Financial Freedom Update June 2022 – Q2 Update ($70.5k in Dividend Income!)

Welcome to the Million Dollar Journey June 2022 Financial Freedom Update – the second update of the year! If you would like to follow my whole financial journey, you can get my updates sent directly to your email, via Twitter and/or Facebook.

For those of you new here, since achieving $1M in net worth in June 2014 (age 35), I have shifted my focus to achieving financial independence. How? To build my passive income sources to the point where they are enough to cover our family expenses. Mostly through passive and tax-efficient dividend investing.

Here is a little more detail on our passive income goals:

How it all started – Original Financial Goal

I always find it interesting looking back at previous goals. Here was the big goal after hitting the Million Dollar Net Worth milestone:

Our current annual recurring expenses are in the $55k range (after-tax), but that’s without vacation costs (and no mortgage payments). However, while travel is important to us, it is something that we consider discretionary (and frankly, a luxury). If money ever becomes tight, we could cut vacation for the year. In light of this, our ultimate goal for passive income is to have enough to cover recurring expenses, and for business (or other active) income to cover luxuries such as travel, savings for a new/used car, and simply extra cash flow.

Major Financial Goal:  To generate $60,000/year (after-tax) in passive income by end of the year 2020 (age 41).

Reaching this goal would mean that my family (2 adults and 2 children) could live comfortably without relying on full-time salaries (most recently a one-income family).   At that point,  I would have the choice to leave full-time work and allow me to focus my efforts on other interests, hobbies, and entrepreneurial pursuits.

Achieving Financial Freedom: You may be thinking, 2020 is long gone – what has happened since then? I’m happy to report that we reached financial independence in 2020 – a little ahead of schedule. While the goal now is to continue building and reinvesting those dividends within the portfolio I’m finding that as the years go by, more focus is being put on indexing. Having said that, I haven’t sold any dividend positions in favour of index ETFs… yet. Find out below how much our passive income has grown since 2020!

Financial Independence Update – June 2022

I can think of one word that describes investing in 2022 – volatile! Market corrections are simply a part of investing and we were overdue for one (the markets were making all-time highs since the COVID Bottom in early 2020).

What’s causing the volatility? Inflation (resulting in rising interest rates), and war (which has resulted in a potential shortage of global oil supply).

These factors have resulted in a rotation from risk (ie. technology) to more boring defensive stocks (ie. mostly blue-chip dividend stocks) and commodities (due to oil supply, and higher inflation).

Having said that, the rotation has been rough on the US market (as most of the US index is in technology companies), but the Canadian index has held fairly strong due to exposure to the aforementioned boring blue-chip stocks and commodities.

In November of 2021, the S&P500 (an index of the largest 500 companies in the US) was floating around 4600. In March 2022, the S&P500 traded around 4250 – a decline of about 13% from highs (4800). Since the update in March, the correction has continued. In fact, the S&P500 has flirted with bear market territory (>20% correction), but for now, has bounced off that level. As of this post, the S&P500 is trading at around 4000 (closing lower than 3850 would be considered bear market).

Could this be a pit stop to build some muscle before flexing higher? Or perhaps the beginning of a larger correction? Only time will tell! In any event, I’m a believer in staying invested over the long-term which historically has proven to be fruitful for patient investors – myself included!

Not including dividends, the S&P500 (as shown above) has declined about 16% year to date (YTD). While the TSX has been relatively strong, it has started succumbing to the pressure and has declined about 3% (YTD).

While the extreme market returns are great for portfolio growth, it’s healthy for markets to take a bit of a break – especially for investors still in the early days of accumulation.

How often and when do I make the decision to buy? I like to buy quality dividend companies (and indexes) when their valuations are attractive.  In other words, when they are being sold off (ie. dip).  You can see some of my favourite Canadian dividend stocks here.

As I’ve mentioned in previous updates, I’ve left full-time salaried work which means I’m spending those dividends that I’ve grown and nurtured over the last 15+ years. As a result, my investment cash position has dwindled down over the years, so no more large investment purchases – at least for now!

