Dividend Growth Investor Q&A series – Nelson at Canadian Dividend Investing

As many of you know, when we started our financial independence journey, we set a goal of becoming financially independent via dividend income by 2025. Although 2025 is just around the corner, fortunately, we aren’t too focused on the actual date. 

In 2023 we received enough dividend income to cover our core expenses. It’s only a matter of time for our dividend portfolio to generate enough dividend income to cover all of our expenses. 

Thanks to this blog, I have had the opportunity to connect with like-minded people and share knowledge. For me, this is an excellent way to learn. This is one of the many reasons why I started this blog and kept it going for almost 10 years. 

Today I asked Nelson, one of the original Canadian personal finance bloggers to share his knowledge by answering various questions related to dividend investing and financial independence retire early. 

Q1: Welcome to the blog Nelson. Can you tell us a little bit about yourself? 

Thanks for having me, Bob. I’m an avid investor who has been interested in both the craft of investing and becoming financially independent for many years now. I worked various jobs in my career, mostly in retail. I was also a freelance financial writer for a time while working towards the ultimate goal of being financially free.

I also like playing video games, watching and following baseball and football, golf, travelling, and spending time with friends. I’ve been married for eight years, no children but we do have a cat named Lenny. He’s a pretty good boy.

Q2: Congratulations on retiring at age 39 recently. Walk me through the steps you took before you decided to retire. Did you have the famous one more year syndrome? What made you comfortable to say “I’m gonna quit?”

As I mentioned, financial independence was always the goal, and a big part of my life from 18-35 was working towards it. I made various sacrifices to get there as quickly as possible, things that don’t seem like much at the time but they really add up over 15-20 years. 

I worked 6-7 days per week, for instance, and stayed in the small town I grew up in to save costs on housing.  

I hit a sort of bare-bones financial independence around age 35, but I figured I’d work a few more years to be able to afford a little nicer lifestyle. So I continued to work, which included moving to my company’s head office in 2020. I was excited for the new opportunity and to live in a larger place.

But, after a couple more years, I realized something. I had worked almost exclusively towards financial independence for decades, yet my life was very much the same as my coworker who had a $5,000 net worth. We still worked the same hours and had to perform to keep our jobs. That led to me asking myself a lot of tough questions and ultimately was the motivation to pull the plug. I craved freedom, and working for the proverbial man was not going to get me there.

So in September 2022 I officially announced I was going to retire. I told work I’d stick around until the end of the year to help with the transition, which ended up mostly being them trying to convince me to stay. I’ve been retired ever since.

Q3: What sparked your interest in dividend growth investing originally? And what got you started on your financial independence retire early journey? 

The thing that got me started towards financial independence was my dad breaking his leg in 1999. He was unable to work and I was pretty concerned about the family’s financial health. 

Dad was a part-time landlord back then and he explained how the rent from those houses would keep the family afloat until he could work again. I was immediately intrigued and since he had the time, he showed me the ropes.

I bought my first rental property when I turned 18 and kept adding to my real estate portfolio. I then moved into private mortgages, since there was demand but no competitors in my small town. It was only when demand for these loans started drying up I moved on to the stock market. 

So for the first 10+ years, I almost exclusively invested in real estate.

I dabbled in a certain strategy but abandoned it after a few years of lacklustre performance. I started moving into dividend stocks in 2015 or so and fully embraced the strategy a year or two later after realizing they were an excellent choice for someone who wanted to retire early. 

I want cash flow today, along with a little capital appreciation over time. Dividend stocks are the best way to get this. 

Q4: Why dividend investing over indexing? What are some key factors that made you like dividend investing over different investing strategies?

I’ve always been interested in investing. For whatever reason, the topic has always been endlessly fascinating to me. I’m one of those people who enjoys cracking open an annual report and seeing what makes a company tick. 

This enjoyment of the craft is a big reason why I don’t embrace an indexing strategy. I also realize that indexes do beat most active investors over time, but I enjoy the challenge of trying to beat the index over a long-term basis. 

One important thing I realized is I don’t need to beat an index to achieve my financial goals. As long as my portfolio does pretty well over time and continues to deliver those dependable dividends, I can continue to enjoy the freedom gained from all those years of sacrifice.  

