 of them are US-listed stocks and 41 are Canadian listed stocks. The 2 index ETFs that we hold are Vanguard Canada all cap (VCN.TO) and Vanguard Ex-Canada all cap (VXC.TO). We are utilizing the 2 index funds to improve diversification.
Some may say that having 63 individual dividend stocks is too many to manage. For the most part, we are on auto-pilot with these stocks as we DRIP new shares whenever we can or eligible so there’s very little day-to-day monitoring. I do agree that 63 is a large number but some of these stocks that we own were given due to company splits, so the number of shares we have are rather small. The commission fee for a sale would be a large percentage of the overall cost. Therefore, I decided to continue holding them for now.
We hold these dividend stocks and index ETFs in RRSPs, TFSAs, and taxable accounts. To avoid the 15% dividend withholding tax, we only hold US-listed dividend stocks in RRSPs. All REITs and income trusts are held in either TFSAs or RRSPs. Finally, we only own stocks that are considered as eligible dividends in our taxable accounts.
- 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?
Well, technically we can be financially independent if we really wanted to now, but we choose to delay it. We estimate that we would need $40,000 in dividend income to call ourselves financially independent. Given that we received close to $19,000 in 2018, we are almost halfway to achieving our dividend income goal. We estimate we should be able to hit the $40k target when we are in our early 40’s, or about 5 to 8 years.
- $40K in dividends would be very impressive. Are you going to do anything differently going forward to help you realize your goal?
Our budgeting system allows us to analyze what we are spending our money on every year. We try to save as much money as possible while making sure that we aren’t depriving ourselves – we believe that we have found the right personal balance between saving for the future and spending to enjoy the present moment.
We are at the point on our financial independence journey where our expenses are optimized. So rather than trying to reduce expenses further, and depriving ourselves, we focus on increasing our income. This means trying to increase my full-time salary and income from our side businesses. This is something we are working on.
- Finally Bob, what do you think the biggest factor will be in helping you realize your goal?
Having the right mindset.
When we started, we were very much in the save, save, save mode. Over time, we found this was not the right approach. So, we developed a different mindset where we found a balance between spending and saving. In doing so, we truly believe that we will realize our financial independence and dividend income goals. It’s not a question of if we will accomplish these financial goals, it’s simply a matter of when. As mentioned, we are taking a slow and steady approach to financial independence, so we are not in a hurry to get there. We want to enjoy the journey.
A high savings rate, a personal approach that works for Bob, and a large volume of dividend paying stocks that generate income seems to be what is working very well for Tawcan. Your mileage might vary.
The goal of living off equity dividends (or distributions) can be a prudent strategy but it’s not for everyone. Dividend investing has risks. Only you can decide what is right for you. I want to thank Bob Lai for sharing his investing update with me. Stay tuned for more stories and updates from other bloggers as part of this series.
Other investors striving to live off dividends…friends and prominent bloggers:
What do you make of Bob’s portfolio and choices? What would you do differently, if you were Bob?