A Retirement Portfolio Designed for Dividends

How hard can it be to design a good stock portfolio capable of pumping out four percent in dividend income annually? Back in late June, June 25th to be exact, I did jut that. I designed what I hoped would be a portfolio up to the task and I posted it for all to see. Now, to sit back and see it praised or criticized depending on its performance.

I started my portfolio with an initial one million dollars. From personal experience, I believe this is a reasonable starting value. I will do more work on this in the coming months. If I have to lower the initial value of my example portfolio, I will.

I am withdrawing four percent in the first year: $40,000 annually or $3,333.33 at the start of every month. I made my first withdrawal in August. I let the first month, July, slip by as I wanted to build up a little cash before entering the withdraw stage. I filled the portfolio in June, I did not try to time the market, and so dividends began accumulating immediately.

Today, September 5, 2023, the retirement income portfolio is worth $1,008,083.36 after the withdrawal of $6,666.66 in two months (August and September). At this rate, at the end of 12 months, I will have withdrawn a full four percent in cash and the portfolio will have enjoyed a capital gain of 4.85%. Nice. Will this really come to pass. We will see.

To see the portfolio in its entirety, please click:

My latest crack at a "Retirement Portfolio"

Retirement portfolio monthly payment coming Tuesday

One can find literally dozens of investment suggestions on the Internet. Many of these are from very fine sources. Many of these I have followed. I found that many of these posts shared a lot when it came to the investment advice offered. I decided I might be able to do as well as the legion of online experts I was following.

I designed a million dollar portfolio for a retiring senior and immediately put my ideas into action. Why immediately? Because one should not try to time the market, right?

Come back this Tuesday and I will reveal how my imaginary portfolio is performing. I have withdrawn one monthly payment of $3333 already and come Tuesday I will remove a second monthly payment of $3333.

See you Tuesday. Have a good holiday weekend. Cheers!

Another reason for investing in dividend-paying stocks

TD WebBroker has a page called Market News. I like to check it every morning. Today, I found the following:

"Dividend stocks are a better investment than income properties": BMO economist

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

Continuing a theme from earlier this month, BMO senior economist Robert Kavcic compares the yield from fixed income and dividend stocks to an income property,

“The economics of real estate investment get tough on a relative basis given that investors can secure a better yield in dividend stocks, or sit tight in risk-free cash/government bonds. The comparison to dividend stocks is an especially interesting one because both offer long-term capital appreciation potential, and both will see their payouts grow over time at least in-line with inflation. But, dividend investors also benefit from a much lower tax burden; they have access to instant and partial liquidity; and face minimal transaction costs. At the same time, payout risk is generally low compared to rental laws that are tilted heavily in favour of the tenant, along with inefficient backlogs at the Landlord and Tenant Board. Real estate investment should command a risk premium (which it historically has), but current pricing does not offer one” "

I am reposted the above because I am a dividend investor. Many folk see problems with dividend investing and in some cases I agree with them and their criticisms. But I am an older, retired gentleman. In my position, dividends are far more important than they were some decades ago. The steady and increasing income flow keeps the financial wolf from my door. 

I feel somewhat vindicated after reading the Scott Barlow post.

How much is the market down? Is it correcting?

Lately, under the belief that the market is well off it highs, I have been a buyer. It has not been working out well for me. Each of my picks has declined in value and my losses are mounting. Right now the TSX is at 19,868.79. My gut tells me this is a fair drop but when I check the posted high of the past year, 20,843.21, I find the TSX is only off its high of the past year by about 4.7%. Clearly, the TSX today has a lot of room to drop.

The present market enters bear territory when it drops to 16,674.57 for a loss of 20%. A correction begins when the market drops 10% or drops to 18,758.89.

Why did my gut tell me the market was nearing correction territory? Well, the market peaked less that a year and a half ago at 22,087.20, on March 29, 2022, to be exact. Today the market is down about 10% from that historic high but that is not the high used to calculate the present market loss.

I can live on my dividend income. I think I will try and resist the urge to buy more. I am going to try and hold out for some real bargains. If the bargains never materialize, no problem. TDB8150 is paying 4.55% interest on cash deposits.

