Can You Live Off Your Dividends and Dividend Income in Retirement?

We all invest for the same end result – to sustain our retirement or lifestyle when we are older. All of us have different goals and reasons, but the end result is the same. How much can we safely withdraw from our portfolio without depleting our original investment capital? Does a primarily 100% dividend stock portfolio support a retirement income?

Is it possible to live off dividends? It definitely is! Here’s what you need to earn a dividend income in retirement and live off your dividends.

The Golden 4% Rule

Most of the experts agree that 4% is the amount that you can safely withdraw from your portfolio without depleting your original capital. So in a simplistic example, if you have 100K in assets, you can safely withdraw up to 4K per year ($330 monthly) without depleting your original capital. Doesn’t sound like much does it?

A Dividend Tree

Most investors will likely exceed that 4% rate with capital gains, dividends, and interest in any given year. From an Index Investor’s point of view, as Dan Bortolotti points out,  “It doesn’t really matter whether that return comes from interest, dividends or capital gains.” Funding retirement comes down to establishing a withdrawal rate to the expected total return of the portfolio. That is no easy task. To be safe, most financial planners or advisors will stick to a 4% withdrawal rate.

A much better approach is to assume that your actual income or cash flow from your investments (such as dividends, interest, and capital gains) is what you should withdraw – regardless of the rate.  Andrew Hallam wrote an interesting post recently regarding this in What Are Your Investments Really Worth?

Dividend investors are able to predict monthly dividend income very easily, so they are ahead of the game in this respect. If you want to live off your dividends (rate of return) without redeeming any shares (capital), then you only need to consider income. This is one of the main advantages of a dividend investing focused strategy.

In the same post mentioned above, Andrew writes in his comments:

“My online friend, Passive Income Earner has the right idea. To him, his portfolio is worth as much as the dividends it throws off in cash. This is a more conservative estimation of the cash flow potential of his account because his analysis involves an assessment of the dividends only, and not the portfolio’s cash flow potential, based on selling 4% of his assets each year, upon retirement. He continually updates his passive income (dividend income) which I think is fabulous. Remember: Your account is only really worth as much as its cash flow value.”

The real question for a 100% dividend portfolio, is not what your income will be, but rather is it enough to support your retirement?

From Dripping to Collecting

DRIPs (Dividend Reinvestment Plans) are based on the simple concept of compound growth. Dripping Shares is the simple process of reinvesting dividends into new shares to increase growth. It is the same process as reinvesting GIC interest into another GIC, reinvesting mutual fund or index fund distributions into new units etc. Most dividend investors rely on the growth from DRIPs to increase their portfolio value over time.

If you are relying on a 100% dividend portfolio to fund retirement, then at retirement you can no longer DRIP your shares, since you need the dividend income. That means you go from being a Dripper to a Collector, and you lose any potential future growth in your portfolio. All your growth now becomes your income!

Can Dividends Support Retirement?

Some investors are considering a 100% dividend stock portfolio to fund their retirement. However, there are two key considerations that should be taken into account with this approach. First, what is the dividend yield (rate of return) of the entire portfolio?  Second, what original amount of capital (shares) do you need, to obtain a specific income? It comes down to being able to make that 4% withdrawal rate.

Back in February, I did an interview with Dan Bortolotti at the Canadian Couch potato. In the first question I asked Dan if a portfolio of 100% dividend paying stocks could indeed support retirement income:

Dan Bortolotti Interview

4% Isn’t Easy!

While it may not be the title of next year’s country hit, as a dividend investor getting a consistent 4% return from dividend income isn’t easy! Most of the big blue chips in the US for example such as JNJ, MCD pay dividend yields around 3.4% or lower.  In Canada, solid Dividend Paying stocks will get you a higher yield at around 3.5% to 5%. That higher yield also translates into much less capital growth!

So as a dividend investor, you are likely going to need a larger portfolio with a lower yield to sustain your retirement income. Or you take additional risk and add higher-yield stocks to a smaller sized portfolio, to achieve the same result.

Think about it, if you have a portfolio comprised primarily of big blue-chip giants such as JNJ and MCD, your dividend yield is around 3% to 3.4%. These are big safe blue chips, but they also have less growth overall than other stocks in the market. It’s going to take a lot of JNJ and MCD to fund your retirement, excluding the real return after inflation! Dividends don’t come cheap; you pay a premium for safety. That premium is the higher share price and the lower dividend yield. That lower dividend yield means you need a lot more capital to fund your retirement income!

For example, using the Golden 4% Rule, you will need a dividend stock portfolio of 1 million at a generous dividend yield of 4% to earn $40K per year in dividend income.  Cut that dividend yield down to 3.5%, and to earn the same $40K requires an initial portfolio of $1.14 million. Cut the yield down to 3% and you need an initial portfolio of $1.33 million. Since you are withdrawing 100% of your dividend income, you only have the capital appreciation of the stocks to increase your portfolio value.

It is possible to support your retirement with a 100% dividend stock portfolio. However, to earn a reasonable retirement income, you would need a very large basket of dividend stocks earning a low rate of return. While living off your dividends sounds catchy, in reality, you need a very large portfolio to do so!

The Yield on Cost Illusion

The Yield on Cost IllusionCan the current dividend yield of blue chips stocks is enough to support retirement? Those actually living off their dividends, pointed out in the comments they were earning between 3% to 4% yield on their dividend stocks.

Some investors missed the entire point of the article. They confused the final value of their stocks and dividend yield, with their Yield on Cost (YOC). They failed to realize the single most important point:  When you retire you are living off the dividend income of your entire portfolio, not the YOC of your original investment. They used YOC to support double-digit returns in retirement, far above the current dividend yield of the very stocks they were holding.

The reality is your current retirement income is based on the current dividend yield of the total value of your portfolio. The Passive Income Earner explained the concept most eloquently in his comment:

“Once you attempt at retiring, the amount of invested capital or ACB of your shares is irrelevant. You need to start looking at how much you have total. That total amount is what you are retiring with and consequently, that total amount is what your yield really is based on.”

“Let’s say you invested 100K in JNJ and in the end, it’s worth 500K. That 500K is really what you are drawing your retirement income from even though it’s generated from a 100K initial investment. The retirement rate of return and dividend yield for the purpose of retirement is based on your 500K at this point. (500K = JNJ share price * number of shares you own). Focusing on the 500K, the current yield of the stock is pretty much the market yield for that stock.”

“There is a difference between the growth of a portfolio with dividend and compound growth and the retirement aspect of that portfolio…”

So what exactly is Yield on Cost? And why do investors still confuse Yield on Cost with their current Dividend Yield?

What is Yield on Cost Anyway?

Yield on Cost (YOC) as defined by Investopedia, is the annual dividend rate of a security divided by the average cost basis of the investments. It shows the dividend yield of the original investment. It is calculated by dividing the most recent annual dividend payment to the average price that you paid for your shares. Dividend investors use yield on cost as a comparative means to demonstrate their increase of earnings over time. The problem arises when investors them assume YOC is their current rate of return.