Q5: How much dividend income does your dividend portfolio generate each year? Can you share with us your holdings?

My dividend portfolio should generate approximately $74,000 in 2024.

My portfolio is incredibly diverse. I currently hold more than 50 positions. 

Essentially, I realized the biggest risk to my retirement was dividend cuts, and I wanted to minimize that risk, so I embraced a strategy of wide diversification. Even if one of my largest holdings cuts its dividend, I want to make sure I don’t starve.

Because of that wide diversification, I won’t share my entire portfolio. I’m too lazy to type it all out. But I will share my top 15 positions. 

Rather than rank them by value, I rank my top positions based on the income they generate, since the income is the most important part. 

  1. SmartCentres REIT: 4.01%
  2. Enbridge: 3.79%
  3. High Yield Savings ETF (CASH.to): 3.11%
  4. Slate Grocery REIT: 3.10%
  5. First National Financial: 2.81%
  6. Scotiabank: 2.79%
  7. Telus: 2.48%
  8. Capital Power: 2.45%
  9. Royal Bank: 2.41%
  10. Choice Properties REIT: 2.3%
  11. A&W: 2.21%
  12. BCE: 2.19%
  13. CIBC: 2.18%
  14. TD Bank: 2.05%
  15. George Weston preferred shares: 2.04%
  16. TC Pipelines: 2.03%

I added a bonus one in there because I’d consider the CASH.to ETF as a cash position, not a portfolio position. That is the position that gets liquidated when I’m looking to replenish my cash reserves.

I have enough cash on hand to cover six months of living expenses as a minimum, and usually that number will be closer to a year’s worth of expenses. 

Q6: Since you are retired, are you still adding new capital to your dividend portfolio? 

Although I’m very confident I could withdraw 4% from the portfolio each year and not run out of money, I realized that I only get one shot at this retirement thing. The last thing I want is to be going back to work in 10-15 years with rusty skills and an outdated resume.

So what I did is I have created a sort of a hybrid approach where I’m withdrawing most of my capital but also adding some back into the portfolio. 

My portfolio has a yield of approximately 4%. Essentially I withdraw three of every four dollars generated by dividends as living expenses. I then reinvest one in every four dollars in dividends back into my portfolio. 

This hybrid approach, combined with an average of 4-5% annual hikes in the dividends of the portfolio, and I figure I’ll easily have enough to ensure my withdrawals can increase at the rate of inflation. 

There’s also the possibility of part-time work for both my wife and I, which is being considered for 2024. She’s a substitute teacher, and I have some projects that are poised to generate a little bit of income in 2024. In that case, we’d withdraw a little less from the portfolio which would mean more capital to reinvest. 

Q7: Can you provide a detailed breakdown across non-registered and registered accounts? 

Our accounts are approximately 60% taxable accounts, 25% RRSPs, and 15% TFSAs. 

The large amount in taxable accounts is primarily because of my huge savings rate in my 20s and 30s. I was regularly saving 50-70% of my income. I was maxing out RRSPs and TFSAs each year, but most of my savings didn’t end up going into registered accounts. 

We were also strategic with RRSPs and held off on contributing during low income years, choosing instead to maximize the benefits and wait until the tax rewards were better.   

Q8: If you were to summarize your philosophy of dividend investing, what would that be? 

My philosophy can be summed up in one sentence.

Cash flow is king. 

I don’t spend much time worrying about whether my stocks are going to go up over time. Don’t get me wrong, I still want my stocks to go up, and I’m confident they will. I’ve chosen companies that I think can grow their earnings at greater than the pace of inflation over time, and the share price should track those earnings. As long as the underlying business keeps getting more valuable over time I don’t spend a lot of time worrying about a stock’s price.

What keeps me up at night are the dividends, and that’s the reason why I’ve diversified so widely. 

Q9: I really enjoy reading your stock analysis on your site. What kind of tools and resources do you use for stock analysis? 

I appreciate that and I’m glad you enjoy the analyses. I know I enjoy writing them. 

The first thing I do when I identify a company interesting to me is take a quick look at the company’s 10 year financials on Tikr. I want a company that has grown both revenues and earnings over time, and I can easily find out that info on Tikr.

