Welcome to the Million Dollar Journey March 2018 Financial Freedom Update – the first update of the year! 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? I plan on building my passive income sources to the point where they are enough to cover our family expenses. That is, our goal is to reach $60,000 in passive income by the end of 2020 (yikes, that’s only a little over two years away!)
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In my first few Financial Freedom updates, I talked about what life has been like since becoming a millionaire, why I like passive income, and our family financial goals going forward.
Here is a summary:
Our current annual recurring expenses are in the $50-$52k range, but that’s without vacation costs. However, while travel is important to us, it is something that we consider discretionary (and frankly, a luxury). If money became tight, we could cut vacation for the year. In light of this, our ultimate goal for passive income to be 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 in passive income by end of 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. I would have the choice to leave full time work and allow me to focus my efforts on other interests, hobbies, and entrepeneurial pursuits.
We finished off 2017 with some solid progress by reaching $34k in passive dividend income. While it represents just past the halfway mark in our financial goal, it also means that we hit another milestone of having over $1M invested across our portfolios.
Here are the numbers in my previous financial freedom update.
December 2017 Dividend Income Update
Account Dividends/year Yield on Cost SM Portfolio $6,493 3.47% TFSA 1 $2,539 4.54% TFSA 2 $2,821 4.72% Non-Registered $1,301 4.57% Corporate Portfolio $12,659 3.38% RRSP 1 $6,355 2.70% RRSP 2 $1,229 2.00%
- Total Invested: $1,002,325
- Total Yield: 3.33%
- Total Dividends: $33,397/year (+9.82%)
In September 2017, I wrote about being laid off from my government job after which I was given a temporary position for a few months. While being laid off doesn’t feel great, I was looking forward to the opportunity to try something new.
In the December 2017 update, I wrote about being in talks with a number of potential employers, mostly from my professional network. As a bit of good news to start off 2018, I managed to land a position back with industry. It has been a great change thus far with a lot of new challenges. I’m back in heavy learning mode, which might be my favorite phase when it comes to anything new.
Now, let’s talk a bit about my passive income strategy – generating dividend income. As dividends are the main focus of my passive income pursuit, there is a large dependence on the market. While there are merits to this investment strategy, there are also substantial risks – particularly dividend cuts.
The goal of the dividend growth strategy is to pick strong companies with a long track record of dividend increases. In terms of dividend increases, 2018 has already proven to be a successful year for dividend growth seekers.
Thus far in 2018, my portfolio has received raises from:
- Riocan (REI.UN); Telus (T); Canadian Utilities (CU); Canadian National Railway (CNR); Kimberly Clark (US: KMB); Metro (MRU); Chevron (US: CVX); Exco Technologies (XTC); Manulife (MFC); Suncor (SU); Bell Canada (BCE); Great-West Life (GWO); Brookfield Infrastructure Partners (BIP.UN); Coca Cola (US: KO); AbbVie Inc (ABBV); TransCanada Corp (TRP); Walmart (US: WMT); Magna (MG); CIBC (CM); Scotiabank (BNS); Bank of Montreal (BMO); TD Bank (TD); Husky Energy (HSE); Canadian Western Bank (CWB); AT&T (US:T); Visa (US: V); Abbot Labs (US: ABT); Wells Fargo (US: WFC); Power Financial (PWF); Transcontinental (TCL.A).
In addition to the dividend raises, I’ve continued to deploy cash into dividend stocks. In the last little while, I created a non-registered dividend portfolio for my spouse (opened another account with MDJ reader favorite Questrade). There was some cash savings in her account that needed to be deployed, and I was able to get it invested in short order. As one of the goals of this particular account is to generate a high and reliable yield (spouse is in lower tax bracket), I am experimenting with the Dogs of the TSX strategy.
What also has boosted the dividend income over the past quarter is the volatility in the market. With higher interest rates (and more to come), dividend stocks have been hammered. I get excited and go shopping when the market gets volatile, especially when strong dividend stocks are sold off with market panic. As you can see in detail below, over the last quarter we have increased our dividend income from $34k to $37.5k which represents a 12.44% increase quarter over quarter.
In our overall portfolio, here are the current top 12 largest holdings (besides cash):
- Fortis (FTS);
- Bell Canada (BCE);
- Bank of Nova Scotia (BNS);
- Emera (EMA);
- TransCanada Corp (TRP);
- Canadian Utilities (CU);
- Enbridge (ENB);
- Nutrien (NTR – merger between AGU and POT)
- CIBC (CM);
- Telus (T);
- iShares Core MSCI All Country World ex Canada Index ETF (XAW); and,
- iShares Core S&P U.S. Total Market Index ETF (XUU).
One stock to watch over the next couple of quarters is Enbridge (ENB). This stock is being sold off due to high amounts of debt (almost as high as its market cap). High debt combined with increasing interest rates equates to high debt servicing costs. Is it possible that the dividend is at risk? Mangement has promised 10% dividend increases over the next couple of years, so we will have to wait and see what happens.
Another big move in the market is the buyout of Canadian Real Estate Investment Trust (REF.UN), which is one of my favorite REITs due to its history of dividend increases. Who’s the buyer? Choice Properties (CHP.UN), which is the real estate arm of Loblaws. The acquisition will make Choice Properties the largest REIT in Canada with a diversified mix of assets. I will be sticking around and converting my REF.UN units to CHP.UN.
Here is an update on the dividend totals per account. Some readers were questioning the value of “Yield on Cost”, so this update has the current yield on each portfolio. This also means that a more relevant “total invested” number is shown below. Before it was just my cost base, now it’s total portfolio value (ie. including capital gains/losses).
March 2018 Dividend Income Update
- Total Invested: $1,011,819
- Total Yield: 3.71%
- Total Dividends: $37,550/year (+12.44%)
Through a combination of deploying cash, continuing to build a new non-registered portfolio with savings, and collecting those juicy dividend increases, this quarter has been productive with a 12.44% bump in dividend income. I really do enjoy watching those dividends flow into the accounts.
The “total invested” amount did not increase much even though the portfolio is generating more dividends because dividend stocks are underperforming right now (ie. market values have decreased). I’m not too concerned about the drop as I’m more focused on the amount of actual cash that my portfolio generates.
As previously mentioned, I welcome corrections/volatility as it gives investors in the accumulation phase a chance to buy quality companies (or index ETFs) at better prices, potentially increasing long-term returns. My plan is to continue this pace and hit $40k in dividend income for the next update and $45k by the end of 2018. We shall see!
If you are also interested in the dividend growth strategy, here is a recent 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 top ways to index a portfolio.