Wednesday, May 9

The Dividend Project - Setting Income Goals

Middle Class Millionaire commented that he liked my previous post where I related my new dividend income to my property taxes. This made me realize that it's an idea that I really like too - sometimes I just come up with these things and don't fully stop to see whether they are any good or not. So here are my first dividend income goals:

1. Property taxes - $210/month
2. Utilities - $350/month
3. Phone (land and cellular and internet service) - $140/month

This comes to $700 per month or $2100 per quarter. If I was able to buy dividend payers that average a 3% yield then I could do this with an initial investment of $70,000, which by coincidence is how much I have available to invest. However, I suspect that I might fall short because not all of the quality stocks pay that high.

I bought 300 more BMO when it went down further today (at 67.58 to average my cost including commissions down to 67.85 per share) which means that I now have $272 per quarter of dividend income. I think that's enough bank exposure for me now, so I think I will stop following the market movements too closely on those (I don't want to get depressed if it drops again either!).

WIth respect to my portfolio composition, I also want that to be influenced by my own living expenses to a degree. That means that in addition to the banks I am looking at some energy/utilities, and I would like to add a large consumer stock next. JNJ, WMT and HD are the three that I am watching. I will pull together some numbers on them soon and post about it.


moneygardener (AKA investor99) said...

I am looking forward to your analysis on HD and JNJ, which I follow. I would not consider JNJ to be a 'consumer company' although they obviously have some exposure to consumer products. It is more of a healthcare company.

I believe HD and JNJ are both undervalued at the price at which they trade today. I could go on and on about both companies....

I own JNJ and I came very close to pulling the trigger on HD several times. Financially, you won't find many better companies except maybe Walgreens (WAG).

mOOm said...

If all you care about are dividends it doesn't matter what happens to the stock price :) Unless it is so bad that it signals that the dividend might be cut. said...

If you're looking at international exposure, keep your eye on Procter and Gamble too (PG).

Gwaine said...

First of all...I love your blog! It's regular read for me. :)

Just a would be nice to get dividend income from stocks that are closely correlated with your expenses. Say a good chunk of your utilities expense is from natural gas. You could then invest in companies that will do well when natural gas prices rise. Your utility bill will rise but so will your dividends which will offset change in natural gas price.


0xCC said...

Unless you are investing in the US companies (JNJ and HD) inside an RRSP you have to watch out for taxes on the dividends from those companies. Dividends from non-Canadain companies are treated just like regular income and taxed at your marginal rate. Also, the US feds take a percentage of the dividend income before you see it (I think it is 15% but I'm not sure).

The cool thing about good companies that pay dividends is that the really good companies have a habit of increasing their dividends on a regular basis. I think the Canadian banks increase their dividends on average between 7 and 10 per cent a year. So unless your property taxes, utilities and phone bill are going up that fast (can you imagine the uproar if property taxes increase 8% in one year?) even if you don't get enough dividend income to cover those bills today, in a few years you should find that you do have enough. You can also juice up those dividends even more by using a Dividend Re-Investment Program (DRIP) that will allow you to buy additional shares of the company using the dividends from that company (and you don't pay any commisions to do that). I know that TD Waterhouse allows you to do this, but only for whole shares (if a share is trading for $50 and you get $60 in dividends you won't get 1.2 shares, you'll get 1 share and $10 left over) but if you enroll directly with the company you can get fractional shares. Of course, enrolling in a DRIP assumes you don't actually need the cash to pay your bills...

Kris said...

Just a quick question about you dividend math:
Isn't 3% the annual dividend yield not the quarterly yield. That would mean you'd need 8400$/yr to achieve 2100$/Qtr... and that would require an initial investment of 280,000$..

Am I missing something?


the money diva said...

kris -- I think that you are right. I have $272 per quarter now at a cost to purchase of $27,140 so to get to $2100 at the same 4% yield would be $210,000 and therefore your $280,000 at 3% makes sense. Thanks for keeping me honest! The mountain just got a whole lot bigger though!!

Oxcc -- my accountant tells me that since I am investing inside an incorporated company my taxation of foreign dividends is just as preferential as that of Canadian dividends.

gwaine -- you must have read my mind! This is exactly where I am heading. I suppose it's a kind of hedging, although I won't be that formal about it.

Thanks for the comments, everyone!


smihaila said...

Regarding energy stocks, what about HSE-T?