If you look at our dividend portfolio, you will see that we are currently investing in 50 dividend paying companies. We hold these company stocks in tax-deferred accounts like RRSP and TFSA, as well as taxable accounts. Building a diversified portfolio with 50 positions is certainly not something that we did overnight. It has taken us years to build our dividend portfolio and we are not finished! There are many more solid dividend paying companies out there and we hope to add more of them to our portfolio one day. Have you ever wondered how to get started on dividend investing? Here is our story on how we began our journey.
How we got started with dividend investing
A quick glance at our dividend income will show that the first dividend was received in 2007. This was way before Mrs. T and I met. Back then I was still a young bachelor, naive, fearless, dumb, and tried to charm my way around the ladies (yea right, I wish!). Back in 2007 I didn’t know much about investing. I had just started working at my first full-time job and spent a lot of time climbing, skiing, and other stupid things that someone in their early 20’s would do. Although I had a high savings rate, most of the money was sitting in GIC’s, earning very little interests. I knew I needed to invest money in the stock markets to get a higher return.
The first company that got my interests was a company called ING Canada. ING Canada caught my interests because it happens to be the insurance company that my parents used for their house insurance. After very minimum research (oh I was so naive back then), I bought 100 shares of ING Canada at $49 per share. I didn’t pay any attention on ING’s dividend yield. All I was looking for was stock price appreciation.
Then the financial crisis hit. The stock markets went down the toilet. ING share price dived from the mid $40’s all the way down to the mid $20’s. I had a paper loss of almost 50% and I was feeling a little nervous. Do I sell the stock and take a loss? Or do I add more?
I wasn’t sure what to do. But I knew that every 3 months I was getting dividend deposited into my account for owning 100 shares of ING. At this time, the GIC interest rates were going down. I could no longer get 3 or 4% interest rates on the GIC’s. The normal GIC interest rates were sub 1.5%. After doing some calculation, I determined that my ING’s divided yield on cost was actually better than what I would get from the banks. So I decided to hold onto the stock and added some more shares to average down my price.
I continued holding onto ING, continued receiving dividend in my account, and continued waiting for the stock price to recover…
In 2009 when TFSA was first introduced, I decided to use TFSA for stock trading. I opened the TFSA with TD Waterhouse and deposited $5,000. Not knowing which stock to invest in, I looked around for familiar names once again. Since my work’s extended health is through Manulife Financial, I began to do some research on MCF. To my surprise, MCF’s price had recovered from its lows during the financial crisis of $13 to the mid $20’s. Considering the price was in the $40’s before the financial crisis, I thought to myself that the stock price had a lot of potentials to go back up. I was also pleasantly surprised to see that MCF had a dividend yield of around 4%. This was a lot higher than bank’s interest rates. So I purchased 100 shares of MCF and now own two insurance stocks.
While I did a lot of research before buying MCF shares, one key calculation I failed to do was determining the payout ratio. Back then I didn’t even know about such a thing called payout ratio. Unfortunately for me, Manulife’s dividend yield was unsustainable due to high payout ratio, so in mid 2009 the company cut the dividend by half from $0.26 per share to $0.13. When this happened, the stock price tumbled south and once again I found myself in the same situation as ING.
0-2, pretty crappy record for me so far. Maybe I should give up on investing all together…
Fire breathing…aka being stupid
Just like ING, I decided to hold onto my Manulife shares and even purchased more shares to average down the cost. I didn’t need the money at that time so I was OK on living with the downside of my investment decisions.
I continued holding onto ING and Manulife and kept seeing dividends getting deposited into my accounts. I was waiting for the stock price to appreciate so I could sell ING and Manulife one day.
Then I learned about dividend growth investment in 2011 when I read “The Lazy Investor” by Derek Foster. Reading this book opened my eyes to dividend investing and I was hooked. I began re-allocating capital to purchase dividend paying stocks. Since both ING and Manulife continued paying dividend every 3 months, I decided to hold onto them and forget about price appreciation all together. The dividend received from Manulife was enough to purchase additional shares, so I enrolled in DRIP to take advantage of the power of compound interest.
