Today, I proudly present a very special interview with you! Last time, we talked about FIRE in Europe with The FIRE Engine. But today, it’s all about dividend investing. Those of you, who follow this blog regularly know that I’ve been into dividend investing since the start of the year. I think, I already know a thing or two but it’s obvious that there are more sophisticated dividend investors out there.
With that said, today, I want to share with you an interview about dividend investing with the Dividend Investor (DI) who blogs on dividendinvestorweb.blog. He’s not just any investor but the guy who inspired me to start dividend investing and shared with me great books to get started. My whole journey to create a cash flow of passive income with dividends, everything I learned about dividend growth investing and already 60€ in paid dividends started with this guy! He also has a great YouTube channel for those who prefer to consume video content. He also managed to receive more than $10,000 in dividends in just 3 years of focusing on that strategy.
He’s definitely a guy who knows what he’s talking about. So without further ado, let’s dive in.
Question #1: Tell us a little bit more about you
Note by Sir Budget: I know that this is actually not even a question
I’m a 29-year-old from New-Brunswick. I was born and raised in NB but moved to Quebec 5 years ago to pursue higher education. I consider myself as being given many financial advantages early on in life. Both of my parents are in the middle class and they’ve never been big spenders. My family kept a low maintenance life throughout my childhood and as a result, my parents were able to save quite a bit. Learning to be low-maintenance was the first advantage. The second advantage was the fact that my education was mostly paid for by my parents. Despite having been through many years of university, I’ve accumulated “relatively” “little” debt. Still north of 100k…
I opened up my first bank account at TD when I was 4 years old. I was already very keen to learn all I could about money. I wanted to gather as much as I could. Probably inspired by Scrooge McDuck…
Whenever I see my childhood babysitter nowadays, she always tells me how surprised she is that I didn’t become an accountant. I would count my little stacks of pennies, nickels, and dimes up to 3 times a day. Always making sure the total amount was higher than the last time. Flipping couch cushions, looking under rugs and scanning the sidewalks looking for whatever I could add to my piles.
At a young age, my father would give me chores to do around the house for a $5/week salary. Next thing you know I had over $300 in my bank account. I was so focused on seeing that number grow. I look back now and realize I was much more disciplined as a child…
I guess you can say I was always taking care of my money, and still am of course! I really started investing back in 2013. I put some money into my TFSA and held 5 mutual funds. Money Market, Canadian Index, US Index, Canadian Bond Index, and Int’l Index. I would rebalance once every month or so. Selling the higher positions to buy some of the lower ones, always maintaining a fixed proportion of each. That first year I made +15.76%. I was sold. (I know, the blue chips ended with +26.5% that year). I wasn’t the best surfer in the ocean but at least my feet were wet, and it felt good.
The next year I bought stocks for the first time and since then I’ve progressively transitioned to an all-stock portfolio. I was even temporarily in General Electric (GE) for a short time, which believe it or not, I sold for a profit!
In 2016 is when I really started to focus on dividends. My yearly dividend totals are summed up as follows:
- 2014: $12.43
- 2015: $78.30
- 2016: $920.47
- 2017: $4,777.95
- 2018: $7,779.16
- 2019 so far: roughly $4,500 (goal: $10,000)
Note by Sir Budget: These are impressive dividends! Just don’t get fooled by the numbers above. Dividend investing is not a get-rich-quick-strategy. If you want to have returns equal to DI, you need to put a lot of commitment into it! But even if you can’t match his results, you can easily achieve financial freedom with dividend growth investing. Just let compounding do its work.
Question #2: What is dividend investing?
Dividend investing is choosing a portfolio made up of high-quality dividend-paying stocks. The focus here is trying to find companies with a respectable initial yield, a decent (and sustained) dividend growth rate, a dependable history of continuously raising their dividends, a well-kept balance sheet and low payout ratio that gives them enough breathing room to further increase the dividend year after year.
Dividends are meant to be boring, slow, and unexciting. They are meant to be lower risk and provide you with regular returns.
The true power of dividend investing is the dividend RE-investing that leads to compounding over the long run. Returns can then become exponential. Other sources of exponential returns are the dividend raises themselves, the stock price appreciation, and the DRIP (Dividend ReInvestment Plan) discounts that are sometimes attributed to stockholders. These can go from 1-5%.
Much like a farmer who works tirelessly to sow his seeds only to reap the benefits much later on. The sum of money invested will obviously reflect the dividend returns so better start early on. Work now, relax later. I think the ultimate goal for any dividend investor is to reproduce their current paycheck from the dividends they receive, so they can continue to enjoy fully “employed” retirement.
Question #3: When did you start to invest in dividend stocks? And why?
