Quest for joyful life & financial independence. I started reading books on personal finance and investment topics to increase my knowledge. I also started my own self-managed dividend portfolio while focusing on being as tax efficient as possible. Through frugality, dividend stock investing, and other passive income streams I am targeting to reach financial independence in 2025. Follow this..
The other day, I was discussing personal finance and financial independence retire early (FIRE) topics with someone that is starting his Financial Independence Retire Early (FIRE) journey and he asked:
If you were to start your Financial Independence Retire Early journey today. What would you have done differently?
Technically we started our FIRE journey when a teacher of ours gave us The Secret of the Millionaire Mind to read in 2011. Our interests in personal finance and a better financial being started after reading this book. Mrs. T and I then attended the Millionaire Mind Intensive course shortly after reading the book. Thanks to this 2-day intensive course, Mrs. T and I were able to get on the same wavelength financially.
But it didn’t mean that we had no disagreements nor that we didn’t make any mistakes along our FIRE journey.
Here are 5 things I would have done differently if we were to start our FIRE journey today.
1. Not asking for a higher salary earlier
I joined a high tech company shortly after graduating from university in 2006. In the first few years, I worked as a hardware engineer and integration engineer. I was very motivated and took on a lot of challenging tasks. When the company laid off ~15% of the workforce during the financial crisis, I saw an opportunity to become a project manager and took it. I knew that project managers usually have higher salaries than integration engineers and better career advancement path. Unfortunately, I didn’t ask for a salary adjustment until 2 or 3 years later.
At the time I was severely underpaid for what I was doing.
Before asking for a salary adjustment, I researched online to find project managers’ average salary. I then listed all the accomplishments I achieved in the past 3 years as a project manager.
I approached my manager and his manager about having a salary adjustment. I also implied that if nothing happened to my salary, I would be looking for a position elsewhere.
Because I was one of the top performing project managers, within about a month of asking for a higher salary, my salary was increased by over 30%. By keeping the same level of expenses, the increase in salary really helped us to increase our savings rate.
2. Investing in mutual funds and GIC’s
This mistake I have alluded several times in other posts. Back in 2011, we were holding a large number of investments in mutual funds and GIC’s. We didn’t hold many individual dividend paying stocks or index ETFs. Our investment returns were low due to the high mutual fund MERs and the low GIC interest rates.
What we should have done was invest in dividend-paying stocks and index ETF’s earlier (like when I started working). This also meant I would have been able to take advantage of the financial crisis downturn by buying stocks and index ETFs at very discounted prices.
3. Having the SAVE SAVE SAVE mindset
When we started our FIRE journey, I was very much in the SAVE, SAVE, SAVE, then SAVE some more mindset. On the other hand, Mrs. T was about saving while enjoying the finer things of life, like going out to a cafe to enjoy a nice cup of hot chocolate, or going to a bakery and enjoy a nice cup of coffee with some delicious bakery. I struggled for a VERY long time about spending money on these “non-necessity” items. I just wanted to save as much money so we could become financially independent quicker.
Mrs. T felt frustrated due to my always save-more mindset. She often felt guilty if she purchased something to treat herself. The two of us also had many arguments over small purchases.
Over time, I realized that we needed to enjoy the present moment too. It was nice to go to a cafe, have a nice cup of coffee with Mrs. T, and talk. This was our way of hygge. We also enjoyed having a small amount of chocolates in the afternoon when we sat down together to have hygge. I began to adopt the “finding the right balance” mindset. I realized that it was silly to argue over little thing that we could both enjoy. I also realized that we shouldn’t deprive ourselves by going into extreme save mode; we needed to enjoy the finer things in life too! Spending money isn’t the enemy!
And this is why my motto of finding your personal balance between saving for the future and enjoying the present moment.
4. Chasing yield
Chasing yield is probably the number 1 mistake many dividend growth investors make when starting out. I certainly made this mistake starting out.
When we started investing in dividend-paying stocks, I knew very little about dividend stock fundamental analysis. I knew ratios like PE, debt to book, dividend yield, but one key ratio I failed to pay attention to was the dividend payout ratio. I wasn’t able to determine whether a company’s dividend payouts were safe or not.
Because of that, I purchased the likes of Liquor Store, Just Energy, Energy Plus, Superior Plus Corp, etc. Due to unsustainable dividend payouts, all of these company cut their dividends. To make matter worse, the stock price tumbled. When we closed out these positions, we ended up with big losses.
Early on our FIRE journey, I had taken some investment courses to learn how to trade based on technical analysis. I was trading based on techniques like channel breaking, seasonality, trend analysis, support & resistance, etc.
Did technical analysis work? Yes and no. I made some money and I lost some money.
Overall, we came out positive, but we could have made way more money.
What I learned was that to properly execute technical analysis techniques, I needed to make a lot of short-term trades. I was trading in and out of stocks almost every other day. That meant I was paying a lot of money in commissions. Because we had a small portfolio, commission cost quickly ate into our profits.
I realized that to properly execute technical analysis, you needed to be playing with a large sum of money.
Too bad it wasn’t us.
Instead of trading in and out of stocks, I should have been buying and holding the stocks.
Want some concrete examples?
I was buying and selling Alexion Pharmaceuticals at $25-30 price range. Today ALXN trades around $130. Missed out on a 4 bagger here. I should have held onto the stock.
I was buying and selling Questcor Pharmaceuticals around $35-40 range. Instead, I should have held onto the stock and get paid nicely when it got acquired by Mallinckrodt Pharmaceuticals.
I was buying and selling Direxion Daily Semiconductor Bull 3X around $6-8 range (4:1 split adjusted price). Today SOXL trades around $150. If I had held on, I would have made almost a 20 bagger from this stock. Oops!
I was buying and selling Ulta Beauty Inc at $75-85 range. Today ULTA trades at around $250. If I had held onto this stock, I would have made 3x the money from this stock.
And so on.
You get the point.
Trading too often and wasting money on commissions doesn’t make any sense for retail investors. Buy and hold can go a long way if done properly.
Learning from mistakes on the FIRE journey
These 5 mistakes were hard learned lessons for us. If I were to start our FIRE journey today, I would have made entirely different decisions. I have no doubt not making these mistakes would have expedited our FIRE journey.
Would I change a thing if I could though?
No, I wouldn’t. Because we have learned valuable lessons from these financial mistakes. These mistakes shaped who we are today as investors and FIRE seekers. We are better off because of them. We also learned not to make the same mistakes again.
If we didn’t make these mistakes, I am convinced that we would have made some other mistakes.
Learn from your mistakes and move on. Don’t dwell on your mistakes.
Dear readers, what kind of mistakes have you made along your FIRE journey? Would you have changed them if you had the chance?
Recently a reader wrote an email and asked some questions related to dividend investing. I always appreciate hearing from readers and receiving their personal finance and investing questions. Please keep them coming!
Anyway, with this reader’s email questions, I quickly replied with some simple answers. However, I thought I would elaborate a bit and turn it into a blog post. Hopefully, someone who is starting out with investing and dividend growth investing will find these answers helpful.
Question 1. Fees for building a diverse portfolio: I very much like the idea of a diverse dividend portfolio. I dislike dividend ETFs because of the built-in management fees. If you have a 3% dividend yield and 0.5% goes to MERs, that’s 1/6 of our returns going nowhere.
The alternative is to do DIY dividend growth investing, but there are challenges as well, such as trading commissions.
To minimize commissions, it is best to make lump-sum purchases. But that leads to a longer wait time before your money can work for you, and the biggest issue is that your portfolio is not diversified compared to holding dividend ETFs. Alternatively, you can make small purchases over time but you would incur way too much in commissions. How did you work through this challenge? What was your process?
A: First of all, the distribution rate of a dividend ETF (and an index ETF) already taken account of the MER fee. So if Vanguard Canada High Dividend Yield Index ETF (VDY) has a dividend yield of 3.96% and an MER of 0.22%, the 3.96% is after subtracting the MER. Having said that, you are right about not getting as much returns, but I guess that is the price you pay for diversification.
You are also correct that you are less diversified if you purchase individual dividend paying stocks right from the beginning. If you purchase the likes of Bank of Nova Scotia, Johnson & Johnson, Proctor & Gamble, for example, you are still getting a lot of geographical diversification, because these companies are international companies. You are, however, not sector diversified. Is geographical diversification more important than sector diversification? Or the other way around? Generally speaking, I think there’s a low risk in purchasing international companies with solid fundamentals. I am not as worried about sector diversification, this is something you can build up over time.
Having said that, it makes sense to start off with some index ETFs first to create some sector diversification first. Once you have a sizable index ETFs in your portfolio, you can start purchasing individual dividend paying stocks. This is why I like having a dividend portfolio consisted of both index ETFs and individual dividend paying stocks.
Whenever we purchase individual dividend stocks, we try to keep the transaction fee below 1% of the overall cost. Since Questrade’s commission is $4.95 per trade and TD Waterhouse’s commission is $9 per trade, we usually make $1,000 purchases as a minimum (often a higher dollar amount).
Another thing to keep in mind, if you are doing a hybrid approach like us, is that Questrade offers commission-free ETF trading. So you can build up your ETF holdings over time by making small dollar amount purchases. This is something we do every other month to build up our VCN and VXC positions.
If you are planning on opening a Questrade account and want to get up to $250 of rewards, please contact me for a referral code. Alternatively, you can use my QPass Key 335712213387087 when signing up. You can receive from $25 to $250 of cash reward depending on your account size.
