As someone who plans to live off my dividends one day, I wanted to share with you my approach on this dividend investing strategy of mine! Simply put, I invest for dividends and cash flow! While I sleep at night, dividend cheques keep flowing my way — just like ocean waves that hit the shore! These are cheques that I can use to pay my bills! …imagine that!
I just LOVE this strategy, because it provides additional PASSIVE income without lifting a finger!
While dividend stocks might NOT be for everyone, I have particular reasons why I chose this strategy. But before I get into it, I’d like to introduce you to a familiar face on TV! — Kevin O’Leary — the man who solidified my dividend investing strategy in place! Yes, while I’m a big fan of his charades in Shark Tank, I really admire this guy’s investing philosophy! He truly influenced my approach and changed my investment philosophy forever! Plus, I was also so stoked to find out that Kevin and I actually have quite a bit in common! We both play the guitar and we both LOVE photography!
Have a listen at Kevin O’Leary’s investing philosophy and where it all began:
But why do people shrug their shoulders when it comes to Dividend paying stocks?
Simply put, they are BORING! The growth on these stocks are SLOW and steady! Most other people believe that they can simply make their own “dividends” by selling their non-dividend-paying-stocks in the future when they appreciate in price!
These are called GROWTH STOCKS!
I can definitely see the merit for these growth stocks (and sometimes, believe it or not, has its place in one’s portfolio!), but I’ll tell you what, just like Kevin O’leary himself…I like BORING! Why? Because slow and steady wins the race!
“A stock that doesn’t pay a dividend is a speculation. It’s not an investment.”
Kevin O’Leary
When he said this, a light bulb just lit inside of me! Tell me something…. Can I pay my bills in the future using a mere SPECULATION??! Perhaps… But that feels more like a coin flip at that point! I would rather be in control of my finances and make sure I can pay my bills when the time comes, regardless of market conditions! And that’s the dividend investing way!
For me at least, my goal is to NEVER sell stocks. I’d like to buy stocks and hold them forever! It’s to see those dividends increase over time and eventually take those dividends to live off them and cover my living expenses!
But here is ONE RULE you should look up to when using this dividend investing strategy…
Never touch the principle! EVER!! Only touch the interest the stock gives you!
What is the SNOWBALL EFFECT?
The “snowball effect” happens when you reinvest the dividends being paid out to you back into the stocks you bought! Through the power of COMPOUND INTEREST (dubbed “the 8th wonder of the world” by Albert Einstein), it will grow over time!
But don’t just expect things to just happen overnight! First it starts slow then it grows and grows bigger like a giant snowball! So just be patient as you begin your investing journey.
My biggest reason for this strategy
There is a tax benefit for dividend stock investing in Canada and in some cases, totally tax free!!!
However, there is a lot of confusion on how this works! It’s not exactly clear cut! And I really don’t like dealing with taxes, but to help explain things better, here is a very interesting article by MoneySense, explaining it in detail!
There is also a very popular article by the Financial Post, showing how you can earn $50,000 in tax-free dividends, but there’s a catch: You can’t have a job! While this might not matter now, this surely becomes EXTREMELY IMPORTANT during retirement! Imagine raking in those dividend cheques without paying much taxes! Take this in contrast to someone who sells off their stocks during retirement just to pay their everyday bills, who then ends up paying much more taxes on Capital Gains!
The bottom line is that dividend income gets taxed LOWER than most other types of income and you may qualify for government rebates when tax time rolls around! So the game plan is, while I’m younger, I plan to simply build and amass a dividend portfolio that I can eventually live off on!
“Dividend investing sounds great, but how do I know what stocks to buy?”
A little disclaimer: Needless to say, I am NOT a professional financial advisor and the contents found here are surely NOT professional financial advice. It goes without saying to do your own research and due diligence. Again, my goal is to hopefully point you in the right direction and spark some interest on the matter, since they are essential to one’s financial independence journey in Canada!
Thanks to my fellow Canadian finance blogger from Vancouver, Bob at Tawcan.com, he shares a pretty detailed list on his all time favorite go-to’s in Canada and why he chose them! These are his TOP 10 buy & hold forever Canadian stock picks! I too love those names he listed, as we own about 80% of the stocks on that list as well!
Still want more beyond the 10 Canadian stocks? Bob also shares his entire portfolio list below:
QUICK TIP: Be sure to also check out my blog post on TFSA vs RRSP — because you’re gonna want to know WHAT bucket to use to buy certain stocks with and WHY!
Other Options
Hmmmm…but maybe you don’t need to go through all that trouble and pick stocks one by one! Let me introduce you to the K.I.S.S. (stands for “keep it simple, stupid!”) method of dividend investing… it’s Investing with ETF’s! This TURNS OFF “complicated” and TURNS ON “simple”!
We’ll talk about that more in my next topic!
