Can you believe it’s already 2018? What happened to 2017? For some reason, 2017 just zoomed by for me. In many ways, it felt like it was only a few days ago that Mrs. T, Baby T1.0, and Baby T2.0, and I were just in Denmark, celebrating the start of 2017.
For this holiday season, I decided to take 3 days off work (27, 28, and 29) to allow me to have a total of 11 days off. For the most part, I relaxed, enjoy good food, and spent time with the family (playing with kids is an exhausting activity ha!). To maximize the time off, I decided to take a short 2 week break from blogging completely. It felt great to have a small break and tackle 2018 with a fresh set of mind. I am quite excited about 2018 as I have a number of exciting topics in mind that I want to explore.
Like 2016, 2017 was yet another great year for us financially. We successfully maximized TFSA’s and RRSP’s, as well as maximized both kids’ RESP accounts. On top of that, our net worth continued to grow steadily.
Anyway, without further ado, let’s find out our December 2017 dividend income.
December Dividend Income
In December 2017 we received dividend income from the following companies:
- Pure Industrial REIT (AAR.UN)
- Brookfield Renewable (BEP.UN)
- BP (BP)
- Corus Entertainment (CJR.B)
- Canadian National Railway (CNR.TO)
- Costco (COST)
- ConocoPhillips (COP)
- Chevron (CVX)
- Canadian Tire (CTC.A)
- Dream Office REIT (D.UN)
- Dream Global REIT (DRG.UN)
- Dream Industrial REIT (DIR.UN)
- Enbridge (ENG.TO)
- Enbridge Income Trust (ENF.TO)
- Evertz Technologies (ET.TO)
- Fortis (FTS.TO)
- Hydro One (H.TO)
- H&R REIT (HR.UN)
- High Liner Foods (HLF.TO)
- Intact Financial (IFC.TO)
- Intel (INTC)
- Inter Pipeline (IPL.TO)
- Johnson & Johnson (JNJ)
- KEG Income Trust (KEG.UN)
- Coca-Cola (KO)
- McDonald’s (MCD)
- Manulife Financial (MFC.TO)
- Magna International (MG.TO)
- Prairiesky Royalty (PSK.TO)
- Qualcomm (QCOM)
- RioCan (REI.UN)
- Saputo (SAP.TO)
- Starbucks (SBUX)
- Smart REIT (SRU.UN)
- Suncor (SU.TO)
- Target (TGT)
- Unilever plc (UL)
- Visa (V)
- WestJet (WJA.TO)
- Waste Management (WM)
- Exco Technologies (XTC.TO)
Wow! We received a total of 40 pay cheques in December 2017. That’s simply amazing! Talk about income diversification!
In total, we received $1,277.93 in dividend income for December 2017. I was a bit disappointed that we didn’t manage to cross the $1,300 mark (we only managed to cross this mark once in 2017). This was mostly due to a number of stocks like the Vanguard Canadian All Cap ETF, the Vanguard All-World Ex Canada All Cap ETF, Ventas, Was-Mart, and MCAN Mortgage Corp paying out their dividend payments in January instead of December. Having said that $1,277.93 is still very good income for doing absolutely nothing at all.
Out of the $1,277.93 dividend income that we received in December, $406.75 was in USD and $871.18 was in CAD. This is about a 30-70 split between dividends received in USD and CAD.
Please note, we use a 1 to 1 currency rate approach. Therefore, we do not convert dividends received in USD to CAD. We are ignoring exchange rate to keep the math simple. This is our way to avoid fluctuations in dividend income over time due to changes in the exchange rate.
The top 5 dividend payout in December 2017 were Suncor, Manulife Financial, Coca-Cola, Intact Financial, Enbridge. The top 5 payout accounted for 32.67% or $417.47 of our December dividend income.
Dividend Income Breakdown
We hold our dividend stocks in taxable accounts, RRSPs, and TFSAs. Every year, we maximize tax-advantage accounts first before investing in taxable accounts.
We do this so we can be as tax efficient as possible. Why pay extra taxes when we can avoid them by utilizing these tax-advantage accounts? It seems like a no brainer to me. This is why I am always shocked to hear people who are investing using taxable accounts when they have tons of RRSP and/or TFSA contribution rooms left.
For December dividend income, the breakdown across the different accounts were:
- Taxable: $336.37 or 26.32%
- RRSPs: $534.56 or 41.83%
- TFSAs: $407.00 or 31.85%
The 2018 TFSA contribution limit is $5,500 per person. On January 1st, we transferred $11,000 into our TFSA’s. Hopefully the stock market will experience some pullback in the next few weeks to allow us to purchase dividend stocks at lower prices.
Now we have maximized our TFSA’s, the next goal is to maximize our RRSP’s before putting money in our taxable accounts. Being tax efficient with investments can be a pretty simple process.
Compared to December 2016, we saw a YOY growth of 7.76%. This was the lowest YOY growth of 2017. This can be explained though, last December we received an abnormally high amount of dividend income due to the special dividend payout from Evertz Technologies.
