Dividend Growth Investor Q&A series – Dividend Daddy

Many readers will recall that Mrs. T and I are aiming to become financially independent via dividend income by 2025. The goal is to have our dividend portfolio generating around $60,000 to allow us to live off dividends. Although we set the year to 2025, in reality, we are not too focused on hitting this dividend income target by that year. At this point, we know sooner or later we will get to a dividend income level that can sustain our current lifestyle. 

I really enjoy connecting with people in the dividend growth investing community, especially investors who are further along than us on the journey. Because there are so many things we can learn from these investors.

A few years ago I had the chance to interview Reader B whose dividend portfolio generated $360,000 per year at the time of the interview. Reader B’s dividend income has increased significantly since. 

Many readers thoroughly enjoyed Reader B’s interview so I thought it’d be great to have other Q&As where I interview other dividend investors who are either on the cusp of living off dividends or already living off dividends. 

As luck would have it, a fellow Canadian dividend investor and a fellow blogger, Dividend Daddy, agreed to do an interview without needing much convincing.

Note: We did this Q&A a few months ago so some of the numbers may have changed.

Q1: First of all, welcome to the blog Dividend Daddy. Can you tell us a little bit about yourself? 

A1: I’m single, mid-40s, and Canadian. I don’t have children. I work full-time for now but look forward to the next stage of my life of financial independence and work being optional. I have worked in tech for most of the past decade and made a decent income and saved well. 

I am a dividend investor but also balance that out with ETFs for international exposure outside of Canada. My biggest holding is VTI (Vanguard Total Stock Market Index Fund ETF). I also have a sizable holding in XAW (iShares Core MSCI AC World ex Canada Idx. ETF).

In my free time, I enjoy riding my bicycle (I have never owned a car), listening to podcasts, travelling, going to art galleries, and dining out occasionally.  

Q2: What sparked your interest in dividend growth investing originally? And what got you started on your financial independence retire early journey? 

A2: Passive income sparked my interest in dividend investing and how important it is to have multiple streams of income. Currently, I have three main streams of passive income: employment income, dividends, and rental income. 

The excitement of collecting dividends while sitting on the toilet, sipping a coffee at a local cafe, or while lounging on a beach in Mexico is very real and very passive. I believe dividends are truly the most passive form of income. 

I started investing in my early- to mid-20s, initially in globally diversified index funds. I believe the “Wealthy Barber” recommended this approach (I read the book so long ago I can’t remember now). At that time, I thought I was investing to save for traditional retirement at age 65. Only when I saw headlines for several similar stories online about twenty somethings retiring early, did I dig a little deeper to come across blogs like Mr. Money Mustache, Tawcan, Millennial Revolution and others, that I realized that my savings had a goal. From that point on, I went deep down the rabbit hole into financial independence.

Tawcan: Thank you for the shout out! 

Q3: It’s really cool to see your progress over the last few years. You’re currently tracking towards $75,000 dividend income annually. How long have you been investing in dividend paying stocks?

A3: Thank you. Blogs like yours and others really inspired me to share my dividend investing journey as well and to build bridges within this community. I can tell you that although I occasionally chat with my friends about this stuff, I have only found myself really able to go deep on investing and FIRE with friends I’ve met through my blog and social media like Twitter. 

As I mentioned above, I started investing around my early- to mid-20s. Initially, it was in globally diversified index funds, including Canadian index funds that tracked the TSX. My dividend investing journey started about 15 years later give or take. 

Q4: You recently stated that you invested $41,274.81 in new capital in the stock market in 2023. Have you been investing consistently about the same amount of money each year? 

A4: Yes, I am fortunate to be able to earn a high income that enables me to make significant investments like this into the stock market. 

The amount I invest annually does vary and sometimes by quite a bit. In 2022, I invested just shy of $39,000 which is pretty close to what I invested in 2023. However, in 2021, I invested approximately $110,000 of new money. 

Q4: Can you provide a detailed breakdown across non-registered and registered accounts? Which dividend stocks do you own in your portfolio?

A4: I use two brokerages: Questrade and Wealthsimple. I currently have 67 total holdings across Questrade and WealthSimple accounts. 