Question 2. Timing:
I am a believer of “time in the market is more important than timing the market”. But the bull market has been running strong for about 10 years now. The steam sure will run out at some point. Would it be a prudent strategy to hold off on buying anything, hold only cash, and start buying dividend stocks when we see a bear market? The bull run theoretically can keep going for many more years, but history isn’t on that side of the argument. If you were a newbie starting out with investing, what would you do?
A: Yes the bull market has been running strong for about 10 years now, but nobody can predict the future. On Feb 26, 2009, I purchased 100 shares of Royal Bank (RY.TO) at $26.92. I thought I had purchased the stock at an extremely discounted price. However, during that time, everyone was talking about a market double-dip (i.e. the market recover, then another big drop). Back then, I was very worried this would come true, even though Royal Bank had very strong fundamentals.
As it turned out, the Royal Bank stock recovered a bit in early March then the market took a turn in the negative direction. I panicked and sold all 100 shares at $29.05 for a small profit.
Little did I know, the stock price would eventually recover and climb higher and higher.
Today Royal Bank is around $100. If I had held on these 100 shares, I would have been looking at almost a 4 bagger!!!
What did I learn from this experience?
Pay attention to stock evaluation. As a long-term investor, it is far more important to find undervalued stocks. They will outperform fair-valued or over-valued stocks over time.
So don’t buy anything that is over-priced. Compounding long term and stay in the market do matter. Stop worrying about the market noises. Statically speaking, yes, a bear market should be around the corner, but nobody can predict the future. Nobody knows whether the bull market will continue or if a bear market will start tomorrow or not. When Donald Trump was elected the president of the United States, some analysts thought we would see a market crash and the start of a bear market. Look where we are today, the Dow Jones Industrial Average was around 18,000 points at the end of 2016 now it is around 25,000 points; the TSX Composite Index was around 14,000 at the end of 2016 and now it is around 16,000 points.
Another thing to mention is when I started to purchase individual stocks around early 2007, I purchased ING (now called Intact Financial) and Manulife Financial. I made both of these purchases before the financial crisis. The stock price for both dropped significantly during the crisis. But I decided to hold on to them and collect dividends. I ended up adding more Manulife shares to dollar cost average my purchase price. Now 10 years after the financial crisis, we are looking at a sizable gain for both holdings.
Personally, I think it is far better to stay in the market and let your money work hard for you rather than stay out of the market and hide your money under your mattress and hope your money will grow (unlikely, unless you are talking about molds growing if the bills get wet. Good thing that the Canadian bills are all plastic now, but that’s another story for another time…). If you are truly worried about the impending bear market, I would have a high cash allocation, say 30-40%, so you can buy stocks when there’s a good opportunity. For example, if the stock market drops by 20% in a few days, having some cash on hand will allow you to purchase stocks at a discounted price.
Mr. Tako Escapes recently wrote a great article where he compared river rafting to investing. The destination is financial independence and the river itself is the investment market that you traverse. The rafts that you ride through the river are the assets you can invest in. Getting into or out of a raft equates to buying or selling of an investment. I really love this analogy. If you haven’t read this article yet, I highly recommend it as it relates very well to this timing question.
Question 3. Chasing yield: I totally admit that I am enamoured by high yield and am very tempted to buy them, like Enbridge and Laurentian Bank. Yes, if the stock price tanks, it makes no difference (as you mentioned in one of your posts). But how is that any different than if you buy into the market now and it tanks? If you take a look at the list of Canadian dividend aristocrats today, how would you go about picking your first 5 dividend stocks?
A: Funny that you mentioned Enbridge and Laurentian Bank. We actually purchased quite a bit of Enbridge earlier this year when the stock price was around the 52-week low. The price has actually recovered quite a bit since (nice for us). We also initiated a position in Laurentian Bank earlier this year and purchased more shares recently. Laurentian Bank’s price, unfortunately, has not recovered yet. I believe both of these companies have solid fundamentals. People will continue using oil and natural gas for many years to come, and Enbridge’s pipelines will be utilized for transporting oil and natural gas. Canadians will continue banking with Laurentian Bank and use their financial products. The higher than usual dividend yield for these stocks was due to the temporary price downturn and the headwinds that they are facing. Since both companies have a healthy payout ratio, they should be able to continue paying out dividends and possibly raise the dividends.
On the other hand, Corus Entertainment has a very high dividend yield. The business is deteriorating as more and more people are cutting cables and subscribing for streaming services. Although Corus Entertainment had recently cut its dividends, the payout ratio still appears to be extremely unhealthy. It would have been a better move if the company suspends the dividend payments and look at improving its business. Buying Corus Entertainment for dividend yield alone is simply not a good idea.
In terms of picking out first 5 dividend stocks, I have actually written a couple of guides before.
3.5 weeks after getting sick and having bronchitis, I am finally feeling better. The coughing is still lingering though, so hopefully that’ll go away soon. Although I have been walking a lot the last 3.5 weeks, it would be good to start some high-intensity exercises at the gym.
July is upon us and that means we are enjoying the awesome sunny weather here in Vancouver. With lots of sunshine that also means our backyard veggie garden is growing very nicely. We have been busy harvesting strawberries, raspberries, kale, etc and using them in meals and desserts.
strawberries and various veggies
Tomatoes and cucumbers are growing nicely in the greenhouse
Blackcurrant and red currant. Almost ready for harvest.
Baby T1.0 planted some corns in the spring and they are growing nicely
Fresh raspberries from our daily harvest
Baby T1.0 made this cake himself (with a little help)
koldskål (Danish cold buttermilk dessert) with strawberries
I’m sure the veggie garden will keep us pretty busy over the next few months.
June Dividend Income
In June we received dividends from the following companies:
Brookfield Renewable (BEP.UN)
Canadian National Railway (CNR.TO)
Canadian Tire (CTC.A)
Canadian Utilities (CU.TO)
Dream Office REIT (D.UN)
Dream Global REIT (DRG.UN)
Dream Industrial REIT (DIR.UN)
Enbridge Income Trust (ENF.TO)
Hydro One (H.TO)
High Liner Foods (HLF.TO)
H&R REIT (HR.UN)
Intact Financial (INF.TO)
Inter Pipeline (IPL.TO)
Johnson & Johnson (JNJ)
KEG Income Trust (KEG.UN)
Magellan Aerospace Corp (MAL.TO)
Manulife Financial (MFC.TO)
Magna International (MG.TO)
MCAN Mortgage Corp (MKP.TO)
Prairiesky Royalty (PSK.TO)
SmartCentres REIT (SRU.UN)
Unilever plc (UL)
Waste Management (WM)
Exco Technologies (XTC.TO)
In total, we received $1,690.82 from 39 companies in June 2018. This is yet another all-time monthly dividend income record!!! As you can see from the chart above, there’s a nice spike for June 2018. It sure looks nice!
It’s hard to believe that for the 5th time in 2018, we broke our all-time monthly dividend income. Wow! And not to mention that we received 39 pay cheques, so our dividend income is well diversified.
We were only $9.18 short of the $1,700 milestone. Originally I had thought that Evertz Technologies would pay dividend in June, since the previous dividend payment was in Mar. As it turned out, Evertz Technologies is paying the dividend in July. If Evertz Technologies had paid dividend in June instead of July, we would have easily broken the $1,700 record. Darn it!
The big jump in June’s dividend income mostly had to do with our purchases of Enbridge shares earlier this year. We received almost $400 in dividend income from Enbridge alone in June.
Out of the $1,690.82 received, $308.01 was in USD and $1,382.81 was in CAD. Or about a 20-80 split. If you are a long time reader to our monthly dividend income reports, you will know that we use a 1 to 1 currency rate approach. We do not convert dividends received in USD to CAD. We are ignoring exchange rate to keep the math simple. This is our way to avoid fluctuations in dividend income over time due to changes in the exchange rate.
The top 5 dividend payouts in June 2018 were Manulife Financial, Suncor, Enbridge, Chevron, and Intact Financial (not in order). Dividend payouts from these 5 companies accounted for 45.2% of our February dividend income, or $764.32.
Dividend Income Breakdown
We hold our dividend stocks in taxable accounts, RRSPs, and TFSAs. Every year, we maximize tax-advantaged accounts first before investing in taxable accounts.
For June 2018 dividend income, here’s the breakdown of the different accounts:
Taxable: $495.92 or 29.3%
RRSPs: $680.97 or 40.3%
TFSAs: $513.93 or 30.4%
Effectively, only 29.3% of our June dividend income was taxable.
We constructed our taxable accounts so we only receive from stocks that pay out eligible dividend income. Since we plan to live off dividend income when we are financially independent, we want to construct our portfolio to be as tax efficient as possible. This way, we can minimize income tax during financial independence.
Compared to June 2017, we saw a respectable YOY growth of 24.92%!
That is the highest YOY number so far in 2018. I’m extremely happy and excited to see that we did so awesome in this performance matrix.
With 6 months in the book, we are averaging a YOY growth of 18.65%. In 2016, after 6 months, we had a YOY growth average of 20.52%. So clearly we are slowing down a bit when it comes to dividend YOY growth. However, as I have indicated many times before, this is a natural phenomenon for dividend growth investors as your dividend income increases.
So far in 2018, many dividend stocks that we own in our dividend portfolio have announced dividend payout increases.
Target raised its dividend by 3.23% to $0.64 per share.
Starbucks raised its dividend by 20% to $0.36 per share.
Dividend Stock Transactions
Because we had closed out a couple of positions in May, we had a higher than usual amount of cash on hand. So we paid attention to any significant price drops during June to see if we could purchase dividend paying stocks at a discount.
