Yes, July 1 is called Canada Day. But now might be the perfect time to discuss your “Independence Day”. Financial independence, that is.
Canada Day was a few days ago, fireworks, ketchup chips, BBQs, and all. And as I write this blog my eyes can’t stop shifting from my laptop screen to the Canadian flag flying in the school playground just beyond my backyard.
How lucky are we to live in this country? This free, tolerant, peaceful, and – yes – unusually polite place we call home. Is Canada perfect? No, of course not. No nation is. But in an increasingly (and how do I say this politely?) unsteady world, I’m grateful our daily lives aren’t clouded by rampant violence, government prosecution, or hatred (despite what some media outlets and radicals might say – don’t believe them, they’re wrong).
I’m thankful that my parents chose Canada of all places to emigrate and proud that my own family and future generations of Dris – have a home where they can truly thrive.
Okay, so before I break into a spontaneous rendition of “Oh, Canada” – which trust me, nobody wants to hear – let’s shift gears to what I’m here for. To discuss the current situation halfway through 2022, and some recommended investment strategies.
WHERE WE’RE AT SIX MONTHS IN?
Depending on your individual asset allocation and geographic diversifications, investment portfolios declined by approximately 5-7% in the first six months of 2022. It may be a small consolation, but those declines are less than what we’ve seen in the indexes. For example, the S&P/TSX declined by 9.9%, the S&P by 20.0%, and the NASDAQ by a full 27.6%. Bond indexes were also down by around 11.4% (as measured by iShares Core Canadian Universe Bond Index ETF).
Suddenly, that 5-7% drop feels a little less painful.
Declines like this make me (and probably you) ask…” Why am I investing?” and “Do I have the appropriate investments to achieve that ‘Why’?”
FIRST QUESTION FIRST: “WHY AM I INVESTING?”
A surprising number of us never ask “why” we’re investing. We just do. But if you ask why, the answer will inform your strategy and create the benchmark to determine if your strategy is working.
Let’s say your “why” is to accumulate enough assets that they’ll generate an income that can let you stop working – or at least work less. But let’s drill down… what does “not working” really mean?
What you’re looking for is financial independence. And this is often best achieved when your investment income meets or beats your lifestyle expenses.
| Lifestyle expenses | CPP and OAS | Company pension | Total income minus investments |
| $100,000 year | $20,000 year | $25,000 year | $45,000 year |
| Income needed to meet $100,000 annual lifestyle expenses | $55,000 year |
So, if you want to maintain a lifestyle that costs $100,000 a year, where will that extra $55,000 come from?
I’m going to use what’s known as the 4% Rule. Following this rule and using these figures, financial independence occurs when approximately $1,375,000 has been saved. Then you can live off the dividends. How did I get to that number? It’s really not complicated; you can read up about the 4% rule here.
YOU HAVE YOUR “WHY”. YOU’VE GOT YOUR NUMBER. NOW FOR YOUR “HOW”.
Okay, we’ve established you need to save $1,375,000. What’s the strategy? If you know me at all (as a client or reader of my blogs), you know I like to focus on dividends and dividend growth. My research has consistently shown that companies that pay increasing annual dividends outperform the major equity indexes.
Hence my motto: Dividend increases lead to stock price increases. (Read what I mean here.)
Below is a look at the thirteen companies in the Richard Dri Financial Canadian dividend growth model that have increased their quarterly dividends during the first six months of 2022 – as well as the respective percent increase (additional increases are expected by year-end).
| Companies increasing dividends in the first half of 2022 | Quarterly dividend | % increase |
| Intact Financial | $0.91 → $1.00 | +10% |
| Royal Bank of Canada | $1.20 → $1.28 | +7% |
| TFI International Inc. | $0.31 → $0.35 | +12% |
| Canadian Tire | $1.30 → $1.63 | +25% |
| Metro Incorporate | $0.25 → $0.27.5 | +10% |
| Canadian Natural Resources | $0.59 → $0.75 | +28% |
| Stella Jones | $0.18 → $0.20 | +20% |
| Quebecor Inc. | $0.28 → $0.30 | +9% |
| CNR (Canadian National Railway Company) | $0.62 → $0.73.25 | +19% |
| George Weston | $0.60 → $0.66 | +10% |
| Loblaw | $0.36 → $0.40.5 | +11% |
| Nutrien Ltd. | $0.46 → $0.48 | +4% |
| Empire Ltd. | $0.15 → $0.16.5 | +10% |
Of the 20 companies in our model, all have paid first and second-quarter dividends while these thirteen have increased. I expect the remaining seven to do likewise before the year is up.
FROM “WHY” TO “HOW” TO “WHAT’S NEXT?”
If your “why” is to make work optional and your “how” is a dividend growth investment strategy, then I suggest you judge the performance of your investments against these two benchmarks:
- Are you still on track to hit your savings target?
- Are the stocks in the investment portfolio paying a consistently increasing quarterly dividend?
Those are the only two questions that matter. Don’t fret over media headlines, rumors, or keeping up with the Joneses. Focus on achieving your personal investment goals.
If your investment portfolio is down, look to reduce or defer your family expenses. When your portfolio exceeds your projections, consider increasing them. Also, are all stocks in your investment portfolio paying and increasing their dividends annually, if so, consider holding the status quo, if not, consider replacing the stock(s). The advice doesn’t get much simpler than that.
If you’re not 100% sure you’re on track with your savings goal, or if your personal situation has changed, please call my office. My team and I will be happy to re-evaluate your projections and offer any necessary corrections.
Until then, I’m going to go back to admiring our flag – and maybe humming just a little bit of “we stand on guard for thee”.
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source https://richarddri.ca/fireworks-finances-and-2022-so-far/
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