Last week I shared our story on how we got started with dividend investing. After thinking more about how we got started, I began to wonder what we would do if we were to start dividend investing today. We didn’t get serious with dividend growth investing until 2011 and it has taken us 4 years to build a portfolio consists of 50 companies. Although some people say that having a portfolio exists of 20-30 companies offers enough diversification, I think it depends on each individual’s situation. Looking at our dividend portfolio, we don’t even own names like Colgate-Palmolive, 3M, Royal Dutch Shell, or Canadian Utilities. Because of this, we most likely will add a few more Canadian, US, and international blue chip dividend paying stocks to our portfolio. What if we only have a little bit of money? How to start dividend investing? Below is what I’d do if we were to build our dividend portfolio starting fresh.
How to start dividend investing – Scenario #1 – $1,000
If we only have $1,000 to start dividend growth investing today, we wouldn’t jump in and use all the money to invest in one single company. Unlike how we got started years ago, we wouldn’t put all our eggs in one basket. Having all $1,000 invested in one single company is simply too risky, it doesn’t matter even if you are investing in solid companies like Johnson and Johnson, Procter and Gamble, Royal Bank, or Fortis. To truly diversify we would invest in a low fee indexed ETF that focuses on dividend paying stocks.
Which ETF would we pick? I went through some top Canadian dividend ETFs in this post. After my thorough analysis, here are some dividend focused ETF’s that you may want to consider with $1,000:
Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY.TO)
Dividend Schedule: Monthly
Holdings: 75 Canadian dividend paying stocks. Top 10 holdings are Royal Bank (RY.TO), TD Bank (TD.TO), Bank of Nova Scotia (BNS.TO), Bank of Montreal (BMO.TO), Enbridge (ENB.TO), TransCanada (TRP.TO), CIBC (CM.TO), Potash (POT.TO), Sun Life Financial (SLF.TO), and Cenovus Energy (CVE.TO).
BMO Canadian Dividend ETF (ZDV.TO)
Dividend Schedule: Monthly
Holding: 51 Canadian dividend paying stocks. Top 10 holdings are Potash (POT.TO), Thomson Reuters (TRI.TO), Veresen (VSN.TO), Telus (T.TO), Capital Power (CPX.TO), Northland Power (NPI.TO), Crescent Point (CPG.TO), BCE (BCE.TO), Inter Pipeline (IPL.TO), ARC Resources (ARX.TO)
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ.TO)
Dividend Schedule: Monthly
Holdings: 76 Canadian dividend paying stocks. Top 10 holdings are Bonterra Energy (BNE.TO), Exchange Income Corp (EIF.TO), Norther Property REIT (NPR.UN), Bird Construction (BDT.TO), Teck Resources (TCK.B), H&R REIT (HR.UN), Mullen Group (MTL.TO), Pan American Silver Corp (PAA.TO), Cenovus Energy (CVE.TO), IGM Financial (IGM.TO)
Each ETF has its portfolio strategy so it’s not a surprise to see a wide range of top 10 holdings. ZDV’s yield is higher but the top 10 holdings are more focused on higher dividend payers like Crescent Point and Veresen. CDZ is the only ETF that holds REITs. VDY has over 50% weighting on financial stocks.
Personally I would go with VDY because this ETF not only has the lowest MER, its top holdings are focused on some of the best Canadian dividend paying companies available. Furthermore, after reading many books by John Bogle, I believe in his ideology on index investing.
When you only have $1,000 in cash to invest, you really need to consider the commission fee. Canadian discount brokers typically charge anywhere from $4.99 to $9.99 for buying an ETF. Although this fee is less than 1% when you have$1,000 in hand, wouldn’t it better to not having to pay commission at all when buying an ETF? This is why I love Questrade whom offers commission free ETF trading (for buying only, selling still costs money, but you wouldn’t and shouldn’t be selling that frequently.
If you don’t have a trading account yet, you could open one with Questrade by clicking on this referral link and enter the offer code 335712213387087. You can receive from $25 to $250 of cash reward depending on your account size.
