Thursday, July 27, 2017

Dividend Growth Investing My Way To Financial Freedom

About the Author: FT is the founder, editor, and blogger behind Million Dollar Journey (est. 2006). Through various financial strategies outlined on, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014 - at the age of 35. Since 2014, he has been on a new mission of growing his passive income through dividend growth investing to the point of exceeding his recurring expenses within the next couple of years.

Hello DGI readers, it's an honor to write for a site dedicated to dividend growth investing. When I started my blog in 2006, I was a few years out of school and was getting serious about building wealth. I dabbled in real estate investing, online trading, and even buying and selling online. While those can be some lucrative strategies, what really worked for me was the simple strategy of saving and investing the proceeds, which is what ultimately as grown our net worth the most over the years.

There are many methods of saving money and I have probably tried most of them. However, I have learned to focus on the strategies that have the biggest impact. For us, it was delaying lifestyle inflation as much as possible while banking those raises. The act of keeping life simpler than our peers allowed us to generate healthy monthly cash flow. We initially used the cash flow to pay off debt (student loans and mortgage) but after, we focused on investing. Although we eventually upgraded our housing and even our vehicles when we had kids, we continue to live below our means and build our net worth.

After reaching millionaire status when I was 35, I shifted focus from growing net worth to growing passive income sources. Having the choice to work at something that I'm interested in without having to worry about how much I'm going to be paid resonates with me. Not worry about money? How is this possible you say? Through creating stable and predictable passive income streams that require very little work. For some, it may be a real estate rental business, or some other type of business. I've tried a lot of different strategies and I've discovered that dividend investing works the best for me.

Why Dividend Growth Investing

As I mentioned, my main financial focus right now is growing my passive income sources, but why did I choose dividend growth investing as my main source of income?
  1. It produces a passive income stream that is inflation protected. Essentially, I'm building an indexed pension for myself with the added benefit of keeping the capital. The positions that I pick (see below) have a history of dividend increases with management committed to increases going forward.
  2. It promotes long term investing. The broad market has proven to go up in value over the long term (15+ year periods), but investors are often tempted to sell during dramatic market sell offs (think 2008). In order to benefit from the market over the long term, buying and holding quality positions are the best bet. Dividend investors tend to buy and hold quality positions for the increasing dividends which enable them to reap the rewards of long term market gains.
  3. Dividends are tax efficient. Similar to the U.S investors, Canadian investors get preferential tax treatment on eligible Canadian dividends. The reason is that companies pay out dividends after paying taxes. This reduces the taxation on shareholder which aligns with the government policy of reducing double taxation. It works out that investors in Canada can make up to $45k in eligible dividends and pay $0 income tax (providing that you have no other income). This is a win for those going for early retirement before government retirement benefits kick in.

Top 10 Holdings

As promised here are my top 10 dividend paying holdings by country.

  1. Bank of Nova Scotia (BNS)
  2. TransCanada Corp (TRP)
  3. BCE Inc (BCE)
  4. Fortis Inc (FTS)
  5. Emera (EMA)
  6. Canadian Utilities (CU)
  7. Enbridge (ENB)
  8. Royal Bank (RY)
  9. Rogers Communications (RCI.B)
  10. Manulife (MFC)
  1. Visa Inc (V)
  2. Deere & Co (DE)
  3. Mcdonalds Corp (MCD)
  4. Microsoft Corp (MSFT)
  5. CSX Corporation (CSX)
  6. Emerson Electric (EMR)
  7. Unilever (UL)
  8. Proctor & Gamble Co (PG)
  9. Verizon Communications (VZ)
  10. Caterpillar Inc (CAT)

How to build your own portfolio?

I'm sure that a lot of you have started building your dividend portfolio, but what are my guidelines for buying dividend stocks? At a high level, I consider: sector diversification; dividend growth history; earnings history; yield above 2%; and market cap. For those who don't want the fuss of picking individual stocks, there are a number of strong dividend ETFs that would be a strong alternative.

For more detail, here is a recent article I wrote on how to build a dividend growth portfolio.

Disclaimer: This email should be used for informational purposes only and should not replace the advice of a financial professional.

Relevant Articles:

Focus on Dividend Growth for Long Term Results
How to think like a long term dividend investor
Dividend Growth Stocks Protect Investors from Inflation

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