Lucky for us, we encountered a few opportunities to deploy the extra cash and added shares to two stocks that we already own.
Purchased 20 shares of Starbucks (SBUX)
Purchased 57 shares of Laurentian Bank (LB.TO)
After the June 19 earnings release, Starbucks’ stock price went down to nearly 20% from their recent highs. This mostly due to Starbucks gave a lower than expected growth in their guidance. On top of this bad news, Howard Schultz stepped down as executive chairman and CFO Scott Maw retired unexpectedly. However, in the earnings release, Starbucks did announce a $10B increase in their current share buyback program. This meant they are eligible to purchase up to $26B of the company’s stock. With Starbucks share price being close to the 52 week low, a buy-back program will generate some nice value and returns for shareholders.
For me, I see this price drop as a short-term pain. Starbucks appears to be growing nicely in Asia and the $8B retail distribution deal with Nestle will increase the accessibility of Starbucks products to customers. So we took a calculated risk and purchase a small amount of Starbucks shares and to cost average our cost basis.
Similarly, the price of Laurentian Bank has gone nowhere/downward since our purchase earlier this year. Since we already own quite a bit of the Big Five (and National Bank), we decided to purchase more Laurentian Bank shares to diversify our exposure in the financial sector and to cost average our cost basis.
So far in 2018, we have received a total of $8,829.71 in dividend income. It’s hard to believe with only 6 months in, we have already exceeded our 2014 dividend income total!
Mrs. T and I continue to be appreciative of our dividend income. Thanks to the dividend portfolio that we have been building over the last few years, our money is working hard for us so we don’t have to.
At four and half years old, Baby T1.0 is at a super fun age that is really neat to interact with him every day. His imagination is out of this world. The other day he built a dinosaur out of Duplo blocks and played with it for hours. He also has been building unique things like police airplane, ants, and ninja pirate ships (what the heck is that?) out of LEGO blocks. Using these unique things that he built, he would make up stories and tell Mrs. T and I about them. He even started puppet shows with teddy bears and making stories along the way and asked me, Mrs. T, and Bay T2.0 to sit down to watch the shows. As a parent, it has been really enjoyable to see him develop into a young boy. He is no longer the little baby I knew only a few years ago. He is starting to become more independent and have his own thoughts, desires, and dreams.
His imagination is wild. Just like any other young kid, Baby T1.0 makes up stories and has his adventures. He is a dreamer and he loves to explore what can be done.
I used to be just like Baby T1.0. I used to dream big. I used to be a dreamer.
When I used to play basketball competitively in high school, I had the dream that I would make it into the NBA one day. I played basketball every day and tried to improve my basketball skills. I practiced dribbling, I practiced shooting, and I practiced various techniques. I played basketball because I enjoyed it, and because I had a dream of making it to the NBA one day.
Similarly, during elementary school in Taiwan, I used to draw comics (or mangas as they are called in Asia). I would draw and create my own characters, the good guys, the bad guys, and develop storylines. I had a dream that I would be a manga artist just like Akira Toriyama from Dragon Ball or Takehiko Inoue from Slam Dunk. I drew because I enjoyed it, I drew because I had a dream to become a manga artist.
I also used to write stories with the dream of one day publishing mystery novels and becoming a novelist. Many years ago, I started with some general ideas and wrote a few short chapters of the different mystery stories I had imagined in my head. I wrote because I enjoyed writing, I wrote because I had a dream to be a mystery novel author.
I am not exactly sure what happened, but most likely reality set in. I realized that I wasn’t the tallest basketball player, I wasn’t the quickest, and I wasn’t the most accurate shooter. I also got a back injury that kept me out of playing basketball for an extended time. I realized it was REALLY difficult to make it into the NBA. Only the best players make it. I realized that I didn’t have the best drawing skills and I may have lacked originality. Being a manga artist required amazing talent and artistry skills. I also realized that English is my second language and I struggled with grammar and vocabulary from time to time. While I may have had good ideas, occasionally it was hard for me to put them into sentences, paragraphs, or even chapters.
So I stopped dreaming about becoming an NBA player, a manga artist, and a mystery novel author.
I had let reality set in and let it dictate what I can and cannot do.
I stopped dreaming and stopped chasing my dreams.
In ways, maybe started having more interests in Science, Technology, Engineering, and Mathematics (STEM) contributed me stop dreaming about the different possibilities. Perhaps getting into engineering for university education didn’t help either. In many ways, I had let facts and science decide what I could and could not do, rather than using my imagination and believe in myself.
A few years after graduating from university, I bought a DSLR and picked up photography. I started expressing my creativity through my photos. I started taking landscape photos when I went on the different outdoor adventures. I started walking around Vancouver with my DSLR in tow. When I got myself a flash I started experiencing with taking portraits and events. Somehow, I found myself enjoying working with people and taking pictures of people. An odd discovery for an introvert person like me.
Although I had found a way to express myself creatively, I didn’t dream about becoming the next famous portrait photographer, like Dan Winters, Martin Schoeller, Joe McNally, Erik Almas, and Richard Avedon. I am not sure know why I didn’t dream about becoming the next famous portrait photographer. Perhaps because I only viewed photography as an interest, perhaps I didn’t take photography as serious as I should have, perhaps I was told by others that I didn’t have the talent or the creativity and therefore convinced myself it was true. Whatever the reason was, I didn’t dream big.
About 4 years ago, after about 6 months of debating, I decided to start this blog of mine. I started the blog because I felt I had a story to tell, I felt I could share my knowledge with other people, I wanted to write about our quest to financial independence and a joyful life. I wanted this blog to be a journal of our journey. But I never dreamed about the blog having great traffic, loyal readers, and lots of encouraging words from readers. I also didn’t dream about this blog becoming the next big internet sensation. Again, for whatever the reason was, I didn’t dream big.
Looking at Baby T1.0 and the creativity and dreams he is creating for himself, I can’t help but smile. I have realized that as a parent, my job is to encourage and support him, not to discourage him and shoot down his dreams by telling him the reality. Let his imagination run wild and let his adventures continue. It is my hope that he will continue living this way for many years to come.
Then I realized that, it is OK to dream myself. Yes, I need to be realistic but it is totally OK to have dreams and have imagination. So what if my dreams may not ever come true? If they keep me inspired and motivate me to accomplish something, what’s the harm?
I dream of one day that our passive income is over $5,000 per month to cover our monthly expenses with a significant amount of buffer. When that happens, I dream of not needing to work because we need a pay cheque every 2 weeks.
I dream of seeing the Great Pyramid of Giza, walking up the steps in Machu Picchu, and experiencing the grandness of Taj Mahal. I dream of skiing in the champagne powder in the mountains of Hokkaido, relaxing in an outdoor onsen in Nagano, and seeing the snow monkeys enjoying the outdoor onsen. I dream of walking through Ground Zero and Freedom Tower and giving a moment of respect for people that died on that day. I dream of seeing the Last Supper with my own eyes. I dream of touching the Wailing Wall. I dream of walking through the lost city of Petra. I dream of taking a nice relaxing soak in the Blue Lagoon. I dream of seeing the Northern Lights. I dream of seeing the Terra Cotta Warriors in Xi’an. I dream of looking at Michelangelo’s painting in the Sistine Chapel again and stand there for hours and truly enjoy it rather than rushing through. I dream of seeing lions, tigers, and elephants in the wild on an African safari. I dream of stepping foot on all 7 continents.
I dream of living in a small town in Japan. I dream of living in Taipei. I dream of living in Chiang Mai. I dream of living in Vienna. I dream of living in Denmark. I dream of living in Tuscany. I dream of living in Buenos Aires.
I dream of having our cookbooks featured by Oprah. I dream of finishing a triathlon. I dream of taking my kids to school and picking them up every school day. I dream of going on photo walks with my kids and teach them photography techniques. I dream of having my photos featured in a magazine. I dream of witness my children grow up to be amazing people. I dream of spending a week in Manarola with Mrs. T, eating great food, drinking great wine, just like what we did for our honeymoon.
It is OK to have dreams. It is OK to dream.
So I start today, I will dream about becoming financially independent and eventually retire early.
I will dream about traveling to the different parts of the world and living in the different beautiful cities for an extended time.
I will dream about becoming the next famous portrait photographer.
I will dream about setting foot on all 7 continents.
I will dream about living freely, contently, and in peace.
I will dream of making it big with the blog.
I will dream and let my dreams inspire me. Let my dreams motivate me.
I’m still recovering from the sickness. I went to the doctor last week and was told I got bronchitis and was put on 7 days of antibiotics. So I’ve been taking it easy and working on getting better. I’m feeling better the last few days so hopefully I can start going to the gym and work out later this week. For today, I have prepared an excellent financial independence interview with a fellow Canadian called Teacher R from Alberta. As you may know, I have started a Financial Independence interview series where I interview fellow Canadians that have reached financial independence and some of them have also retired early. I really enjoy learning and hearing from fellow Canadians that are further along on the FIRE journey than us. I also really like the Canadian perspective as there are so many American FIRE stories out there, but not as much Canadian stories. So, if you are a Canadian and have reached financial independence retire early or close to this key milestone, I would love to hear from you!
Take it away Teacher R!
Thanks for allowing me to share. Please realize I am not a financial expert and I have made tons of mistakes. This is my journey and the goal is to encourage people to think, ask questions and maybe look at finances from a different perspective. I know some readers will find errors, be critical and disagree with my thinking and that’s ok. There are many paths to the same destination.
