Tag: dividends

My Lazy Journey to the Double Comma Club.

I took the lazy journey to wealth and it’s worked out well for me. Thanks to Younger Me, I’m financially comfortable and should be for the rest of my life. My parents gave me a good education, but no one would ever mistake me for a trust fund baby. They set a good example of how to live below one’s means, to save for the future, and to invest in the stock market. However, I never followed their path of stock-picking. That was a little too much work for me. So I took the lazy journey and it worked out for me.

When we were both still living at home, I watched my younger sibling read the stock pages in the newspaper each day. That never appealed to me. After all, what good could come from reading all those numbers? At the time, I didn’t have the brains to realize that my sibling was on to something major. Had I simply done what he had done, my financial situation would’ve been so much different. If he could learn it, so could I. Had I simply recognized that my attitude stemmed from an arrogance rooted in my status as the eldest, I would’ve made a different choice.

The fact is that I could’ve simply copied my sibling’s study of the stock pages and I would be in a completely different situation than I am today.

Dividends had me at “Hello”.

Instead, dividend investing turned my head. In the tiniest of nutshells, this is what I understood about dividends: Some companies pay dividends to investors who buy their shares.

All I had to do was buy shares in dividend-paying companies. I found this investing style incredibly attractive, and it didn’t require me to pour over the mouse-sized font that was printed in the newspaper every day. I wouldn’t have to pay attention to the daily stock prices. Instead, all I would have to do was continue to hold the stock and the companies would continue to send me money. The only thing I had to was invest some of my part-time paycheque and a company would send me money? Where do I sign up?

So I started investing for dividends many, many years ago. Every two weeks, my automatic transfer siphoned money from my chequing account and re-directed it to my investing account. Today, I’m comfortably earning a few thousand dollars every month. Thanks to automation, my monthly dividends payments are re-invested to maximize compound growth. My portfolio grows from both my paycheque and my dividends. It’s a beautiful system!

Younger Me made smart decisions.

Looking back now, I’m pleased that Younger Me took the initiative to start. Younger Me consistently invested every two weeks and allowed time to work its magic. This is called dollar-cost averaging. Regardless of the price, Younger Me bought as many units of the chosen security as possible and never sold them. More units meant more monthly dividends. Spending the dividends each month was never an option. Instead, Younger Me wisely relied on the dividend re-investment plan (DRIP) to ensure that every single dividend bought more of the underlying security. Younger Me switched from mutual funds to exchange-traded funds upon realizing that the same basket of stocks could be acquired more cheaply.

Each of these decisions required no more than 15 minutes of work to put in place. I had to fill out a few application forms and I entered some information into my computer. I only had to take each step one time and then I never had to think about it again. My system is well-established and it operates extremely smoothly. It requires very little attention from me. The end result? Today, I am a happy member of the Double Comma Club. I still enjoy seeing the dividends pouring into my portfolio every month. Knowing that I could live off my dividends if I absolutely had to gives me no small amount of comfort. It’s a wonderful feeling!

However, with age comes wisdom. As I reflect back on choices that Younger Me made, I recognize that…

Younger Me could’ve been smarter.

Had I been a little less lazy, I would’ve done a tad more research and invested in growth-oriented securities. After all, the stock market was on a tear from 2009 until March 2020. The returns from the growth in the stock market dwarfed the returns earned on my dividend ETFs. I should’ve invested more in the young and hungry companies by contributing my money into equity-based ETFs. That’s where the engine of portfolio growth really comes from. In other words, had I invested in equity-based ETFs, I would’ve had the natural growth of the stock market in addition to my contributions propelling my portfolio forwards. My returns from equities would’ve been much larger than they were from dividends.

By investing in dividend-paying companies through my dividend ETFs, I was essentially investing in the established, old-school companies that don’t really have room to grow. I had placed my bets on income-based securities rather than equity-based securities. From a certain perspective, this was a mistake.

The second way that my laziness cost me big time was in failing to appreciate that higher returns sooner would mean that I’d reach my current financial situation years earlier. I’ll retire early thanks to my wise choices, but I could’ve retired 5 years ago… and with a lot more money… had I done that little bit of extra research that I’d mentioned. One little tweak in my decision-making could have propelled my portfolio forward by leaps and bounds. Fully participating in the 11-year bull market would’ve done wonders for my portfolio.

Better late than never, right?

Alas, I didn’t start investing in equity-based ETFs until October of 2020. Even in 4 short years, I can see the difference that equity-based ETFs have had on my returns. Trust me. I won’t repeat Younger Me’s mistake. From this point forward, equity-based ETFs will have a prominent place in my portfolio. Accordingly, I anticipate that my portfolio will continue to benefit from my recently-acquired wisdom.

