It’s a new month and that means it’s time for another monthly dividend income update. For those of you who are new, I am doing these monthly updates to keep us motivated and accountable. I also want to demonstrate that it is possible to live off our dividend income once we are financially independent.
Based on our historical annual spending for the past number of years, we estimate we need somewhere between $50,000 to $60,000 in dividend income to cover our living expenses. Why the wide range? Simple – margin of safety. At a 4% yield, that means a dividend portfolio valued between $1M and $1.5M. Needless to say, it will take us a few more years to accumulate that much money in our dividend portfolio.
For the most part, we build our dividend portfolio by looking at products that we use daily or regularly. We then purchase companies that produce these products. For example, we use toothpaste, cellphones, and natural gas every day, so we invest in the likes of Procter & Gamble, Telus, and Fortis.
To diversify, we then utilize low-cost ETFs like VCN and XAW.
To be as tax-efficient as possible, we hold income trusts and REITs in our TFSAs and RRSPs. We only hold US-listed dividend-paying stocks in our RRSPs to avoid the 15% withholding tax on dividends. We only hold Canadian companies that pay eligible dividends in our taxable accounts. To minimize taxes, we strive to have roughly 50-50 dividend income split between Mrs. T and I once we are living off dividend. But it may not be 100% possible because we are a single income family. So a 40 (Mrs. T) – 60 (me) split may be more achievable.
For us, April was an interesting month. Due to COVID-19, we stayed home and practised social distance the entire month. That meant we didn’t get out of our house for the entire month, other than the couple of times that I went out to get groceries (and dropping groceries off at my parents). It was definitely a lot of work when both kids were around 24/7. Fortunately, the weather was quite good throughout April, so we were able to get some fresh air in the backyard and work on our garden. Both kids were also able to ride their bikes up and down the sidewalk to burn off some energy. We were also busy baking and making home-made meals the entire month.
April Dividend Income
In April 2020 we received dividend payments from the following companies:
- BCE (BCE.TO)
- Bank of Nova Scotia (BNS.TO)
- CIBC (CM.TO)
- Canadian Natural Resources (CNQ.TO)
- Dream Office REIT (D.UN)
- Dream Industrial REIT (DIR.UN)
- European Residential REIT (ERE.UN)
- H&R REIT (HR.UN)
- Inter Pipeline (IPL.TO)
- KEG Income Trust (KEG.UN)
- Coca-Cola (KO)
- Nutrien (NTR)
- PepsiCo (PEP)
- Rogers (RCI.B)
- RioCan REIT (REI.UN)
- SmartCentres REIT (SMR.UN)
- Telus (T.TO)
- TD (TD.TO)
- TC Energy Corp (TRP.TO)
- Domatar Corp (UFS.TO)
- Vanguard Canada All Cap ETF (VCN.TO)
- Ventas (VTR)
- Wal-Mart (WMT)
The 23 paycheques added up to $2,546.86, another all-time high! We have crossed the $2,400 and $2,500 per month dividend income milestones. Woohoo! However, this all-time record was bittersweet because Inter Pipeline continued to pay the pre-cut dividend rate in April. So starting in May we will see a drop in dividend income from Inter Pipeline. This will reduce our monthly dividend income by around $100. Furthermore, KEG.UN had cut its dividends by 63% and this reduction was reflected in our April dividend income.
It sucks to see all these dividend cuts recently but we remain grateful knowing that our dividend income is diversified and that our money is working hard for us so we don’t have to.
Out of the $2,546.86 received, $197.79 was in USD and $2,349.07 was in CAD or about a 10-90 split. April was a CAD currency heavy month. Please note, we do not convert the USD to CAD when reporting our dividend income. Instead, we use a 1 to 1 currency rate approach. Why do we do that? Because we want to avoid fluctuations in dividend income over time due to changes in the exchange rate.
The top five dividend payers for April 2020 were BCE, TD, IPL, BNS, and CM (not in order). The payout from these five companies added up to $1,666.31 or 65.4% of our April dividend income. It’s interesting to note that the three banks accounted for $1,256.51 or almost 50% of the April dividend income. Given that the Canadian big five banks have been paying uninterrupted dividends since the late 1800’s, I am not worried that TD, BNS, and CM accounted for the majority of our April dividend income.
Compared to April 2019 we saw a YoY growth of 33.06%! After two months of sub 20% YoY growth, it was nice to see a big number again. I’m quite pleased to see such big YoY growth in April.
Even though the market was volatile in April, some companies continued to increase dividend payouts. It was extremely pleasant to see these announcements.
- Johnson & Johnson increased its dividend payout by 6.3% to $1.01 per share.
- Procter & Gamble increased its dividend payout by 6% to $0.7907 per share.
- Costco increased its dividend payout by 7.7% to $0.70 per share.
- Apple increased its dividend payout by 6.5% to $0.82 per share.
These raises have increased our forward annual dividend by $48.07. It’s not a lot of money but given the current market condition, I will take any increase over no increase at all.
Unfortunately, we went through April with the news of yet another dividend cut. The KEG Royalties Income Fund declared a reduction of dividends from $0.0946 per share to $0.035 per share, or a 63% reduction. This has reduced our forward dividend income by $175.94. Ouch!
