Slow and Steady – My Dividend Story

Way back in 2011, I started to invest in dividend funds. I started with a bank’s mutual fund, then moved my money into an index fund with an investment company, and I’ve now finally settled on a couple of exchange traded funds.*** I had a goal of creating a steady stream of passive income. What could be more passive than dividends? I work once. Then I invest my money into dividend-paying investments. Those investments pay me dividends for as long as they live in my portfolio. It was a simple and brilliant plan!

So I stuck to my slow and steady method of building my dividend portfolio. I’d paid off my mortgage very, very early so I used my former mortgage payments to invest. And there was nothing wrong with my vehicle so I didn’t buy a new one. Instead, I invested my former car payments. My career was still young, which meant I was getting salary increases over the years. I used half of each increase to improve my day-to-day life, but the other half went to invest in my portfolio.

The plan was very simple. Buy dividend-paying investments for a very long time then use the dividends to pay for life’s expenses in retirement. I wanted my dividends to be a reliable source of cash flow when my paycheque disappeared.

Was my plan perfect? No! Have I always made the correct choices when writing my dividend story? Again, no!

There are so many things that were wrong with my plan. One, I didn’t start early enough. You see, I paid off my mortgage in 2006 but I didn’t start investing beyond my RRSP and TFSA until 2011. That was 5 years of simply living. I travelled and renovated to my home. My RRPS and TFSA were stuffed to their limits, but it took me a little while to realize that I could be investing in my non-registered portfolio.

Secondly, I failed to appreciate how long it would take. Dividends are wonderful, and I love each of mine equally! However they don’t grow very fast without exceedingly huge up-front investments. Remember, I was investing both my former mortgage payment and my former vehicle payment. That was not a small amount of money. Even with a dividend re-investment plan, it took many years before I saw note-worthy effects of compounding. Earning four figures in dividends each month did not happen overnight. Today, I’m consistently earning over $2,000/mth in dividends… yet it’s still not enough for me to retire comfortably. I’d been hoping that my dividends would exceed my contributions by now, but that’s yet to happen. I’m close but not quite there. All in good time…

With the benefit of hindsight, I see that my portfolio would have grown much faster and been much larger had I invested the exact same amount into an equity-based, growth product. Between 2009 and 2020, the stock market was on a bull run. My portfolio would’ve grown exponentially larger had I invested differently. Growth ETFs and index funds generated much better returns that my dividend products. Growth products were a lot more volatile, and their distributions were not as frequent. At the time, I didn’t know as much as I do now so I saw those factors as deterrents. I chose dividend products, but I would have had more money in my kitty today had I chosen equity products.

Thirdly, I didn’t take the time to find other dividend investors and learn from their experience. Several years after starting my dividend story, I found Tawcan’s website and truly started to learn about how to invest in dividend-paying stocks. His system is more sophisticated than mine, but my armamentarium has benefitted from his lessons. I’ve often wished that his website had been around when I was in high school. I could’ve started down this investment journey from my first job as a grocery store clerk! If wishes were horses, then beggars would ride.

I’m sharing my dividend story with you because it’s important that you know that you don’t have to be perfect when it comes to investing. For all my mistakes, and they weren’t small ones, I’ve met my goal of building a passive stream of income to help pay for my living expenses in retirement. The effects of compounding are noticeable now, as my annual dividend payment is increasing thanks to the DRIP feature.

There were a few things that I did perfectly.

• First, I chose to live below my means. Once the necessities were paid, I didn’t spend every other nickel on my wants. Some of those nickels were diverted to investing. This is key. A portion of every raise was re-directed towards my investment goals. I’ve travelled and attended concerts and spent weekends in the mountains and bought gifts and contributed to charity and bought garden supplies and worked on craft projects and bought furniture and paid for parking and etc, etc, etc… However, I have always made sure to pay myself first from every paycheque.

• Second, I picked a path and stuck to it. There is no one perfect path for everyone. My imperfect path works for me and it will get me where I want to be. I’m a huge proponent of buy-and-hold. It’s an investing philosophy that has worked for me over the years. I don’t watch the stock market ticker. And I have little faith in my ability to time the market. How can I possibly know in advance which stocks will take off and which ones will fail? Buying into ETFs means I don’t have to do all of the rigorous financial analysis myself.

• Third, I stayed out of debt. This can be tough, but it’s doable. I had to say “No” to myself, a lot. I didn’t want debt payments to creditors. Instead, I wanted contribution payments to my future. Please don’t think I deprived myself. When I wanted something badly enough, I found a way to get it. I simply chose not to want everything that the AdMan told me I should want.

• Fourth, I ignored the incessant chin-wag of the Talking Heads of the Media. I learned early on that they couldn’t predict my future. They didn’t know the particulars of my circumstances. I had a very healthy skepticism about whether their “advice” and “insights” would be useful for me. Instead, I stuck to what I understood.

In my humble opinion, dividends are an excellent source of passive income. All things considered, I can’t say that I regret making the choice to invest in them more than a decade ago. While I may never reach the dividend income of this particular individual who earns $360,000 per year in dividends, Part 1 and Part 2, I’m satisfied with what I’ve been able to accomplish on my own. My dividend story is not too shabby, if I do say so myself!

*** The reason for so many switches? Each move from one product to the next meant that my management expense ratio decreased. First, I was paying over 1.76% of whatever amount I was investing when I was in the bank’s mutual fund. When I learned about index funds, I transferred my money from the bank to the private investment company, where I started paying an MER of 0.75%. Along came exchange-traded funds and I reduced my MERs even more, so that I paid 0.55%. Today, I’m paying 0.22%. My thinking is simple. Why should I pay higher MERs for the exact same investment product?