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Financial Freedom Update (Q3) – September 2019 – Reaching the Cross Over Point ($53,400 in Dividend Income)!

Welcome to the Million Dollar Journey September 2019 (Q3) Financial Freedom Update – the third update of 2019!  If you would like to follow my latest financial journey, you can get my updates sent directly to your email, via Twitter or Facebook, and/or you can sign up for the monthly Million Dollar Journey Newsletter.

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 (getting close now!).

Here is a little more detail on how we came about the $60k per year in passive income:

Financial Goals

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 ever becomes 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.

Catching Up

In the previous Q2 2019 update, we made some solid progress surpassing $50k in dividend income.  I wrote a little about how we were getting close to the “cross-over point“.  This is the point at which your passive income grows enough to meet (or just about exceed) your recurring monthly/annual expenses.  In essence, it’s the point where you reach financial independence or FIRE (financial independence/retire early).  

With our annual expenses in the $52k-$54k range, keep reading to see if we have reached the coveted cross over point.

Here is a summary of the last update:

June (Q2) 2019 Dividend Income Update

 Account Dividends/year Yield
SM Portfolio $7,650 4.00%
 TFSA 1 $3,650 4.65%
 TFSA 2 $3,850 5.09%
 Non-Registered $3,360 4.42%
 Corporate Portfolio $22,300 3.78%
 RRSP 1 $7,100 2.71%
 RRSP 2 $2,750 2.35%
  • Total Invested: $1,390,022
  • Total Yield: 3.64%
  • Total Dividends: $50,660/year (+5.10%)

Current Update

Let’s get the good stuff out of the way – we have finally reached the coveted cross-over point!  A number of years ago (in 2014) after hitting the million dollar net worth milestone, I made the switch to focus on passive income growth over net worth growth.  The strategy was to leverage our wealth in pursuit of financial freedom. 

While it was a slow start, the train has been building momentum over the last few years, and today, finally achieving a big milestone by generating enough passive income to meet our recurring expenses.  While nailing the cross over point is satisfying, my passive-income goal of $60k will provide a bit of a buffer, and hopefully will be achieved sometime in the next 12 months.

While I plan to work in some capacity for the foreseeable future, achieving financial independence is like the ultimate financial insurance as we are a single income family.

If you are interested, I have created a presentation about my financial freedom journey for the Canadian Financial Summit.  The video will be free to view for the first 48 hours, you can sign up here.

Onto the investments – even with all the talk about a looming recession indicated by the inverted yield curve, 2019 has been fairly kind to the markets with the TSX recently touching all-time highs.

While a bull market is great for net worth numbers, it also means it’s more expensive to buy quality dividend stocks.  However, no matter what the market, there are always pockets of opportunities.

Personally, I like to buy quality dividend companies when their valuations are attractive.  In other words, when they are being sold off (ie. dip).  In this quarter, I deployed capital into some of the following Canadian positions:

  • Capital Power (CPX)
  • Park Lawn Corp (PLC)
  • Bank of Montreal (BMO)
  • CIBC (CM)
  • Great-West Life (GWO)
  • iShares MSCI All Country World ex-Canada (XAW) 
  • Finning International Inc. (FTT) 
  • Suncor (SU)

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.  

In 2019 thus far, there have been significant cuts in two of my positions, SNC Lavalin (SNC) and Dorel Industries (DII.B). Fortunately, these were smaller positions within my overall portfolio.  

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, this year has proven to be lucrative for dividend growth investors.