Why Investors Get Confused

Dan Bortolotti discussed the yield on cost illusion in great detail in Debunking Dividend Myths: Part 6. Dan wrote in his article:

“Investment returns are expressed in annual terms, while the yield on cost is a completely different measurement that doesn’t consider how long an investment has been held. If you confuse the two, you will quickly fall into the trap of believing that your investments are doing better than they really are. You might even think you’re beating the market.”

“Some of the issues I’ve explored in this series come down to differences of opinion, but not this one. The idea that dividend growth stocks will eventually “beat the market on yield alone” is nonsense, pure and simple. If this is the basis for your investing strategy, then you’re guaranteed to be disappointed.”

Investors easily get confused with YOC, because they forget two key points:

First, YOC is based on a period of several years – so it’s a cumulative return. For example, an investor will tell you with YOC they are earning a 15% return on a particular stock. The same investor will forget that 15% yield may be over a period of 5 or 6 years. The investor will overlay YOC to their current stock portfolio and believe they are earning a much higher return. While taking a cumulative rate of return (YOC), and overlaying that to an annual rate of return (Dividend Yield) defies logic, many investors still continue to do exactly that.

Second, YOC is always going to result in an inflated yield. YOC compares the most recent dividend (which is usually the highest) to the original share price (which is usually the lowest).  For this simple reason alone, YOC will usually be higher than the current dividend yield. You can see this in my GIC example below.

Creating a YOC Illusion: The GIC Example

If you need further proof that Yield on Cost distorts returns and tells you very little, consider the following example. GIC’s currently have the lowest rate of return, with no capital appreciation. Yet you can create higher returns using YOC when investing in a 5 year GIC. In this example I use an annual rate of 3.5% (ING Direct) and invest for 10 years, with the interest compounded annually:

Year Rate Start Interest End YOC Total Return
1 3.50% 1,000.00 35.00 1,035.00 3.50% 3.50%
2 3.50% 1,035.00 36.23 1,071.23 3.62% 7.12%
3 3.50% 1,071.23 37.49 1,108.72 3.75% 10.87%
4 3.50% 1,108.72 38.81 1,147.52 3.88% 14.75%
5 3.50% 1,147.52 40.16 1,187.69 4.02% 18.77%
6 3.50% 1,187.69 41.57 1,229.26 4.16% 22.93%
7 3.50% 1,229.26 43.02 1,272.28 4.30% 27.23%
8 3.50% 1,272.28 44.53 1,316.81 4.45% 31.68%
9 3.50% 1,316.81 46.09 1,362.90 4.61% 36.29%
10 3.50% 1,362.90 47.70 1,410.60 4.77% 41.06%

By Investing in a GIC only giving me a 3.5% return, and reinvesting the earned interest, I was able to create a Yield on Cost of 4.77%. Although a small return compared to a dividend stock, there is no magic here. It’s a simple example of compound return. In fact, my annual rate of return never changed from 3.5%.  What did change was the value of my investment over time, or my total return (41% over a 10 year period).

If a simple GIC has an increasing yield on cost with no dividend increases, then what exactly is the yield on cost telling you?


Dividend investors use the yield on cost (YOC) as a comparative means to demonstrate their increase of earnings over time. The problem arises when investors then assume YOC, and not the current dividend yield, is their current rate of return. They believe they are actually earning double-digit rates of return, which far exceeds the current dividend yield of the very stocks they are investing in.

The Danger with YOC is investors believe they are achieving returns they are not.  You might be surprised to hear that coming from an investor, whose equity portion is 80% dividend paying stocks! Yet when I track my investments YOC has no bearing on my current return.

The question that comes to mind is if YOC generates such high returns, why isn’t everybody using it? Why are all the traders at Goldman Sachs not using YOC? Why are big banking firms in Asia and Europe not buying anything but dividend stocks? Why do other investors have such low returns when dividend investors are doing so well? The reality is there are no double-digit returns. The yield on cost is an illusion.

It is possible to support your retirement with a 100% dividend stock portfolio. However, to earn a reasonable retirement income, you would need a very large basket of dividend stocks earning a low rate of return. While living off your dividends sounds catchy, in reality, you need a very large portfolio to do so!

Live Off Your Dividends

71 thoughts on “Can You Live Off Your Dividends and Dividend Income in Retirement?”

  1. Instead of looking at how much you need in retirement, it would be interesting to look at how much you would need to invest monthly to get your desired retirement. You could compare your monthly contributions to a balanced portfolio with the monthly contributions of an all stock dividend portfolio. After 25 or 30 years which would put you in a more comfortable place to retire.



  2. Thanks for the mention, Ninja.

    There’s one important point about the 4% rule that should be clarified. The sustainable withdrawal rate comes from William Bengen’s work, which calls for 4% adjusted annually for inflation. So if you start with $100K in retirement, you can draw $4,000 in year one. If inflation is 2%, you can draw $4,080 in year two, and so on.

    Eventually you are going to dip into capital at this rate, but that’s OK — the point of Bengen’s work was to test how much you could withdraw with a high probability of making the portfolio last until you die, not forever.

    It’s also important to stress that this 4% is for a balanced portfolio of stocks and bonds. An all-equity portfolio should withstand a higher rate, but at the cost of greater volatility.

  3. @Canadian Couch Potato
    Thanx for posting! You and I both agree that the entire portoflio is part of a neccessary retirement income plan. Dividends are only part of that, as well as interest income and capital gains.

    Some dividend investors believe they can sustain a solid retirement income ONLY by living off their dividend income. In reality at 3.5% that’s going to be a tough deal! And that doesn’t even inlcude inflation.

  4. My experience has been that I had enough income from my portfolio to stop working in 1999 (it was ahead of my plan). At that point the plan was to withdraw 4% and my withdrawal was close at 3.9%.

    My portfolio is mostly dividend paying Canadian stock. I do have a cash balance, currently running at 2.5% of my portfolio. I never want to be in the position of having to sell a stock at an inopportune time.

    Since then my withdrawal percentage has come down so that my 10 year average withdrawal is 3%. I expect to withdraw 3.1% this year. My portfolio income averages 3.4% currently and I am withdrawing less than my income.

    Why? Basically my dividend income has increased faster than withdrawals. My median 5 year increase in dividends is 11.35%.

  5. @susan brunner
    Susan thanx for dropping by and posting! First of all let me congratulate you on your achievement in being able to live off your dividend income !! 🙂 Nice.

    You obviously keep your withdrawal rate under your portfolio income, which I think is also quite an achievment. I’m also going to guess you have a big chunk of portfolio, which is why you are able to do that 😉


  6. One point I would add is that while stretching for a 4% yield would be pretty darn risky these days, you don’t have to stretch that far to have 4% effective yield some time down the line. Snatch a great company that’s yielding 3% now and with some decent dividend boosts, in a few years, you’ve got your 4% and hopefully more.