Today, I tell others who are starting their investing journey to invest in equity-based ETFs. I remind them that the potential returns are better because compounding works faster with higher returns. They need not make the same mistake that I did, i.e. failing to appreciate this lesson when I was younger.

Let my story & mistakes be your cautionary tale. When investing for the long-term, well-diversified equity-based ETFs are the securities that will deliver the best bang for your buck. It’s definitely a more volatile path, but it will get you the Double Comma Club faster than my journey took me. Had I invested in equities instead of in dividends, I would have been better off financially.

Let’s face facts. Time still would’ve passed. I still would’ve earned dividends and capital gains. However, my portfolio would be larger thanks to the higher returns of equity-focused securities. Oh well… I can’t win them all!

Increasing my Passive Income in a Few Clicks

This week, I gave myself a $600 annual raise. No, I didn’t get a promotion or take a different job. Instead, I simply increased my passive income by buying some bank stock. As I’ve said before, salary and income need not be the same thing. There are always ways to increase your income even if your salary isn’t going up as fast as you want it to.

Normally, I’m not a stock-picker. I love my exchange-traded funds because they pay me dividends every month and I get the benefit of diversification. Another way of saying this is as follows. My ETFs generate passive income, which is my very favourite kind of income.

Allow me to be extremely clear. I bought shares in this bank solely because I’d received a stock tip from my sibling who is very wise and very methodical about certain things. Stock tips that come my way are generally disregarded instantly. Like I said, I’m a believer in ETFs and that’s where I’ve been investing my bi-weekly contributions to my investment portfolio since 2011. So why did I listen to my sibling this time around? Why did I act on this particular stock tip?

First, I understand what banks do. They make money, hand over fist, year-in-year-out. Some of that money is paid out to shareholders in the form of dividends. Given that I’m looking to retire within the next 10 years, I want to build a steady stream of reliable cash flow to fund my retirement. Dividends fit the bill. They also receive preferential tax treatment, which is a nice cherry on top of this tasty sundae!

Secondly, the bank I bought pays over $1/share in dividends 4 times each year. For every share I own, I’ll be making $4 per year. An extra $4/year? Big whoop! Remember that it’s an extra $4 per year per share. The more shares I have, the more dividends I earn. And I’m a huge believer in the dividend re-investment plan, which leads to my third point.

Thirdly, my brokerage will allow me to DRIP the quarterly dividends from this stock. I’ll “only” acquire 2-3 new shares every 90 days from this initial purchase, but each of those DRIP-stocks will also earn over $1 per quarter and will also lead to the purchase of even more bank stock. I’ll be benefiting from exponential growth in the number of shares that I’ll own, which means that my passive income will also be growing exponentially the longer I hold this stock.

Fourthly, the dividend payout of these shares is likely to go up. The bank stock I purchased this week has increased its dividend for the past 5 years, so it is considered a Canadian dividend aristocrat in some quarters. (Check out this article from Million about dividend aristocrats if you’re interested in learning more.) Increases in dividend payout are also known as organic dividend growth, a feature of dividends that I like very, very much.

Fifthly, I can keep earning these ever-increasing dividend amounts forever. I’ve created a beautiful money-making cycle that will continue as long as I’m alive. Unless I shuffle off quickly, this stock purchase should soon be paying me $1000 per year, then $2000, and so on and so on and so on. It’s the beauty of the DRIP meeting compound growth.

Finally, if there comes a time when I need to stop my DRIP and live off these dividends, then I can do so. While I’m always thinking of ways to increase my retirement income, I assure you that I don’t plan to live on the entirety of that income unless I have to. For my whole life, I’ve lived below my means. Presently, I don’t see any reason to stop doing so when I retire. The dividend income from my ETFs and my pension should be enough to cover my expenses when my employer and I part ways. If I don’t need the passive income from my bank stock to live, then I see no reason to stop the DRIP.

To recap, dividends generate passive income. Ergo, dividends are my favourite kind of income. This week, I had the opportunity to increase my passive income so I took it. The benefit is that I’ve increased my annual income and I’ve bought myself a little bit of insurance that I’ll have enough money to pay for things when I’m too old to return to the workforce. In the meantime, I’ll sit back and let the magic of compound growth do its thing via my DRIP. It’s all good!

Using a Cash Machine to Fund Your Dreams

This weekend, I happened across a wonderful video about building a cash machine to fund dreams. It was created by a YouTuber that I discovered about 2 months ago. She goes under the handle “The Dividend Dream” and I’ve learned a lot from her videos. The one that I’ve bookmarked in my Favorites folder is the one about how she plans to use her dividends to buy a beach house.

Mind blown! What?!?!?!

Anyway, I want to unpack some of the things she talks about in this video. Feel free to watch the video first or watch it after you’ve read my Sunday afternoon ramblings. Just so you know, I’ve watched her video several times already and plan to watch it a few more times. Her example is one that I hope to follow because I think it’s repeatable for anyone, both on a large scale and a small one. Your mileage may vary.