So far in 2019, the Canadian portion of my portfolio has received raises from:

  • CU.TO (7.5% increase)
  • RCI.B (4% increase)
  • MRU.TO (11% increase)
  • CNR.TO (18% increase)
  • XTC.TO (6% increase)
  • BIP.UN (7% increase)
  • BCE.TO (5% increase)
  • SU.TO (17% increase)
  • GWO.TO (6% increase)
  • TRP.TO (8.7% increase)
  • RY.TO (4.1% increase)
  • MG (11% increase)
  • BNS.TO (2.4% increase)
  • CAR.UN (3.8% increase)
  • TD.TO (10% increase)
  • CM.TO (2.9% increase)
  • ATD.B (25% increase)
  • PWF.TO (5% increase)
  • L.TO (6.8% increase)
  • CP.TO (27.5% increase)
  • WN.TO (1.9% increase)
  • T.TO (3.2% increase)
  • H.TO (5.0% increase) 
  • SLF.TO (5% increase)
  • NTR.TO (12.5% increase)
  • BMO.TO (3% increase)
  • EMP.TO (9% increase)
  • CAE.TO (10% increase)
  • RY.TO (2.9% increase)
  • CM.TO (2.9% increase)
  • BNS.TO (3.4% increase)
  • FTS.TO (6.1% increase)

While growth in dividends from adding to new and existing positions has been ongoing this year, dividend raises have really made a large difference resulting in over $1,500 in additional dividend income.  The best part is getting these raises without having to do anything!  To put this in context, an extra $1,500 in dividend income is like buying $37,500 worth of dividend stocks that pay a 4% dividend.  That’s an extra $37,500 that I don’t need to generate from savings!

I must admit that there is great comfort in seeing dividends coming in on a consistent basis and even more gratifying in seeing a company raise their dividends.

Most of the new purchases were made in my corporate account which generates the bulk of the dividend income.  For those looking for an update on my wife’s dividend account (represented as the non-registered portfolio in the table) which follows the Dogs of the TSX strategy, there has been very little change but you can see a full 2019 update here.

The dividends in this account are starting to accumulate, so it will be soon time to deploy into an existing or a new position.

With this strategy, you typically buy the highest yielding blue-chip stocks on the TSX (removing old income trusts) and ride it out for the year.  The portfolio (another account with Questrade), generates a consistent dividend and is currently producing $3,450/year.

In our overall portfolio, here are the current top 10 largest holdings (besides cash):

  1. Emera (EMA);
  2. Fortis (FTS);
  3. TransCanada Corp (TRP);
  4. Bell Canada (BCE);
  5. iShares Core MSCI All Country World ex Canada Index ETF (XAW);
  6. Canadian Utilities (CU);
  7. Enbridge (ENB);
  8. Bank of Nova Scotia (BNS);
  9. Royal Bank (RY); and,
  10. Telus (T).

As you can see in detail below, over the last quarter we have increased our dividend income from $50.6k to $53.4k which represents a 5.47% increase quarter over quarter and within 89% of my goal ($60k) and 1.25 years to go.  Here are the details.

September (Q3) 2019 Dividend Income Update

 Account Dividends/year Yield
SM Portfolio $7,750 4.00%
 TFSA 1 $3,720 4.59%
 TFSA 2 $3,900 4.86%
 Non-Registered $3,450 4.26%
 Corporate Portfolio $24,500 3.87%
 RRSP 1 $7,300 2.65%
 RRSP 2 $2,810 2.31%
  • Total Portfolio Value: $1,465,526
  • Total Yield: 3.65%
  • Total Dividends: $53,430/year (+5.47%)

Through a combination of deploying cash and collecting those juicy dividend increases, this quarter has been fairly productive with a 5.47% bump in dividend income.  

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 gains momentum and develops 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.  From what I am reading, an inverted yield curve usually indicates a recession within the next couple of years.

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 top ways to index a portfolio.

Even with all the news of a coming recession, all I can say is bring it on!  Pre-retirement investors should welcome corrections as an opportunity to build that long-term portfolio at lower prices and higher dividends.

In case you missed it in the article above, I have created a presentation about my financial freedom journey for the Canadian Financial Summit.  The video will be free to view for the first 48 hours, you can sign up here.

If you would like to read more articles like this, you can sign up for my free weekly money tips newsletter below (we will never spam you).

35 Comments

  1. May on September 16, 2019 at 4:13 pm

    Another great quarter. Congratulations. It’s amazing to watch how fast you are reaching your target.