    When I bought Hasbro about a year ago, it was yielding just under 3 percent and after a nice boost and some capital appreciation, i’m looking at an effective yield of almost 4% compared to today’s stated yield of 2.7! So some patience is an important part of the equation, I think.

  7. @Sigma Swan
    Thanx for dropping by my friend!

    Of course its good to pick the best quality companies you can, and wait for the potential bonus of an increase in dividend-yield. But that is no guarantee, and I’ll cover that in Part-2.

    Yes the Couch Potato is right. Effective yield, cost-to-yield, etc. are meaningless numbers. The only number in the end that matters is “dividend yield” because that is the annual return on your investment – paid to you as a dividend. Hasbro has a current dividend yield of 2.7%

    Whether the price of Hasbro goes up or down determines the capital gain or loss when you sell. Dividend investors don’t usually sell their stocks, since they want to collect the “dividend income”. So the only number that matters at the end of the day is “dividend yield”.

    Have a look at the Passive Income Earner, he tracks his monthly dividend income. So he knows exactly what his total “dividend yield” is at the end of the year:

    Thanx for posting Demitri 🙂

  8. I agree living off a 3.5% yield is going to be tough. But you are missing one important factor: “dividend increases”

    If you are in your 20s-30s or even 40s you still got 40, 30, or 20 years to go before retirement. Dividend stocks purchased today will probably yield in the double-digits (yield based on cost) with regular dividend increases.

    I’ll give you my personal example, I purchased TRP in 2000 when the yield was 5.97%. The dividend has increased each year since then and today my yield based on the original purchase price is 11.94%.

    Today I am earning 11.94% yield on my TRP stocks purchased back in 2000.

    I know dividends aren’t guaranteed but take a look at this track record:

    Abbott Labs – 36 years of consecutive dividend increases

    Coca-Cola – 47 years of consecutive dividend increases

    Emerson Electric – 52 years of consecutive dividend increases

    Johnson & Johnson – 47 years of consecutive dividend increases

    Procter & Gamble – 55 years of consecutive dividend increases

    With consistent dividend increases and time on my side I plan to be earning double-digit returns with most of my stocks in my portfolio. That’s how I plan to fund my retirement. 🙂

  9. Hmm, as an investor who does plan on living almost 100% on my dividend checks I have some opinions on this. The last couple of comments have been talking about “effective yield”, which is a relatively new term to me. I take it, from the comments above, that the definition of “effective yield” is current yield. This can be affected by current share price. Effective yield, by that definition means nothing to me.

    What does mean something to me, and something this article doesn’t discuss, is yield-on-cost, or YOC. An article on Seeking Alpha recently pointed out 15 stocks with a 15% YOC in 15 years:

    YOC is a very important figure. While MCD and JNJ were pointed out in the article as having current yields well below 4% (which is absolutely correct) this completely leaves out dividend growth. I plan on living on my dividend checks. Take JNJ for example. IF they continue to average a 9% growth rate going forward (which is very realistic) they will be yielding appx. 7.3% 10 years from now. If you are planning on retiring on dividends you are likely not investing $100k today and planning to live on dividends tomorrow. I’m 28 years old and plan on living on dividends in 12 years. If I invest $100k in JNJ today and try to live on my dividends in 10 years I won’t be living on 4%. I’ll be living on 7.3%, which is what it will be paying out in 10 years, assuming historical growth rates. Current yields only matter for distributions now. YOC matter for distributions years into the future.

    The above figure is just assuming 10 years of growth. I’m personally planning on at least 12, and most investors are probably planning on at least twice that figure. I’m figuring most people starting a dividend-growth strategy are in their mid-30’s and have 25+ years of growth. That would put your YOC closer to the 20% mark or higher.

    From my understanding the 4% withdrawal rate is assuming a mixed portfolio of stocks and bonds and also assuming selling off assets. I plan on living on my YOC. And I also plan on my YOC for most of my stocks to be MUCH higher than 4%, or I wouldn’t be doing what I’m doing.

    And while a 7.3% yield is not the same 10 years from now as it is today, factoring in inflation, a 9% growth rate will far outpace inflation factoring in recent and historical inflation rates. Outside of hyperinflation we can assume 9% growth in dividend distributions will eclipse inflation erosion.

    Otherwise, a great article. I hope I didn’t take an offensive or defensive tone here, but I am very passionate about dividend-growth investing!!

    Thanks Ninja for the hard work!!

  10. I wanted to take my example of JNJ a step further. It was said “For example using the Golden 4% Rule, you will need a dividend stock portfolio of 1 million at a generous dividend yield of 4% to earn $40K per year in dividend income” in the article. Let’s take real numbers.

    JNJ is currently trading at $64.07/share. If I invest $1 million into JNJ today I’ll buy 15,607 shares of JNJ. That will provide me with $33,711 in current annual dividend income. That’s basing it on a .54 quarterly dividend distribution. That’s $2.16 per year, per share.

    Fast forward 10 years. Based on a 9% growth rate the quarterly distribution will be approximately $1.27 per share. That works out to $5.096 per share, per year. Based on the original $1 million investment you are now receiving $79,533 in annual dividends. This is not factoring in any share price appreciation or depreciation, because it doesn’t really matter when we’re talking passive income.

    In the end, these numbers are just for fun. Just the same as nobody is going to invest $1 million in stocks today to live on them tomorrow, nobody is going to have that kind of capital to invest in a one-time transaction today to live on the distributions 10 or 20 years in the future.

    If we can agree that dividend-growth is real then current yield only matters on the current distributions of income. The passive income will be affected by increases in distributions which will affect your net dividend checks. A 4% withdrawal rate is great, if you want to keep increasing the overall portfolio value and reinvest the remainder of distributions, but I’m betting on my withdrawal rate to be near the upper end of my total YOC of the portfolio.

    I also want to stress another point. In my examples, much like the article, we’re assuming a large chunk of money invested into one company at one time. This is obviously unrealistic, as most investors I know follow some type of dollar-cost-averaging strategy. When you’re investing month after month your total YOC is going to be affected. If I continue to invest in JNJ every month with every investment dollar I can squeak out I won’t have the total YOC of 7.3% after 10 years that I gave earlier, because some of my investments will be made this year (which will give me a 7.3% YOC) and some will be made the following year and the following year and the following year which will all reduce my total YOC. Each subsequent investment will take that much longer to attain a high YOC percentage. All in all, however, current yield only matters for the current dividend distribution made to that current investment. My investment in a blue-chip company will be absolutely affected by increased distributions and my retirement plans are based on such.

    I love this stuff! 🙂

    P.S. None of my numbers factor in dividend reinvestment.

    Thanks Ninja!

  11. Hi Everyone,

    Thanx for all the posts and feedback! No offence taken @Dividend Mantra at all 🙂 I too am passionate about dividend investing – that’s why I’m writing these posts.

    The Yield-To-Cost argument (YTC) keeps coming up so I think I really need to cover this in another post. Too extensive for the comments!