Poor People Thinking

As explained by the TDD, poor people thinking is to earn, cut expenses, save up money, and use that money to pay off debt. This isn’t a terrible plan. Truthfully, it’s a bajillion times better than staying in debt and paying unlimited amount of interest to creditors over your lifetime.

However, it’s not an optimized plan. Poor people thinking doesn’t allow for the creation and maintenance of a cash machine.

If you watch TDD’s video, you’ll hear her say that she started a brokerage account to save up enough to pay off her mortgage. She doesn’t say how long it took her to save up $425,000, but that doesn’t matter. The point is that she started to save and invest her money in dividend-paying stocks. While she was investing her money, she continued to learn strategies for optimizing her wealth. In other words, she never stopped learning. By the time her mortgage was down to $430,000 and her mortgage-payoff account was up to a balance of $425,000, her MPA was earning $23,677 annually in dividends. Her mortgage payment amount was $22,404.

By this point, TDD realized that her MPA could pay her mortgage payments every month. Eventually, her mortgage would be paid and she would continue to earn $23,677 in dividends every year. In fact, she would earn more than that because she would still be investing money into her MPA thereby earning more dividends.

TDD had transitioned to rich people thinking.

Rich People Thinking

While it’s rarely called by this moniker, rich people thinking is to create a cash machine that will pay for life’s expenses. In TDD’s case, her MPA is a cash machine. It generates enough money to pay for her mortgage every month until her mortgage is gone. When that $430K debt is out of her life, she will still have an intact cash machine that will pay her over $23K in dividends every year.

I’m not suggesting that it’s super-fast to invest enough money to generate $23K every year. Of course not! I’m living proof of that. I started investing 30 years ago, and am only now on the edge of earning $40K per year from my portfolio. I made a lot of mistakes over the years, but mid-5 figures of dividends isn’t to shabby.

However, when I started, it didn’t take very long to earn $18 per month. That’s enough to cover my Netflix bill each month. By the following year, I could’ve covered Netflix and something else***. Go and watch TDD’s video and pay attention to the main lesson: once the cash machine is paying for an expense, it will continue to do so forever.

Your assignment, should you choose to accept it, is to start building your own cash machine. Do not be discouraged by how long it will take! Start with small goals and move up from there. The magic of compound interest takes times to impress. Going from $1 of dividends per month to $2 won’t exactly blow your socks off. That’s just a taste of better things to come. Believe me when I tell you that I was very pleased the first time I earned $1,000 worth of dividends in a month. The first time I earned over $5,000 in a month was even better. And now that my portfolio generates more than a full-time employee earning minimum wage in my province ($15/hr)… well, let’s just say that I do very much believe in the power of my cash machine.

*** In the interests of clarity, I will admit that I didn’t spend my dividends…and I still don’t. Instead, I re-invested them automatically through a dividend re-investment plan. What I do instead is track my annual expenses against my monthly dividend payments. Symbolically, my dividends currently pay for 97% of my current expenses. This is a huge jump from only 4.5 years ago! And I’m still investing a chunk of each paycheque on a monthly basis.

When I retire, my cash machine will cover all of my life’s expenses. If I continue to invest a little bit each month, then it will still continue to grow and kick off even more dividends each year.

Your cash machine can do the same thing for you. All you have to do is feed it consistently by investing a part of every paycheque until its returns are enough to cover your expenses. So go back to the start of this article and watch TDD’s video, then watch it a few more times. Do what TDD and I have done and reap the rewards. You’re welcome!

Start Planting Your Money Tree

Everyone wants their very own money tree. Financial problems would be so much easier to solve if you could just pick money off a tree and pay whatever needs to be paid. Well, I’m here to tell you that you do have the power to do this. All it takes is a little bit of disposable income, a plan, and time.

By keeping such a magnificent type of fauna alive and at your disposal, you’ll reap the rewards of the harvest for a good long time. The key is to plant the moeny-seeds. In layman’s terms, you have to start investing your money. Then you have to consistently continue to invest your money. The sooner your money-seeds are planted, the sooner they will grow into an orchard of money trees. And who wouldn’t like an orchard filled with money trees?

Planting Seeds Leads to an Orchard

Each time I invest a portion of my paycheque, I’m planting seeds. They’re simply money-seeds, or atleast that’s how I like to think of them. They’re deposited to my portfolio account so that I can buy more units in my exchange-traded funds. Those ETFs are on the dividend re-investment plan. When the ETFs pay me dividends and capital gains, those monies are automatically re-invested into more units of the same ETFs. This creates a perpetually growing dividend-and-capital-gains-paying cycle.

