Taking The Market Out Of The Equation With My Wonderful Dividend Growth Rate.

Includes: APPL, BLK, BRK.B
by: Dale Roberts

The beautiful thing about generous and growing dividends is that you can replace stock market price risk with dividend sustainability risk.

The stock prices can fluctuate all they want, your income stream might increase and keep moving in a steady positive direction.

Of course there are still risks. Dividends can get cut and dividend growth can stall.

As a semi-retiree I am more than encouraged when I see my recent 10% dividend growth rate.

As my readers will know, I left my full time paycheque in June of 2018 to begin my new life-work stage that includes some freelance writing and the operation of my own site.

The strategy of my early semi retirement, I was 55 when I left Tangerine, was that my investments will cover half of my contributions to the family finances, and writing and blogging income would cover the other half. I still need to earn half a living. And that said, my contribution to the family finances will be modest. That's possible because we practiced some of the basic principles of successful family financial planning. We paid off our mortgage and vehicle debts over the last few years. We have no other payments for debt. Our living expenses are quite low as both my wife and me and not big spenders.

Setting the stage for an early retirement or any kind of successful retirement often means carrying no debt, and reasonable spending plans. And as it demonstrated in Retirement Income For Life: Getting More Without Saving More, many regular costs can be stripped away in retirement, and as we approach retirement. Our spending needs can decrease tremendously.

The big juicy dividends are picking up most of the tab.

The core of my personal portfolio is my Canadian Dividend Growth Wide Moat 7. It's certainly a concentrated portfolio of Canadian banks, telco's and energy/pipelines. I do not expose my wife's account to that concentration risks, in her largest account we use Vanguard's High Dividend Yield Fund, VDY on the Toronto Stock Exchange. In the spousal account she still holds a modest amount of iShares TSX 60 fund XIU.

For our US funds I skimmed the Dividend Achievers Index and hold 15 of the largest cap constituents from early 2015. We also have 3 picks by the way of (OTC:APPL), Berkshire Hathaway (BRK.B) and BlackRock (BLK).

The core driver for my portfolio is the generous and growing dividends of that Wide Moat 7. It's perhaps fortunate that many of the long-term dividend payers in Canada pay big dividends that also offer some more-than-solid dividend growth. I did not seek income in Canada, it found me. I simply wanted companies that presented an obvious wide moat and the potential for dividend sustainability. I wanted to take stock market price risk out of the equation, as much as possible.

Here's the dividend growth rate of the Wide Moat 7 from 2014, with dividend reinvestments. The chart is courtesy of portfoliovisualizer.com.

The annual dividend growth rate is embarrassingly good. Yes past performance does not guarantee future returns. For example, with dividend reinvestment the dividend stream increased 14.5% in 2018 from 2017. Imagine the growth if you're also adding new monies on a regular schedule? I like to call that triple compounding.

And here's how the dividend growth rate looks without dividend reinvestment. Of course this would be the scenario when we are spending the dividends and not reinvesting the dividends to buy more shares and greater dividends.

The dividend growth rate is still very generous and very near 10% annual. In 2018 we saw a 9.7% dividend increase. Imagine that? Getting a near 10% raise every year (potentially) from your personal self-directed pension?

And thanks to ca.DividendInvestor.com we can have a look at the recent dividend history of the 7 constituents.




Bell Canada

TD Bank


Royal Bank of Canada

On the Dividend Stocks Rock page you'll also find that the Wide Moat 7 all have at least 4 or of 5 stars in each category for overall Pro Rating and dividend health rating. Of course, this site is the work of the popular Seeking Alpha write, Mike The Dividend Guy.

For more on one of the Wide Moat holdings and other considerations here's Sure Dividend with their Top 3 Canadian Picks.

And recently I was optimistic that I may create enough income so that I can reinvest some of the dividends. Here's I Did Something I Haven't Done In A Year: I Made A Stock Purchase.

That Dividend Growth Can Really Add Up

If a group of companies is able to increase dividends at an average of 9% or 10% annual, they would of course be able to double the dividends within 10 years. But of course we should recognize that the longer a company pays and increases its dividend the more challenging it can become to maintain a very aggressive dividend growth rate. Seeking Alpha author Robert Allan Schwartz has done some nice work in this area. More mature companies can struggle to maintain the same growth prospects over time.

All said I'd be more than happy if the group slipped to 7%, 6%, 5% over time. My portfolio will not be a main source of income once we downsize our home. Our Toronto home has become out accidental investment.

And over the next few years I am not averse to creating more homemade dividends. My US holdings are dividend growth oriented but they do not deliver generous dividends. I will use a combination of dividends and share harvesting to create income from our US stocks. Last year I harvested Apple shares to fund two trips to Prince Edward Island.

PEI Marina While I love income, I am aware that in the end it is the total return picture that will determine our financial future and the future inheritance for our kids.

For now I'm happy to have that core Canadian growing income stream. As these companies pay out a considerable amount of their free cash flow, I am able to immediately benefit from their business success. I don't need the market to cooperate with higher stock prices.

Please share your thoughts on dividends and dividend growth for the accumulation and retirement stages.

Author's note: Thanks for reading. Please always know and invest within your risk tolerance level. Always know all tax implications and consequences. If you liked this article, please hit that "Like" button. Hit "Follow" to receive notices of future articles.

Disclosure: I am/we are long BNS, TD, RY, AAPL, BCE, TU, ENB, TRP, CVS, WBA, MSFT, MMM, CL, JNJ, QCOM, MDT, BRK.B, ABT, BLK, WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.