    • FT on September 18, 2019 at 10:06 am

      Thanks again May!

  2. Sean on September 16, 2019 at 4:36 pm

    Do you still believe perusing a dividend growth strategy is the best option? If you were starting over again would you take the same path?

    I would be very interested to see how your approach has performed in terms of total returns vs a low cost market weighted index fund.

    • FT on September 18, 2019 at 10:06 am

      Hey Sean!

      It’s a personal decision on how to invest, but I usually recommend that regular investors stick with an indexed strategy. Many years ago, I envisioned myself retiring very early which dividends provide an attractive income option due to the dividend growth, low taxation, and ease of management. However, for people who want to be more hands off, and plan on retiring at a more traditional age, then indexing is by far the best way to go. Our investment strategy has evolved a bit over the years where I use dividends as our Canadian coverage (almost closet indexing due to owning all the larger companies), but indexing for US and international. AS mentioned above, our RESPs, spouses RRSPs, and a portion of my RRSP is indexed. Going forward, I see our portfolio becoming increasingly indexed.

      • Jenn on September 18, 2019 at 5:33 pm

        Hi, what was the reason that you didn’t hold individual US stocks in a US dollar account? Was this because of taxation? Thanks! :)

        • FT on September 21, 2019 at 7:56 pm

          How Jenn, all of my individual US holdings are in my RRSP. This is mostly due to tax efficiency reasons.

  3. Tawcan on September 16, 2019 at 7:08 pm

    Wow that’s fantastic Frugal Trader! You are quite far ahead of us, hopefully we will get to your level in a few years. We probably will end up around $23k.

    • FT on September 18, 2019 at 10:00 am

      Hey Bob! You guys are doing great as well! Imagine if you sold your house and moved to a cheaper housing market!

  4. GYM on September 16, 2019 at 7:15 pm

    Congratulations FT! What a feat and accomplishment especially as a single income family right now! Amazing you got $1500 in dividend raises without having to deploy the $35000+ in capital.

    How are you going to celebrate! ;)

    • FT on September 18, 2019 at 9:59 am

      Thanks GYM! We had some great ramen over the weekend. :)

      • GYM on September 20, 2019 at 4:32 pm

        Mm good choice!

  5. My Own Advisor on September 16, 2019 at 7:28 pm

    Just wow.
    A HUGE congrats my friend.
    I have no other words for you :)
    Mark

    • FT on September 18, 2019 at 9:58 am

      Thanks Mark, you are doing well yourself!

  6. Samantha on September 16, 2019 at 7:44 pm

    This is a very impressive dividend income! I have to re-read some of your older dividend investing posts and get to work :).

    • FT on September 18, 2019 at 9:58 am

      Thanks Samantha, and let me know if you have any questions.

  7. Linda Rocco on September 16, 2019 at 9:37 pm

    As you become more and more focused on dividends (or distributions), how about switching from XAW (wonderful product) to dividend-oriented equivalents ?

    I’m managing some money for my retired parents and decided to ZDV (Canada), ZDY (US) and ZDI (Int) in equal part resulting in a yield of 4.2% paid monthly. I choose BMO’s ETF for their monthly distributions but Ishares and Vanguard have similar ETF’s that would work just as well.

    • FT on September 18, 2019 at 9:58 am

      Hi Linda!
      I already own a lot of XAW, and will continue to add to increase our US/international exposure. As mentioned above, we use a combination of dividend and index ETF investing.

  8. Rahim on September 17, 2019 at 5:13 am

    FIRE = Annual Expenses x 25

    It’s that simple. $1.5M minimum in investments and you are set for your annual $60K goal.

    Your overall portfolio is Canada heavy no?

    Thanks, RK

    • FT on September 18, 2019 at 9:57 am

      Hello Rahim, I’m about 35-40% Canada (personal), but looking to continue increasing US/international exposure.

  9. Emily on September 17, 2019 at 9:12 pm

    I get 2% yield on my VGRO. Good grief.