Once I was hooked on the dividend investing strategy, I was hungry for more knowledge. I was borrowing as many books on the topic from the library as possible. Naturally, I also began to have a strong interest in personal finances. Lucky for me, Mrs. T was on board when it comes to frugal living and investing.
Today both ING (now called Intact Financial) and Manulife are doing quite well. The cost basis for both these stocks are way below the current stock price. We don’t plan to sell either any time soon. For the other stocks that we own in our portfolio, we continued with the concept of picking companies that we use in our daily lives. Hence for purchasing companies like Proctor & Gamble, Johnson & Johnson, Rogers, Royal Bank, Fortis, and Apple.
What have I learned from my initial stock purchase experience?
1. When you’re young, you’re fearless and dumb
Today Mr. T and I wouldn’t invest $5,000 in one stock without doing extensive amount of research. I pulled the trigger on purchasing both ING Canada and Manulife without doing much analysis or research. Looking back I was very naive and dumb. Fortunately for me it turned out alright.
2. Research, research, research
Don’t buy anything that you don’t know. Always do your research and know as much as possible about the stock. As a minimum you must know:
- Is the company making a profit? What is the revenue history?
- What is the PE ratio of the stock and most importantly, where does the PE ratio sit when compared to the competitors?
- What is the dividend yield and the respective payout ratio?
- What is the dividend history?
- What is the return on equity?
- What is the earning per share? What is the EPS history?
- What is the PEG ratio?
3. Always ask yourself the following 3 questions before you invest
- What is the upside of this investment opportunity?
- What is the downside of this investment opportunity?
- Can I live with the downside?
4. Stock price goes up and down, you have no control over it. Stop worrying about the stock price.
Worrying about stock price daily will do you no good. Focus on investing in solid companies with wide economic moats and strong management teams.
Would we buy the same stocks if we were to start my dividend investment journey today? Probably not. But our approach will probably be the same. Having said that, we probably will focus our attention on getting index ETF’s to have a better diversification right from the start. It’s hard to believe that I put in so much money into two insurance companies and had zero diversification. Boy I was so naive back then. 🙂
What do you think about my story? How did you start your investing journey?
52 thoughts on “How we got started with dividend investing”
Nice story!… I am just starting to look into the world of Investing (thanks to this pandemic situation!), I am a noob and totally a newbie and I don’t know where to start. I just have a minimal disposable money to play around and I felt like I am in the middle of vast ocean with no clear direction ‘coz I couldn’t determine where is North or South. Luckily I stumbled your site, gave me hope that I can do this. It’s just like a tip that the sun rises on the east and goes down on the west. I’ll keep on reading. thanks!
This was an enjoyable read! Getting started young has so many benefits, provided you can learn from your mistakes…I think my first stock purchases were through a mutual fund for resource companies (Colonial First State Global Resources…not around today, probably due to underperformance). Oh how things have changed!
It’s funny sometimes to go back to younger you and revisit all the stupid stuff you did with money back then.
I remember buying my first mutual funds from a big Mutual Funds Co. and thinking “Well, these people obviously have my best interest at heart” 🙂
Hi Financial Underdog,
I remember doing the same with mutual fund too. Funny how that’s not the reality.
Condensed 4 year investment history:
Year 1 – Aggressive student loan payoff and aggressive finance learning.
Year 2 – Aggressive student loan payoff and aggressive finance learning.
Year 3 – Aggressive student loan payoff with purchases of BRK and VUN and aggressive finance learning.
Year 4 – Student loans paid off, purchases of BRK, CVX, IBM, RY, HSY, and aggressive finance learning.
And more purchases to come now that there is so much free cash flow per month with the student loans gone 🙂
That’s a great summary. Paying off student loan is a great investment strategy. Isn’t it great to not have student loan debt?