I am leaving full-time teaching, will make $60,000 after tax without working (that’s 80+% of our current after-tax income) and still have a large debt. I plan to work part-time substitute teaching or perhaps pick up a temporary teaching contract. I would love to work one semester per year. That is by choice, not due to necessity.
Our money will come from teacher pension, RRSP withdraw, stock dividends and CPP. We never made more than $110,000 combining our income.
Q1. It is amazing to hear that you have reached financial independence retire early (FIRE) in your mid 50’s. Could you speak about your path on how you got to this point? When did you become interested in personal finance and realized that FIRE is possible?
Interest in personal finances really became a focus when I got married and the kids came along. Now there was more than myself to be responsible for. I had no idea what FIRE was until I started reading financial blogs a few years ago. My parents were a great example as my dad stopped working full time in his early 50’s and worked just enough to keep the wolf from the door. Good thing as he passed away in his mid 60’s. Glad he got to live his dream. His example planted the seed.
I had also heard a statistic early in my career that indicated that teachers who work to 65 rarely live to 70. Not sure it is true but it was something to think about. My original plan was to work to 60 but as I got closer to 55, when I was eligible to take my pension, I started crunching numbers in earnest. I realized that buying back my sub days and pension splitting made FIRE very feasible.
Alberta teachers at the top of their pay grid have had one small 2% raise in 6 years while inflation has grown by over 10%. By collecting my pension it actually gives me a slight raise annually. The raise is not fully indexed but it is something. I will essentially be double dipping since I can collect my pension and still work at something.
Another key was meeting an older couple who lived in a trailer park. They owned the land and the trailer and it was beautiful. They were the happiest people I have ever met. They played music, travelled, had tons of friends and told great stories. I realized that their simple life was amazing and we could do that. They showed me that the quality of life is not necessarily measured by the size of the bank account.
Q2. You have always enjoyed teaching, but you are moving to teach part-time later this year. Since reaching financial independence, do you see teaching the same way as before financial independence?
Teaching has never been just a job to me. I love the interaction with the kids but this career is exhausting. When asked what I teach I often respond “manners and civilized behaviour.” I have had countless wonderful and amazing experiences over the years and hope that I have had a positive impact on many young lives. I don’t feel I’m ready to give that up yet but I find I am mentally, physically and emotionally tired. It is harder to find the energy each day. Working in education part-time will give me a chance to still have an impact but also have more time to pursue other interests.
I got into teaching because I love young people and wanted to make a difference. I stayed in teaching for almost 30 years because I still love young people, saw I was making a difference, time off with my family, job security and the pension at the end of the run. I have always taken exception with teachers who complain about their salary. I also take exception with people who complain about teachers. Teachers can choose to be something else and the others could choose to become teachers.
Tawcan: Sounds like a good idea to work part-time to give yourself a break mentally, physically, and emotionally. I didn’t realize how tiresome being a teacher can be. I have had some great teachers who had helped shaped who I am today. I can’t say enough thanks to teachers. It is a very important profession. Working part-time once you achieve FI is also a great way to let you take a breather and re-evaluate what you want to do. I think it’s a great idea!
Q3. You mentioned that you have started a financial management class for high school kids. Can you tell me what you teach them in this class? Do you think that the Canadian educational system should put more emphasis on financial literacy? As parents, is there something we can do to put financial literacy into the Canadian school curriculum?
It was a Junior High option (grade 9) with the intent of just introducing basic concepts. We discussed how to make money, budgeting, stocks and stock markets, compound interest, DRIPS, RRSP, TFSA, RESP, taxes, the real cost of living outside their parent’s house. The major project was to pick some stocks and track them for the term. The second project was to explore the cost of living on your own. Course only lasted a couple of terms.
In Alberta, financial literacy curriculum already exists at the High School level. It likely does in other Provinces as well. All High School students in Alberta must pass a required course called Career and Life Management (CALM). Some of the topics in this course include: use of credit, financial planning, budgeting, the banking system, taxes, insurance, investing. Students usually have to make a living on your own plan.
Alberta also has many mini courses (modules) in their Financial Management options. These modules are grouped together to make 3-5 credit courses. Most modules are accounting focused but other module names include: Personal Financial Information, Personal Taxation, Financial Statements, Personal Investment Planning 1 & 2, and Special student designed Projects. Don’t these sound exciting?
If the curriculum exists why has it not been emphasized? Every teacher and student I talk to agree this is important stuff! Here’s why. Unless a teacher is passionate about this stuff they won’t find a place in their curriculum. Kids not interested – they would rather take something fun like Physical Education, Drama, Music, Shops, Cooking, Computers. Not enough room in the timetable because they have to fill their schedule with other important stuff like math, biology, chemistry, physics, social studies, language arts. High School kids allowed too many spares in High School. There is so much available to learn now compared to 30 years ago. Whenever you add something to the required curriculum you need to take away something else. I saw an interview with Alberta’s’ Education Minister that they were meeting with bankers to explore how to bring more financial literacy into the classroom. I think that will be aimed at the lower grades and it will be interesting to see what comes of it.
It really does take a village to raise a child. Your kids will learn more at home than at school as you model both good and poor behavior. I think the best place to teach financial literacy is at home. Schools can’t teach everything to your kids, parents need to do their part as well and thank goodness most do.
Tawcan: That sounds like an amazing program and I’m sure it was super beneficial to the kids. Too bad not every teacher is passionate about personal finance. It would be wonderful if these courses are incorporated as part of the Canadian K-12 education program across Canada.
Q4. You mentioned that you have been interested in financial things since you were very young, like counting your piggy bank, rolling coins as a little kid, and telling your mom that you are going to be a millionaire at a young age. What got you so interested? When did you start investing your money?
I have always put a little away each month when I could. It feels good watching savings grow. Been interested in financial things forever. One of my favourite characters was Scrooge McDuck. Studied accounting in High School and considered that as a career path. Had a small RRSP when I was a young adult but things really became focused when I got married and we had kids. Now I had a pension plan I needed to learn about, RESP, retirement thoughts, down to one salary, mortgage payments, mouths to feed other than mine, life insurance, trying to figure out how taxes as a couple worked. I had read the Richest Man in Babylon before marriage but reading the Wealthy Barber early in our marriage was key. David Trahair wrote a book called Smoke and Mirrors that had a CD in it that allowed you to calculate future retirement income. I was fascinated to discover I didn’t need a million dollars to retire and that it was very possible to retire before 65. We also received some stocks as a gift early in our marriage which really sparked my interest in the market. After receiving a few small dividend cheques we set them up as DRIPS. We now have 2.5 times more total stock just from DRIP. As I learned more I no longer felt the market was for gamblers but a great way to make some money. I love the concept of creating passive income.
Tawcan: That’s amazing that you kept the stocks and DRIP them for so many years and now you have 2.5 times more total stock just from DRIPing. That’s the power of compound interest! And you are right, depending on your expenses and timeline, you may not need a million dollars to retire.
Q5. What is your investing style? Do you invest in mutual funds, index ETF’s, or dividend growth stocks? Are you always looking to diversify your investments?
Seems like my investment style is buy something and lose money. Buy a GIC and lose to inflation, buy a stock for the dividend and watch as the value drops, buy another stock for capital appreciation and it goes to zero, buy a mutual fund and lose to high fees.
Over the years I have had CSB, GIC, Mutual Funds, Index Funds, Stocks, ETF, and real estate. Currently, I have stocks in a self-directed non-registered account and some held only with Transfer Agent. Hold one bond mutual fund (which I plan to dump soon), two ETF and dividend-paying stocks all inside our RRSP. RRSP are all self-directed. Also have a small coin collection and recreational real estate. Everything is Canadian based. My teachers’ pension will be the fixed income piece and gives me international exposure. Everything in RRSP will be equity based and pay a dividend.
I started looking at what holdings were in my mutual funds and realized most large Canadian Equity funds were all holding the same things. So I decided to build my own fund in my RRSP. I will only buy Canadian stocks that pay a dividend and they must be on the TSX 60 list. Current holdings include 8 companies and two ETF. Combined total dividends will exceed $7,000 per year.
Q6. Can you tell me some of your financial and investment mistakes and what you have learned from them?
Well, that’s a long list! Paying for high fee mutual funds, buying high and selling low in the market because I panicked, thinking I could day trade and swing trade during full-time work – I still think there is money to be made doing this but you should only use money you can afford to lose, watching my stock purchase go to zero because I knew it was a winner, thinking the large financial institutions had my best interests in mind, not diversifying internationally, tinkering with the portfolio to much, selling a stock early and leaving money on the table, not using TFSA to it’s full advantage, chasing a high dividend only to see it cut, missed the IPO for VISA. Here’s the thing I learned – it’s ok to make small mistakes that don’t dramatically change your life or finances. Mistakes are how you learn.
Tawcan: We all make financial and investment mistakes. I sure made a number of them when I was younger. In the late 90’s, I was convinced that Google was going to be huge but missed out on the IPO. Oops!
Q7. Where do you see yourself in 5 years and 10 years from now? What are the top 3 things you look forward to once you have more free time?
Hopefully teaching our Grandkiddies to love the outdoors. I will have the option to fully retire at 60 and never work for money again but I will always be doing something to make a little money. My wife once called me a pirate as I’m always after the bounty. My top three from a very long list may include: spending more time in the wilderness, volunteering, fixing up our house. I now get to work on my terms. Work less and play more is the goal. I can actually earn more by working less and starting to unwind our investments. How crazy is that?