I don’t have a fancy tool that aggregates the two accounts so I’ll provide the breakdown across my Wealthsimple account.

Tickers	Accounts
AQN	RRSP
AX.UN	TFSA
BAM	TFSA, Taxable
BCE	RRSP, Taxable
BEP.UN	RRSP
BIP.UN	RRSP
BIPC	RRSP, Taxable
BMO	TFSA, Taxable
BN	TFSA, Taxable
BNS	RRSP, TFSA
CAR.UN	RRSP
CHP.UN	RRSP
CM	RRSP, TFSA, Taxable
CNQ	RRSP, TFSA
CPX	RRSP
CRT.UN	RRSP, TFSA
CU	RRSP
DR	RRSP
EEMV	RRSP, Taxable
ENB	RRSP
EQB	RRSP, TFSA
FN	RRSP
FTS	TFSA
GLOV	RRSP, Taxable
HR.UN	RRSP
IEFA	RRSP
INTC	RRSP
JNJ	RRSP
KO	RRSP
MFC	RRSP, TFSA
MO	RRSP
MTR.UN	RRSP
NA	TFSA, Taxable
NWH.UN	RRSP
PMZ.UN	RRSP
POW	Taxable
PPL	RRSP
QCN	RRSP
QUU	TFSA, Taxable
RIT	TFSA
RY	RRSP, Taxable
SLF	RRSP, TFSA
SRU.UN	TFSA
T	RRSP
TD	RRSP
TRP	RRSP
UL	RRSP
VNQ	Taxable
VTI	RRSP, TFSA, Taxable
VZ	RRSP
XRE	TFSA
XSH	Taxable
XSP	Taxable
ZCS	RRSP, TFSA
ZEA	TFSA. Taxable
ZFL	RRSP, TFSA, Taxable

Q5: I noticed that you have many of the same stocks across RRSP, TFSA, and taxable. What’s the reason for that? Do you have rules on which account to hold specific dividend stocks? 

A5: This is a result of decades of investing and the use of a robo-advisor at one point that invested in identical assets across RRSPs, TFSAs and taxable accounts. With that said, this past year I have strategically paired down duplicative index funds that I have built up over the years. This task is ongoing. 

Barring rules like holding U.S. stocks in an RRSP for tax reasons for example, I figure that if you’re confident holding a particular dividend paying stock in TFSA, you should be confident holding it in your taxable account. If I limited myself to only holding a particular dividend stock in my TFSA and nowhere else, I’d be rather limited in the amount of that stock I could own given the investing limitations annually imposed within a TFSA about how much an individual can invest in a given year. 

Q6: If you were to summarize your philosophy of dividend investing, what would that be? 

A6: Largely it focuses on Canadian dividend stocks with moats around them that make it challenging for competition to enter or compete: financial sector, telecom sector, oil and gas pipelines, and railways for example. Stocks in these sectors and industries are large players that have solid track records of paying dividends that increase over time and are pretty immune from domestic and foreign competition. 

For example, I love the Canadian big banks. Four of my top five holdings are Canadian banks. I continue to add to my holdings and particularly in 2020 (during the Covid downturn) and again in 2023. I am fairly convinced I could be 100% invested in Canadian big banks and sleep well at night while collecting an even larger dividend payout quarterly. 

Banks in Canada are heavily regulated and barriers to entry are massive. Huge amounts of capital are required and foreign competition is next to impossible given the low ownership thresholds of a chartered bank’s voting shares. 

The big banks also play a central economic role in Canada as a conduit for monetary stabilization policies and government support in the form of deposit insurance and mortgage default guarantees.  

Q7: You invest in both individual dividend stocks and index ETFs. Why’s that? 

A7: In Canada, I invest in dividend stocks because the TSX is small and easy to replicate across the smaller number of key sectors in this country, be it financial, transportation, telecommunications, oil and gas, etc. 

By buying individual stocks listed on the TSX, I can essentially replicate an index fund that tracks the TSX while avoiding the albeit small fee the index fund would charge, in addition to securing a bigger yield and dividend payout than the distribution the index fund would provide. 