    YTC is used by many dividend investors to measure their total return, it’s really a measure of compound return from an original investment. But if you live off JNJ dividend income you are not getting a 15% YTC return, you are getting the current dividend yield which is 3.4%. What the yield of JNJ will be 20 years from now, I have no idea. Simple as that!

    What really counts is what the current rate of return is (dividend yield). Nobody talks about YTC for GIC’s and term deposits do they? 😉 Yet if you used YTC for a portfolio of laddered 5-year GIC’s, I bet the returns would be double-digit too!

    Thanx everyone for positng.. Have a great long weekend 🙂

    With the long weekend and overtime coming up I will not be able to get to everyone’s comments as quickly as I would like to. Hang in there!

  12. @Kanwal and @Dividend Mantra

    I am well aware of the fact that big blue chips raise their dividends from year to year – after all I own a few of those. They are certainly the stocks you want to invest in 😉 No arguement there!

    I suggest you guys read this article, and then we’ll go from there:

    Dividends are not some Holy Grail. Reinvesting interest income from GICs (Term Deposits), reinvesting income from bonds, and of course reinvesting dividends (DRIPs) from stocks is all the same animal. It’s the power of compound return. Bonds go up and down in value, stocks go up and down in value, and interst rates differ from year to year. In the end, there is no magic bullet. It’s the annual return of your portfolio that counts!

  13. Good post. I think IT IS possible, but tough to achieve.

    I like what Susan had to say, her withdrawal percentage has come down so that her 10 year average withdrawal is 3%. Not every year, you’re going to need 4%. I think the great thing she has done, is picked a whole slew of companies that increase her dividends over time and because of that, she is always ahead of the inflation curve and is able to meet her withdrawal needs. Her current yield is always very robust.

    @Susan, you’re awesome!

    Right now, I’ve got under $100K in dividend assets spinning off just over $4K per year in dividends. My goal over the next 20 years is to at least triple those asset values through the magic of compounding; having my portfolio double in value about every 8-10 years. If that happens, I’ll have over $1000 per month to fund my retirement needs. That’s a pretty good start I think 😉

    What specific targets do you have to live off your dividends?

  14. What I look at when investing in a company is average yield and average increases on a stock. However, I go for a mix of yields and increases. For example TSX-SNC average 5 year yield is 1.12%, but it has a 5 year growth in dividends is 26.8% per year. For TSX-TA the figures are 4.11% and 3.01%. For TSX-ENB it is 3.26% and 10.4%.

    In my last post I probably should have given my 5 year median increase in dividend from 2010, which was 14.94%. The 11.94% was for 2011 (but we are not through with 2011 yet.) My best year, within this 5 years for dividend increases was 2006 which was 23.96%. The worse was 2010 at 5.29%.

    I had a 30 year plan to stop working. In 11 years I had a portfolio of 100K. Within 13 more years I had reached my goal. Of course, lots happened during these years. I got married and had a child, then lost my husband and was a single mom. I lost two jobs, but got severance pay (one company was bought out and one went bankrupt). Life happens and when you have a long term plan, you have to expect both good and bad things to occur.

  15. Nice post, Mr. Ninja!

    You mention that it takes a pretty big portfolio to provide $40k in income from a dividend portfolio. This is also true for pretty much any kind of portfolio (unfortunately).

    One important point is that if you have a dividend portfolio that is mainly Canadian stocks (and give up any semblance of diversification), the taxes will be lower than a more international couch potato portfolio.

    In other words – if you look at net income, you could have a smaller portfolio made up of Canuck stocks and have the same net income as a larger international portfolio.

  16. @Mike, thanx for dropping by:)

    You bring up a really good point about the tax advantages of dividend investing in Canada. I am sure most other countries also have a dividend tax credit for their own dividends as well 😉

    @Susan Brunner,

    Thanx for posting again and joining in the conversation. Setting aside the yield-to-cost returns, and growth of dividends, what do you figure was your average annual dividend yield (your true annual return on investment)?

  17. Yield bounces around because portfolio value and increases in dividends do. Portfolio values can especially bounce around a lot. The steady thing is that each year my dividends increase.

    My current 5 year median yield is 3.4%.

    My dividend yield in 2009 was 4.29%, in 2011 was 3.56%, projection for 2011 is 3.4% and projection for 2012 is 3.21%. This is what happens out of a recession.

    Dividend increases in 2009 was 14.94% and for 2010 was 5.29%. This is also what happens. Dividend increases slow after recession. I expect dividend increases to be very good this year. They have increased by 6.38% so far this year.

    Hope this answers your question on yield.

  18. Well Ninja, I guess we can agree to disagree on this subject :).

    I prefer to follow Warren Buffet’s thoughts on this matter, as he has discussed yield-on-cost on many different occasions, especially in relation to his investment in Coke. It’s published that he receives his original investment in KO every 4 years on dividends alone.

    It’ll be interesting to see if one can retire on dividend checks alone, and my blog is going to chronicle my own journey, success or failure. We’ll see where I’m at in 12 years!! I believe not only can a person retire on dividend checks alone, but a person can do it on a middle-class income and do it in less than 20 years.

    Thanks Ninja! 🙂

  19. Nice post, and lots of good comments. My comment regarding yield-on-cost and current yield is simple, they are 2 numbers used to make decisions and can be used for comparative analysis. I have both of them in my tracking sheets mostly because I like to know how much my money is working for me 🙂

    Dividend investing and funding a retirement from dividends is not that simple either … So many different accounts to work from for tax efficiency that in the end, one number probably cannot show the real picture of a portfolio.

    In my case, my dividend portfolio is a quarter of my retirement portfolio since I have a company RRSP with matching contributions … you just can’t escape mutual funds:)

    Thanks for the kind mention. Looking forward to your future posts and the conversation afterwards!

  20. Great conversation going, I’m glad to be a part of it.

    DividendNinja, as you suggested, I just read:

    CanadianCouchPotato says:
    “The investor here has assumed that his yield on cost and his annual return are the same. They’re not.”

    Ok, let’s assume they are not the same. Some folks have also said “Yield-on-Cost (YOC) is an artificial yield”.

    Artificial yield or not, what I looks for at the end of the day is cash.

    Back to my personal example of TRP:

    Fact #1
    I purchased 185 shares of TRP in 2000 for $13.40 plus a $29 commission charge for a total investment of $2508. The annual dividend was $0.80/share.

    Fact #2
    I did not DRIP TRP, and I did not sell or purchase any additional shares in TRP since 2000

    Fact #3
    TRP increased their dividend every single year since 2000, the annual dividend today is $1.68/share.

    Fact #4
    This year I will earn $310.80 ($1.68 x 185 shares) on my $2508 investment.

    Fact #5
    Since 2000 I have received a total of $2286.56 in dividends

    I don’t want to use YOC because some people call it a “artificial yield”. So $310.80/$2508 is 12.39%, I call it the percentage of income I receive based on my initial investment. Let’s compare this to some other investments:

    $2508 invested in a 1 yr GIC (1.60%)today would give me an income of: $40.13

    $2508 invested in TRP shares ($40) today (4.19% current yield) would give me an income of: $105.34

    1.60% yields = $40.13
    4.19% yields = $105.34
    12.39% yields = $310.80

    We can label these yields what we want, but I know that I will earn $310.80 cash on my TRP shares this year, and this $310.80 is a lot higher than earning 1.60% in a 1yr GIC or the 4.19% current dividend yield on TRP.