    Oh well. It is cool to watch your numbers grow. Congrats.

    • FT on September 18, 2019 at 9:56 am

      Nothing wrong with indexing. In fact, our family RESPs, my wife’s RRSP, and the international portion of my RRSP are indexed.

  10. Bob Lin on September 20, 2019 at 12:44 pm

    Congratulations and thank you for sharing your inspiring journey.

  11. Spock on September 21, 2019 at 11:06 am

    Congratulations on your progress.

    Receiving $50K in dividends from a non registered account (taxable account) nets you much more than earning $50K in salary as there are no payroll taxes and income can be split on joint accounts.

    Throw in the dividend tax credit on eligible dividends and you have so much more in pocket.

    I noticed that a lot of the dividends are from Canadian companies. In all likelihood these dividends are eligible dividends (higher gross up than non eligible dividends).

    If both were not working & had no other income then each of you could earn upwards of $45K for a total of $90K+ from eligible dividends (from taxable account) which would be completely tax free. This amount varies by province .. around $47,900 tax free in Ontario. Around $56K tax free in BC if memory serves me correctly.

    Best wishes.

    • FT on September 21, 2019 at 7:54 pm

      Hey Spock!

      Thanks for the tax tips, and yes, I’m aware of the tax advantages of eligible dividends. As you mentioned, this is compounded if you have a spouse with proper account structure.

  12. Mark on September 24, 2019 at 12:01 pm

    What strategies have you used or plan to use to mitigate the dreaded OAS ”Recovery Tax” (aka claw back) when you plan to start collecting OAS at/and/or beyond 65?

  13. Joseph on September 28, 2019 at 1:38 pm

    Well Done!

    I’m curious what is your corporate portfolio?

    • FT on September 29, 2019 at 1:49 pm

      Hey Josh, thanks! Our corporate portfolio is composed of Canadian dividend stocks, and a US index ETF.

  14. Kari on October 3, 2019 at 12:33 pm

    This is a very impressive dividend income! Our focus currently is capital growth in RRSPs, but I’m starting to think about a shift to dividend income.

    • FT on October 3, 2019 at 2:45 pm

      Thanks Kari! If you have a long timeline until retirement, I would suggest to focus on total return, rather than just dividend income. However, if you plan on retiring soon, then spending only the cash flow/dividends is a safe bet!

  15. Chris on October 9, 2019 at 10:44 pm

    Hi FT,

    Wow, great work. You might have mentioned this somewhere but do you drip your Canadian dividends? So you know what they are, but then quite simply they drop back into the stocks they were derived from to bulk up your holding? I think you imply this when you talk about compounding?

    I’m thinking of moving my tfsa’s and my non-registered (if I get there) to Canadian dividend stocks. As I understand it this maximizes my tax efficiency on the revenues. More reading to do, I know.

    Thanks!

    • FT on October 14, 2019 at 3:38 pm

      Hey Chris!

      Thanks! I do not DRIP my dividends, I collect the cash and re-invest where the opportunities are. Also, there is no tax benefit of Canadian dividends within your TFSA. Before looking to Canadian dividends, make sure you are internationally diversified, then consider your Canadian dividends as your Canadian allocation. Keep those international holdings in your RRSP/TFSA, then your Canadian dividends outside (assuming that your rrsp/tfsa is maxed out).

  16. Bob Lin on October 14, 2019 at 7:14 pm

    Fantastic progress, FT.

    Should we (or perhaps are you) concerned about having all of your eggs in one basket? I mean, all the funds in just one brokerage!

    • FT on October 15, 2019 at 4:07 pm

      Hi Bob! We have a number of brokerage accounts; Questrade, CIBC, BMO and iTrade. Too many really. But each brokerage is insured up to $1M CIPF.

      • Bob Lin on October 17, 2019 at 10:28 am

        OK, so it’s not just me. It erks me paying $9.95 in my BMO account to purchase index ETFs that I can buy for pennies is Questrade.

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