After a long bull market, everyone starts to talk about next market crash. A very few financial experts have been calling for a bear market for last couple of years, but U.S market is still in upward mood.
Canadian market has already experienced a bear market not long ago after the oil price crash- in 2015 and early 2016. It may experience a downward pressure again if U.S markets experience the selling pressure.
It seems like Canadian stock market is a sensitive one and it reacts for everything because of its poor diversification.
As an income focus dividend investor, share price fluctuation does not really matter to me, but dividends are matters.
Since I am still in the early stage of investing, I get excited when my favourite dividend stock gets hammered by a temporary bad news.
Over the last couple of years, I have been building a pure passive income streams using diversified high quality dividend growth stocks.
This dividend growth strategy worked well for so many investors in the past, and I continue to believe it will work well in the future too.
So far, this strategy works well for me.
Please do understand that past performance does not necessarily predict future results, so do your own research or discuss with a qualified financial advisor before consider using the information on this website.
I have been documenting everything on this website. This helps to me track my activities and performances, and at the same time inspire (I hope) people to start think about their own journey to become financially free.
As many of you know, I am a buy and hold investor. Therefore, I buy high quality stocks at reasonable price and hold them for long-term (most them forever) and collect growing dividend income.
This is one of the proven strategies to build wealth and create a growing cash-flow for life. In order to harvest the actual results, this strategy takes time, discipline and patience.
Again, this is not the only way to build wealth. There are so many other ways too. Some people prefer day or swing trading, some prefer option trading and some investors good with picking high growth stocks that double or triple in few years. And, some prefer to have online income.
But, I am a boring guy. I like the boring approach like slow, but steady growth.
I have over $200K portfolio with over 65 different companies in 10 different sectors. But, I don’t monitor them every day. I don’t have time to watch my stocks move ups and downs for every single minute. Even if I have some time watch them, I won’t do anything. So, I better spend my time with family and friends instead of adding unwanted stress in my life.
Some stocks perform well in some days, while others go down, and vice versa. Over the long-term, most of them do well.
If you look at my passive income report, my estimated yearly passive income has increased from $3432 in February 2014 to $7416 in February 2017, which is 116% growth in around 3 years period.
It translates to 38.67% annual growth.
The growth is combination of new capital, dividend growth and dividend reinvestment.
I may not replicate the similar growth for another three to five years, but I will get somewhere close to this number.
My goal is to increase this passive income stream by 20% annually. If I can successfully excute this plan, my estimated passive income will be around $30 000 per year in December 2024 – in 7 years. (My actual financial goal is have $25 000 dividend income per year by December 2024. I am just adding a margin of safety here.)
I strongly believe I can achieve this goal by investing in dividend growth stocks. Of course, I need to put new capital because the 20% growth is not realistic with just dividend growth alone.
Many people may think that 5-7 years is very long time, but it is not. Time will fly. And, whether you like it or not, time won’t stop for you.
Take a moment and just think what you were thinking about to achieve in March 2012. Can you believe we passed 5 years now (March 2017)?
Whether you like it or not, March 2020 will come in three years. Some of you may still be thinking about where to start and how to get rich quicker in one year or less. At the same-time, for those slow and steady growers will be passing the year with collecting growing dividends and allocating their cash-flow to accumulate more cash generating assets.
For sure, my investments assets will go through bumpy rides during bad economic periods. But, I believe my dividend income streams will be steady and grow year-over-year. This is what I experienced in the past, and I will experience this again in the future.
In 2015, some of my holdings (CVE, COS and KMI) reduced their dividend payments. And, so many other stocks had increased their payments. So, the dividend cuts did not impact my income growth during the bear market (Please note I sold COS & CVE with some capital loss, and added few shares of KMI after it had hit hard).
Therefore, my estimated passive income grew from $4172 to $6055 in 2015, even with three dividend cuts. But, the assets values were all over the place. In some worst days, my portfolios dropped over $6000 (in a single day). After the bad year, share prices came back to normal trend, and keep rising to match their long-term average dividend yields.
So, I keep eye on my dividend income growth and ignore share price volatility. For me, next market crash and bear markets are nothing more than opportunities.
Again, dividend growth is not the only strategy to build wealth and achieve your financial freedom. There are so many other ways to build wealth, and some of those methods may be much better and faster than dividend growth investing.
This strategy works well for me, but it may not suitable for everyone. If you are interested in achieving financial freedom, start educate yourself in your interested area, do your own research and find a best strategy that works for you. And, focus long-term and stick with your idea through thick and thin period.
If you already have one, please share your strategy in the comments section below; it may help other like minded people to sharp-up their journey.
Thank you reading!
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Great post. I am curious since you do not focus on share increases, have you considered covered calls to generate additional income on your stocks?
Nice article!
Since you do not focus on share price increases, have you considered covered calls to generate additional income from your stocks?