    Question for the group. What is my total return on TRP if I was to sell it today?

    I’m with you Dividend Mantra “I believe not only can a person retire on dividend checks alone, but a person can do it on a middle-class income and do it in less than 20 years.”

  21. @The Passive Income Earner wrote “In my case, my dividend portfolio is a quarter of my retirement portfolio since I have a company RRSP with matching contributions … you just can’t escape mutual funds:)”

    You just might be able to escape mutual funds after all, but it does depend on how your company RRSP is setup. I did this at my last three companies and 95% of the employees weren’t aware it. Once the company contributions are made and the amounts are vested you can transfer the funds to an RRSP Trading account. Or you might have to wait until the funds are vested, in the meantime park the funds in a money market fund. I hated being forced to buy mutual funds. 😉

  22. DividendNinja wrote “Yet if you used YTC for a portfolio of laddered 5-year GIC’s, I bet the returns would be double-digit too!”

    I tested your theory and you were right. I wanted to compare it to my TRP example so I used the same initial investment for both and the same term of 11 years. Again remember no DRIPs here.

    $2508 invested in a 11 year GIC at 3.40%:

    Yr 0: $2508.00
    Yr 1: $2593.27
    Yr 2: $2681.44
    Yr 3: $2772.61
    Yr 4: $2866.88
    Yr 5: $2964.35
    Yr 6: $3065.14
    Yr 7: $3169.35
    Yr 8: $3277.11
    Yr 9: $3388.53
    Yr 10: $3503.74
    Yr 11: $3622.86

    After 11 years you end up with a profit of $1114.86 for a return of 44.45% of the original investment.

    The dividend paying stock (TRP) did slightly better. After 11 years I received $2286.56 in dividends for a return of 91.17%, actually the return would be much higher if I sell the stock today at $40 which was purchased at $1340. Also the dividend paying stock continues to earn money ($310.80 this year) and hopefully more as the dividend increases. With the GIC the investor can reinvest back into another GIC but the income will vary depending of which GIC is chosen:

    1.60% GIC will return: $57.96 (1.60% of $3622.86)
    3.00% GIC will return: $108.68 (3.0% of $3622.86)
    3.40% GIC will return: $123.17
    5.00% GIC will return: $181.14

    Even a 5% GIC will not return the $310.80 to be received from TRP this year. With GICs you get back your initial capital, with stocks you may also gain if the stock price appreciates.

  23. @Kanwal
    Some of us have tried already to pull the money away … Unfortunately, any withdrawal impacts future matching contribution. We recently changed provider so it’s worth asking again but some of these retirement program are really holding our money with strings attached. I am fully vested too.

    It’s worth asking again though.

  24. @Everyone
    Thanx for the comments and discussion 🙂 There are some points here I want to follow-up on. Working full-over/time this holiday means I have little ninja time! Will try to respond to everyone early next week.

  25. @Kanwal

    I love this quote.

    “Artificial yield or not, what I looks [sic] for at the end of the day is cash.”

    I couldn’t agree more. I think the comments and the article all focus on yield too much. What yield means to different people is just a difference of definitions and sometimes semantics. Let’s forget yield for a moment.

    As I pointed out earlier you could take a million and invest in JNJ for 10 years and at the end of 10 years you’re receiving almost $80,000 in dividend checks, annually. And that’s being conservative.

    I pay my bills with CASH, not YIELD. My rent cannot be paid with yield percentages and neither can my grocery bill. They accept cash, and that’s why cash is king. In the end, the $40,000 in cash flow from a $1 million investment that was mentioned in the article is incorrect as I pointed out in my JNJ math earlier, but the yield percentages really don’t matter. It’s all about what return you receive on your investment.

    If I have a million dollars and I’m only receiving $40k in cash flow from it, I think I’d probably either give up investing, or I’d be so unskilled at investing I would have never ended up with a million dollars in the first place!!!!

  26. @Dividend Mantra,

    Thanx for posting my friend and joining in the conversation 🙂

    The article was about living off of your dividend income, not YTC or other measures of your portfolio capital appreciation over time.

    Once you retire you ARE LIVING OFF YOUR DIVIDEND INCOME (yield). You are no longer dripping shares, so all your dividends are going into your bank account to live off, not compounding. That is the CASH part you are going to have. That was really my point 😉 It doesn’t matter if you have $400 of JNJ or $4M, the dividend yield is the same.

    I think you are misunderstanding that ?

    But I’m going to write about Yield-to-Cost next week ;)) You can pummel me there 🙂 I think you are getting caught up in the argument to try and prove me wrong ^^ but that really that isn’t the point.

    Please review Susan’s Comments, she has been dividend investing for decades. While her portfolio has made huge gains due to capital appreciation and DRIPS, as well as dividend increases, higher YTC etc, you will see the yield is between 3% to 4%. That is what she is getting paid from her dividends – CASH. Simple as that!

    The bank rate, the rate on savings or certificates of deposit, bonds, and the ANNUAL DIVIDEND YIELD are all ANNUAL benchmarks. Dividend Yield is the rate of return from the annual dividend – that is the CASH in your pocket. Companies increase their dividends, because when the share price rises the dividend yield lowers. They want to keep the yield at the previous rate or better, hence they raise the dividend. It is all based on YIELD.

    If your credit card rate was based on yield to cost, or you went to the bank to get a loan at yield to cost, what do you think? You would probably run and take your business elsewhere! Because you would have no way to know what the real interest rate is you are paying! YIELD is the rate you pay on a loan not YTC.

    If you think yield has no bearing on your investments, and is some fictitious value – you are going to be in for a big shock. When you retire you will be living off your dividends or the dividend yield (the CASH you will receive from your stocks).

    If you also think you can draw-down more of your portfolio above your dividend yield, you are either going to deplete your capital substantially in the first 5 years, or go broke trying. I urge you to see a an accountant or fee-only financial planner..

    All in the spirit of debate – I want you to be rich in your retirement 🙂

  27. @dividend mantra

    Here are 3 basic scenarios for financial planning. Let me know what you think are the correct answers:

    Scenario 1:
    Upon retirement Joanne cashes in all her mutual funds. She then invests 50% of her holdings in GIC’s with a rate of 3%. She then places the remaining 50% in Bonds with a Coupon Rate of 4%.

    What is Joanne’s rate of return? What is the maximum amount of money Joanne can withdraw from her holdings without depleting her capital?

    Scenario 2:
    Upon Retirement Roger cashes in all his mutual funds. He invests the full 200K all in dividend paying stocks. He does not DRIP his shares and decides to solely live off his dividend income. The average Dividend Yield on Roger’s stocks is currently 3.5%.

    What is Roger’s rate of return? What is Roger’s income based on the current dividend yield?

