Dividend Income & Financial Independence Journey – Sep 2020 Update

Can you believe that there are only three months left for 2020? Given that I’ve been working from home since the middle of March and for the most part we have been staying at home, the last six months has felt like an eternity in many ways. But there are some positives as we have spent more time together as a family. I am sure when we look back 10 or 20 years from today, all four of us will appreciate this special opportunity.

September usually means the return of school and this September was no exception. Although the 2020 school year is a lot different than the other years due to COVID-19, both kids were very excited to go back to school and finally see and spend time with their friends again. Since our kids are both less than seven years old, they are considered low risk for COVID-19. After doing some research and discussions, Mrs. T and I decided it should be safe for both kids to do in-person schooling rather than virtual schooling. So for three days each week, we have a very quiet house for five hours. The other two days of the week, we only need to keep Baby T2.0 entertained. After having an “extended” spring break, it has been really nice to have a few hours of quietness each day! Sometimes it’s so quiet I can hear my own thoughts!!!

Just like other Octobers, we have been busy working in the backyard garden, harvesting pumpkins, beans, and other vegetables. We also have been cleaning out the garden to get ready for winter. This year, we decided to expand our backyard garden so we could grow more strawberries. Hopefully we will have a fantastic strawberry harvest season next year!

Why dividends?

For those of you that are new to this blog, you are probably wondering, why dividend investing? 

Well, it is because dividend income is very tax-efficient in Canada, especially when are living off dividends, and we don’t have any earned income from full-time or part-time work. Even if we were to work part-time, dividend income can still be quite tax efficient.

We like dividends because of the following simple reasons:

• Our portfolio is working hard for me to generate income so we don’t have to. This is truly passive.
• Dividends are tangible. We can cash deposited in our accounts whenever a company pays dividends.
• We plan to live off dividends, so we don’t have to touch our principals as we plan to pass down our dividend portfolio to future generations and create a long-lasting legacy.
• By buying dividend stocks, essentially I am creating my own index ETF. I am creating the “Tawcan index ETF” by utilizing my own stock selection criteria rather than relying someone else to decide for me.
• Selecting my own dividend stocks means the dividend income is more predictable and I am not paying the middle person any management fees (i.e. MER)
• By having regular tangible payments, I am not worried about stock market volatility. I can sleep well at night.

Since 2011, we have continued to invest a significant amount of cash each year. For example, in 1H 2020, we have purchased over $70,000 in dividend paying stocks and ETFs. More than ever, we are convinced that we can live off dividends when we are in our 40’s.

Dividend Income

We received dividend income from the following companies in September 2020:

• Brookfield Renewable Energy (BEP & BEPC)
• Brookfield Property Partners (BPY & BPY.UN)
• Canadian National Railway (CNR.TO)
• Canadian Tire (CTC.A)
• Canadian Utilities (CU.TO)
• Dream Office REIT (D.UN)
• Dream Industrial (DIR.UN)
• Enbridge (ENB.TO)
• European Residential REIT (ERE.UN)
• Fortis (FTS.TO)
• Granite REIT (GRT.UN)
• Hydro One (H.TO)
• H&R REIT (HR.UN)
• Intact Financial (IFC.TO)
• Intel (INTC)
• Inter Pipeline (IPL.TO)
• Johnson & Johnson (JNJ)
• KEG Income Trust (KEG.UN)
• McDonald’s (MCD)
• Manulife Financial (MFC.TO)
• Magna International (MG.TO)
• Metro (MRU.TO)
• PepsiCo (PEP)
• Qualcomm (QCOM)
• RioCan REIT (REI.UN)
• SmartCentre REIT (SMR.UN)
• Suncor (SU.TO)
• Target (TGT)
• Unilever plc (UL)
• Visa (V)
• Waste Management (WM)
• Wal-Mart (WMT)

In total, we received dividend cheques from 32 companies that added up to $2,164.52. After a subpar dividend income amount in Aug, it is nice to see a dividend income amount of over $2,100. This also means that six out of nine months in 2020, we have received over $2,100 in dividend income. This is fantastic!

Of the $2,164.52 dividends received, $455,75 was in USD and $1,708.77 was in CAD, or about a 20-80 split. Please note, we did not convert USD to CAD when reporting our dividend income. Instead, we used a 1 to 1 currency rate approach. Why? Because we wanted to avoid fluctuations in dividend income over time due to changes in the exchange rate.

The top five dividend payouts came from Brookfield Renewable Energy, Suncor, Enbridge, Manulife, Brookfield Property (not in order). These five companies accounted for $1,184.42 or 54.7% of our September dividend income. Considering the current economic conditions, we need to pay close attention to the likes of Suncor and Brookfield Property to make sure these companies can sustain their dividend payments. Therefore, it may make sense to reduce our positions in these two companies in the future.

Dividend Growth

Unlike the previous month where we saw a negative YoY dividend growth, we ended up with positive YoY growth for September. Wooho! Despite the September YoY dividend being in the low single digit, we are extremely grateful it’s a positive number. With only three months to go for 2020, we need to continue to focus on growing our dividend income by adding new cash in our dividend portfolio and purchasing more stocks and ETFs to generate more dividend income.

