Saturday, April 7, 2018

Retirement Strategy-Invest for Income




How will you achieve your retirement income target if the investments you choose do not produce income?

Will you fill your account with ETFs, individual stocks, bonds, cash and or GICs?

The choices are many and the confusion plenty. What to do? I don't know your situation but in my retirement account I only hold individual dividend paying stocks.

I am long the following positions;

AQN, BMO, BNS, BCE, CM, EMA, ENB, ECI, FTS, NA, POW, RY, TD and TRP

My wife is long;

BNS, BCE, ENB, FTS, NA, RY, TD, XPF and ZAG.

The main difference between the two retirement accounts is that my wife has a 40% position in fixed income with ZAG and XPF. This is a recommendation I have heeded from Garth Turner @ greaterfool.ca with 20% allocated to each ETF. I have no idea what ETFs they recommend these are the ones I have chosen.

Her fixed income portion yields a modest 3.5% and is not as volatile on days like we've seen this week. The cash builds up from dividends and then is deployed by buying other dividend growth stock positions. 

When picking dividend stocks I use the TULF method.

Telecomms, Utilities, Low Yielders, Financials.


What is A Low Yielder Stock?

Stocks like grocery stores, MRU, EMP.A and or Loblaws (L)
They pay a low dividend around 2% or so.

IFC Intact Financial yields 2.9%
CNR - 1.9%
Jean Coutu - 2%
CTC - 2%

These are just some of the names you can also add for yield and some diversification. The pay a low yield but have a good long term record of increasing that dividend. They are however low paying stocks.

I would be looking to add a REIT to the mix if I was solely relying on income to supplement my pension income and this was all I had to live on and meet expenses.

Then my mix would be called TURF. I have modeled this type of stock picking from Tom Connolly over at dividendgrowth.ca

You choose what stocks you like and know or even use on a daily basis to pay your dividends. My bank stock picks might be entirely different than yours. 

I DO NOT buy anything exotic or high yield to bet my retirement money on. Just don't do it.

"Hold the best individual companies long term for the future cash flow"
 - Tom Connolly 

Stocks for Income

In retirement I want my income to grow and not be fixed. It must keep up with inflation along with my indexed pension income.
  • there is no growth with GICs
  • bond income is fixed and doesn't grow
  • you lose total control of your money if you buy annuities
  • preferred shares should not be the preferred investing strategy
  • there is no income in gold so retirees should forget it
As you can see there is a conflict here with my wife's portfolio. Pref shares and bonds make up 40%.

When she retires in another 8 years, we will be buying dividend growth income stocks with her fixed income portion for all of the reasons listed above. For now the goal is simply safety on her part and preservation of capital.

It's impossible to achieve that without holding long term and not selling in a panic during market sell offs like we've seen in the last couple months.

"Few people know what's good for them so most tend to choose bonds (since stocks in a fearful mind are deemed risky)."

- Stephen Jarislowsky - The Investment Zoo

Over the long run of investing most of your return and income will be generated by dividends. This is a FACT and not a story based on FICTION.

To ensure you capture that type of return, look for companies with a history of increasing that dividend pay out many years in a row.


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4 comments:

  1. Hi Peter,

    I have recently found your blog and I am very much enjoying it. We have similar approaches and are in a similar position. I am retired and have a DB plan, not quite old enough for CCP yet. But I have several other income streams. No debt either, this all equals out to, no worry.
    I have been a subscriber to the Connolly report for years, and because of the dividend approach with similar companies that you hold, inflation is taken care of quite handily, and my YOC for some of these stocks are wonderful.
    One question that I have is around using DRIP's (synthetic). I have been using these for many years and over time it has surprised me how effective this strategy is. From reading several of your posts, it looks like you don't use them. Just wondering why?

    Anyway, great job on your blog, keep up the interesting work!

    Dale

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    1. Hi Dale, nothing wrong with the DRIP strategy and with prices way off their highs now might be a good time to start some Drips with quality stocks.

      I haven't in the past because I want control over what I buy when my cash builds up. I prefer purchasing new positions when they get cheap. Thanks for dropping by:)

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  2. As mentioned in a different post, we not only invested for Income, but eliminated all but 12 DG stocks from our portfolio's. No bonds, etf's, reit's, preferreds, GIC's or cyclical stocks. We also DRIP all our holdings using Full Div-ReInv, as our broker is ShareOwners. Buying fractions of shares increases our shares by 20% compared to Synthetic DRIP. This is especially helpful as we've been retired for many yrs.

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    Replies
    1. Great strategy cannew. I might have to start dripping stocks in my own RRSP. I've struggled doing this most of my life and never have. Maybe it's time because I don't need the money right now.

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