I liken this cycle to the growth of the tree. In other words, my money tree gets bigger and bigger each month as my dividends and capital gains are re-invested.

When I retire, I can let the cycle continue to grow month-in-month-out, or I can stop the cycle by cancelling the DRIP. The dividends and capital gains will still be paid out every single month. Instead of being re-invested, they’ll go towards making my retirement just a wee bit more comfortable. You know – flying first/business class on my travels, monthly massages, grocery-shopping without scrutinizing the prices, whatever little extras my heart desires…

Money I Didn’t Have to Sweat For

Planting money-seeds leads me to earning money that I didn’t have to work for. Dividends and capital gains are passive income. Once I’ve laboured to earn the money-seeds, my labour stops once I’ve invested them. Thirty years ago, I opened my first RRSP and invested my contribution. That investment is still generating money for me… and I haven’t had to lift a finger.

Most of us work hard for our money. In colloquial terms, we have to sweat for it. Some of us have to bleed for it. Wouldn’t it be nice to earn money the easiest, legal way possible? Can you imagine having money just flow to you every single month?

There is a way to do it, and it’s called investing. You put in the work up-front and invest part of every paycheque that you earn. The third step is to sit back and watch the money roll in.

I will be very honest with you. Dividend investing takes a very long time, unless you have 5-figure sums to invest every month. If you do it long enough, you’ll be earning amounts every month like this Anonymous Fellow. In the interests of transparency, I’m willing to admit that it’s taken me 12 years to get to an annual dividend amount that would sustain my current lifestyle. However, I’m an amateur dividend investor. Had I made smarter choices way back when, then I would be in a much better situations. No sense dwelling on it now because I cannot go back and change things.

What I can do is give you some suggestions of people to learn from if you have any interest in learning how to plant a money tree for yourself:

Tawcan

Dividend Dream

My Own Advisor

And I’m sure there are many others out there. These are just the people whose stories I’ve followed for the past few years. They’re teachers. They’re transparent. They’re honest about the challenges they’ve faced and the mistakes they’ve made. I’ve learned a lot from them and I wish they’d bee around when I started my own investment journey. But since I’m almost older than the internet, I won’t blame myself too, too much for not having found them sooner.

Choices Have Consequences

We’re all old enough to know that there are consequences for everything we do… and don’t do. It’s no different with investing. If you invest consistently & profitably, for a decent period of time, you’ll have a nice cushion of cash waiting for you in the future. Planting your money tree today is one of the very best things you can do for Future You.

It’s always a good idea to choose yourself. Unless you’re a child, you’re the only one responsible for identifying what you want from you life and how to make your dreams a reality. Doing so will take some planning, a fair amount of time, and definitely a little bit of money. And as one dream made real, you’ll be able to set your sights on make another one come true. In the words of Ramit Sethi, you need to know how to build your Rich Life.

And if you choose not to invest, well… then you’ll have to depend on the kindness of strangers, your family & friends, or a job for the rest of your life. You’ll need money until the day you die. Pretending otherwise is foolish and short-sighted. At the end of the day, it’s better to take control now and take the steps necessary to build up a cash cushion that will keep Future You fed, warm, and happy. And don’t you want that for Future You?

Easy money… Why You Should Give a Hoot about Organic Dividends.

Save. Invest. Learn. Repeat.

Blue Lobster

So this blog post will fall under the “Learn” category. It’s just a tidbit of information about organic dividends to add to your investing armamentarium. Do with it what you will.

Long-time readers know that I’m a huge fan of dividend ETFs (exchange-traded funds). Since the start of my investment journey, I’ve relied on DRIPs (dividend re-investment plans) to re-invest all of my dividends automatically. I time my investment purchases to take advantage of each ETF’s ex-dividend date. I felt very smart about dividends. As always, the universe has much more to teach me.

Lately, I’ve been coming across the term “organic dividends” more frequently. Every time I see this term, I ask myself questions: What are these? Do I need them? If so, how do I get them?

First question – what are organic dividends?

From what I’ve gathered, organic dividends are the dividends that are generated when the dividend-issuing company raises the dividend-payout per unit. If I have 1000 units that pay me $0.10/unit in dividends, then I earn $100 in dividends. Fantastic! Those aren’t the organic dividends though.

When the company raises the dividend payout to $0.15/unit, then I get to benefit from organic growth in my dividends… My dividend increase directly as a result of the increased dividend payout. That $0.05 increase in the payment – from $0.10 to $0.15 – results on my dividend payment increasing to $150, without any effort on my part.

Instead of buying 500 more units to get that $150 dividend payment (=1500 units x $0.10/unit), I earned more dividends per unit simply because I own the units. Yay, me! In other words, I didn’t have to invest any money increase the amount of my dividend payment. Instead, my dividend grew organically because the dividend-payout increased. Essentially, I earned more money without doing any more work.

