Today we’re going to talk about a subject that I’m sure is on a lot of people’s minds, especially those of us who feel we fall under the title of a “dividend investor”. This topic is the balance between getting a good yield in your portfolio while also receiving the two types of growth: dividend payout growth and capital appreciation of your stocks.
Most people follow along with the ideology that typically a younger person (think 20’s and early 30’s) should be more focused on growth stocks or lower yielding stocks with higher average growth rate on their dividends and then as you age and get closer to retirement you slowly (or abruptly at retirement) shift your shares over to higher yielding but slower growing stocks to harvest this income in your retirement years.
This thought process makes sense right?
Well, we’re not very different in our beliefs but the main thing that changes in the “FIRE community” is that our ages are a little bit advanced from what the number says based on us being further along to retirement than in our case our fellow 31 year olds.
So what have we done as 31 year olds, who feel they need to invest as though they’re perhaps 50+ years old? Well I’m glad that you asked.
We’ve made our portfolio a mix of higher yielding dividend payers while mixing in higher growth stocks and stocks with high growth on their dividend payouts. This portfolio’s intention is to be able to fund our lifestyles while also having the growth of the dividends to make up for inflation (believed to be between 2-3% most years).
At the time of writing this post our dividend portfolio stats look like this:
Total Value: $230,000
Dividend Yield: 4.52%
Projected Dividend Growth: 4.5%
What we’ve aimed to accomplish with this portfolio is round it out in a way where at retirement we don’t have to do a major shuffle of our stocks – we’ll be comfortable and familiar with all our holdings. The next step is to make sure there’s a healthy mix of higher yielding stocks, stocks with lower yields but higher dividend growth rates (we’ve sort of guesstimated our dividend growth rates based on 3 and 5 year trends as well as looking at what these companies did in the 2020 downturn). Last but not least we’ve sprinkled in a few growth stocks with minimal dividend payouts but that we feel will continue to grow their payouts consistently for many many years to come.
Some of examples of these stocks are:
High Yield Dividend Stocks (5+% yield):
Canadian Banks (BNS, CM), Timbercreek Financial (TF), Genworth MI (MIC), Enbridge (ENB), Canadian Utilities (CU), AT&T (T), Brookfield Property Partners (BPY.UN), IBM (IBM), Altria (MO) among others.
High Dividend Growth Rates (10+%):
Manulife Financial (MFC), Aflac (AFL), Air Products and Chemicals (APD), Microsoft (MSFT), Alimentation Couche Tard (ATD) to name a few.
High Growth Stocks:
Apple (AAPL), Microsoft (MSFT), OpenText (OTEX), Facebook (FB)
Now, it’s hard to classify a stock as just one or another category, most of our holdings fall under a couple of them. For instance Canadian bank stocks all have very respectable yields while also having a history of making consistent payout increases while another high growth stock like Apple could potentially grow it’s dividend at one of the fastest rates of all our holdings.
So if you were wondering how we’ve managed to build a passive income stream large enough to fund our early retirement lifestyle while also enjoying some of the stock markets overall growth all while enjoying the comforts of inflation protection in the form of dividend increases this is how we’ve managed to do it!
As with any investment philosophy there are pros and cons and what works for us may not work for you, we’re all in different phases of our journeys so please keep that in mind and contact your investment advisor prior to making any changes to your holdings.
We’re just here for your entertainment and to show what we’re doing, NOT to be giving financial advice so with that we hope you’ve enjoyed today.
Thanks for stopping by,
FIC.