Tikr is also good for other things. It has quarterly earnings call transcripts, analyst estimates, and some pretty good charting tools too. One way I might use these charting tools is looking at a company’s 10 year price-to-earnings ratio history. I’m much more interested in buying if the stock is at the bottom of the range, rather than the top. I don’t use them for technical analysis or anything like that. I’m not a short-term trader.

I firmly believe the best place to look for information on a specific company is from the source itself. Before I begin writing I’ll go to the company’s website and read the latest annual report and the last one or two quarterly reports. If they have an investor presentation I’ll check that out too. 

I think many good investors get a little too weighed down in the details, so I’m not spending huge amounts of time in the footnotes of each of these reports. I want to learn the basics and identify the most important drivers for each company. For example, a company like Telus is beaten up right now primarily because of debt. So I’ll spend the majority of my time looking at the company’s debt profile and make sure I’m comfortable with it. 

Q10: Given the high inflation rate and ever rising interest rates, are you concerned that companies like Canadian banks, telecoms, and utility companies won’t be able to pay dividends? Why should someone invest in dividend paying stocks now when they can invest their money in safe 5% GICs?

The problem with putting capital into 5% GICs is two-fold:

  1. GICs offer zero upside potential
  2. GICs pay interest, which is taxable at a higher rate than dividend income

In fact, I’m getting an equivalent yield in my high yield savings account ETF which is completely liquid. So I don’t see much benefit in holding any capital in GICs. 

As for high interest rates, that is certainly a problem. Many of the stocks in my portfolio have large amounts of debt, and higher interest rates will directly impact their bottom lines. But interest rates have been falling lately, and the market seems to be expecting interest rate cuts in 2024. I don’t think higher rates will be the dominant story going forward, but I’m also the first to admit I don’t know anything about macro. So I’m monitoring the situation. 

As for inflation, I think one of the best inflation hedges out there is to own assets with pricing power. And most utilities, REITs, telecoms, and banks have pricing power, as demonstrated in what we saw in 2022 and 2023. I’m confident in their ability to raise prices in just about every market environment. 

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? 

I have a high level tax minimization strategy. 

By embracing a dividend-centric philosophy, I know my tax bill is going to be quite reasonable when compared to what I paid when I was still working for a living. After all, my wife and I can each make $60,000 per year and not pay any tax, assuming we have no other income. 

We then combine that with strategic RRSP withdrawals. Each December, I plug our income amounts into a tax calculator and play around with it to see how much I can withdraw from RRSPs while still keeping our tax rates low. 

When it comes to taxes, I want to get it mostly right. I don’t get super involved in the details.

Q12: 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? 

I started as a deep value investor. I bought a lot of junk that I thought was cheap. Turns out it was just junk. That was a few years of lost compounding I’ll never get back.

When I then moved to dividends I was more of a dividend value investor, buying deeper value that I thought could turn things around. My portfolio still has a few of those stocks, companies that have just done okay over the years. Now I focus much more on buying quality that has the potential to grow over time.

One change I’ll slowly make over the next few years is selling off a few of my positions and cut back on the diversification a little bit. 

Q13: What’s your number 1 worry on your plan of living off dividends? 

It used to be dividend cuts, but I don’t worry about that much anymore. I’m confident in my portfolio and know I’ve built it to endure bear markets and dividend cuts.

The hardest part about early retirement in general is the inability to let off the gas. After 20+ years of saving it’s difficult to switch from a saving to a spending mentality. I anticipated this before retirement and planned for it, but I still struggle with it.

Q14: Now you are retired, what’s your retired life like? Walk me through your typical day. How do you keep yourself busy and stay engaged? 

Part of the reason why I retired early is so I would have time to travel. I went to Germany, The Netherlands, England, Scotland, Washington DC, the Yellowstone region, Ottawa, and Japan in 2023. So travel takes up a decent portion of my time.

When I’m at home, my days are a little more structured. Usually, I get up, have a leisurely breakfast, spend a little time on Twitter, then read/write for the rest of the morning. I’ll usually continue with reading or writing after lunch, and then around 3 or 4 PM, I’ll wrap it up. After that, I make supper and then spend the rest of the day with my wife. 