Mind blown! Organic dividends are as wonderful as my DRIP for increasing my dividend cash flow.

Second question – do I need organic dividends?

The short answer is “Hell, yes!”

My portfolio benefits anytime one of my dividend-paying companies raises its dividend payout. I can’t imagine a situation where organic dividend growth would be bad for me. Again, I earn more money without doing more work. Obviously, I’m going to like this fantastic feature of organic dividend growth.

Even if my taxes go up, so what? Dividends are taxed so much less than earned income. Getting an increase in my dividend payments, via organic growth, is similar to getting a raise at work. The organic dividends are way, way better than the raise, because the raise is taxed much more than the dividends are. The tax treatment of dividends is much better. If you want more details, talk to a tax professional.

If you’re fortunate enough to benefit from both organic dividends and a raise at work, then count your blessings, pay your taxes, and go on about your day.

Third question – how does one get their hands on organic dividends?

Well, my sweet… we have to go back to first principles to answer that question.

  • First, you live below your means. If your spend every nickel you earn, then you won’t have any money to invest. You need to have some disposable income to direct towards wealth creation.
  • Second, you automatically transfer a portion of your paycheque to your investment account every single time you are paid. Start where you’re at and increase that amount over time. I started with $50 every two weeks from my first part-time job. Now, I’m investing twice that much every day… on top of the monthly dividends that are automatically re-invested.
  • Third, you buy dividend-paying investments. I like to buy dividend ETFs, but there are also dividend-paying mutual funds and dividend-paying index funds out there. (Never forget that mutual funds are far more expensive than ETFs and index funds so you’re paying more to own them. You should probably stick to ETFs and index funds.) You can even buy stock in companies directly, if you think that’s best.
  • Four, set up a dividend re-investment plan so that your dividends are automatically re-invested for you every time you are paid.

You continue to live below your means so that you always have money to invest. The dividends will start as a trickle, then compound over time. Eventually, they’re a virtual waterfall showering you with money every year. The more you invest, the faster your dividend payouts will grow. When the dividend-issuing companies increase their dividend payout amounts, each of your ETF units (or stock) will pay you more money.

You cannot benefit from organic dividends without first having dividend-paying products in your portfolio. Never, ever forget this.

That’s it. That’s the post. Organic dividends are a great way to increase your passive cash flow. You cannot control when they’ll show up, but you can definitely control whether you’re positioned to receive them. Do with this information what you will.

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?

Know Your Ex-Dividend Date & Maximize Cash Flow from Dividends

This post is about creating cash flow by understanding ex-dividend dates. Buying a share in companies that pay regular dividends is way to creating passive income for yourself. Once invested, your money will be put to work. The dividends will come to you for as long as you own the shares. It’s a great way to create a steady cash flow for your later years, when you’re no longer will or able to send your body out to work. If you’ve sent your money out to work instead, then you have some assurance that it will generate an income for you at some point.

I am not promising you that this method of generating a retirement income will be quick. I’ve been investing for decades. While I’ve learned a lot along the way, I’m still not at the point yet where my dividends can support my current lifestyle. My first dividend payments amounted to tens of dollars per year, then hundreds of dollars per year. I’ve finally reached the point where I’m earning a five-figure amount of dividends on an annual basis. It’s comforting to have that passive income, even if I still have to rise-and-shine for my employer most days of the month.

You should definitely consider whether a dividend portfolio would be a good fit for your finances. If you need to hear an inspiring story about someone who did phenomenally well at divided investing, then please check out this 2-part interview at the Tawcan blog.

Dividends & Date of Record

Companies pay dividends to shareholders who buy their shares before the ex-dividend date. There is a date of record that entitles shareholders to a portion of the profits that are distributed as dividends. It’s a very important date to know if you’re planning to receive dividends. If you aren’t listed as an owner of the underlying security on the date of record, then you won’t be paid any dividends even though you bought shares or units in that security.

Every stock, mutual fund, index fund or exchange-traded funds that pay dividends will list their ex-dividend date on their website. Personally, I have a good chunk of my portfolio invested with Vanguard Canada in the VDY ETF. This ETF pays dividends on a monthly basis. I receive dividends based on a distribution price per unit. For the most part, I know in advance just how much money I’ll receive from this security before it’s paid to me. I simply multiply the number of ETF units I already own by the distribution price to be paid. So long as I’ve bought my units before the ex-dividend date, I can get an accurate amount of the dividends that I will receive on the payment date.

Click on the link and scroll down to the bottom of the page. There, you will find the distribution frequency for VDY. Pay attention to the ex-dividend date. If I wanted to be paid on any new purchases of ETF units, then I would have to buy those new ETF units before March 31, 2022 in order to get paid dividends on those units on April 8, 2022. This is because I have to be listed as the owner of those new units on the record date, which is April 1, 2022. If I’m not listed as an owner on April 1, 2022, then I won’t be paid for those units in the month of April. Instead, I’ll start receive payment for those new units in the following month.