Outside of Canada, it’s next to impossible to replicate the world by purchasing individual stocks. This is why I use index funds for global diversification in the United States and internationally. With that said, I do own a handful of U.S. dividend paying stocks like Altria (MO) and Coca-Cola (KO). 

Q8: Like us, you own many Canadian banks. Are you concerned that the rising interest rates will cause Canadians to default on mortgages, causing a wave of bad things to happen to Canadian banks? 

A8: In short, no. 

The Canadian banks have weathered major crises including the Great Depression, WW1 and WW2 to name just a few, and have come out the other end, all the while paying dividends in some cases since the 1800’s. 

Q9: I believe you’re quite close to reaching the goal of living off dividends. Can you share with us your dividend income target? How did you derive this number? 

A9: I don’t have a dividend income target per se. When I passed $50K, I set a target for $75K. The dividend snowball really gets rolling once it’s picked up enough snow and speed. 

Maybe, my next goal should be $100K?

My annual spending is pretty low as my home is mortgage free. I can live for fairly cheap and this doesn’t include my rental income or ability to earn very decent consulting money in early retirement. 

Q10: What have you been doing to help to transition to the FIRE life? 

A10: I think about this a lot. I think about it almost every day and even more so as the weather gets colder and I have to make the trek on foot to the office for my day job. 

Why am I doing this anymore? One more year syndrome? 

Here is what I’ve been doing:

• Reading and listening to a ton of FIRE and early retirement books and podcasts.
• Continuing to invest to increase my annual dividend income.
• Meeting with a real estate agent to evaluate the market value of my rental property in Canada if I choose to sell it in early retirement.
• Meeting with a property manager if I decide to rent my principal home as a furnished short-term rental while travelling in early retirement.
• Considering signing up for Trusted Housesitters to potentially use that site as a way to defray some lodging expenses in early retirement. 
• I’ve taken on a side contract while fully employed as I would like to transition to work optional mode while early retired (so I’m dipping my toe in before I leave my full-time job). I spend a few hours a week on that side contract. 

Q11: Tax planning is very important when you start living off dividends or start withdrawing from your investment portfolio. What’s your withdrawal strategy to minimize taxes? Do you have an early withdrawal RRSP strategy? 

A11: I have been reading a lot about this and probably need to seek tax advice. 

Right now, my uninformed plan is to live off of my dividends in early retirement from my taxable account primarily and perhaps the dividends from my RRSP (take the tax hit) and/or TFSA. I may not touch the TFSA as it’s the smaller of the three and let it continue to grow tax free. 

Q12: There are a lot of debates on which is superior, dividend investing vs. index investing and living off dividends vs. 4% withdrawals. What are your thoughts on this topic? 

A12: KISS – Keep It Super Simple. For me, that means creating a regular (and rather predictable albeit not completely) pay cheque from dividend paying stocks. Dividends enable me not to have to sell stocks or ETFs I hold in early retirement. 

Instead, I simply live off the dividends until such time as I choose to sell them, at a minimum after the risk of sequence of returns has passed by after about 10 or so years of retirement. This way, I won’t have to make the difficult and stressful decision of selling stock in a down or bear market to fund my retirement. 

In planning for early retirement, I have done a ton of reading and listening to financial, investing and FIRE podcasts over the years. While I am well versed in the 4% withdrawal “rule of thumb”, yield shields, dynamic withdrawal strategies, etc., they all give me a mental headache. I crave simplicity in my day to day life and imagine this desire for keeping things super simple will only be stronger in early retirement. 

With respect to investing styles, I believe the scientific data is pretty convincing that index investing is superior to dividend investing from a total returns perspective. However, from a KISS perspective, what helps me sleep at night is knowing in early retirement that I don’t have to worry about selling stock or ETFs in a down market or at all. I keep my stocks and simply create a regular cash pay cheque for myself from the dividends my portfolio spits out. 

With that said, I also know that picking stocks is not a game that many investors win over the long run. I am no Warren Buffett. I try to hedge that risk, if that’s even possible, by selecting (for the most part) dividend paying stocks with a wide moat in Canada (think oligopolies) like the big banks, railways, telecoms, and pipelines, etc. 