I also golf a lot and have the advantage of having a golf course just a five-minute drive away. So I’ll often sneak away and go hit balls or putt for an hour in the afternoons in the summer.  

Q15: 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? 

My advice to someone just starting their journey is to enjoy the process. It takes an excruciatingly long time to get to financial independence, and there will be countless obstacles in your way, but those are what make the rewards so sweet. There’s no better feeling than looking over what you accomplished and feeling the pride of a job well done.

As for folks who are closer to their dividend crossover point, my advice would be to quit as soon as you can. Take the plunge a little early. It’ll be okay. 

One of my biggest regrets is waiting as long as I did to quit. I should’ve done it sooner and embraced selfish employment years earlier.  

Q16 Any final comments you’d like to share with us to wrap up this Q&A? 

I’d like to thank you again for the opportunity to be here. Anyone who wants to learn more about me can visit Canadian Dividend Investing, where I publish a free weekly newsletter on investing, financial independence, and dividend stocks. I also have a paid service where I research individual dividend stocks.

And I’ll hang out in the comments and answer any questions your readers might have.

Dividend Growth Investor Q&A series – Wrapping it up

Thank you Nelson for answering all these questions. It’s always great to hear from someone who’s ahead of us on the financial independence journey. I like your advice of taking the plunge a little earlier and quite as soon as you can rather than get stuck in the one-more-year syndrome. 

I hope you enjoyed reading this Q&A. Please stay tuned for more Q&As with other dividend growth investors.

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11 thoughts on “Dividend Growth Investor Q&A series – Nelson at Canadian Dividend Investing”

  1. Very informative interview, Thanks. Question to both Bob and Nelson: I did dividend investing for about 10 years. It works well for me. I am closed to retire now. I am wondering if it’s better to transfer individual stocks to ETFs to reduce the dividend cut risk? For example, replace BMO, TD by ZEB.To. Two advantages I can think of: 1. ZEB gives monthly distribution. 2. I don’t expect all six Canadian banks crash all at the same time. Any comments?

    • For me I think it makes sense to have a mix of ETFs and individual dividend stocks. If you pick solid companies the dividend cut risk should be quite low.

  2. Excellent interview. Always enjoyable to see what more knowledgeable investors do; will look up CASH as well as Nelson’s blog. Bob, you should get some sort of recognition for all the educational work you do!

  3. Thanks for the interview, I enjoyed the dialog. I’m, hopefully, a couple of years out from retirement and have been moving my portfolio over from growth (mostly tech), to income-producing stocks. I have a number of REITs, and the well known Canadian payers (TD, ENB, T, CNQ, etc.). I recently starting buying more of a new ETF: ZGRO.T This isn’t the ZGRO that has been around for a while, it’s a new product that seems targeted at retirees. Pays nearly 6% and still has upside via a very diversified number of holdings. It’s still the 80/20 split of equity/fixed income (there is also a ZBAL.T with 60/40) but that is probably good for where I’m at today.

    I’m also not a fan of GICs, with products like CASH.TO I don’t see why I would lock my money in with a GIC. They would have to pay significantly better for me to even consider them.

    • CASH.to gives me an almost equivalent yield to a GIC with the benefits of liquidity and a monthly income payment. I hide cash in there and slowly withdraw it as needed for living expenses. It’s great.

      I’m not super familiar with ZGRO but I took a closer look and I’m not sure how an ETF with an 80/20 equity/bond mix can pay 6%. Seems like a decent ETF with a reasonable fee otherwise, though.

      • The standard ZGRO pays over 2%. I can’t confirm but it seems like the fund managers must sell a portion of the holdings to increase the yield. This is fine in a retirement scenario, at least for me. Some investors seem to prefer a higher growth holding like XEQT which they have to sell to fund their retirement. This seems to save that step and may be fundamentally better if the manager can sell more of one asset than another vs just selling the whole holding in bulk.

        Still doing more research, but it seems to be a decent option for me.

  4. Great stuff Bob and Nelson. I appreciate the info.
    Nelson, in Question 6 you mention withdrawing “capital”. Can I assume that means you are withdrawing and spending dividends versus selling positions?


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