See above in Question #1 for the time, 2013.
I really started investing in dividend stock after being exposed to stocks for roughly 1-2 years. I realized that the exponential gains were most in line with my way of thinking. I was (and still am) young enough to have a very long-term goal. I can’t predict what the market will do tomorrow, next year, or next decade. All I know is that stocks with a history of continuously raising their dividends suffer the least during market downturns.
Simply put, dividends are what I understand best. They are the cold hard cash that is deposited straight into my account on a regular basis.
The fun thing about dividend stocks is that they aren’t one-dimensional. You can pick a great dividend stock for its dividend growth, or for its value, or both. To some people, dividends are just a bonus. To others, dividends are the whole point. To me, it’s a little of both.
Question #4: How can I find a good dividend company?
The first thing I do is find a market, then a sector, then start looking at dividend-paying companies. The main question for me is: Can people live without this product? I really want to find something people usually purchase not by choice, but by necessity. Examples include the death industry (people won’t just stop dying) as represented in my portfolio by Park Lawn Corp and the aging population (with all its consequences) as represented in my portfolio by Sienna Senior Living, Medical Facilities, Savaria, Abbvie, and Omega Healthcare.
I wanted to increase my international exposure and realized I had no big pharma (people will still need drugs, and likely more, in 30 years) in my portfolio. Since most big pharma stocks are international, that’s where I started. Two birds, one stone. Next, as I’ve mentioned above, I look at the initial yield, payout ratio, 10-year DGR (Dividend Growth Rate), 5-year DGR, 5/10 ratio, etc.
Once I find a company that suits me based on roughly (these aren’t rules, I break them all the time):
- Yield > 3%
- Payout Ratio < 65%
- 10-year DGR: > 5-6%
- 5/10 ratio: > 1
Then, I look at the product directly. What are they making/selling? To who? Why? What is the demand and where will the demand be in 30 years? Who are the competitors? What’s in the pipeline?
Then if all is good, I look at the past performance and the balance sheet. Have the assets been increasing by more than the liabilities? What are the FCF (free cash flow) trends? What are the YoY (Year over Year) income and profit changes?
Then, I have to see if the current price is a bargain or not. I usually keep it pretty basic at this point, since I don’t spend too much time looking at the entry point. I believe any decent stock will be much higher in 30 years. I look at street consensus, interviews (BNN/Bloomberg), and the 2-year charts. All I try to avoid is buying at a 2-year high.
Question #5: Do you use other investing strategies as well?
E.g. investing in index funds or real estate? If not, how do you diversify your portfolio (if you do so)
I’m mostly sticking to the dividend investing for now. I do experiment with penny stock recently.
I’m holding a position in Far Resources (FAT) and Imagin Medical (IME). They’re doing ok at -20% and +50% respectively. I’m trying not to look at it too much and keep a long-term horizon. I’ll most likely sell if they ever reach 100-200% profit. If that never happens then so be it.
I don’t think I’ll ever do this again, though. As Buffett said: “Rule #1: Don’t lose money”
As for my dividend portfolio, I try to keep it mildly diversified. Anyone looking at it would see I’m either blind or stupid for thinking it’s diversified. But I did say “mildly”. There is a reasoning behind this. The whole reason I’m picking my own stock is to try and gain an edge over Dividend ETFs or Mutual Funds. The more I diversified, the more pointless the whole exercise becomes. I might as well but buy a single low fee fund or ETF and save myself the trouble. When you don’t know what to buy, buy everything.
I do love stock picking and might naively think I’m actually OK at it and that I actually know what I should be buying. Time will tell. Whenever I do get closer to retirement I will eventually switch to a more conservative low fee fund/ETF strategy.
My top 3 holdings represent more than 60% of my entire portfolio.
Question #6: What are your tips for beginning dividend investors?
Without wanting to sound like your grandfather, the best advice is to invest in yourself. Don’t be scared of the word “investing”. Know yourself and know what kind of investment strategy suits you.
Note by Sir Budget: I agree heavily on that! I would most guys simply suggest buying index funds. It doesn’t take much time and you will mostly have solid returns. Index funds are the 80:20/pareto-principle investing strategy. However, personally, I prefer having the cash flow from dividends. So, you must find your own style.
Start young, even if you invest $50 during the first year. Nothing will teach you faster or better than getting your hands dirty, making a few mistakes, picking which fund/ETF/stock you want yourself and asking yourself why you picked it.
The most important part is to be curious. When reading annual statements and reports, I always find myself looking back at definitions and meanings. If I’m looking at numbers and don’t know what they mean, I’m headed to Google for a good old learning session. No one will ever care more about your finances than you.