Nice story and I can relate to myself to some of the things you have mentioned. When I started out in 2009, I was not focused on dividend growth investing. I wasn’t paying attention to dividend yield or payout ratios etc. In fact, I had got several stocks that didn’t even pay dividend. But I knew that I was investing for the long term. So I just looked at the businesses and its potential and started off with investing in familiar names. My initial set of investments include COP, AET, C, GE etc. CMG and AAPL are couple other names that I invested soon after even though they weren’t dividend companies. Fortunately, these investments have worked out so far along with the general market.
Between 2009 and 2013, I was investing on and off and I was not consistent. either. I started focusing on dividend investments sometime last year and have been doing it consistently with my goals. I am also looking to invest in growth stocks if some opportunity presents itself.
Hi Dividend Growth Journey,
Sounds like we had similar experience with our investment journey. Good thing that you had the long term view when it comes to investing. So many people lose the long term view when stock prices start stumbling.
Great read! Great to read your story – like all of us, you had your “awakening” and have been much more successful after it. I like the fact that Manulife and ING kept paying you dividends, even though their stock prices were plummeting – that’s basically your 4th point and what I think is the reason why a lot of people lose money in the stock market.
Thanks for sharing!
Hi Dividend Legion,
This is why dividend stocks are so great. You continue to get paid while you wait. 🙂
They are some cool photos you got up there.
“Fire breathing…aka being a hero” – you meant, surely?
It would be good if there was a way to make investing a bit cooler…I started out by investing in a few individual companies, making a bit of a gain, thinking I could read the markets like Neo and then got burned. A bit of actual research later, I’ve decided that indexing and asset allocation is the way to go for me 😀
Not sure about you but sometimes I struggle with saving money / spending on hobbies (for me it would be surfing and cycling). I’ve cut down a lot recently, but splurge every now and then 🙂 Being FI with a paid off house on a coast somewhere in the world would be perfect. Surfing and cycling on my door step. If that could be combined with a bit of boarding, well, that would be just too much I think.
All the Best,
Hi Mr. Zombie,
A lot of people think they’re genius when they make money in stocks and they become too confident. That’s when they get burned.
Although hobbies cost money, they will also develop you as a human being. The key is finding the right balance on how much to spend.
Thanks for sharing your story, its entertaining and very educational! 🙂
Glad my post was interesting. Thanks for dropping by.
I think what you did back then was really cool there, especially with the climbing and fire spitting??
A foolish lifestyle would be to spend all your savings on drinks, entertainments and women, at least you did what you did with the savings.
Good job and enjoyed your story.
I still climb but not as much. 🙂
It’s OK to enjoy life here and there but you always need to keep the end goal in mind (i.e. save and invest).
Thanks for dropping by!
A very inspiring back story Tawcan! You’ve definitely have come a long way. I hope one day I can grow my portfolio to one that will yield similar results. The lessons you have learned is also very interesting. When I first started out investing, I just invested in big name stocks that caught my attention but now I know there is so much more research than just that.
Rome wasn’t built in one day and your dividend portfolio certainly isn’t either. 🙂
Isn’t it funny that we probably all started knowing very little about investing and we still got our feet wet.
Thoroughly enjoyed hearing your story on how you started. Isn’t it funny how it all works that way? That was 8 years ago. What’s awesome, is that even though you were “down” you taught it more as a financial lesson to yourself and here you are now, doing very very well. Those first investment decisions are always fun to look back on as it teaches you so much. I know I am still making investment decisions today, that I am sure in a few months or years down the road will show me what I missed or what worked out well and why. Great story Tawcan, thank you for sharing!
If things didn’t turn out the way it is now I guess I wouldn’t write about this post right? 😉 It was definitely a good lesson for me and it was good to look back to see what I did. It’s important to learn from your mistakes.