Q8. Are you taking advantage of tax-sheltered accounts like RRSP and TFSA? Do you plan to withdraw early from RRSP before age 71? If so, do you have any early withdrawal strategies to minimize tax penalties?
Absolutely! Everyone in our family has RRSP, TFSA and RESP’s for the kids. I realized my marginal tax rate will drop from over 30% to between 8-12% as a result of being able to split my pension income with my wife. Borrowed from the LOC to max RRSP contribution this year. Using the tax refund, TFSA money and monthly payments to pay it back within the year. I will probably repeat that move next year.
A secured LOC is a great tool to have at your disposal. It is also an easy way to overextend yourself so you have to use it carefully. At one point the interest rate on my LOC was cheaper than my mortgage.
I don’t use TFSA for retirement savings. We put a little in each month and save it up for something fun. I love the TFSA (thank you GOC) but I find the money is too easy to access and I end up spending it. At some point, any inheritance money will go into our TFSA’s and we may use one for fun spending and one to supplement retirement. Plan to buy some sort of dividend producing a financial vehicle like ETF or Blue Chip stock.
Since I have a great pension that guarantees me income for life we have several options for our RRSP’s.
Wind down the RRSP’s between now and age 75. Withdraw between $10 000 to $15 000 per year. There is a 10% withholding tax on amounts under $5000 and 20% on amounts between $5000 – $15 000. Take out chunks of money under $5000 two or three times per year randomly and pay the 10% withholding tax. If you set up regular patterned withdraws the withholding tax is established on the assumed total at end of year. (The withholding tax on $1000 per month would be 20% and not 10%). Reconcile at tax time. Transfer that money into TFSA and withdraw what I need. I hate getting a large tax refund as that means the Feds got to use my money before me. I prefer getting a small refund or owing a bit. One of the issues I have to figure out is how to make sure that not too much tax is held back from my pension.
Second thought is to withdraw a lump sum from RRSP to just below the next tax bracket, pay the withholding tax, put that into TFSA and reinvest, reconcile at tax time. In my situation, it makes little sense to hold a large amount of money in an RRSP/RRIF until later in life. It will get tax whacked when you die. The concern with this strategy is that the money is too easy to access and I’ll blow through it quickly. It’s important to know your spending habits.
Third thought is to wind down RRSP by age 65 or 70 and delay taking CPP. That gives you an automatic 7.2% annual raise from 60-65 and 8.4% from 65-70. Don’t forget to add cost of living adjustment (1.5%) so for 2018 the actual raise is 8.7% and 9.9%. That way we had a blast spending our RRSP money, I have more guaranteed pension, if I live to a normal age I leave no CPP money on the table and if I die early it won’t matter to me and my wife would likely receive the maximum CPP.
What I will probably start with is only withdraw the dividends and leave the capital intact. See how it goes for the first year. A lot will depend on how much I chose to work. Then probably do a combination of all the above. Little nervous that the market is overdue for a major correction. I don’t want to be drawing down the capital in a bear market which is one of the reasons I won’t set up a RRIF until I have to.
I will not buy an annuity as my pension is one. I want control of RRSP/RRIF money.
Tawcan: Wow, those are some great insights to RRSP early withdrawal strategy. RRSP early withdrawal is something we have made some assumptions before but still need to iron out the details. Interesting that you are not using TFSA as the retirement vehicle, although I can understand why you aren’t. For us, we are treating TFSA as one of the retirement accounts. We only plan to use money from TFSA once we are financially independent and living off our passive income.
Q9. You are one of the lucky ones that have a pension. What would you say to people that have a pension? What would you say to people that do not have a pension?
I actually have two pension plans. Teachers and CPP and I am incredibly grateful for both of them. Semi FIRE is not possible without my teacher pension.
If you have a solid DB pension be very grateful for you have won the lottery dream home. If you have an employer matching defined contribution pension congratulations for you won the early bird prize. Learn everything you can about how they work. Example: Teachers who substitute taught early in their career, may have the opportunity to purchase back at that time. I can transfer money from my RRSP to my teacher pension to buy back my sub year. This increases my annual pension by 4.6% but it works out to be an 11%+ annual return on the money transferred for the rest of our lives.
If you have the opportunity to withdraw your pension money as a lump sum before you are eligible to collect the pension, take a long hard look before you do. I have never met a teacher who did it who didn’t regret doing so. You likely can’t take all of the accrued value out without a huge tax hit and you likely can’t match the returns you’ll get by leaving it. Example: we put $250 000 plus into the pension over my working career but if either of us live 25 years we will take over 1.1 million dollars out. That’s an annual return of over 6% without inflation adjustments. The original contribution is also guaranteed to come back to our estate if we both die tomorrow. I’ll take that guarantee. Even if you have a pension you should be putting some money into a self-directed RRSP or TFSA that you can control.
Everyone working Canadian has an amazing Pension Plan already. The Canada Pension Plan is ranked as one of the top ten in the world with a fund value of $337 Billion and growing. CPP is fully indexed to inflation, has a 10 year annualized rate of return of over 7%, has 32% of its value invested outside of North America, and is sustainable for the next 75 years. Wish I could have put more in. But understand this – CPP was never designed to cover full retirement, it’s just one piece of the puzzle. Here is some interesting math. My statement of contributions tells me I have contributed about $48,000 to CPP and that if I take CPP at 60 I get about $700 per month. Putting those rough numbers into an online calculator shows me I will get all my contributions back within 6 years, and if I live to be 80 I will collect over $220,000 (8% annualized return). If I delay CPP until 65 the numbers are even better; receive $1200 per month, contributions back within 5 years and collected over $270,000 (12 % annualized return) by age 80. I realize these numbers are very rough and there is more to consider such as drop out periods and that the Statement of Contributions assumes you keep contributing at the same pace but the point I am trying to make is that Canadians should collect substantially more from CPP than they ever contribute. If we die early and don’t get our money back, well that will help stabilize CPP for my kids. I believe CPP is solid. It’s OAS that might run into difficulty as that money comes from general revenue.
If you don’t have another type of pension, take advantage of RRSP, TFSA, set up a pre-authorized withdraw and start contributing. Set a target of between 10-15% saving rate but if you have to start smaller that’s ok. Put aside something from every pay cheque. My pension contributions were forced savings and although I grumbled early on about how I could make more on my own, I’m glad for it now. Learn as much as you can about personal finances and as you learn more set up a self-directed account. Buy quality ETF’s and blue chip stocks, avoid GIC’s as they don’t even come close to inflation and tie up your money. Avoid speculation on penny stocks. Been there and lost that.
Does your province have a Pension Plan that you can join? Consider the Saskatchewan Pension Plan. Although it has some limitations such as a $6,000 annual contribution limit, your money is locked in until age 55 and the annuity you receive appears to be fixed, it has been around for 30 years and anyone in Canada ages 18 – 71 can join. It has several withdraw options once you reach 55. The average rate of return since inception is 8% and the MER is under 1%. I think it is worth a look.
Tawcan: I have never included CPP in our FIRE calculations. I just see it as the extra gravy. But it’s nice to know that you can rely on CPP in retirement as well.
Q10. What is the best financial move you can do as an individual to set yourself up for financial success?
When you receive money there are several things you can do with it. Spend it, save it, invest it, pay down debt and give it away. Do them all. Spending helps the economy, save for emergencies and fun stuff, invest for your financial future (retirement) and your children’s education. If you have a house, a car and some savings in..
After coming back from my 10 day Asia trip on June 7 I basically slept for the next 3 days. I thought I didn’t have any jet lag but perhaps I was incorrect. Then the past Monday I went on a quick 2-day business trip to Boise, Idaho. There was no direct flight to Boise from Vancouver, so I had to transfer in Seattle. It was super bumpy coming in and out of Seattle both ways and I got a bit dizzy due to the constant bumpiness. Yucks!
Both Baby T1.0 and baby T2.0 have been coughing and sneezing since I got back from my Asia trip. I thought I would be good and would not catch anything from them. Unfortunately, I woke up Wednesday after my Boise trip with a terrible sore throat. Things only got worse on Thurs so I ended up staying home to recover. I slept until 3 PM on Thursday.
I am feeling better now, thank you for asking, but still not quite 100%. So for today, I’ll show you some pictures and some old posts that may be interesting to read, rather a new & unique post I usually do for Monday morning.
Extremely pricey bottle of beer at Boise. It’s a 3L bottle but still…
Me and my coworkers in front of Idaho state building in Boise
And while having dinner and drinks in a restaurant in Boise, the waitress asked for my ID! Apparently, I looked like a 21-year-old!
Over the past number of years, we have been slowly building our passive income, in particular, dividend income, so that one day our annual passive income is greater than our annual expenses. When this happens, we can call ourselves financially independent.
As you may know, for dividend growth investors, there are three key ways to grow your dividend income:
Invest fresh capital
Individual stock’s organic dividend growth
Enroll in dividend reinvestment plans (DRIP) to purchase more shares of dividend-paying stocks
Since we are still in the accumulating phase, we rely heavily on the first method. So every year we invest a large amount of fresh capital to purchase more dividend-paying stocks. The money invested is spread across tax-free accounts like TFSA’s, tax-deferred accounts like RRSP’s, and regular taxable accounts so we can be as tax efficient as possible.