As I said earlier, companies pay dividends to those who are listed as an owner of the underlying security on the date of record.

Creating a Cash Flow of Passive Income Takes Time

Knowing the ex-dividend dates of the securities that you’re buying will help you to forecast your cash flow. Once armed with this information, you have the ability to know exactly when you’ll be receiving your passive income.

In the interests of transparency, I can advise that I spent years and years investing in dividend-paying ETFs. (In October of 2020, I tweaked my investment strategy and have been investing new contributions into VXC.) My two dividend ETFs of choice are VXC and XDV. As with VXC, the link for XDV will disclose its distribution dates and amounts. Both of these ETFs pay me dividends every month.

I track my purchases on a spreadsheet. Each month, I update my spreadsheets with the distribution price. This way, I’m able to calculate how much passive income I’ll be earning. It’s awesome! Unlike the money from my 9-5, these dividend payments are effort-free money. Contributions to my portfolio that were made 10 or more years ago are still churning out passive money for me.

When I was a child, my parents purchased bank stocks for my brother and I. I still own them today. Those stocks have paid me dividends for decades. I just wish my parents had been wealthy enough to buy me more! Now that I’m at my current stage of life, perhaps I should do that for myself.

Procrastination is your enemy

When it comes to investing, procrastination is a cancer. It slowly and irrevocably eats away at the potential growth of your portfolio. Your money must be invested in order to work its hardest for you. Creating a steady, reliable cash flow based on dividends won’t happen through wishing and hoping and good thought. You need to actually invest the money then leave it alone to do its thing.

If you let procrastination win, then you’re not investing before the ex-dividend date. That means you don’t receive your dividends until the following month. At the start of your investment journey, you might be missing out on a few cents or maybe just a dollar. Big deal, right? It is a very big deal. The sooner you receive your dividends, the sooner you can re-invest them through a dividend re-investment plan aka: DRIP.

While you’re building your dividend portfolio, you want to earn dividends as soon as possible. They can be re-invested with your regular contributions so that the following month’s dividend payment is even bigger. Compound growth is a key to increasing your dividend payments every month. If you invest after the ex-dividend date, you’re not doing yourself any favors.

Now, I know that you can only invest when you have the money in hand. This is why I suggest that you set up an automatic transfer so that a chunk of your paycheque is diverted to your investment account. Doing so means that you have money to invest. Sometimes, the transfer will take place after the ex-dividend date. While this is unfortunate, it’s also out of your control. You cannot invest what you don’t have.

By the same token, procrastination is entirely within your control. I don’t want you to set up an automatic transfer and just let the money accumulate. If it’s not invested, then your money isn’t being given the opportunity to grow. When you’re interested in pursing cash flow through passive income, then you need to be investing your money in dividend-paying securities as soon as you can. I do my investments every month, but you may want to do your investing quarterly or every other month or once a year. Whatever you choose, ensure that it’s result of your choice and not the result of procrastination.

As with everything you learn in life, you have the option of how to put the lesson to use. If you want passive cash flow, then start today. Get your money invested. Buy your securities before the ex-divided date. Then go about your daily life while your dividends do their thing in the background.

Boost Your Income!

I’m going to take a leap of faith and assume that, if you’re reading this, then you also wish that you made more money. You work hard – you’ve got bills – there are things you want to do with your money. However, it seems like there’s never enough money to go around. You’ve applied for promotions but they always seem to go to someone else.

What if I were to tell you that there is a way to boost your income without a promotion?

It’s called investing your money!

Speaking from experience, I can tell you that I’ve applied for promotions and not gotten them. While being passed over was a bruise to my ego, those missed promotions were never a blow to my finances. And you know why? It’s because my investment account does the heavy lifting of increasing my income each and every year.

What?!?!!

Yes – it’s true. While it wasn’t a fast process, investing a portion of my disposable income every single month has been very beneficial for me. I’m not a particularly savvy investor, so I invested the lion’s share of my money into two exchange traded funds that focus on dividends – VDY and XDV. I also took advantage of the dividend re-investment plan – aka: DRIP – to ensure that all of the dividends I earned were automatically re-invested.

I used to earn a few dividends each month. Now, I earn a few thousand. Yes – you read that right. My decades-long habit of investing a portion of my paycheque each month continues to reward me handsomely. Diligent investing has resulted in a situation where my annual income goes up every year… without me ever having to rely on my boss for a promotion. I won’t lie to you – it’s a pretty sweet situation!

