Happy new year everyone! What a year 2022 was and that wasn’t an understatement.
In 2021, our portfolio returned 32.8% excluding all the contributions we made throughout the year.
2022, however, was the opposite – a red and volatile year that many investors will want to forget completely.
Update: Some readers have asked about our portfolio return in 2022. Given that we were out of the country for 5 weeks and just got back to the daily routines, I didn’t have the chance to crunch the numbers (still catching up on many things). Anyway, after going through all the numbers and removing contributions and dividends, our portfolio returned -5.4% in 2022. I hope this answer any questions and no, I wasn’t deliberately trying to deceive readers by not posting our portfolio performance. Thanks.
Although our portfolio was down a bit in 2022, mostly caused by Algonquin Power & Utilities Corp’s poor performance and the bear market, we’re not concerned.
First of all, we’re looking at unrealized losses. They’re called paper losses for a reason. We only lose money when we actually sell the losing stocks and we have no plan in selling.
Second, since we’re still in the accumulation phase of our financial independence journey, we are actually quite happy to see a volatile bear market and stock prices going down. Beaten down stocks meant we were able to buy cheap assets – by dripping additional shares at each dividend payout and by adding new cash.
I really hope the volatility will continue in 2023 to allow us to build up our dividend portfolio.
In early December, we flew to Denmark for a 5 week family vacation trip. Although we had 1.5 hours of transit time in Toronto Pearson Airport, we almost missed our connecting flight, because our first flight was delayed by 1.5 hours.
While in the air, I was able to check on Air Canada’s app to find out that our 2nd flight was delayed by 20 minutes, giving us a little bit of time to get to the departing gate. We didn’t want to miss our 2nd flight because there were no more direct flights from Toronto to Copenhagen for the next couple of days. And the connecting options were quite undesirable (one option was to fly from Toronto to London then London to Amsterdam, then finally Copenhagen).
When we landed in Toronto, we ran from the end of Gate D in Terminal 1 to the end of Gate E. It wasn’t the first time that Mrs. T and I had to run in an airport to catch a flight (Zurich Airport, Frankfurt Airport, Paris Charles de Gaulle, and Chicago O’Hare to name a few). But it was different running while making sure our kids were keeping up with us.
Fortunately, we made it with a few minutes to spare. When we finally got to our seats, we were drenched in sweat!
The pilots ended up waiting for other passengers and all the luggage because it was the last direct flight available. Maybe we didn’t need to run at all?
But who wanted to take the chance right?
Oh, the joy of air travel and catching connecting flights!
Thanks to the remote work model developed as a result of the COVID-19 pandemic, I was able to work remotely in Denmark for 3 weeks and take a vacation for 2 weeks.
Since our family is big on LEGO, we knew we had to go back to LEGO House and spend the entire day there. Despite spending 9 hours in LEGO House, we didn’t get to see and play with everything. We will have to go back and check out this wonderful attraction another time.
When it wasn’t pouring rain we enjoyed the great Danish outdoors (I called Denmark Rainmark at one point of the trip… we went from Raincouver to Rainmark ha!).
Of course, visiting Denmark meant a lot of eating and having a lot of hygge.
The last time we visited Denmark was for the 2019 Christmas/2020 new year so it was really nice to see the Danish side of the family again. My Danish is getting a little bit better as I could understand some conversations or pick up a few words here and there. Learning Danish on Duolingo definitely helped.
Dividend Income – December 2022
Back to dividend income, shall we?
In December we received pay cheques from the following companies:
- Brookfield Asset Management (BAM.A)
- BlackRock (BLK)
- Brookfield Renewable Corp (BECP.TO)
- Canadian National Railway (CNR.TO)
- Canadian Tire (CTC.A)
- Dream Industrial (DIR.UN)
- Enbridge (ENB.TO)
- Fortis (FTS.TO)
- Granite REIT (GRT.UN)
- Hydro One (H.TO)
- Intact Financial (IFC.TO)
- Intel (INTC)
- Johnson & Johnson (JNJ)
- Coca-Cola (KO)
- McDonald’s (MCD)
- Manulife (MFC.TO)
- Magna International (MG.TO)
- Qualcomm (QCOM)
- RioCan REIT (REI.UN)
- SmartCentres REIT (SRU.UN)
- Suncor (SU.TO)
- Target (TGT)
- Visa (V)
- Waste Connection (WCN.TO)
- Waste Management (WM)
The 25 pay cheques added up to $3,581.01. Receiving over $3,500 in dividend income was a nice way to wrap up the year.