The declining dividend growth rate
If you look at our year-over-year dividend growth rates, our growth rates have been impressive. the 2012-2011 YOY growth rate was 267.94%, the 2013-2012 YOY growth rate was 119.62%, the 2014-2013 YOY growth was 53.26%, the 2015-2014 YOY growth rate was 23.39%, the 2016-2015 YOY growth rate was 21.73%, and 2017-2016 YOY growth rate was 18.11%. One thing you’ll notice it that the YOY growth rate has been on a steady decline. However, this is expected. As your dividend income increases, it becomes increasingly difficult to grow your dividend income.
For example, when your annual dividend income is $100, it is easy to grow the dividend income by 200% to $300. This is equivalent to increasing $200 in dividend income. At 4% yield, it only requires investing $5,000 new capital at beginning of the year. On the other hand, if your annual dividend income is $15,000, to have a 200% YOY growth rate would mean an increase of $30,000. An increase of $30,000, at 4% yield, would require investing $750,000 new capital. This is something that is not easily achievable by the general public (i.e. you’d need to earn A LOT of money to save to invest three-quarter of a million dollars). Even a 10% YOY growth, an increase of $1,500, would require investing $37,500 in new capital at 4% dividend yield.
So, it makes sense to see a steady decline of YOY growth rate as your dividend income gets higher and more substantial. This is a common occurrence among the dividend growth investing community. Many of the long-term dividend growth investors experience lower and lower dividend growth rate each year.
Therefore, as your dividend income grows, it becomes increasingly more important to grow dividend income via the other two methods – organic dividend growth and DRIP.
Growing our dividend income organically
The last few years when we purchase a dividend paying stock, we put more focus on stock’s dividend growth rate (DGR) over the past 10 years. This is because we want to our dividend income to grow organically as well.
Just how much of our dividend income growth is done organically? Rather than using hypothetical examples, let’s use a real-life example and look at our portfolio’s organic dividend growth throughout 2017. Below are the different dividend payout increases that we saw in 2017:
Enbridge (ENB.TO) raised dividend by 10% to $0.583 per share.
Canadian National Railway (CNR.TO) raised dividend by 10% to $0.4125 per share.
Exco Technologies (XTC.TO) raised dividend by 14% to $0.08 per share.
Omega Healthcare (OHI) raised dividend by 1.64% to $0.62 per share.
ConocoPhillips (COP) raised dividend by 6% to $0.265 per share.
BCE Inc. (BCE.TO) raised dividend by 5.13% to $0.7175 per share.
Brookfield Renewable Partners (BEP.UN) raised its dividend by 5% to $0.61 per share.
Suncor Energy Inc. (SU.TO) raised dividend by 10.34% to $0.32 per share.
Manulife Financial (MFC.TO) raised dividend by 10.81% to $0.205 per share.
TransCanada Corp (TRP.TO) raised dividend by 10.62% to $0.625 per share.
Coca-Cola (KO) raised dividend by 5.71% to $0.37 per share.
Wal-Mart (WMT) raised dividend by 2% to $0.51 per share.
Canadian Imperial Bank of Commerce (CM.TO) raised dividend by 2.42% to $1.27 per share.
Royal Bank (RY.TO) raised dividend by 4.82% to $0.87 per share.
Magna International Inc. (MG.TO) raised dividend by 10% to $0.275 per share.
Bank of Nova Scotia (BNS.TO) raised dividend by 2.7% to $0.76 per share.
Canadian Natural Resources (CNQ.TO) raised dividend by 10% to $0.275 per share.
TD (TD.TO) raised dividend by 9.09% to $0.60 per share.
Qualcomm (QCOM) raised dividend by 7.55% to $0.57 per share.
Magna International (MG.TO) raised dividend by 10% to $0.275 (US) per share.
Intel (INTC) raised dividend by 4.81% to $0.2725 per share.
Johnson & Johnson (JNJ) raised dividend by 5% to $0.84 per share
Omega Healthcare (OHI) raised dividend by 1.61% to $0.63 per share
Procter & Gamble (PG) raised dividend by 3% to $0.6896 per share
Unilever plc (UL) raised its dividend by 12% to €0.3585 per share
Apple (AAPL) raised its dividend by 10.53% to $0.63 per share
Hydro One (H.TO) raised its dividend by 4.76% to $0.22 per share
Enbridge (ENB.TO) raised its dividend by 4.63% to $0.583 per share
Telus (T.TO) raised its dividend 2.60% to $0.4925 per share
Bank of Montreal (BMO.TO) raised its dividend 2.27% to $0.90 per share
National Bank of Canada (NA.TO) raised its dividend 3.57% to $0.58 per share
Target (TGT) raised its dividend by 3.3% to $0.62 per share
General Mills (GIS) raised its dividend by 2.08% to $0.49 per share
Omega Healthcare (OHI) raised its dividend by 1.59% to $0.64 per share
Saputo raised its dividend by 6.7% to $0.16 per share
Royal Bank raised its dividend by 4.6% to $0.91 per share
CIBC raised its dividend by 2.36% to $1.30 per share
Bank of Nova Scotia raised its dividend by 3.95% to $0.79 per share
McDonald’s (MCD) raised its dividend by 7.45% to $1.01 per share
Emera (EMA.TO) raised its dividend by 8.13% to $0.565 per share
Fortis (FTS.TO) raised its dividend by 6.25% to $0.425 per share
Omega Healthcare (OHI) raised its dividend by 1.56% to $0.65 per share
Visa (V) raised its dividend by 18.18% to $0.195 per share
AbbVie (ABV) raised its dividend by 10.94% to to $0.71 per share
Telus (T.TO) raised its dividend by 2.54% to $0.505 per share
Inter Pipeline (IPL.TO) raised its dividend by 3.70% to $0.14 per share
Canadian Tire (CTC.A) raised its dividend by 38.46% to $3.60 per share
Enbridge (ENB.TO) raised its dividend by 10% to $0.671 per share
Enbridge Income Trust (ENF.TO) raised its dividend by 10% to $0.1883 per share
Bank of Montreal (BMO.TO) raised its dividend by 3.33% to $0.93 per share.
Ventas (VTR) raised its dividend by 1.94% to $0.79 per share.
Waste Management (WM) raised its dividend by 9.41% to $0.465 per share.
AT&T (T) raised its dividend by 2.04% to $0.50 per share.
You will notice that some stocks like Enbridge, Omega Healthcare, CIBC, Royal Bank, Bank of Nova Scotia, Telus, and Bank of Montreal had multiple payout increases in 2017. Meanwhile, a number of dividend stocks that we own did not announce dividend increase at all in 2017.
If we lump all these dividend payout increases, our annual dividend income would have increased by $802.45, or about a 6.39% increase over our 2016 dividend income. Because these payout increases were announced throughout 2017, the actual impact to our overall 2017 annual dividend income was smaller.
Growing our dividend income via DRIP
In addition to organic dividend growth, we also have enrolled in DRIP whenever we are eligible so dividend received can be reinvested. This has been a monthly and quarterly occurrence, depending on how frequently the individual stock pays ou the dividend.
Below are the stocks that we enrolled in DRIP in 2017 and how frequently we purchased additional shares.
BCE Inc (every quarter)
Bank of Montreal (every quarter)
Bank of Nova Scotia (every quarter)
Canadian Natural Resources (every quarter)
CIBC (every quarter)
Dream Office REIT (every month)
Dream Industrial REIT (every month)
Dream Global (every month)
Enbridge (every quarter)
Evertz Technologies (every quarter)
Fortis (every quarter)
H&R REIT (every month)
Intel (every quarter)
Coca-Cola (every quarter)
Manulife Financial (every quarter)
MCAN Mortgage Corp (every quarter)
National Bank (every quarter)
Omega Healthcare (every quarter)
Rogers (every quarter)
RioCan REIT (every month)
Royal Bank (every quarter)
Suncor (every quarter)
AT&T (every quarter)
Telus (every quarter)
TD (every quarter)
Vodafone (every year)
Exco Technologies (every quarter)
Vanguard Canadian All Cap ETF (every quarter)
This list above should have been longer but some of the stocks’ price had gone up so much that the dividend received was not sufficient to cover 1 share of the stock price. (Both Questrade and TD Waterhouse only offer synthetic DRIP where you can only buy full shares, rather than fractional shares).
Because most of the Canadian REITs that we own do not have a tendency of increasing their dividend payouts, by enrolling in DRIP, we are effectively growing these dividend stocks’ income after each dividend payout. And since most of the Canadian REITs are on a monthly dividend payout schedule, we are effectively compounding the growth rate every month.
For example, we purchased 12 new shares of Dream Industrial REIT in 2017. At $ 0.69996 of dividend per year, we had added over $8.40 in our forward-looking dividend income in 2017. At 5% dividend yield, that was like investing over $168 of fresh capital into our dividend portfolio.
Just how much has our annual dividend income had increased from enrolling in DRIP? Since we were adding new shares each month, it was difficult to calculate the exact amount. However, by my rough calculation, we added roughly around $30 to $50 in additional dividend income each month in 2017. So in a year, we had added about $360 to $600 or about 2.87% to 4.78% growth from our 2016 dividend income (we are ignoring the compounding effect).
If we were to combine the growing rate from organic dividend growth and DRIP growth in 2017, we were getting anywhere from 9.26% to 11.17%. Please note, what I have presented here is a very simplistic view. The actual growth percentage was probably lower because dividend payout raises were spread over 12 months and we were DRIPing different amount of shares each month.
If we were to stop contributing new capital completely today, I believe the dividend income growth should be able to keep up with inflation (below 5% the last few years) on organic dividend growth and DRIP growth only.