Everyone has to start somewhere, right? Those who start young are in the vast minority. I can only hope to get my kids interested as they get into their teenage years so they understand the importance of saving early and the power of compounding growth.
It’s not easy to keep saving when your account turns blood red, or to not get nervous and unload everything trying to save capital. Kudos to you for sticking it out through the tough times.
Our goal is to teach our son and future kid(s) the importance of money and how powerful compounding growth is. It will be an interesting journey for sure.
I’m way too lazy for dividend investing. I keep thinking about jumping in but I much prefer to index invest. No thinking required.
Index investing is a good way to go too. The important part is that we’re investing and our money is working hard for us.
Great job through thick and thin. You started very early, which is a huge benefit. You’re now reaping those rewards. And those rewards will continue for the rest of your life.
I can only wish I would have started earlier, but I think we all wish that.
Keep up the great work. I’m sure in 10 years you’ll be looking back on today with a smile, even though there’ll be some mistakes along the way.
Hi Dividend Mantra,
We all wish we could started earlier but it’s not something we can change. Best thing we can do today is start investing if you haven’t started, or continue investing if you have stated. Very glad that both of us started investing when we’re still relatively young, this allows us to make mistakes and learn from these mistakes. Making mistakes when you’re older (i.e. 60’s) will be more detrimental to your retirement.
Thanks for sharing your investing journey. It’s always interesting to hear how someone got to where they are now.
Like yourself I started with GIC’s at the bank. This then led to high price mutual funds. Luckily for myself this occurred only for a year and a half until I decided to try ETF index investing.
I have never looked back since starting index investing. It is what works best for me and will enable me to reach my early financial independence goals.
Mr. Captain Cash
Hi Mr. Captain Cash,
Great stuff on switching from GIC’s to something that has a higher return. Here’s to reaching our FI goals!
Thanks for sharing your story Tawcan, it was a great read. I wish I’d had the brains to start investing/saving in my early 20s instead of succumbing to debt!
You must have had nerves of steel not to bail out when the share prices went down as I’m sure others would have just jumped ship in panic and not realised (as you had) the value of the dividends being paid.
Maybe I was just too dumb to not bail out. Things worked out good for me but they could have went the other way. I guess I just lucked out.
Hi Tawcan, I always believe in Seth Klarman’s quality rule “The single greatest edge an investor can have is a long term orientation.” That’s why I always invest in most credible businesses with proven long-term stability and growth.
That is a great quote, I actually has never heard it before. Thanks for sharing.
This is actually very helpful because I’m always overwhelmed with all the investing information that’s out there. I haven’t invested outside of my retirement accounts yet because I don’t know where to start (not a very good reason, I know.)
And I think the fire breathing deserves its own post. 🙂
You can get started easily with ETF’s. Just invest in a broad market ETF for your non-retirement accounts. 🙂
Nice Story Tawcan…thanks for sharing. It is the scars we wear, whether they are visible on the outside or purely emotional on the inside, that has shaped us into the person (or investor) that we are today. Mistakes are simply learning tools…the goal is to make sure you do learn and change from them. 🙂
Also, nice tips from your experience. Thanks for sharing. Best Wishes! AFFJ
Mistakes are great learning tools as long as you learn from them and make the appropriate changes to make you a better human. Thanks for dropping by!
Great story, T. Lol…some pretty stuff there indeed.. Fire breathing?!
It sounds like you learned your lessons similar to the way I did. I had very similar experiences – and looks like we started around the same time. I started with expensive mutual funds though. But the first stocks I bought were financial institutions in 2008 :O … and of course, most of those names are gone now and are just a memory and reside in the history books as disastrous institutions. I shared my details here (sorry for the plug): https://roadmap2retire.com/2014/04/my-first-stock-investments/
Back to your story – its really interesting how most of us started off being naive and rash in our investing decisions and seem to all go thru it, burn our hand at it and then discover dividend investing. It seems to be more common than not – where someone started off just knowing about dividend investing and made safe investments.