How to start dividend investing – Scenario #2 – $5,000
If we only have $5,000 to start dividend investing today, we would buy $2,000 worth of VDY first. This will provide immediate diversification on 75 Canadian dividend paying stocks. With the remaining $3,000 we would split them into three and buy shares of Fortis, Royal Bank, and Telus at $1,000 each. We use products of these 3 companies on a daily basis so it makes sense to invest in these companies. Fortis is a Canadian dividend aristocrat and has paid dividend since 1972, it also has increased dividend for 41 straight years; Royal Bank has been paying dividend since 1870 and has increased dividend for 4 straight years (it held the dividend payments during the great recession and didn’t suspend or cut the dividend); Telus has paid dividend since 1999 and has raised dividend for 11 straight years. Buying these 3 companies will get us a foot in financial, energy, and telecommunication sectors.
Combined all four purchases will give us a dividend yield of roughly 3.5%. Pretty solid start in dividend investing. Considering VDY, Fortis, Royal Bank, and Telus all have raised dividend year after year, the yield on cost will certainly be above 3.5% after a few years.
How to start dividend investing – Scenario #3 – $10,000
If we have $10,000 to start dividend investing, things would get a bit more interesting. First we would buy $2,000 worth of VDY and $1,000 each for Fortis, Royal Bank, and Telus like what we did in scenario #2.
We will contribute the remaining $5,000 to our RRSP and use the money to buy five US stocks at $1,000 each. The five stocks we would pick are Johnson and Johnson, Procter and Gamble, Target, Coca Cola, and Exxon Mobil. All five companies have been paying dividend for many decades and have raised dividend for many decades as well. There’s no reason why the five companies won’t continue increasing their dividends year after year. (Note: This is a simplified scenario as we’re assuming US to CAN is a 1 to 1 conversion). In this scenario we would get 3.19% dividend yield and we effectively diversified our portfolio exposure to international companies as well added exposure in the consumer goods sector.
How to start dividend investing – Scenario #4 – More than $10,000
If we have more than $10,000 to invest we would focus even more in US and international stocks. Dividend stocks like Apple, Cisco, Chevron, BHP Billiton, Royal Dutch Shell, and Wal-Mart would be great to add to the dividend portfolio. We would also add an low MER index ETF with international exposure. VXC and VUN from Vanguard are two great ETF’s to own. We would also add some more Canadian dividend stocks like Bank of Nova Scotia, Potash, Enbridge, and BCE, just to name a few. At this time we would also look into getting some REITs to further diversify.
The ultimate goal is to have roughly 20% in financial sector, 20% in energy and utility sector, 20% in consumer goods sector, 15% in technology sector, 10% in telecommunications, and 15% in REITs. The dividend portfolio exposure would be roughly 35% Canadian and 65% international. Roughly half of the international exposure would come from the US. This would be our ideal diversified dividend portfolio.
Unfortunately, our current dividend portfolio does not have such portfolio breakdown and this is what we’re working towards. We hope that one day we will be able to achieve these type of portfolio breakdown.
What about you? How would you start dividend investing if you were to start today?
34 thoughts on “How to start dividend investing with as little as $1,000”
Is this still a good startpoint for getting into the market in 2022?
Yes, the best day to invest was yesterday. 😉
A small correction from trading ETFs with Questrade: they are free for buying ETFs but cost from 4.95$ and up when you sell them. But still better than many.
Also, starting in 2022, NA and Desjardins have free stocks/ETF buy/sell policy.
Keep on. I love reading your blog, it gives me foods for thoughts.
Thanks for pointing that out. Appreciate your support.
Thank you for your great analysis and sincere advice to novices. I have invested for a while for my family and although when I started I didn’t know too much about it, my main idea was always to invest in something that pays dividends regularly. I started about 20 years ago with some mutual funds that reinvested monthly/quarterly but the value didn’t go up too much. About 10 years ago , I finally saw the light and started doing something similar with what you are advising.
Here is a question for you re. foreign investments. For the Canadian ones we get a pretty good deal in terms of tax benefits. You say you have a lot of foreign investments. What about the tax? How do you deal with that?
We invest in foreign investments in our RRSP so avoid any withholding taxes on dividends.