As mentioned, during the accumulation phase, adding new capital to purchase additional dividend paying stocks is the most powerful way to increase your dividend income. However, do not ignore the other two methods. It is definitely important to take advantage of all three methods.
Note: The fourth way of increasing dividend income is to sell profitable positions and purchase different dividend stocks with higher yields. This is something that I have discussed in the recent re-examine our dividend portfolio post.
When we first started with dividend growth stock investing, I purchased a lot of high yield dividend paying stocks. Most of these high yield dividend stocks did not provide any organic dividend growth. Furthermore, some of them did not have sustainable dividend payout.
In chasing yield, I had ignored many dividend stock fundamentals. Some of the stocks that we purchased back then ended up cutting their dividend payouts. Some of the stocks had their prices collapsing. It was a hard-learned lesson.
Rather than chasing yield, I began to focus more on organic dividend growth. As a long-term dividend growth investor, I realized it is extremely important to find a mix of higher yield low dividend growth stocks and lower yield high dividend growths stocks. What’s the right mix will depend on each individual investor and their investment timeline.
Combining organic dividend growth and DRIPing are two effective way to grow your dividend income. And all dividend growth investors should utilize these two important methods.
I have been on the road in Asia for the past 10 days and by the time this post goes live, I will be in the air, on my way back to Vancouver. For this trip, I landed in Hong Kong last Tuesday night, had meetings in Hong Kong the next day, then hopped over China to stay in Shenzhen Wednesday evening. On Thursday I had multiple meetings in Shenzhen and went back to Hong Kong Thursday evening. I then went into my company’s Hong Kong office Friday morning to give a presentation before heading to Hong Kong airport to catch a flight to Taipei. On Saturday, I had dinner with three of my cousins and their families. It was really nice to see them again and it was amazing to see how quickly their kids have grown. After dinner, I mentioned to one of my cousins that he’s famous as he has appeared on Business Insider. He laughed and told me to continue writing. Then Monday to Thurs was jam-packed with customer meetings in Taipei. It felt like a whirlwind tour…because it was!
Collecting points and status because they are worth it.
I’m currently in the middle of the Marriott Platinum Challenge, where I need to have 9 stays at different Marriott properties within 90 days to become a platinum level elite member for next year. Thanks to hopping around Hong Kong and Shenzhen, I quickly racked 3 stays in 3 nights. To increase my stay counts, I decided to switch between the two Marriott hotels in Taipei to get another 3 stays in the bag. So in 10 days, I had gotten 6 stays. This means I only need 3 more stays to complete the challenge. With some business trips lined up already, I should be able to get 3 more stays within the 90-day duration.
Crazy things one would do to get status eh?
But having the Marriott elite status is totally worth it. For examples, you get guaranteed late check out at 4 PM, lounge access (if the property has one), free breakfast, and bonus Marriott reward points. The late check out at 4 PM has been really useful for both business and personal trips.
Between credit card sign up travel hacks and collecting Marriott points through business trips, we went to Maui for 12 nights in February and saved ourselves over $10,000.
So yes, collecting points and getting elite status is worth it.
The price for being away from the family
While on the road, I have been having Skype video calls with Mrs. T, Baby T1.0, and Baby T2.0. The first night I was away, both kids were crying for me during bedtime, so Mrs. T asked me to call them to say good night. Both kids clearly have missed me the last 10 days, especially Baby T2.0.
As a parent, you might not realize how big your kids have grown until you are away from them for a few days. Talking to Baby T1.0 via Skype made me realized how awesome his conversation skills have become. Each time he would explain to me all the things that he did during the day with great details, like building Lego, tending our cat, and making bread at my parents’ place. He even started using words and phrases like “Yup,” “Wait a minute,” “eh,” etc. I laughed at how he said the word “yup” because that’s exactly how I say it. He definitely picked that up from me.
Like father like son right?
On the other hand, Baby T2.0 has been speaking more and more words, as well as longer sentences. Whenever I talked to her, she would keep saying “Daddy come back,” and “Daddy sleep with me.”
She’s such a daddy’s girl.
Talking to Mrs. T and the two kids over Skype during this business trip made me reflect a bit. Typically, as one goes up the corporate ladder, one is expected to travel more for business. Many of the directors and executives are often on the road for an extended period of time.
I’m nowhere close to the director and executive levels, but as I get more seniority within my company, I am being asked to travel to meet customers. Right now business travels are manageable but I do wonder if there’s a limit to how much I travel.
50-70% travel is required (within NAM and internationally)
A base salary of $200k USD per year
Up to 15% annual bonus
Health coverage + extended health benefits
401(k)/RRSP contribution matching up to 3%
2 weeks vacation
I think 50-70% travel is a deal breaker for me, given the two little kids at home. And I would not be able to see Mrs. T all that much. It would harm our relationship, I think.
However, what if we change the question a little bit? What if your current job will pay you 25% more of your current salary but requires you to travel 10-20% more, while all the other work benefits and conditions stay the same. Would you do it?
Don’t get me wrong, I do enjoy business travel, meet customers, and give presentations. But as both kids get older and understand what it means when their daddy goes away on a business trip, I am beginning to question how much travel is too much. A 2 or 3 day trip is usually not a big deal, but multi-day oversea international trips are getting tougher. Fortunately, I don’t do too much multi-day oversea international trips just yet.
The cashless society… Is this a good thing?
When I was in Shenzhen, it was very easy to differentiate me from all the locals. No, not from the clothes I wore or how I spoke Mandarin, but from the fact that I was using cash and credit card.
According to my Chinese coworkers, China is quickly becoming a cashless society. Rather than using cash or credit card to pay for things, people use their phones. When riding a taxi, people use WeChat and many different apps to pay. This is the same when you are in a restaurant or in a store.
Whenever I pay with cash or my credit card, people would look at me funny.
Even in Hong Kong, my HK coworkers were paying taxi fares directly from their phones. It’s so much more convenient than carrying cash or credit cards around, they said.
But is using your phone to pay for things a good thing?
One of the things that Pret explained was that we touch our phones probably hundreds of times each day. Meanwhile, we probably touch our wallets for maybe less than 10 or fewer times a day. So when you take out cash or a credit card from your wallet to pay for something, you need to actively think about the purchase, especially when you need to enter your credit card pin. Because you touch your phone hundreds of times a day, when you use your phone to pay for something, you just tap and go. There’s no longer the need to consciously think and analyze your purchases. You just tap and go and forget the rest. Pret argued that by using your phone to pay for things on a daily basis, you probably would spend more money than relying only on cash and/or credit cards.
So I do wonder, do people in China and Hong Kong spend more than say 10 years ago when phone payments were around? I think this would be a very interesting study to perform.
Personally, I think behaviour finance is a fascinating topic. This is why I really enjoyed reading The Behaviour Gap. If you haven’t read the book, I highly recommend it.
Speaking of behaviour finance, controlling human emotions is extremely important when it comes to investing. You certainly don’t want to panic and sell your investments because the market is down 10% or more in a day. As a long-term investor, it’s important to control your behaviours and emotions. Only invest with money that you don’t need to access for the next 5 years, and always ask yourself these 3 key questions before investing.
Losing 10% of your portfolio value in one day is terrible. But what’s even more terrible is taking a 10% realized loss, sit on the sideline because you are afraid of further losses, and losing the market recovery completely. This is exactly what happened to many people after the 2009 financial crisis. Even over 9 years later, there are still people afraid of investing because they believe the market will come crashing down the very next day they invest their money. So they continue to wait and miss out on all the potential gains.
Remember, in the long run, the market goes up. Invest for the long term and forget about day trading.
Financially Independent via geoarbitrage… a Taipei example
Back in April, I mentioned how we can be financially independent today via geoarbitrage. While in Taipei, I have confirmed once again that the cost of living in Taipei is much cheaper than Vancouver. For example, I went for a traditional Taiwanese breakfast on the weekend and ordered two egg pancakes (Dan Bing/蛋餅), a baked wheat cake with Chinese doughnut (Shao Bing You Tiao/燒餅油條), and a cup of soy milk. This was a pretty big breakfast (I was hungry, after a good workout) and it only cost less than $100 NTD (around $4.35 CAD or $3.30 USD). Later when I went to Starbucks and ordered a medium latte, it cost me $135 NTD (for some reason Starbucks is expensive in Taiwan compared to North America). I couldn’t believe that my HUGE breakfast cost less than a cup of coffee!
Similarly, I was able to find cheap local Taiwanese dishes for less than $200 NTD (~$8.70 CAD or $6.70USD) for lunch. If you were to purchase similar dishes in Vancouver, they would cost you much more than $8.70 CAD, probably in the $15-20 CAD range.
When I went to an authentic Japanese ramen shop for lunch one day, a bowl of ramen and a plate of gyozas cost $330 NTD (~$14.30 CAD or $11 USD). To give some perspectives, a bowl of ramen typically cost around $12 CAD + taxes + tip in Vancouver. A plate of gyozas usually is around $8 CAD or so.
The prices in Taipei may not be Thailand cheap cheap, but certainly cheaper than Vancouver.
One thing to keep in mind is that Taipei is supposed to be much more expensive than the rest of Taiwan.
Another thing to keep in mind is that just like any cities, you can find really really expensive restaurants if you desire. For example, I saw a Japanese restaurant nearby my hotel with very high ratings on Google. When I looked at the restaurant website, I was quick to realize it was way out of my price range. The Japanese kaiseki costs $6,500 NTD (~$282 CAD or $218 USD).
You won’t find me in that kind of expensive restaurant anytime soon.
However, I am convinced more than ever that financial independence through geoarbitrage is indeed possible.