Thanks for sharing your story.
Fire breathing is pretty dumb, you take some Kerosene in your mouth, hold it, take a burning stick, then spit out the Kerosene. It’s fun and stupid at the same time.
Too many people rush in on our investment decisions. How many people spend the time to go through annual reports and do their due diligent before purchasing a stock? I bet most people spend more time doing research on which smart phone to purchase than research on which stock to buy.
I am really glad that you started young and didn’t get burned by your experiences and so give up, like many people might do.
Love no. 3, having a simple pre-buy checklist would save a lot of heartache for people in the future, I am sure.
It was good that I didn’t give up. It was good that I invested with money that I could afford to lose. Too many people invest with money that they can’t afford to lose and they become too emotional when the value goes down by 5% or less.
I really enjoyed your article here. Hahaha Well without dumb 20’s we wouldn’t have wiser 30’s.I believe that’s why 20’s will stay as my favorite dumbest time of my life.
I guess it’s OK to be dumb when your’e in your 20’s, as long as you learn from your dumb mistakes and become a better person. Unfortunately some people don’t learn from their dumb mistakes and continue repeating these mistakes again and again.
You think you’re stupid, but how many people do you know that start investing as young as you did? I know of no one else in my personal life. On top of that, you could have done much worse than buying into companies you actually know and have experience with.
Just like Asset-Grinder I believe it’s best for people starting out in the stock market to use index funds or ETFs until they improve their knowledge.
I wish more young people are doing what you’re doing. What you’re doing is great. Once you’re older, you will be so happy that you started investing young. 🙂
Great story man. This is why I always recommend ETF,s to people starting out in either index funds or dividend funds. Stock pickers are becoming a rare breed these days and some days I question why even I do so lol.
Hi Asset Grinder,
ETF’s are great if you don’t know much about investing. I think even with dividend investing, utilizing ETF’s is a great way to go. This is something we need to work on moving forward.
I found this post interesting to read. Derek Foster books are easy to read that is for sure. He is just an average guy, and has showing though his presentations and words the dividend paying stocks to work. He is living proof as he is retired from work and has a wife and 5 or 6 kids. He chooses when to “work” and it is on his terms now.
When I got started in investing, I basically was just saving money in a bank account paying little interest. I watched BNN a lot and woke up one day and said I do not want to live like this anymore. So I started investing in the stock market. My first stock was a junior mining company which went to zero and got de-listed. My second purchase was Boston Pizza Royalties Income Fund in my TFSA. I bought BPF.UN in 2010 and still hold it. It pays me every month. It is great to make money while I sleep. I often tell people, at this very moment someone just turn on a light switch in Nova Scotia and Emera makes revenue from it or a furnace just clicked in Alberta that uses Enbridge pipelines, so Enbridge is generating revenue.
I am glad to be on the journey of increasing passive income.
Hi Investing Pursuits,
Derek Foster’s books are great to read but he did skip a lot of information, which I found out later. For example, how he leveraged on one stock and got massive returns. He also solid most of his dividend stocks during the financial crisis. Either way, he is a good inspiration on that you can achieve FI by investing in dividend paying stocks.
I think that’s a great story. It’s better than what most young people are doing by not saving at all. Or if they are, they’re trading micro-caps or putting all their money in Tesla. It takes some bumps before you figure it out.
People need to learn from their mistakes I suppose. 🙂
You were young and were saving and investing, so I say that I love your story! It’s funny that you stumbled into what you’d end up doing on purpose.
For me, I had heard stocks that paid dividends did better than others. So I bought a dividend growth mutual fund. A high MER fund. I still own it, but am making plans now to recitify the situation.
It’s funny how life works sometimes… you stumble onto something that sparks your interests. Investing in mutual fund is better than nothing but the high MER is definitely something you want to avoid. I’d transfer the money would and look into ETF’s.