The dividend cut by The KEG was expected though, given that the restaurants have been closed due to the COVID-19 pandemic. It is actually a good idea for The KEG to reduce its dividend payouts during this tough time. I was a bit surprised that The KEG did not suspend the dividend payouts completely and declared that they plan to roll back to the $0.0946 per share payout in six months.
In April, we also saw a few major oil companies like Exxon and Shell either cut or suspend their dividend payouts. The low crude price is definitely hurting these oil producers. I am hopeful that Suncor will continue to pay dividends at the current distribution level but it wouldn’t surprise me if Suncor decides to suspend or cut its dividends. I guess we will have to wait and see.
Dividend Stock Transactions
Like the previous three months, we kept ourselves busy on the dividend stock transaction front. We continued to save money so we can invest. It also helped that we got received a tax refund when we filed our 2019 taxes. Rather than trying to time the market, we tend to invest money whenever we have some cash (keep a little in the reserve of course). We also tend to buy dividend-paying stocks on the days the market is red (i.e. down). With that in mind, we purchased the following stocks in April:
- 37 shares of TD @ 59.30 per share
- 43 shares of BMO @ $70.16 per share
- 75 shares of ENB @40 per share
- 26 shares of RY @ $84.60 per share
- 40 shares of XAW @ $25.37 per share
We added a little shy of $11,500 in fresh capital in April. These transactions added roughly $676 towards our annual dividend income.
In addition to the April dividend stock transactions listed above, we have added the following dividend stocks since January 1, 2020.
- 12 shares of CNR.TO @ $117.71 per share
- 450 shares of ERE.UN @ $4.67 per share
- 260 shares of BPY @ $18.22 per share
- 52 shares of BPY.UN @ 12.14 per share
- 100 shares of BEP @ $45.85 per share
- 20 shares of PEP @ $135.94 per share
- 57 shares of BMO.TO @ $77.62 per share
- 105 shares of TD.TO @ $67.84 per share
- 450 shares of IPL.TO @ $22.51 per share
- 94 shares of CM.TO @ $78.11 per share
- 36 shares of T.TO @ 52.15 per share
- 118 shares of SU.TO @ 30.63 per share
All these dividend stock transactions so far in 2020 meant we have deployed almost $57,500 in cash and added close to $2,800 towards our annual dividend income. Please note, I’m using a 1:1 exchange rate for USD and CAD, so the actual CAD amount is higher.
One thing to keep in mind is that not all the $57,000 deployed was new cash. As some of you may remember, we closed out a number of positions in January (103 shares of ET.TO, 63 shares of CVX, and 44 shares of GIS) which resulted in $11,800. So we have added over $44,200 in new capital in 2020 so far. Needless to say, we have been very busy saving and investing.
Now some of you may look at the $44,200 and think, wow Tawcan and Mrs. T must make a lot of money to save $44,200 in four months! I can’t relate to them at all!
Well, remember, we are a single income family. My job pays well, but not THAT well. In reality, a portion of the money was saved in 2019 (i.e. we saved $12,000 in 2019 for the 2020 TFSA contributions and saved some money for the 2020 RRSP contributions). We also have quite a high savings rate each month.
If you compare the per share price listed above and compare the current price, you’ll notice that we are in the red for many of the transactions. That is because we purchased many of these stocks back in January and February. For the most part, I am not too worried about the stock price. I believe over the long term, the stock price will go appreciate above the pre-COVID-19 level.
Financial Independence Journey Update
One of the positives of staying home due to COVID-19 is that we spent less money in April. We spent less than usual on expenses like gas, eating out, and travels. Because of pre-school closure, we also saved around $300 in pre-school tuition for Baby T2.0l. We did, however, spend more money on groceries in April.
For the month of April, our dividend income of $2,546.86 was able to cover 86.5% of our monthly expenses, not including business expenses. It’s really neat to see our dividend income covering a pretty significant amount of our April expenses. But we also need to remind ourselves that April wasn’t a normal expenditure month. We basically stayed home for the entire month. Unless the stay-home-social-distancing order were to continue in May, we probably won’t see such a low monthly expense number again.
So far in 2020, we have received $9,050.30 in dividend income. If we were to simply extrapolate the number by simply multiplying the amount by three, we would end up with $27,150.90 for the entire year. But this is a simplistic view as we aren’t taking account of potential dividend increases, dividend cuts, and any additional purchases.
What’s pretty cool is that we already exceeded the annual amount we received in 2014 and only about $1,200 short of the 2015 annual dividend amount. We certainly have come a long way in the last few years.
To put our 2020 dividend income so far into a quantitative perspective it means the following:
- $9,050.30 earned in 121 days corresponds to an hourly rate of roughly $3.12 per hour. So our portfolio is making us money even when we are sleeping.
- $9,050.30 earned after 18 working weeks corresponds to an hourly rate of roughly $12.57 per hour. Our dividend portfolio is generating an hourly rate that is only $2 less than BC’s minimum wage of $14.60.
- If we were earning $40 per hour, this means $9,050.30 in dividend income has saved us over 226 hours or almost 6 weeks of work (i.e. Jan 1 to Feb 7).
It’s pretty neat to see all these hourly numbers.
Dear readers, how was April for you? Did you stay at home all month? How was your April dividend income?