Dividend income is very useful. It can be used to pay for food, your hobby, your kids’ education or hobby, a wonderful vacation, a new car, rent or mortgage payments.
Common stock dividends aren’t made equal. Dividends paid from cyclical stocks like oil and gas producers or gold/copper miners are volatile. When the underlying commodity prices rise, they will increase their dividends. Similarly, when the underlying commodities drop in price, they will likely cut their dividends.
There are some energy or gold stocks, such as Enbridge (TSX:ENB)(NYSE:ENB) and Franco-Nevada (TSX:FNV)(NYSE:FNV), which provide more trustworthy dividends.
Personally, regardless of the dividend yield, I would only determine an investment acceptable if it provides satisfactory expected returns for the risk I’m taking. Oftentimes, it boils down to buying stocks at a margin of safety.
All that being said, I love receiving dividends.
The joy of receiving dividends
One of my most enjoyable activities is receiving dividends. Thankfully, I don’t need to manually calculate how much I receive from dividends. My bank keeps track of that. I simply download the data and use the SUM() function in my spreadsheet program to, well, sum up the dividends I receive every month.
Come to think of it, September is one of my favourite months for dividend collection. In fact, so are March, June, and December. In these months, I receive the biggest amount of dividends!
Some of my core dividend holdings that pay decent dividends in those months are
- Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP),
- Brookfield Renewable Partners L.P. (TSX:BEP.UN)(NYSE:BEP),
- Canadian Net REIT (TSXV:NET.UN), and
- Fortis (TSX:FTS)(NYSE:FTS)
Canadian Net REIT pays a monthly cash distribution. The other three pay quarterly cash distributions. Currently, the four dividend stocks offer yields of 2.8-3.9%. In my humble opinion, only Canadian Net REIT is undervalued and trading at a margin of safety right now. The REIT also offers the biggest yield of the group.
The other three dividend stocks aren’t exactly expensive. They would fit what Warren Buffett calls buying a wonderful company at a fair price (rather than buying a fair company at a wonderful price). So, if you must invest some money in the quality stocks now for income, consider only nibbling some shares of BIP, BEP, or FTS. If not, you’ll probably be able to buy them at more attractive valuations during a market pullback.
Together, these four solid dividend stocks averaged dividend growth of 8% versus 2020. It’s awesome! Without me lifting a finger, I enjoyed a nice raise from dividends.
Dividends play a tiny role in high-growth dividend stocks
I also have higher growth dividend stocks whose dividends play a much smaller role in the total returns. They include Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Tencent (HKG:0700)(OTC:TCEHY) that yield 0.9% and 0.3%, respectively.
Naturally, I look at them as total return investments with most returns coming from price appreciation. This is why I have taken partial profits on these stocks opportunistically so that I’ll have room to add, in terms of allocation, should they decline substantially.
For example, I added to my BAM position during the pandemic market crash. It is the best time to buy growth stocks like that when the market falls a lot. Some of those shares have doubled in price!
Of course, a lot is going on with U.S.-listed Chinese ADR stocks like Tencent. Some investors have opted to avoid these Chinese stocks altogether, which could be a smart move, given the recent volatility they have been experiencing. This is not only from the regulations (and monopoly charges) from the Chinese government but also the threat of being delisted from the U.S. exchanges.
This is why appropriate allocations are essential. For example, you might limit up to 10% of your stock portfolio to risky holdings that could deliver outsized long-term returns.
Both BAM and Tencent are dividend growth stocks. Within the last year, they have increased their dividends by 8% and 33%, respectively,
The investor takeaway
Although I receive the biggest dividend amount in March, June, September, and December every year, that’s really beside the point. Investors who want stable returns from dividends should grow the monthly dividend income averaged across the 12 months.
For instance, if you’re getting $600 in dividends a year (averaging $50/month), perhaps you’re expecting the passive income to grow to $648/year next year for an 8% growth rate. Of course, if you carry on investing regularly in robust dividend stocks with new savings, you can expect your dividend income to grow much faster!
Are you dedicated to growing your dividend income every month?
- What’s the dividend growth rate of your dividend portfolio without adding new money to it?
- What’s the dividend growth rate of your individual holdings?
- Are you saving regularly to invest in your best dividend idea up to an appropriate allocation?
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Disclosure: As of writing, we own shares of BAM.A/BAM, BIP.UN, BEP.UN, FTS, NET.UN, and TCEHY.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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