Good luck building another railway in this country or a pipeline for that matter and good luck getting spectrum at an auction for a telecom. These industries are very “moaty”. While this is bad for consumers (i.e. we Canadians pay a lot for internet access and cell phone plans), it’s great for stock investors!

Q13: How has your investing strategy evolved over the years? What are some of the challenges you have faced? Do you see your investing strategy evolve moving forward? 

A13: My strategy has evolved from a strict index fund investing strategy to that of a hybrid strategy: Canadian preferred share dividend investor + U.S. and global exposure largely through index funds (with some individual U.S. dividend stocks). 

Q14: What’s your number 1 worry on your plan of living off dividends? 

A14: Is it enough? Will I have enough dividends to support my lifestyle in early retirement? Yes, I can do all the annual spending analyses and projected future spending scenarios, but will I have different spending needs 5 or 10 years in the future? 

To mitigate this, I plan to be work optional in early retirement. I will do some consulting work and continue to invest some money into the market even in early retirement. 

This consulting work built around my own schedule will hopefully provide some financial “gravy” for splurges in early retirement such as nicer hotels or Airbnb’s, but also provide me with the ability to continue to invest in dividend stocks and international index funds going forward. 

Q15: Like me, you work in high tech. For my current line of work, I have not heard of anyone working part time in high tech so I have spent some time thinking about transitioning from full time to part time/work optional work. Is this something you are able to negotiate with your current employer? Or do you do consulting work with different companies? What’s your recommendation for someone like me, a high tech worker looking for part time work in a similar industry? 

A15: Good question. Although I’ve worked in tech, I’m not a techy. I don’t code nor am I an engineer. I’m a lawyer by training with a background in public policy and all that entails, so fairly traditional old world skills. These skills are transferable from client to client whether these clients are tech related or not. 

My plan is to take my current employer on as a client when I transition to my work optional phase of life. 

I have not had this conversation yet with them so we’ll see how that goes. This would free me up to work how and from where I want to rather than having to go into an office weekly from 9am to 5pm. I could spend more time down south and avoid Canadian winters, something I long to do. I could then also choose to take on other smaller clients or through a separate contractual relationship, have that client serviced by another firm while taking a cut of the annual billables that client produces and billing that firm for any work I do on that file on an hourly basis. 

Q16: Do you have any advice for someone who is just starting their dividend investing journey or someone like us who is planning to live off dividends one day? 

A16: I find online tools that allow you to track your Projected Annual Dividend Income (PADI) extremely motivating. Almost in real time, you can see your PADI increase based on stock market purchases made. I use the PADI tool called “Income Investor” provided by Wealthica. 

This allows you to see yourself getting closer to your goal, be it early retirement or a related investing goal, and I have found that this motivates me to invest even more than I would have already (and I already invest a sizable portion of my annual after-tax income). 

Q17 Any final comments you’d like to share with us to wrap up this Q&A? 

A17: Just get started. 

There really is no excuse anymore not to invest in the stock market. The Internet and smartphone apps have made investing super easy. You can literally get started investing in a few minutes. 

Don’t have a lot of money? No problem either. Invest in fractional shares and own part of a company or an index fund for as little as a dollar at no cost to you (i.e. commission-free stock purchases). 

Don’t have time or want to think about investing? Let a robo-advisor do it for you for a reasonable small fee or use online brokerage features that allow you to “set it and forget it” as the discount online brokerage will withdraw a designated amount of cash from your bank account and invest it according to your instructions or robo-advisor parameters. 

Dividend Growth Investor Q&A series – Wrapping it up 

Thank you again for such an insightful Q&A interview Dividend Daddy. I love how you and I share a similar investing philosophy and that we are both hybrid investors. 

Just like you, I believe the worry about Canadian banks is overblown. Long term, I think Canadian banks will do just fine, so given the current depressed pricing, it may be a good time to load up on Canadian banks and ignore all the fear. 

Stay tuned for more Q&As with other dividend growth investors.