Most of the portfolio additions are driven by reinvesting those growing dividends. Thus far in 2022, I have deployed capital into the following Canadian dividend positions:

• Royal Bank (RY)
• Telus (T)
• Waste Connections (WCN)
• Brookfield Infrastructure (BIP.UN/BIPC)
• Algonquin Power & Utilities (AQN)
• Index ETFs (not quite dividend stocks, but they are likely included in the indexes!)

The goal of the dividend growth strategy is to pick strong companies with a long track record of dividend increases. Since the last update, there have been more dividend increases – check them out below.

2022 Dividend Raises

Thus far in 2022, the Canadian portion of my portfolio has received dividend raises from:

• CU.TO (1% increase)
• MRU.TO (10% increase)
• CNR.TO (19% increase!)
• BIP.UN/BIPC (6% increase)
• CNQ.TO (27% increase!)
• NTR.TO (4% increase)
• BCE.TO (5.1% increase)
• BEPC.TO (5% increase)
• TRP.TO (3.4% increase)
• ENGH.TO (15.6% increase!)
• TRI.TO (10% increase)
• T.TO (7% increase)
• SU.TO (12% increase)
• L.TO (11% increase)
• WN.TO (10% increase)
• AQN.TO (6% increase)
• SLF.TO (4.5% increase)
• FTT.TO (4.9% increase)
• BNS.TO (3% increase)
• BMO.TO (4.5% increase)
• CM.TO (3.1% increase)
• RY.TO (6.7% increase)
• NA.TO (5.7% increase)
• H.TO (5% increase)

Top 10 Holdings

Our top 10 holdings move around quite a bit. This time around, with the continued strength of the big banks, they are holding top spots in my dividend portfolio.

In our overall portfolio, here are the current top 10 largest dividend holdings:

1. TD Bank (TD)
2. Royal Bank (RY)
3. Brookfield Infrastructure (BIPC/BIP.UN)
4. Bank of Montreal (BMO)
5. Enbridge (ENB)
6. CIBC (CM)
7. Fortis (FTS)
8. Canadian National Railway (CNR)
9. Scotia Bank (BNS)
10. Telus (T)

*not counting index ETFs (they are my largest holding).

Dividend Income Update

As mentioned, there have been a number of healthy dividend increases and we managed to deploy some capital into dividend stocks.

As you can see in the chart below, the dividend increases have really made a difference in increasing our forward annual dividend income to $70,500. Given enough time for portfolios to compound, slow and steady does work!

The dividends are counted from all of our family accounts including non-registered (including leveraged account via the Smith Manoeuvre), RRSPs, corporate investment account, and TFSAs.

Final Thoughts

For a long time, these updates have been during a pure bull market. Now we are finally getting a bit of volatility, particularly in the US and global markets. Canada, on the other hand, has been a pleasant surprise by showing relative strength in these market conditions – at least for now. Regardless of market conditions, the dividends keep rolling in, and the last couple of quarters have been especially lucrative resulting in noticeable bumps in the dividend graph above.

I’ve noticed that other dividend investors/bloggers are comparing their dividend income to a comparable income/hr.  Depending on taxation in your area, in ON, $70.5k in dividend income is about equivalent to a $100k salary (gross), which is about $50/hr.  Not a bad way to psychologically frame passive income.

To put dividend income in further context, I wrote a post about withdrawing from your RRSP or TFSA where, with no other income in retirement, you can make up to $50k in dividend income (within a taxable investment account) and pay very little to no income tax (depending on the province). The benefits are even greater if you can split the dividend income with a partner/spouse.

If you are also interested in the dividend growth strategy, here is a post on how to build a dividend portfolio.  With this list, you’ll get a general idea of the names that I’ve been adding to my portfolios.

If you want a simpler investing strategy that outperforms most mutual funds out there, check out my post on the best all-in-one ETFs in Canada. I’m a fan of indexing as the iShares XAW is my top individual holding.

Keep investing that cash flow and stick with a long-term plan.  Your future wealthier self (sooner than you think!) will thank you for it.