Good article! Since you are not focused on share price increase, have you ever considered selling covered calls as a way to generate additional cash?
Good article. Curious, since you are not focused on share price have you considered selling covered calls to generate additional income and mitigate falling share prices?
Josh
Nice write up. Since I started investing last year I haven’t experienced a market pull back. I would love one it’s hard to find value at current levels. I’m with you just keep buying to up that divodend income with good companies
Hi Passive Canadian Income,
I am also looking for a pull back to buy add some positions at lower price. It would be great if USD come down a bit, so I could diversify my portfolio properly.
Best Regards,
With an average dividend yield of 3.7% which is all reinvested you would need to put new capital that would amount to 14.3% of your portfolio value assuming an annual dividend growth of 2% (which you can get without putting new capital and without dividend reinvestment), putting $2383 every month this year into your portfolio would be very difficult but still possible if you are extremely frugal but unless your active income is going to grow exponentially just like your portfolio it is very unlikely that you could keep it up for 7 more years. in 2024 you’d be expected to put $11915 of new capital each month to keep it up. Assuming your gross active income would be $300K per annum that would be possible, but how on earth are you going to multiply your salary by 6 in 7 years?
As I mentioned before, you could easily achieve your goal of a passive income of $25/year by the end of next year if most of your portfolio would be composed of high dividend stocks (8%-10% annual dividends) and keeping to add the same amount each year until the end of 2024 in order to reach the $1M goal, but expecting your dividend income to grow by 20% each year with the same percentage of new money each year would demand you to increase your monthly added new capital each month by 1.66% (that would be 20% annually), how is that achievable?
Hello Alan,
Thank you for your comments,
Current average yield is around 3.7% because of recent stock price rally. I don’t use DRIP, and I purchased most the stocks when they were having dividend yield above 4%, and some were above 5%. Usually I buy stocks when they hit hard buy some short-term negative news.
And, my portfolio average annual dividend growth is between 6%-8%. Some stocks increase more than 15%, while other increase less than 5% and very few don’t change their payout at all (most of the high yield stocks – FC, REI.UN, etc).
Thus, I just need to put new capital amount of between 8%-10% each year to achieve my target. For example, this year I just need less than $18 000 new capital to reach my short-term goal of $8400 estimated passive income. From now to end of year, I can expect minimum 15 dividend hikes and expect to receive more than $5000 dividend income from my investments. Thus, new capital requirement is much less. So, I could get there easily without adding new debts.
As you said, when I get close to 2024, I need much more new capital to keep it up. Based on above calculation, I’ve estimated that I need around $50 000 new capital (for full year). In this situation, I will take some debts to meet my target. Once I achieve my goal, I can always turn my focus to pay-down debts.
In my view, high yield stocks carry high risks. In some situations, they may not continue to handle their high payouts and end up cutting their payments. In this case, the damage will be permanent and for longer-term. Again, I am not a financial advisor or investment expert.
You strategy also work well as long as you pick high quality high-yield stocks with reasonable pay-out ratio. But, I like my slow and steady growth approach. Thank you so much for sharing your ideas.
Best Regards,
Finance Journey –
That’s what I’m talking about. Keeping your eyes on the prize. Further – I am in the boat of adding 20-25% of new forward income each year as well: Investing, DRIP, Growth on the divvys. The combination of it all will help get you there, but each year it gets harder as the new amount to be added gets bigger. LUCKILY – reinvestment each year gets better, as well. BBL is also another company that cut it’s dividend but guess what – they brought it right back so far into 2017, so I found it quite interesting.
Nice post, keep the focus on the end goal and the purpose. You got this.
-Lanny
Hello Lanny,
Thank you for stopping by,
BBL was in my watch list, but I removed it later after it cut it’s dividend. Glad to see it hiked back this year.I don’t use DRIP. I prefer collect dividends in my accounts and purchase a good value stock once I have enough money. I know that I have to pay some commission fees, but it is negligible when you have a long-term view.
Keep up your good work as well 🙂
Best Regards,
Great article. I focus on dividend paying stocks as well but avoid dividend traps, like wild payout ratios.
Hello Ellis,
Thank you for stopping by,
Dividend trap is dangerous one. It will give you a permanent capital damage and income reduction. My idea is only higher quality stock with long track of records and decent payout ratios.
Cheers,
Well said. If you are a dividend growth/income oriented investor then your primary concern should always be making sure that your passive income stream grows year over year despite stock prices. Of course, you can’t completely ignore stock prices. It’s important to see those big price drops when they happen so you can take advantage of buying at better value and yield. I know I can focus solely on my dividends and ignore price as I saw my whole portfolio deep in the red during 2008/09 losing a lot of paper money but still having those dividends continue to roll in. Thanks for sharing.
Hi DivHut,
Thank you for stopping by,
I didn’t have a chance to experience 08/09 type crash because I started my journey in 2012, but I experienced few bear market in 2015-2016.
best regards,