    Scenario 3:
    John has spent the last 20 years investing in only Dividend Paying Stocks. He estimates his Yield To Cost on all his holdings to be 15%. Upon retirement John stops all his DRIPS, and begins collecting the dividends for living expenses. The current dividend yield on all his stocks averages 3.5%. John decides that because his Yield To Cost is so high he can afford to easily withdraw an additional 10% of his stock portfolio per year and live comfortably.

    What is John’s rate of return? Using the existing dividend yield rate, how long will it take for John to deplete his portfolio?

  28. @Kanwal Sarai

    Thank you for being a good sport and taking my “GIC Challenge” 😉

    My point was not to try and prove whether or not a GIC would be a better investment than dividend paying stocks.

    Rather I simply wanted to show you that the Yield-To-Cost can be applied to any investment with compound returns, and you will get double digit returns! even for a GIC 😉 If a GIC has a return of 44.45% then why bother buying stocks?

    In fact your true return on the GIC example with your numbers was 44.45% / 11 years = 4.04% average annual return over the 11 year period. (The rate is obviously higher than 3.40% becuase of the power of compounding). Dividends work much the same.


  29. @Everyone

    The Passive Income Earner is correct here, when he describes YTC and Dividend Yield as seperate numbers:

    “My comment regarding yield-on-cost and current yield is simple, they are 2 numbers used to make decisions and can be used for comparative analysis. I have both of them in my tracking sheets mostly because I like to know how much my money is working for me..”

  30. It is fine to talk about 4% withdrawals, but you are missing a piece. That is, the 4% withdrawals is based on a portfolio earning 8%.

    This leaves room for inflation and also the fact that you are not going to earning 8% per year, but you can earn an average of that. But earning an average of 8% and earning exactly 8% per year does not come out to the same dollar amount of portfolio growth.

    Also, how I got a 5 year median yield of 3.4% is using yields from 2011 back to 2007. I did not give 2007 (3.03%) 2008 (2.88%). The rest were 2009 (4.26%) 2010 (3.56%) and 2011 (3.4%).

    I think that the 3.4% yield is a better indication on how I am doing. I tend to look at 5 years of figures. Yields go up and down as we go through bull and bear markets.

  31. @Susan Brunner

    Thanx for posting. That is an excellent point! I used 4% as a generous example, but you are absolutely corerct 3.4% is a much more realistic number for today’s market.

    This is exactly what most investors living off their dividends (without DRIPs) could expect, not the double-digit returns they think they will get! (unless they redeem shares).

    In my case I have gone for higher yielding stocks such as PGF,LIQ and SJR.B as examples. So I know my dividend portfolio yields 4.57%. But with bonds and other investments, I would probably be able to draw-down 3.5% to 3.7% per year. Exactly as you point out 😉


  32. Ninja,

    I see you gave 3 different scenarios under which someone would try to live off dividend income. I really think the first two are unrealistic, as someone investing in dividend-growth stocks would be investing years before they were ready to retire. It makes no sense to retire in a dividend-growth stock the day before you are ready to retire. You are missing the growth aspect. The only one that is really realistic is the third scenario. But, before I comment on it, I wonder why nobody has commented on my JNJ math where I pointed out that the income you’d be receiving from that investment would conservatively be twice what was talked about? I took real-world numbers and assumed moderate growth. When I’m assuming over 4% withdrawal I am also assuming that one is not planning to grow the portfolio any longer, other than to stay static with inflation. Please let me know what you think about the JNJ example I proposed.

    Thanks Ninja 🙂

  33. Ninja,

    I also wanted to post I’m not trying to prove anyone wrong. I’m no more right or wrong than the next guy; if anything I have a lot to learn in the world of investing. I’m by no means any expert. I’m just trying to have a lively debate and trying to pick up a few tips!

    Thanks 🙂

  34. @Dividend Mantra

    These are not real-life examples, they are simple math and finance problems. A financial planner would look at these and know the answer in a few seonds, the last one would need a bit of calculating.

    Regardless you are missing the point my friend 😉 When you RETIRE you no longer have any portoflio growth, only your dividend income. You will only have the DIVIDEND INCOME at the DIVIDEND YIELD to support your retirement. Of course the more money you have to begin with, the more you will be able to earn! That is where you are doing everything right 🙂

    You are confusing your CURRENT COMPOUNDING returns, with the fact that you don’t have compounding returns in retirement – only dividend income. Right?

    For retirement, your JNJ example is erroneous, becuase you have only your dividend income. You could probably safely withdraw 4% – but Susan can’t, and she has invested in higher yielding stocks than you have 😉

    Dividend Mantra, if you can not understand that basic principle, you are in for a big surprise. I don’t mean to say that to be rude, only that you need to understand how dividend income works in retirement 😉

    I would like to strongly suggest you see a financial planner. There is nothing wrong with going to see a professional for advice. I rely on my accountant for my tax decisions or business advice without hesitation, becuase I don’t have expertise in that area.

    Please email me directly and I can try my best to help you work through it :))

  35. Ninja,

    If I am erroneous in my thinking, then a whole slew of other investors must also be wrong. For example, you are part of the div-net. D4L, as I understand it, heads up the div-net. He regularly discusses YOC as he did here in an article I posted earlier:

    Dividend Growth Investor, another founding member of div-net also regularly espouses yield-on-cost. He discussed how he plans to to live off dividend income here:

    He also specifically discusses yield-on-cost here:

    He writes:

    “My goal is to achieve an above average yield on cost in the future. For example if I had invested $1000 on Dec 31, 1989 in MO ( Altria ) you would have bought 24 shares and had a dividend income in 1990 of $35, and achieved a dividend yield of around 3.5%. If you held your stock until Dec 31, 2006, you would have had a dividend income for 2006 of $239 on 72 shares! That’s an almost 24% annual yield. Your 24 shares would have turned into 72 shares worth $6179 at the end of 2006. Furthermore, if you had reinvested your dividends the $1000 investment in 1989 would have turned into $18,167!”

    So a 24% annual yield is incorrect in that example because Altria’s current yield is only 5.83% as of today? That doesn’t make sense to me. Yield is annual dividend divided by current share price. Current share price is irrelevant if you bought it years ago.

    Please advise Ninja. Thanks 🙂

  36. @Dividend Mantra

    (Sorry articles with lots of links get dumped in the spam queue – no worries)

    You write:

    “The logic is that your overall portfolio yield will rise in time. If I was only looking to yield 4% off my money I’d buy 30 year treasuries. ”

    I’ve made the point to you several times in the comments. You are CONFUSING two completely different things:

    1. When you invest now and GROW your portfolio, you are reinvesting your DRIPS, your dividends are increasing, and you are growing your portfolio through compound return. You can use YTC to measure that compound return if you really want to.. many investors do (obviously I don’t agree with it).

    2. When you RETIRE you don’t have compound growth, becuase you are living off your dividends – your dividend yield. You will get the yield return of the annual dividend.