Compared to December 2021, we saw a YoY growth of 26.98%. Considering we’re facing the law of the big numbers already, I’m really pleased with our YoY growth.
Out of the $3581.01 received, $643.67 was in USD with the rest in CAD. That’s roughly a 20-80 breakdown (rounded up). December was one of those months in which we received more USD dividends than in other months. The goal is to continue increasing our exposure to US dividend paying stocks so we can receive more USD dividends.
The USD to CAD exchange rate varied quite a bit in 2022. If we had converted our USD dividend income to CAD every month, our overall dividend income would have been arbitrarily inflated in Q4.
Therefore, to keep the math easy and avoid fluctuations in our monthly dividend income, we do not convert USD to CAD when reporting our dividend income.
The top five dividend payers from December were Brookfield Renewable Corp, Enbridge, Fortis, Manulife, and SmartCentres REIT (not in order). The total from these five dividend payers was $2,530.27.
These top five payers contributed 70% of our December dividend income. Ideally, I’d like to reduce that amount to 60% or lower so our dividend income sources are more diversified.
In December, a number of companies we own announced dividend hikes.
- Waste Management (WM) increased its dividend payout by 7.7% to $0.80 per share.
- CIBC (CM.TO) increased its dividend payout by 2.41% to $0.85 per share.
- Bank of Montreal (BMO.TO) increased its dividend payout by 2.88% to $1.43 per share.
- TD (TD.TO) increased its dividend payout by 7.86% to $0.96 per share
- Royal Bank* (RY.TO) increased its dividend payout by 3.13% to $1.32 per share.
- Enbridge* (ENB.TO) increased its dividend payout by 3.20% to $0.8875 per share.
- National Bank* (NA.TO) increased its dividend payout by 5.43% to $0.97 per share.
* These were announced on November 30 but I forgot to cover them in the November dividend income report.
I always love seeing dividend hikes because they mean we’re getting a raise without having to lift any fingers. Our forward annual dividend income increased by $740.08 as a result of these dividend hikes. At a 4% dividend yield, that’s the equivalent of adding $18,502 of new capital.
Dividend Reinvestment Plans
Each month, we reinvest our dividends by enrolling in drips whenever we’re eligible. Dripping allows us to dollar cost average over time without paying any trading commissions. When the stock price is depressed due to market volatility or bad news, we can add additional shares at a lower price; when the stock price is inflated and the price is above the dividend amount we’re collecting, we simply don’t drip any more shares and can reinvest the money elsewhere.
In December we dripped the following shares:
- 6 shares of BEPC.TO
- 28 shares of ENB.TO
- 3 shares of FTS.TO
- 2 shares of INTC
- 1 share of KO
- 12 shares of MFC.TO
- 2 shares of REI.UN
- 5 shares of SRU.UN
We added 59 more shares to our dividend portfolio and added $145.67 toward our annual dividend income.
Combining dividend hikes and DRIP, we added a total of $885.75 toward our annual dividend income in December 2022. What’s more amazing is that we increased our forward annual dividend income by $3,817.57 in 2022 through dripping and organic dividend growth.
At a 4% dividend yield, increasing dividend income by $3,817.57 is the equivalent of adding $95,439.25 worth of new cash. This is the power of growing dividend income via organic dividend growth and DRIP!
Just before the end of the year, we decided to make a small change to our portfolio. As many of you know, Intel’s share price has struggled in the last couple of years, so we decided to close out our position in Intel.
I know you’re probably thinking – “why sell Intel when it’s at its 52-week low and when the price is the lowest ever in the last 5 years? Why not just keep Intel and wait for the price to recover?”