I am looking for ideas to get my kids interested in dividend investing and stumbled across this article.
I would start with one egg and one basket and the reasoning is this.
Any of the 5 major banks in canada are solid dividend paying companies, and I do mean solid. They are going no where.
I also believe that if you have $1000 to invest per year, it would be the smartest way to build a portfolio. You have time to research other companies and by year two hopefully you have two eggs in your basket and drip the first egg.
I am not a big fan of ETFs because the fees you pay is actually your money and should be in your pocket not someone elses.
When I started my RRSP at 19 and invested $3500 (that was the max at the time, union pension), you were only allowed 18% foreign content and I always maxed it out. If I were young now, every single penny in my RRSP until age 30 would be put in the US stock market and I would let half of it ride on growth stocks and the other half in REITs or dividend paying US stocks and DRIP those as well.
When I first started out, I had no computer, online broker, online bank, smartphone, nothing. You had to phone your broker and get quotes, ETFs were simpler.
That’s certainly one way to get started and that’s how I started my dividend journey – by investing in one single company. If it’s for your kids and since they’re young, one egg and one basket approach may wokr.
Hi, I’ve really enjoyed reading over your website after stumbling on it a few days ago. I have a stupid question that will likely show that I’m new at this. If I don’t have $5000 to attempt something similar to your Scenario 2, is there any reason why I couldn’t stil attempt Scenario 2 over a time frame of a couple of months to aquire each set of shares? Thanks!
You can absolutely still attempt Scenario 2 over a time frame of a couple months to acquire each set of shares.
I know you do not disclose your portfolio weights, but can you at least tell us the balance between ETFs and stocks? I have just started investing and would love to hear that from you.
Bob did you look at your “peers”= another advisers/analysts like Motley Fool, Bill Spetrino, investopedia, Simplisafe divided. All of them sounds very reasonable to me. Did you tested any of them or others before coming out with your strategy?
Yes I have been reading a lot of books and blogs when it comes to stock investing and I’d say my strategy is very similar to these other resources.
Hello post from 2.5 years ago – I was wondering if you would still make these same recommendations today (specifically for the 10K+ range). Is $1K per those Canadian equities a large enough position today as a starting point? Seriously considering Fortis, Telus, and CIBC – have been learning a lot these past few months and ready to establish some positions. Thank you!
Yes I would make the same recommendations today. $1K per Canadian equity is large enough of a position, as long as your trade commission doesn’t account for more than 1% of the overall transaction cost.
Thank you so much for your reply
And it’s 0.99(…)% with RBC DI 😉
Hi Tawcan, very useful resource in learning how to start dividend investing. It would be cool to see more scenarios past $10,000 but I guess it would be essentially the same as scenario 4.
Yes it would essentially the same as scenario 4 but just you’d pick a few more stocks, or allocate more money to each individual stock.
A great article and I definitely like the ETF approach for starting out with $1,000. I’d be interested reading the advice you’d give an investor after they started with $1,000 and as their portfolio grew – e.g. at what point would you recommend individual stocks and what strategies might be used to transition to a stock-based portfolio?
Another similar starting option is some of Charles Schwab mutual funds (e.g. SWPPX) – while they’re not dividend-based portfolios, they are low cost index funds, and have an initial purchase price of $100 with additional purchases of only $1 (commission-free). This can allow even smaller investment amounts than an ETF. Disclaimer: I do not currently hold any Schwab funds nor am I affiliated with them – I did hold some of their funds a couple of years ago though.
Loyal3 is another good option as noted in comments above. Although for new investors, ETFs or mutual funds can help ease entry into the world of investing vs. individual stock selection and delay the “what stock do I buy next?” choices until the investor is more comfortable with the market and volatility.
Do you know where the heuristic about 20-30 stocks comes from? I’m just curious as I’ve seen it mentioned before although mostly in the context of “you won’t have enough time to keep track of more than 20 stocks”, rather than “this is an optimum number for diversification”. 50 seems to be the point of diminishing returns based on research in A Random Walk, although as you point out, it can take a long time to reach!