    I’m sorry but I don’t think I can explain it any more simply to you. I hope that helps 🙂

  37. Ninja,

    Like I said earlier, we can agree to disagree. The important thing is that I wish you the best of luck with all your investments, no matter how you track the actual gains.

    I do plan to retire in 12 years, and I make just over $40,000 per year. I just started a year ago, so we’ll see how things go. I guess I’m trying a Derek Foster move, without the book sales, but also without children.

    Thanks for the lively debate. It was fun!


  38. Nice article and comments.

    I can see both sides of the coin, I think.

    In the JNJ example, if yield is 4% now, and you invest $1m to get $40k/yr then fast forward 10 years and you are now raking in $80k it is due to the growth of the stock, not the change in yield. The total portfolio is now worth $2m, but it is still paying out 4% in dividends.

    Is this correct reasoning?

  39. @Dividend Mantra
    It’s all semantic on how you want to look at the numbers. Dan Bortolotti and Ninja are highlighting that once you attempt at retiring, the amount of invested capital or ACB of your shares is irrelevant. You need to start looking at how much you have total. That total amount is what you are retiring with and consequently, that total amount is what your yield really is based on.

    Let’s say you invested 100K in JNJ and in the end, it’s worth 500K. That 500K is really what you are drawing your retirement income from even though it’s generated from a 100K initial investment. The retirement rate of return and dividend yield for the purpose of retirement is based on your 500K at this point. (500K = JNJ share price * number of shares you own). Focusing on the 500K, the current yield of the stock is pretty much the market yield for that stock.

    There is a difference between the growth of a portfolio with dividend and compound growth and the retirement aspect of that portfolio. It also doesn’t mean it cannot be done as Susan is doing it and my parents are also a living example for me.

    My goal is to live from my dividends in retirement. The amount of cash I generate is what is important. In the meantime, I put the compounding machine at work 🙂

  40. @ The Passive Income Earner

    “Let’s say you invested 100K in JNJ and in the end, it’s worth 500K. That 500K is really what you are drawing your retirement income from even though it’s generated from a 100K initial investment. The retirement rate of return and dividend yield for the purpose of retirement is based on your 500K at this point. (500K = JNJ share price * number of shares you own). Focusing on the 500K, the current yield of the stock is pretty much the market yield for that stock.”

    That makes it a lot clearer for me. I see what you are saying now. I have been basing my points up until now based on the amount of money I have personally invested. In your example you are basing it on the actual value of the investment, including capital gains to get your yield. In that case, yes you are using current yields. I’m sorry if I’ve been misunderstanding. I’ve been basing my YOC points on actual money that the individual investor contributed. I can understand what you’re saying here.

    You are right, it’s all semantics. I’m looking at YOC from $100k and you may be looking at current yield from $500k. It’s still the same investment and same number of shares and you’re still getting the same cash flow.

    Thanks for clearing that up a little bit. I can see where you are getting your figures from now.

    Thanks! 🙂

  41. @Ed
    Thanx for joining in. Exactly! plus the dividend increases as well 🙂

    @Passive Income Earner
    Brilliant! That is a perfect example of how it all works. Thank you for taking the time to explain this to DM. Now we can all have beer together and understand our yield is the same on the same stocks, regardless of portfolio size 🙂

    @Dividend Mantra
    Excellent! Thanks to the Income Earner you can see how that works now 🙂 I have to say you are doing everyting right, you are growing your dividend stock portfolio for the future! and when you reach my age you will be a millionaire.

    That is why Yield to Cost (although not wrong) misleads investors – they end up thinking it is their retirement yield 🙂

    Cheers everyone! Enjoy the rest of your holiday!

  42. Our RMD is about 4%, so I guess that is what is considered our withdrawl, plus SS and we are doing ok. Something like another car/lease will reqire additional withdrawl. We are retired age 75,77.

  43. @Ron Thanx for posting! A couple of questions for those of us who are not retired 😉

    Do you have a dividend stock only portfolio, or mixed assets such as various stocks mutual-funds and bonds etc.?

    At a 4% Withdrawal rate are you depleting your current capital or is the portfolio able to keep its original investment?

    Thanx again for posting 🙂

  44. I do not know why it is thought you cannot grow your portfolio after you start to withdraw from it. Since I started to withdraw money from my portfolio, I am matching the TSX in growth. So my portfolio is growing at the rate of the TSX less my withdrawals.

    My portfolio grew faster than the TSX before started to withdraw money. My return was about 2% higher than the TSX.

    There are several reasons for this. TSX index does not include dividends. Dividend paying stock tend not to be as volatile as TSX. You may not get the highs of the TSX, but you also do not get the lows. For example in 2008 the TSX was down 35.03% for the year and my portfolio was only down 21.85%.

    I also had a lot of dividend growth stocks. I used to follow Mike Higgs’ website on dividend paying growth stock. These are stock with low dividends, but high dividend growth. I have moved away from some of these to get a better dividend yield once I started to withdraw money from my portfolio.

  45. @susanbrunner “I do not know why it is thought you cannot grow your portfolio after you start to withdraw from it.”

    I agree, why do people think that their portfolio will stop growing once you start withdrawing from it. The key is not to withdraw so much. Perhaps you’ll run into this problem if you have bonds, or GICs?

    My plan is to retire from dividends only, and only withdraw a portion of the dividends each year, the rest of the dividends I will re-invest into more dividend-paying stocks so that the portfolio and income continue to grow. I don’t do DRIPs (I used to in the past), but that’s a topic for another blog post. 😉

  46. @Susan Brunner

    Yes your portfolio would most certainly grow substantially during rising markets, such as from 2009 to today for example, mainly becuase of capital appreciation 😉 (not including DRIPS or compound growth, since we are discussing retirement)

    But if you are living off your dividends then you are only living off your dividend yield (income), unless of course you start to sell your shares. I suspect you do not sell your shares for extra income, therefore you would be limited to dividend yield. Would that be correct?

    But in a declining market, your dividend yield would rise somewhat becuase of falling share prices.

    You also bring up a couple of very interesting other points about dividend stocks! Another post 😉 In part, this is why most of my equity is in dividend paying stocks 🙂

    Thanx for posting!

  47. @Kanwal Sarai

    “My plan is to retire from dividends only, ..”

    What do you think your rate of return would be for that?

    “…and only withdraw a portion of the dividends each year, the rest of the dividends I will re-invest into more dividend-paying stocks so that the portfolio and income continue to grow.”

    If you are a multi-millionaire then you could do it ; )

    I suspect you are taking your Yield-on-cost return, and assuming that is what you will have as retirement income – when if fact you won’t. I think we have discussed that enough here. (Please see the previous post by Passive Income Earner where he explains that to Dividend Mantra).


  48. Ninja,
    No I do not have a dividend stock portfolio. Yes, I do have stock & bond mutual funds and some individual stocks. I have just started adding some dividend growth stocks like ABT, KMB. PG, INTC and want to add more.
    My accounts continue to grow and no problem with distributions at 4%. Acouple years ago I used a retirement calculator that was helpful. Moved some IRA to Roths. Two years ago the program showed I could take $79,000 after tax whioh is closer to 9%. Here is the program. so far, so good.