Dividend Increases

In September, a number of companies that we hold announced dividend increase. After a few months of absolutely no news on dividend increases, I was happy to see these announcements. Maybe companies are slowly recovering and figuring out how to manage their profits in the COVID-era? Hopefully, we will continue to see more dividend increase announcements.

• Verizon increased its dividend payout by 2% to $0.6275 per share.
• Emera increased its dividend payout by 4% to $0.6375 per share.
• Fortis increased its dividend payout by 5.8% to $0.505 per share.
• Starbucks increased its dividend payout by 10% to $0.45 per share.

These announcements increased our forward looking dividend income by $49.14. At 4% dividend yield, this is like adding $1,228.50 to our dividend portfolio

Dividend Reinvestment Plan (DRIP)

To keep our investment strategy as simple as possible, we enroll in dividend reinvestment plan (DRIP) whenever we are eligible. Dripping allows us to re-invest the dividend payments right away. Adding more shares also allows us to dollar cost average over time: when the stock price is suppressed, we can buy more shares; when the stock price is too high, we’d get the dividend amount deposited and we can invest the cash elsewhere.

In September we dripped 54 shares of various stocks. Here’s the detailed breakdown:

• 15 shares of ENB.TO
• 1 share of CU.TO
• 3 shares of HR.UN
• 8 shares of MFC.TO
• 1 share of ERE.UN
• 3 shares of IPL.TO
• 4 shares of SU.TO
• 1 share of INTC
• 8 shares of BPY
• 1 share of FTS.TO
• 4 shares of REI.UN
• 1 share of DIR.UN
• 1 share of D.UN
• 2 shares of SRU.UN
• 1 share of H.TO

Through DRIP, we were able to reinvest a total $1,330.88. In other words, we dripped 61.5% of our September dividend income. For the amount not dripped, we will wait until we have over $1,000 before purchasing a dividend paying stock or an ETF.

Financial Independence Journey Update – Living off Dividends

It is our goal to live off dividends in our 40’s so we don’t have to rely on a full-time or part-time income. When our dividend income exceeds our annual living expenses, we can call ourselves financially independent. Based on our annual expenses over the last few years, we estimate we’d need somewhere between $50,000 to $60,000 in dividend income to make this dream a reality. This estimate has a bit of buffer to provide some margin of safety.

Long time readers will remember that we are targeting a 55% dividend income to annual expenses ratio for 2020. If we continue to watch out our expenses and continue to invest, I believe it is possible to meet or even exceed this ratio by the end of 2020.

For September, our expenses were higher than the other months. The higher than usual expenses were caused by pre-school cost for Baby T2.0, violin lessons for Baby T1.0 (he wanted to learn how to play the violin), and higher than usual food cost. Despite a higher expense month, our September dividend income was able to cover the following expenses:

• House insurance
• Property tax
• Car insurance
• Life insurance
• Groceries
• Hydro
• Natural gas

In fact, our September dividend income was able to cover 44.7% of our September expenses. For the remaining months, we will work hard to make sure we can stay above the 55% ratio.

Looking Ahead

With ShareOwner going away, Mrs. T and I have had many discussions on what to do with our kids’ dividend portfolio. After much consideration, we have decided to invest the money in our dividend portfolio. We can set up another dividend portfolio for our kids at a later date or pass on our portfolio to them later (assuming they’re monetary responsible).

This means we’d have around $20,000 available to invest in dividend paying stocks and ETFs. Since I usually like to be fully invested rather than having a large amount of cash sitting on the sideline, we’ll probably end up do a few purchases throughout October. Some of the stocks I’m considering are:

• Enbridge – Canadians will continue to use natural gas and someone has to transport all the natural gas across Canada.
• TD – Canadian bank, do I need to say more?
• National Bank – I like how National Bank has been trying to expand their presence outside of Quebec.
• iShares Ex Canada ETF (XAW) – to increase our ex-Canada exposure.
• Brookfield Renewable – invest in renewable energy makes sense to us.

Stay tuned for the next dividend update to find out what we purchased.

Summary

With nine months in the book, we have received a total of $19,641.89 in divided income. This means we have crashed our 2018 annual dividend income amount in three quarter of the time. It sure is amazing to see our progress over the last nine years.

To put our dividend income into perspective…

• Our dividend portfolio is producing at $2.99 per hour after 274 days in 2020. This also means when we sleep for 7 hours each night we’d wake up $20.93 in our pocket, enough for a few cups of lattes from Starbucks.
• At $40 per hour salary ($83,200 annually), our dividend income has saved us over 61 days worth of work or an equivalent of over 12 weeks. If we were to work full time earning $83,200 annual salary, we wouldn’t have to work until Mar 23, 2020!

We are very grateful that our dividend portfolio is working hard for us so we can put our thoughts and attentions on making sure our family can stay safe and healthy during the global pandemic. At the same time, we are also trying to help out others in need by donation money to charities.

With three more months to go before the end of the year, we are excited to see where we’d end up in terms of dividend income for the entire year.

Dear readers, how was your September dividend income?