Welcome to the Million Dollar Journey September 2018 Financial Freedom Update – the third quarter update! 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 $52-$54k 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 (we are currently an 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 entrepeneurial pursuits.
In the last update, we showed good progress in reaching $41,050 in annual dividend income. There was quite an increase in dividend income during that update due to taking advantage of many quality dividend stocks hitting annual lows.
Here are the numbers in my previous financial freedom update.
June 2018 (Q2) Dividend Income Update
- Total Invested: $1,151,961
- Total Yield: 3.56%
- Total Dividends: $41,050/year (+9.32%)
Where did the summer go? It was quite a busy summer between visitors and some renovations to the basement. We decided that 10 years is long enough to wait before getting the basement developed. The basement will give the growing kids some more space and more space for when out of town/province friends visit.
With a slow down in the local housing market, our original builder gave us a fair price to fully develop the basement. We were pleased that the builder was able to complete the project on time and on budget.
Renovations aside, what about my financial freedom aspirations? 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. Fortunately, there haven’t been any recent 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); Procter & Gamble (PG); Unilever (UL); Exxon (XOM); Johnson and Johnson (JNJ); Loblaws (L); Canadian Pacific Railway (CP); Sunlife (SLF); Apple (AAPL); Caterpillar (CAT); Target (TGT); Empire (EMP.A); Emera (EMA); Royal Bank (RY); Verizon (VZ).
In addition to the dividend raises, I’ve continued to deploy cash into dividend stocks. In late 2017, 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.
There has been some activity in this account with Enbridge (ENB) buying back it’s affiliate Enbridge Income Fund (ENF). If I were to leave this alone, I would end up with more shares of ENB which is already a top 10 position. In saying that, I sold the ENF shares and will be deploying that capital in the next couple weeks.
On the topic of deploying capital, I added to the following positions over the last quarter:
- iShares MSCI International ETF (XEF)
- iShares MSCI Emerging Markets ETF (XEC)
- iShares MSCI All Country World ex-Canada (XAW)
- Great-West Life (GWO)
- Scotia Bank (BNS)
- Emera (EMA)
- BCE (BCE)
- Fortis Utilties (FTS)
- Canadian Natural Resources (CNQ)
As you can see in detail below, over the last quarter we have increased our dividend income from $41k to $43.5k which represents a 5.85% increase quarter over quarter and 72.5% of my goal ($60k). We are going for $45k in dividend income by the end of 2018.
In our overall portfolio, here are the current top 10 largest holdings (besides cash):
- Bank of Nova Scotia (BNS);
- Bell Canada (BCE);
- Fortis (FTS);
- Enbridge (ENB);
- Emera (EMA);
- TransCanada Corp (TRP);
- Canadian Utilities (CU);
- Nutrien (NTR – merger between AGU and POT)
- Telus (T);
- iShares Core S&P U.S. Total Market Index ETF (XUU).
September (Q3) 2018 Dividend Income Update
- Total Invested: $1,237,168
- Total Yield: 3.51%
- Total Dividends: $43,450/year (+5.85%)
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 fairly productive with a 5.85% bump in dividend income. I really do enjoy watching those dividends flow into the accounts.
Not only do I enjoy watching the dividends flow into the account, I’m also a big believer in compounding returns (see how compounding can make you rich). In other words, the dividend cash is deployed into more income-producing stocks which then further increases the income of the portfolio, which is then used to buy even more stock. See how compounding works? It’s only a matter of time before the snowball grows a mind of its own.
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 target of 45k in dividend income by the end of 2018 is in sight. 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.