Overall, comparing 2016 and 2017 we saw a respectable YOY growth of 18.11%. This is a pretty solid number considering our 4 digit monthly dividend income level. If you take a look at the historical YOY growth over the last 6 years, it is clear that our YOY growth matrix has been dropping slightly the last 3 years.
This is unavoidable and is a reality that every single dividend growth investor will face eventually.
Imagine receiving only $20 per month in dividend income, or $240 for the year. A 100% YOY increase means a future annual dividend income of $480, or $40 per month. At a 3% dividend yield, only $8,000 additional capital is needed to see 100% YOY increase.
Now imagine a monthly dividend income of $1,000, or $12,000 for the year.
A 5% YOY increase in annual dividend income means an additional $20,000 is needed at a 3% dividend yield.
A 10% YOY increase in annual dividend income means an additional $40,000 is needed at a 3% dividend yield.
A 20% YOY increase in annual dividend income means an additional $80,000 is needed at a 3% dividend yield.
Finally, a 50% YOY increase in annual dividend income means an additional $200,000 is needed at a 3% dividend yield.
This is a simplified example as we are ignoring any dividend income increases from organic dividend growth and dividend reinvestment plan (DRIP). But the message is clear, it takes a significant large sum of fresh capital to sustain a high dividend growth rate once your dividend income reaches a significant level. Unless you are making high 6 figure salary or 7 figure salary at your job, I believe it is extremely challenging to save and invest $200,000 or more each year. The more dividend income you receive, the more fresh capital is needed to grow future dividend income.
Here’s another example. Imagine you are receiving $4,000 in dividend income per month, or $48,000 per year.
A 5% YOY increase means an additional $80,000 is needed at 3% dividend yield.
If you aim for a 10% YOY increase that means an additional $160,000 is needed at a 3% dividend yield.
Conclusion? High YOY growth in dividend income is extremely hard to sustain once your monthly dividend income is in the 4 digit figures. You are climbing a very steep mountain at this stage of your investment life cycle.
In December a number of stocks that we own in our portfolio announced dividend increase:
- Bank of Montreal raised its dividend by 3.33% to $0.93 per share.
- Ventas raised its dividend by 1.94% to $0.79 per share.
- Waste Management raised its dividend by 9.41% to $0.465 per share.
- AT&T raised its dividend by 2.04% to $0.50 per share.
With these announcements, our annual dividend income has increased by $27.44.
This is not a lot of increase but I will take a dividend increase over no increase at all.
Dividend Stock Transaction
We didn’t make any dividend stock transaction in December at all. We expect to go on a major shopping spree this month in January. Some of the stocks we have in mind include:
- Smart REIT
- Algonquin Power
- Vanguard Canadian All Cap ETF
- Vanguard All-World Ex Canada All Cap ETF
- Shaw Communications
- Exco Technologies
- Enbridge Income Fund
As mentioned, I am hoping for some market pullback in January so we can purchase shares at cheaper prices.
Conclusion and Moving Forward
In 2017 we received a total of $14,834.38 in dividend income. This was an increase of 18.11% compared to 2016 annual dividend income of $12,559.74. This a large sum of income for doing absolutely nothing at all. All we had to do was save money and use that money to purchase dividend growth stocks. It’s a simple process that we plan to repeat for the foreseeable future.
Our dividend goal for 2017 was $15,000. This meant we missed the goal by $165.62 or 1.1%. We were so darn close! We did encounter a few dividend freezes or cuts throughout 2017 and as a result, sold some of these stocks. If these freezes or cuts didn’t happen, I had no doubt that we would have crashed this challenging goal.
To put the dividend income into perspective. At $40 per hour wage, or $83,200 annual salary, it means our dividend income saved us 370.86 hours, or 9.27 weeks of work. It basically meant we didn’t have to work the entire month of January and February in 2017! How cool is that?
Based on our financial independence assumptions, the passive income we need to be financially independence is $38,640 per year. Therefore, we are 38.4% of the way to this target number. We will compare our annual passive income with our actual 2017 expenses in another post.
For 2018, Mrs. T and I have not set a dividend income goal yet. At first I thought $18,000 would be a great milestone to aim for, or a 21.34% YOY growth. However, I don’t want to set up an ambitious goal only to force us to purchase higher yield dividend stocks to accomplish the goal. We are in this for the long run and organic dividend growth is extremely important. Therefore, it is important to have a mix of high yield low growth and low yield high growth dividend stocks in our portfolio.
As mentioned earlier, a high YOY growth percentage is getting harder to achieve/maintain. Perhaps it is not realistic to set a goal that will involve more than 20% YOY growth. With these things in mind, I will not set a 2018 dividend income goal and see how things unfold for us this year.
One thing I have been considering is utilizing options on top of collecting dividend income. Doing covered calls on dividend stocks that we already own can perhaps increase our overall passive income. This is an area I plan to learn more in 2018.
Dear readers, how was your December dividend income? How was your overall 2017 dividend income?