Now, go back to where I said that I’m not a particularly savvy investor. If I were as smart then as I am now (or atleast as smart as I think I am now), then I would’ve invested in equity-based exchange traded funds. As you may or may not know, the stock market was on a complete tear from 2009 to March of 2020. People who had invested in equities made buckets & buckets of money so long as they stayed invested. My dividend ETFs have been good to me, but equity-based ETFs would’ve been so much better!

There’s atleast one investor out there who has absolutely no qualms about sticking to dividends throughout his career. I can certainly understand why – he and his spouse now earn $360,000 in dividends each year. (Part 1 and Part 2 – thank you to Tawcan for sharing this interview with the world!)

Can you imagine? You’re busily going about the daily business of living and your portfolio is kicking off $30,000 in dividends per month! Even before his retirement, I’m sure this couple was making a solid six-figure income off their dividend portfolio every year. And I’m equally sure that they didn’t worry about whether they got the next promotion in the pipeline.

The Career Funnel

Most organizations with employees have what I like to call a career funnel. There’s many people at the lowest levels, but fewer and fewer position for people as you move up the organizational chart. Managers have a set number of people reporting to them – so it goes, all the way up to the top. Naturally, as an employee moves up the career funnel, it gets harder and harder to obtain a coveted promotion. While many may try, only a very few will succeed. This is the way of the hiring pyramid.

It would behoove you to not be too, too dependent on getting a promotion in order to live the life you want. I’m certainly not discouraging you from pursuing promotional opportunities! Of course not! What I am suggesting is that you work on a Plan B, while you’re building your career.

And that Plan B is to ensure that you’re investing some portion of your paycheque for your future. I’ll tell you the same thing I would tell 18-year old Blue Lobster if I could travel back in time. Invest no less than 15% of your net income into an equity-based exchange traded fund every single time that you are paid. Leave the money alone for 30 years and let it do its things. At the 30 year mark, start adding some bonds to your portfolio to temper the volatility.

Again, I’m no expert in the area of investing so do your own research. Save as much as you can – invest it in ETFs – leave it alone to grow – ignore the talking heads on the media. Equities are volatile, but they’ve always gone up over the long-term. They will boost your income if given enough time. If you can’t stay invested for the long-term, then you’ll have to find some other way to increase your annual income. Maybe that means killing yourself at work so that you improve your odds of getting that promotion.

The Unappreciated Benefit of Boosting Your Income Through Investing

First off, I want to say that I’m very fortunate to work with smart, pleasant people who are helpful and considerate. My team has each other’s back. We share knowledge and insights with each other. And when we disagree on issues, the discussions are respectful and all parties try to see the other perspective. My work is challenging and my colleagues all contribute to an extremely good working environment. If I ever have any regrets about retiring from my current position, they will be that I will no longer have as much contact with these people as I do now.

That said…

I’ve heard from many in my circle that their work environments are what can only be described as toxic. Some of my dear friends work with or for horrible human beings. They’ve tried to find other positions but haven’t yet found better working conditions that will pay similar amounts of money. Like many people who have no choice about staying in their job for the foreseeable future, they have to eat sh*t and they can’t really complain about it.

If you’re able to boost your income via your investment portfolio, then you can drastically cut back on the amount of crap that you have to take from colleagues and bosses. Think about it. If your investment account could churn off enough for you to meet your survival needs, then wouldn’t it be possible for you to supplement that with a lower-paying job?

And you wouldn’t have to keep that lower-paying job forever. I’m not suggesting that in the least! What I’m trying to say is that your investment account could help you preserve your mental health. You could avoid very bad things like depression and burnout. Your investment account gives you a path out of a toxic work environment, without trying to get a promotion. And once you find a job that doesn’t make you feel dead inside, then you can go back to living on your salary, re-instating your DRIP, and continuing to contribute to your investment account.

If you’ve been reading my blog for a while, then you know that I harp on diligent investing & saving, month-in-month-out. This is an ideal to which everyone should aspire. However, I’ve been alive long enough to know that very few are able to do this. There are some things in life that are more important than saving and investing. In my view, preserving and protecting your joie de vivre is one of those things.

Next Steps…

So if you have the disposable income to do so, start investing today.

And if you’re one of the ones who’s already started, then pat yourself on the back and keep going.

It will take some time, but your investment account will eventually allow you to wean yourself off the need to get promotions to maintain your lifestyle. By all means, continue to apply for those promotions if you wish. If you get them, great. A higher salary means you have that much more to invest. After all, whatever increase you see in your take-home pay should be properly allocated between today and tomorrow.

If you don’t get the promise, then you need not fret. You can still be content in the knowledge that your investments are building your income without any influence from your employer. Even without the promotion, you’re increasing the likelihood that, financially, you’ll still be just fine.

Banks are not evil – they’re simply a tool.