Maybe another article is in the work based on your questions/suggestions. I think the 20-30 stocks idea are often stated in investment books. It would be hard to keep track of 20 growth stocks as you need to evaluate their growth potentials consistently. I would argue for blue chip dividend stocks you don’t need to spend all that much time monitoring them. Stocks like JNJ, PG, Fortis, once you have enough shares to DRIP them every quarter, I think you can almost put them on auto pilot and check every half year or so.
I would probably begin with some ETFs that mimic the strategy I wanted to eventually get into. Two ETFs that I hold in my 401k (I can buy most ETFs and mutual funds) are SDY and XLE. SDY is a the High Yield Dividend Aristocrats Index and XLE is an energy ETF with 50% in companies with long dividend histories (CVX, XOM, OXY, COP, etc)
Assuming I had at least 5k, I would probably do about 80% SDY and 20% XLE. Pool the dividends and then use new contributions to start adding Blue Chips companies with long dividend growth streaks.
Diversification is key, I agree. I also like to mix a broader index fund with some individual dividend growth stocks. The index fund simply tracks the market and gets you the total return equal to that. The dividend stocks give off the passive income, which should be greater than the index.
These days my focus is more on the passive income today. However, if I didn’t have a large retirement portfolio comprised of index funds, I would probably focus on those first.
If available funds are only $1,000, starting with and ETF is not a bad option and you rightly caution against the negative impact of commission fees. The only problem with dividend paying ETFs is that you’re not assured of growing or even constant dividend income. Diversification is more important, though.
For starting investors, I’d also recommend commission free brokerages (like Loyal3) and dollar-cost averaging into a position. That is, invest smaller amounts more frequently, say monthly, and slowly build a position over time. (Commission free is crucial for this to work…)
I have never invested, but it makes a LOT of sense to diversify. I can only imagine how bad it can be for a stock to ‘go down’. This way, even if some are not performing as expected, overall you should come on top.
Diversification is very important. You don’t want to have all your eggs in one basket. 🙂
I’ve never done divided investing…Well, bought a few Apple and Starbucks stocks and got a few nice dividends from them, until I sold them. It’s definitely something I need to look into for our long-term streams of income. Thanks for the detailed break-down!
Hi Felix Money,
Dividend investing is great, I love it. I would love to own some Starbucks one of these days. Thanks for dropping by.
Do you have recommendation for US investors? Thanks.
For US I’d probably start by buying VIG which would give immediate diversification in many US dividend paying companies. Next I’d probably buy companies like JNJ, PG, XOM, T, and AAPL to add to my portfolio. There are way more dividend aristocrats in the US than Canada so you have the advantage there.
I second what Tawcan has mentioned with adding US and International exposures to your investment portfolio. I know being diversified with Canadian (XIC), U.S (VUN), International (VDU), and Emerging Markets (VEE) and Real E-state (ZRE) has helped balance my investment returns over the last couple years.
You are on the right track with looking into low priced ETF’s. Let me know if you have any questions.
Mr. Captain Cash
Tawcan, I know that you would not time the market but aren’t Fortis, Enbridge etc.. too expensive at this time? I really want to buy Fortis, Thomson Reuters, Empire Company, Metro, Canadian National Railways etc… but they have gone up so much in 2014 that I don’t think they are under/fair valued. What do you think?
Whether the stocks are expensive or not it depends what your’e comparing it to. Are you comparing them to historical PE ratio? Or just historical price? If you think the companies have future growth potentials then I think saving a few dollars here and there won’t matter. Take a read on this article I wrote – https://www.tawcan.com/dont-quibble-eighths-quarters/
I am toying with an idea of getting into dividend investing but given my lazy nature and lack of knowledge on evaluations, I’d probably avoid picking stocks like you do, and simply focus on low number of ETFs.
What do you think of this simple couch portfolio?
When I started comparing your picks to mine, found that yours have lower MERs. And mine would be more focused on Canadian sector.
Hi Financial Underdog,
Have you looked into Canadian Couch Potato’s model portfolios? I like Vanguard ETF’s a lot because they have such low fees. A 1% difference in fee and make a huge difference in the long run.
I would maybe get more US and international exposures with your portfolio. The Canadian market is too focused on financial and energy sectors.