Catching the falling knife

When the Bank of Montreal got down into the $118 range late last week, I saw a buying opportunity. But, I didn't buy. I held out in the hope that I could buy at a price low enough to give a yield of at least five percent.

Monday the price of Bank of Montreal stock wobbled about but, in the end, it was a down day and I bought in at $117.60. My yield was five percent right on the nose.

The Bank of Montreal is one of the Canada's largest banks. It has been paying dividends for going on two hundred years. It has gone almost two complete centuries without cutting its dividend. Buying Bank of Montreal stock for its dividend seems a very safe purchase. The dividend is almost guaranteed. Sadly, the stock price is not.

I only bought a hundred shares as I already had a nice amount of BMO shares in my portfolio. My income jumped $588 annually but I have also lost about $177 on paper thanks to the loss in value of the stock and the loss may well grow. The amount of the drop was not unexpected but the speed was.

I would not be surprised to see Bank of Montreal drop even more. It may even set a new low for the past year. If it does, I am buying another one hundred shares. Until then, I am going to sit quietly, watch from the sidelines and lick my stock-purchase wounds. The five percent yield will help me recover.

Passing time can hide true magnitude of a stock loss

Using a spreadsheet to track my investments has made me aware of what I see as an interesting blip in the math used to calculate a bear market. A stock enters bear market territory when it is off its recent high by 20% or more. The important word in that definition is "recent".

Take Bank of Montreal (BMO) stock. Today it is selling for $118.87 (mid-day) and is off its high of the past year by 13.6%. BMO is in correction territory. It is not now in bear market territory but it was and not all that long ago. Passing time and not a big pop in price pulled BMO stock out of the bear's grasp.

On March 22 of 2022 BMO hit a high of $154.47. Today BMO is trading at $118.87. It is off that historic high by $35.60 or 23.0%. But that high was about 17 month ago. It dropped off the financial radar when it passed the 12 month mark as it is the high of the past past year, $137.64, that is used to calculate corrections and bear market prices. Today BMO is only down 13.6% when calculated using its high of the past year. BMO is said to be barely in correction territory.

Investors who bought a hundred shares of BMO some17 months ago have lost $3560. The present target price of BMO shares is around $135. This means that even at its target price for the coming year, an investor who bought the stock at its historic high would still be down about $1947. It could be two or three years before such an investor is in the black on this investment.

What can we learn from this story of investor loss? My big take away it that investors must pay attention to not only the loss calculated using the high of the past year but must look back even further to the highs of recent years.

My spreadsheet indicates that the recent market losses may be worse than folks realize. For instance, BMO was off a recent high by about 27.5% at one point. It can easily take more than two years to recover from such a large drop. The fact that BMO stock has not yet fully is not surprising.

It also seems clear to me that the above is a clear argument for averaging down. An investor who bought 100 shares of BMO at its historic high invested $1,548. When the stock was clearly in bear territory, say selling for 22% less, it would have been understandable if the the investor averaged down at that point and bought another 100 shares at $120.49. 

With BMO shares trading today at only $118.87, BMO is a clear buy for our investor who got badly burned buying at the historic high. Averaging down today would drop his average price for BMO to $136.67 and give him a nice dividend to enjoy while waiting for the BMO price recovery.

If BMO shares should take another dip, I believe I might well be a buyer. (Note: BMO hit $17.60 on the next trading day. I bought 100 shares yielding 5%.)

For a good article on bear market recoveries, read: Bear Market Fears: Here's When Stocks Usually Bounce Back After a Downturn.

Telus: I am not alone seeing a buy

Today it is being reported that . . .

Yesterday, Telus dropped below $23. I got a few shares for $22.88. Telus is the second largest telecom in Canada. I agree with those who see today's messy Telus story as temporary. With a 6.3% dividend, Telus pays an investor to buy and be patient.

I consider Telus a core holding in my retirement portfolio. It doesn't just pay me to hold and be patient. It helps pay my expenses in retirement. 

Here is a link to one of my previous posts looking at Telus: Telus: still a buy today.