When you open yourself to opportunities, you will find an endless amount of opportunities.
When you limit yourself and put restrictions, you will find that opportunities are hard to come by.
I’m currently in Taipei, Taiwan and I’m checking out many of the different Taiwanese dishes ranging from beef noodles soup, stinky tofu, egg roll pancake, minced & braised pork on rice, and many more. I’m in the hunt for Taiwanese deep fried meatballs (ba wans), not sure if I’ll be able to find them in Taipei though, as deep fried style was originated from central Taiwanese. In Taipei and northern Taiwan, ba wans are steamed rather than deep fried. In case you’re wondering what Taiwanese dishes are like, check out this guide.
So far on this trip, I have stayed at 5 different hotels and managed to get upgraded to a suite 3 times. Getting upgraded to a suite is really cool, as suites are HUGE, luxurious, a bit over the top. Unfortunately, I’m travelling alone so I’m actually not utilizing the suites all that much. In fact, when I got upgraded to a suite in Hong Kong, I didn’t even get a chance to sit on the couch. Oops.
Here are some pictures from the suite at Taipei Marriott:
Opened my hotel room at Taipei Marriott and was greeted by this huge living room.
This huge bathroom which was situated between the bedroom and the living room.
The massive king size bed in the bedroom
Even when I didn’t get upgraded at a Courtyard, the room was still very luxurious. Definitely one of the nicest Courtyards I’ve stayed at.
A very nice and big room at a Courtyard. Please ignore the messy bed.
Hopefully, when I am travelling with Mrs. T and our two kids and staying at a Marriott property, we’ll get upgraded to a suite.
May Dividend Income
In May we received dividends from the following companies:
Pure Industrial REIT (AAR.UN)
Bank of Montreal (BMO.TO)
Dream Office REIT (D.UN)
Dream Global REIT (DRG.UN)
Dream Industrial REIT (DIR.UN)
Enbridge Income Trust (ENF.TO)
General Mills (GIS)
H&R REIT (HR.UN)
Inter Pipeline (IPL.TO)
KEG Income Trust (KEG.UN)
Laurentian Bank (LB.TO)
National Bank (NA.TO)
Omega Healthcare (OHI)
Procter & Gamble (PG)
Prairiesky Royalty (PSK.TO)
Royal Bank (RY.TO)
SmartCentres REIT (SRU.UN)
In total, we received $1,459.76 from 26 companies in May 2018. After 4 months of record-breaking levels of dividend income each and every month, we failed to break the all-time month dividend income record in May. Darn it! But at $1,459.76, this is the second highest monthly dividend income that we have ever received, only behind April 2018.
To put this into perspective, $1,400 is over half of the annual dividend income that we received in 2012.
We have come a long way since we started investing in dividend paying stocks.
So, I think we did extremely well in May. I’m ecstatic over the amount of dividend income we collected by simply owning dividend-paying stocks. I love getting paid for doing absolutely nothing.
Out of the $1,459.76 received, $334.04 was in USD and $1,125.72 was in CAD. Or about a 20-80 split. If you are a long time reader to our monthly dividend income reports, you will know that we use a 1 to 1 currency rate approach. We do not convert dividends received in USD to CAD. We are ignoring exchange rate to keep the math simple. This is our way to avoid fluctuations in dividend income over time due to changes in the exchange rate.
The top 5 dividend payouts in May 2018 were Bank of Montreal, National Bank, Emera, Royal Bank, and Omega Healthcare (not in order). Dividend payouts from these 5 companies accounted for 60% of our February dividend income, or $875.14.
Dividend Income Breakdown
We hold our dividend stocks in taxable accounts, RRSPs, and TFSAs. Every year, we maximize tax-advantaged accounts first before investing in taxable accounts.
For May 2018 dividend income, here’s the breakdown of the different accounts:
Taxable: $314.15 or 21.52%
RRSPs: $697.80 or 47.80%
TFSAs: $447.81 or 30.68%
Effectively, only 21.52% of our May dividend income was taxable. We constructed our taxable accounts so we only receive from stocks that pay out eligible dividend income. Since we plan to live off dividend income when we are financially independent, we want to construct our portfolio to be as tax efficient as possible. This way, we can minimize income tax during financial independence.
Compared to May 2017, we saw a respectable YOY growth of 17.84%. This was the third highest YOY number so far in 2018. I was a little bit surprised that we have managed to stay above 15% for 4 out of 5 months in 2018. Hopefully, we will continue to stay above the 15% mark for the rest of 2018. That would be very impressive if we manage to do that, considering our 2017 dividend income of $14,834.38 was pretty sizable already. If we could manage to get 15% YOY for the entire 2018, that would mean we would end up with $17,059.537.
There are 3 ways to increase our dividend income. The first method is by investing fresh capital to purchase more dividend stocks. The second method is to enroll in dividend reinvestment plans (DRIP), and DRIP additional shares. The third method is through companies increasing their dividend payout. As dividend growth investors, we try to take advantage of all three methods.
When companies raise their dividend payout, that’s like getting a pay raise without doing anything extra. That’s why I get so excited whenever a company announces a dividend payout increase.
In May, a few companies that we own in our dividend portfolio raised their dividend payouts.
Telus raised its dividend by 3.96% to $0.525 per share
Hydro One raised its dividend by 4.55% to $0.23 per share
Bank of Montreal raised its dividend by 3.22% to $0.96 per share
National Bank raised its dividend by 3.33% to $0.62 per share
All these announcements increased our annual dividend by $62.96. If you think the amount is very insignificant, think again. At 3% yield, you would need to invest $2,098.67 worth of new capital to receive the same amount of additional dividend income. As I said earlier, when companies raise their dividend payout, it’s like getting a pay raise without doing anything extra. I will never say no to a raise!
Dividend Stock Transactions
Compared to the other months in 2018, we were relatively quiet in May when it dividend stock transactions. When I re-examined our dividend portfolio recently, I pointed out that it might be worthwhile to consolidate our holdings by trimming some of the smaller positions we own. Although we didn’t manage to purchase any dividend stocks in May, we managed to close out a couple of positions.
Liquidated all of our Sabra Health Care REIT (SBRA) shares
Received cash buy out for our Pure Industrial REIT (AAR.UN) shares
The shares of Sabra Health Care REIT were received from the Care Capital Properties merger. And we originally received a few shares of Care Capital Properties from the Ventas and Care Capital Properties split.
Blackstone had recently completed their purchase of Pure Industrial REIT. As shareholders, our shares were purchased back at a specific price, resulted in very a nice capital gain. Fortunately, we didn’t have to pay any capital gain tax as we held AAR.UN shares in our TFSA.
We only had a small amount of SBRA and AAR.UN, so we only lost less than $70 worth of annual dividend income. The dividend increases from Telus, Hydro One, Bank of Montreal, and National Bank roughly made up the difference. I do plan to deploy the cash that we received from these two transactions to purchase shares of dividend stocks that we already own. This will further increase our forward-looking dividend income.
So far in 2018, we have received a total of $7,138.89 in dividend income. At $25 per hour salary ($52,000 annual), that means we have already saved us over 356 hours worth of work. This is over 44 days of work or almost 9 weeks. Given there are 52 weeks in a year, that’s an equivalent of gaining 17.3% more time.
It’s pretty awesome to know that our money is working hard for us so we don’t have to.
Yesterday, we saw a worldwide sell-off caused by instability in the Italian political system. Somehow, investors were extremely worried that a repeat election in Italy, the Euro zone’s third-largest economy, may cause Italy to eventually withdraw from the European Union, just like Britain’s recent referendum to exit from the EU.
So, almost everything that’s listed on the global stock exchanges went down. A few Canadian banks had announced their quarterly results, which were better than the analysts’ estimates. But that didn’t matter, all of the Canadian banks were down, some by as much as +3% in a day (I didn’t realize this until Mr. Tako pointed out, clearly I don’t pay a lot of attention to the market, especially when I’m travelling).
It was a sea of RED!!!
The market becomes extremely irrational when there’s fear.
Since the financial crisis in 2008, there seems to be a couple of “big” crisis every year that would send the market tumbling. Some of them included…
Interest rate hike worries – does the fed raise the interest rate or not?
Oil price bubble
Iceland financial crisis
Irish banking crisis
Donald Trump tweeting something controversial
And many more.
Another year, another “major” crisis, another global sell-off.
Same old same old.
Why haven’t we learned anything yet?
Don’t people remember that over the long run, the stock market provides a positive return?
Why do we keep letting our emotions dictate what we do when it comes to our investments?
When the market tumbles, we feel knots in our stomachs. We are worried, we are fearful, and we can’t sleep at night.
So we sell, hide cash under our mattress, and put our heads in the sand like ostriches.
And we repeat this silly procedure a couple of times a year. Well, because it’s fun???
Or is it?
I’m sorry but that’s a completely wrong approach. Ask yourself, are you in for the long-term or the short-term?
If you are like me, you are in the market for the long-term. So take advantage of the market drops by purchasing more stocks. Take advantage of cost dollar average. Take advantage of diversification through time.
Remember, you are in it for the long run. Stop worrying about the day-to-day price movements.
PS: I’ll keep this post short as I’m dead tired and not quite over my jet lag yet. I just thought I would write a quick post because I received multiple emails asking me whether I am going to liquidate everything in our dividend portfolio because of the Italian political crisis. Emails on this whether to sell topic seem to pop up every time a big drop in the market. Weird.
I promise that I’ll resume my regular epic LONG posts later.