    Optimal Retirement Planner ( its big strength is taxes! It performs an optimzed maximization of your after-tax retirement income, telling you how to divide your income between different account types (Roth vs. tax-deferred vs. taxable). It will even calculate best years for Roth conversions and how much to convert. But in terms of Sequence of Returns Risk, it only has a simplified Monte Carlo calculator.

  49. I do expect to have compound growth. With the 4% withdrawal and 8% return scenario, you would expect 4% compound growth. Since I stopped working in 1999 my compound growth has been 4.28% to date.

    When I first stopped working I was using capital gains to help fund my withdrawals. However, currently I am not as my withdrawals are slightly less than my dividend income.

    • Wow,

      Very impressive blog. I too have concentrated on dividend investing with a more concentrated effort in the Cansdian dividend blue chip stocks. I managed to purchase a substancial portion of banks, lifers, Telecoms, and pipelines combining with a few stocks that have concerted from the old Income trust world.

      My intention is to generate 60K of dividends equally distributed from both my wifes and my portfolio in order to generate no tax!!

      My target would be to have $1.5M invested in non registered funds generating a 4% yield once a plan to retire.

      I believe tyhe key is to be good savers, and establish what your true expenses would be qwhen retiring, thewn work back from there.

      Your comments would be appreciated.

      • Gary thanks so much for the feedback, and I’m really glad you enjoy the blog. Be sure to subscribe to the RSS feed 🙂

        60K in dividends would be very impressive. Sounds like you are doing everything right, I like your equity asset allocation. Do you have any bond holdings? Do you have any index products like XIU?

        I just published the first part of my series on Income Trusts for Canadian MoneySaver, it wil be posted here on the Dividend Ninja for Friday. I love the Canadian Telecoms, they did very well in early August.


        • Thanks,

          I will subscribe, as the information presented on the blogs has validated my dividend investment ideas. I have not purchased XIU, but I am aware of it as a worthwhile index fund. I feel that the XIU does not generate the yield that I am looking/ targeting. I feel that there are sufficient companies out there that with minimum risk, should generate an average of aroung 4% dividend payout. I do have CDZ in my RRSP portion. These are tough times, and patience is a virtue being a dividend investor.
          Presently my total portfolio has approx 25% in cash and around 15 % in bonds. I have decided to focus on my non registed portion in predominently canadian blue chip dividend growers with a sprinkle of US companies such as JNJ , abbott, PM, ED, KM. My registered portion that I can control has some bonds and more fixed instruments.Some of the defined contribution pension portions I cannot control with stock purchases and I have to abide by their choices. I have been DRIP’ing and looking for buying opportunities presently. So the target is to live off the divdends from the non registered portion of the portfolio and have other revenue from RRSP portion as the icing on the cake. All this equally split among my wife and I to minimise taxes.

          Let me know what you think.


  50. Couple points.

    On YOC, the perfect example of why YOC does not work is that your YOC decreases if you drip your shares, but your total cash flow increases.

    Second, on the idea of retirement, I find that dividend investors often often underestimate the size of the portfolio they will need to retire comfortably if they are only living off of their dividends.

    • Le thanx for posting! Well exactly, your second point is bang on. That was really the point of the article, but everyone got caught up in the YOC argument. The point of the article was to mention how at a 4% yield of dividend income, you really need a very big portfolio indeed.

  51. I like to use CEFs that provide monthly dividends. Instead of the 4% soloution, I an looking at what percentage of dividends I can use each month with the rest left for reinvestment. The dividends reivested allow me to grow my income each month to offset inflation over time.

  52. easiest way to look at this:

    You have 20 great dividend stocks that you’ve held for 20 years and your portfolio is worth $1,000,000 and your yield on cost is 20%. If you sell those 20 stocks the day before you retire and the next day buy back those 20 companies (at same price you sold the day before and the same amount of shares) your yield would be around 3-4%.

  53. Living off of 4% is really not going to work.. at least for someone like me. I have been building my portfolio with my 5% dividend stocks. I think that will work.

    • Sandy, most people are not millionaires – however the basic idea is to grow your portfolio as much as you can and then live off what dividend/bond income you can generate.
      Just remember that if you are going after high yield stocks, then you are also taking a lot more risk with higher yield companies. We have seen that recently in the current market decline – where the boring qulaity stocks are doing much better than their higher yield counterparts.

  54. Anyone else want to retire at age 35? Easier to do if you reduce your expenses down to around $700/month/person. It’s always harder to increase your income then it is to reduce your expenses but retian your high quality and standard of living.I am 25, debt free, good cushy engineering job, just hate the idea of having to work, so i reduced expenses down to $700/month, and have a very high savings rate of 75% per paycheck, which i invest about $2k/month in long term dividend paying positions after some research. With $8400k/year needs at 4%, i could be financially independent at $210,000. So if i save $35k-$55k per year, i could technically be financially independent, and retire pretty comfortably in 6-4 years. If i want some children, then work an addition 1-3 years per child (letting them take loans for whatever college ambitions they have with some support). Free your chains from work and worry.

  55. Very interesting article. I’m starting to think of dividends stocks/funds as a replacement for high (low) yield savings accounts. I realize there is more risk since your money is in the market.. but I think it’s worth it when compared to the measly .7% returns.

    • Dan absolutely! since savings accounts are not even close to keeping up with inflation. Just make sure to stick with the big blue chip quality stocks, be defensive, and don’t be lured into high yield stocks. (See my comment to Sandy above).


  56. I think that people are forgetting a couple of things about retirement planning. Inflation does not effect the end result and neither does dividend increases. Wha! you say is this guy crazy… maybe but let me explain. Inflation increases each year at roughly 2 to 4% so this will cost you more while you are working, but you obviously have the cash to pay these costs now. in retirement you still get these costs but they are offset by other savings in retirement, eg… your home is usually paid for, your kids are moved out and thier education is done and payed for, tuition fees and such.
    1) Your work cost are done, gas lunches, wear n tear car, daycare costs, ect..
    2) Children costs are done; food, clothing, power costs, water bill, gifts, powercosts, cash needs and such (go ahead just calculate what this is costing per year.)
    3) reductions in other costs help to offset, insurances incentives and you eat out possibly more but eat less food with less appetite as your older.
    4) After you become a senior you get even more incentives, senior rates government incentives and grants if you keep your income down ( smaller income withdrawls $ amounts)

    As for the dividend increase it doesn’t really matter that much as the stock price changes so does the yield go with it eg… the stock price goes down the yield goes up, the stock price goes up the yield goes down. The increase in the dividend itself can give you more money later in retirement but some stocks will lose thier values in this time changing the portfolio value thus reducing your retirement income, look at 2008 and 2009.

  57. From my calculations, it would take a non registered portfolio of dividend paying stocks to be about $1,000,000. That would be about the right amount to live off your dividends.

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