Yes, we could have certainly done that and that’s one of the beauties of owning dividend paying stocks – if the price drops, as long as the company can continue paying out dividends and not cutting dividends, investors can collect dividends and wait for the share price to recover.
Despite Intel investing billions in new fabs in the US, I believe the recovery is going to be very slow and painful. Intel has really gotten behind in fabrication technology compared to the likes of Samsung and TSMC. For example, both Samsung and TSMC are already shipping chips based on the 3 nm process technology but Intel won’t be doing that until 2024. Intel used to be in the driver’s seat but now they have to play the catch-up game.
In addition to falling behind in fabrication technology, Intel is facing a lot of competition in the CPU and GPU markets from the likes of Qualcomm, AMD, Nvidia, and Texas Instruments. Intel is no longer as dominant in the CPU/GPU market as they were a decade or two ago.
Let’s also not forget Apple is moving away from Intel’s chips and using Apple’s own M series Apple silicon, which will only hurt Intel CPU sales.
I have no doubt Intel will recover eventually but we decided that our money can be invested better elsewhere. We bought Intel many years ago so we closed out the position with a decent profit.
After closing our Intel position, we invested the proceeds and some USD cash and purchased 57 shares of Johnson & Johnson and 10 shares of Costco.
2022 Dividend Income Review
In 2022 we received a total of $42,305.81 in dividend income and completely overachieved our goal of receiving $36,000 in dividend income for the year.
We grew our dividend income by 36.86% YoY, it was the biggest jump since 2014. Needless to say, 2022 was a very successful year for us in terms of dividend income.
How did we manage to grow our dividend income so much in 2022?
There’s no secret really. Thanks to our relatively high savings rate, we were able to invest a lot of money in the last few years. I also have to thank Mrs. T for being completely on board with our living off dividends FI plan and being super supportive.
While it is important to cut necessary expenses and fully optimize expenses, I believe there’s only so much you can do before you start depriving yourself and your loved ones. Therefore, it is far more effective to try to maximize your income. This is exactly what we did in 2022 – I asked for a raise at my full time job (and got one), Mrs. T’s doula business was more profitable, and both of us continued improving income from our side hustles.
2022 Dividend Income Breakdown
Every year we aim to max out both TFSAs and RRSPs. Once we max out TFSAs and RRSPs, we then invest in non-registered accounts. We invest this way so most of our dividend income is either tax-free (TFSA) or tax-deferred (RRSP). Only a portion of our dividend income is taxed.
Since dividend income from our RRSPs will be eventually taxed at our marginal tax rate when we make withdrawals, we are planning RRSP early withdrawal strategies to minimize taxes.
Generating dividend income from TFSA, RRSP, and non-registered accounts will give us the ability to pull different levers when we are living off dividends in the not so distant future. Our 2022 dividend income breakdown is as below:
- RRSP: $13,262.17
- TFSA: $11.289.42
- Non-Registered: $17,754.22
From a percentage point of view:
- RRSP: 31.3%
- TFSA: 26.7%
- Non-Registered: 42%
In other words, over 25% of our 2022 dividend income was tax free and another 31.3% was tax deferred. To maximize overall tax efficiency, the dividend income was split between Mrs. T and me.
So just over $11,000 of our dividend income will be taxed under me and about $6,600 of our dividend income will be taxed under Mrs. T. As you can see from TaxTips.ca’s combined federal and BC tax brackets and tax rates, eligible dividend income is taxed much more favourable than working income.
We will definitely take advantage of the favourable treatment of eligible dividends when we are financially independent and living off dividends.
Wow, what a great way to wrap up the year with another solid monthly dividend income! We feel very blessed and fortunate that our money is working hard for us so we don’t have to.
As usual, I like to put things into perspective. At $42,305.81, that’s the equivalent of:
- $115.91 per day or $4.83 per hour
- $162.71 per day of working wage, or an hourly wage of $20.34.
It was really nice and exciting to see that we exceeded our Jan 1st, 2022 dividend income projection by two full years. I will have to update our dividend income projection again to reflect our improved progress.
Dear readers, how was your 2022 dividend income?