Truth be told, it took me a very long time to realize that banks are a tool that will help me achieve my personal finance goals. Every three months, the Big Banks release their earnings. More often than not, those earnings are in the billions, if not the hundreds of millions. And people start frothing with anger at the size of those quarterly earnings. Ink is spilled all over the Internet about how banks are evil and their earnings are obscene.

Two days later, the angry mob has moved on to some other topic upon which to unleash their rage. The banks go back to the business of earning more money so they can hit their next quarterly target.

And I wonder to myself if any one person in the mob realized that banks are a tool?

How banks make money

First off, I want to be very clear that I’m not an expert on the banking industry. I’m just an online citizen who has watched banks operate for the past 35+ years. I even used to work as a bank teller, which was an incredibly educational experience. However, being a bank teller and being a banking expert are two wildly different things.

I’ll share with you what I know.

Banks take money from depositors then lend it to borrowers to earn money. This is the heart of banking. Everything else is a detail.

Depositors have bank accounts and they expect to earn interest on their deposits. As we all know, most bank accounts pay less than 1% interest. Every so often, an online account has a higher rate but it’s usually not anything to get overly excited about.

Banks lend money to people at rates that are higher than what they pay to their depositors. See, from the bank’s perspective, the 1% interest rate is a liability because the bank owes money to someone. Money that’s lent out to borrowers is an asset because it’s going to earn money for the bank.

If the bank owes Depositor 1% per year on a $10,000 bank account, then the bank has a $100 liability since it has to find a way to pay $100 to Depositor in a year’s time. How does the bank do that?

Easy. The bank takes the Depositor’s money – $10,000 – and loans it to Borrower at a rate of 5%. Borrower has promised to repay the bank $500 in a year’s time, because 5% of $10,000 is $500. The Borrower’s $500 debt is the bank’s asset.

The bank collects $500 from Borrower, and pays $100 to Depositor. The bank keeps the $400 spread for itself. Now, I’m sure there are expenses that go along with running a bank, procuring loans, administration of bank accounts, and staffing costs. Whatever is left after paying those expenses is the bank’s profit.

Banks are good at making profits.

Understanding the spread between what is owed to depositors and what is earned from borrowers is what keeps banks profitable.

So how do you turn this to your advantage?

It’s very simple, Gentle Reader. Banks are a tool for you as soon as you buy your first bank share.

Remember how I said that bank earnings are reported quarterly? One of the best features of banks is that they pay dividends to their shareholders. The more bank shares you own, the more dividends you’ll receive.

I used to get irate over bank fees. How dare the bank charge me for using my money? The little vein in my temple would visibly throb if ever I saw so much as a $1 taken from my account to cover an ATM withdrawal, or for anything else.

Eventually, this financial annoyance was removed from my life through 2 actions that I took. First, I opened bank accounts with institutions that did not charge bank fees for daily banking. I was no longer paying bank fees every month. Secondly, I started earning money from everyone else who chose to continue paying bank fees. I bought shares in banks and cashed the dividend cheques every quarter.

I can confidently say that the idea of bank fees no longer enrages me. Even if I do mess up and bounce a cheque, I might have to pay the $35 NSF fee. However, I know that I’ll be getting my money back in a few weeks’ time via my next dividend payment. That fee is a nuisance, but hardly a reason for me to get upset.

Banks are necessary.

I firmly believe that everyone needs atleast two bank accounts – a chequing account and a savings account. The chequing account is for your day to day money. It’s for receiving your paycheque, buying your groceries, paying utilities bills, and the expenses of day-to-day life. Your savings account is for your emergency fund. It’s meant to be a liquid pool of funds that can cover 6-12 months of your monthly expenses. Some people argue that an emergency fund can be 3 months of expenses. I’m a big believer in the idea that more money is better when an emergency strikes so it can’t hurt to have more than the minimum.

Banks are not evil, in and of themselves. Used properly, they facilitate the transfer of money into your investment account. You know that I’m a huge fan of automatic transfers. I’m a proponent of paying yourself first. A portion of every paycheque should be sent to your investment account, so that it can start working to ensure the Future You has a financially comfortable lifestyle.

For my part, I have several bank accounts. And all of them are designated for a specific purpose. Some accounts hold money for my annual travel. (Even during the pandemic, I’ve socked away a few coins for the eventual day when I feel comfortable enough sharing a plane with others.) Other accounts hold money for my annual insurance premiums and property taxes. I have an account for little luxuries like my theatre subscription to Broadway Across Canada. There’s also an account for maintenance and repairs to my home.

Again, banks are a tool – they’re not evil. Learn to use them properly and you’ll find that they offer many great methods for handling your money. Better yet, become a shareholder and receive a slice of their profits every three months. I’ve no doubt you’ll enjoy the feeling of the banks paying you instead of the other way around!