Welcome to the Million Dollar Journey December 2017 Financial Freedom Update – the final 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.  All within the next 5 3 years.

If you would like to follow my latest financial journey, you can get my updates sent directly to your email, via Twitter (where I have been more active lately) and/or you can sign up for the monthly Million Dollar Journey Newsletter.

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:

Financial Goals

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.

Previous Update

To give you context for this update, here are the numbers in my previous financial freedom update.

September 2017 Dividend Income Update

 Account Dividends/year Yield on Cost
SM Portfolio $6,400 4.35%
 TFSA 1 $2,400 4.90%
 TFSA 2 $2,750 4.87%
 Non-Registered $210 1.37%
 Corporate Portfolio $11,700 3.62%
 RRSP 1 $5,850 3.72%
 RRSP 2 $1,100 2.36%
  • Total Invested: $795,071
  • Total Yield on Cost: 3.82%
  • Total Dividends: $30,410/year (+5.74%)

Current Update

In September, I wrote about being laid off for about 30 seconds from my government job after which I was given a temporary position for a few months.  The quarter has passed and I was given an extension for another quarter.

Since that time, I’ve been in talks with a number of potential employers, mostly from my professional network which has resulted in a number of leads.  Looking back through my career since graduating with my Engineering degree, my experience has shown that building a network is extremely important in career development.  In fact, I’ve had 3 careers since that time, and all three have been a result of utilizing my network.  Now I’m on my way to my fourth (maybe final?) chapter in my career – perhaps I’ll have some news on this in the next quarterly update.

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.  For example, look at what happened to Home Capital Group (HCG) earlier this year.

HCG is a secondary lender who had a very strong track record of dividend increases (18 years in a row).  HCG funded their mortgages through client deposits into GICs and high-interest savings accounts.  With the company under investigation, client essentially made a run at the bank and essentially wiped out HCG’s high-interest savings balance.   To help stop the bleeding, HCG obtained a very expensive line of credit.   The deal was so expensive that it could end up wiping out a full year of earnings.  In light of this, the company suspended their dividends in May.

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, 2017 did not disappoint.  There have been dividend increases throughout the year in my portfolio.  I have received raises from (there may be more that didn’t make this list):

  • TD Bank (TD); Scotiabank (BNS); Magna (MG);  Royal Bank (RY); CIBC (CM); Bank of Montreal (BMO); National Bank (NA);  TransCanada (TRP); Great-West Life (GWO); Thomson Reuters (TRI); Manulife (MFC); BCE (BCE); Telus (T); Enbridge (ENB); Enbridge Income Fund (ENF); Canadian Utilities (CU); Canadian National Railway (CNR); Canadian Pacific Railway (CP); Exco Technologies (XTC); Suncor (SU); Thompson Reuters (TRI); Leons Furniture (LNF); First National Financial (FN); Power Financial (PWF);  Transcontinental (TCL.A); Imperial Oil (IMO); George Weston (WN); Loblaws (L); Sun Life (SLF); CAE (CAE); Canadian Western Bank (CWB); Fortis (FTS); Empire (EMP.A); Emera (EMA); Finning (FTT); and, Metro (MRU).

In addition to the dividend raises, I’ve continued to deploy cash into dividend stocks.  What has really impacted this update is the creation of 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.

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

  1. Enbridge (ENB);
  2. Bell Canada (BCE);
  3. Bank of Nova Scotia (BNS);
  4. TransCanada Corp (TRP);
  5. Fortis (FTS);
  6. Canadian Utilities (CU);
  7. Emera (EMA);
  8. CIBC (CM);
  9. iShares Core MSCI All Country World ex Canada Index ETF (XAW) (mostly from my wife’s RRSP);
  10. Royal Bank of Canada (RY).

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 gain).

December 2017 Dividend Income Update

 Account Dividends/year Yield
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%)

Through a combination of deploying cash, starting a new non-registered portfolio with savings, and collecting those juicy dividend increases, this quarter has been productive with a 9.82% bump in dividend income.  I really do enjoy watching those dividends flow into the accounts.

I ended 2016 with around $23,636/year in dividends, and I’m pleased finishing 2017 with dividends of $33,397 – almost a $10k increase year over year.  Although I didn’t quite meet the lofty goal of $35k this year (although there still is a bit of time left), it was pretty darn close!  My plan is to keep the same pace and hit $45k in dividend income by the end of 2018.

We still have a long way to go to hit $60k, but for the most part, we are moving in the right direction in surpassing the midway point of my long-term goal.  There is still cash available to deploy in most of our accounts. In particular, the lump sum of cash from the commuted values of the pensions has started to be invested but still has a significant amount left to deploy.

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.

I hope that you also had a great financial year in 2017, and here’s to health, wealth and happiness in 2018!

 

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