Wednesday, October 16, 2013

Dividend Income Offsetting Expenses

One of the reasons I like owning dividend stocks is that the income they generate helps to offset related expenses I incur each  month. As I pay more for certain expenses, my dividend growth stocks should keep pace with these inflated expenses over time.

Early in my investing career, one of my first stock purchases was shares in Bell Canada where I calculated the dividends would offset my $25 monthly phone bill. The fact that Bell has continued to increase their dividends regularly, long after I have stopped using their services, makes the transaction all the sweeter.

Below are a couple more examples of shares I hold in my current portfolio, and the degree to which the dividends help offset my regular expenses.

Phone/Cable/Internet Expenses - Since I now live in Quebec, my telecommunications bill comes from Videotron, and is a little over $100 a month. I'm not a big fan of Quebecor, Inc. (Videotron's parent) given their paltry 0.5% dividend yield, but continue to own shares in Bell, Telus and Rogers.  Together, these companies provide me with enough dividends to cover about 150% of my Videotron bill each month.

Bank Expenses - I'll admit to being clueless as to how much in banking fees I pay on a monthly basis. My main account with a credit union doesn't charge me any transaction fees, but I know my CIBC account (coincidentally, the only big bank in which I do not own shares) charges me a certain amount per transaction. Given I try to keep transactions to a minimum (taking out cash once a month or so), I think $50 would be a high-end estimate of the amount I spend on banking fees a year. Given the substantial amount of bank shares I hold in my portfolio (about 25% of my total holdings), it's safe to say that my bank expenses are very well covered by my dividends from RBC, BNS, BMO, Laurentian Bank, and National Bank.

Heating Expenses - This is one of the bills I've been trying to build up a steady stream of growing dividends to help offset. We heat our house with gas provided by an Enbridge subsidiary, and I think we average a little over $100/month in expenses. I own shares directly in Enbridge Inc and Enbridge Income Fund Holding, whose dividends pay off about 43% of my average monthly energy bill. If I add in the dividends I receive from the Interpipeline Fund and TransCanada Corp, that percentage increases to around 80%.

Fast Food, Drug Stores, and Other Expenses - My 100 shares in McDonalds provide me with $324 a year in dividends, which probably covers my fast food dining expenses. The $126 I collect a year from Walgreens probably doesn't totally cover my total medical expenses per year, but it comes close. My Potash shares would likely cover the expenses associated with our small garden. The dividends I get from Microsoft and Intel would allow me to buy a new laptop every couple years. Lastly, the amount of income I generate from various REIT holdings comes close to covering my property taxes for our house.

Given my long-term goal of generating enough portfolio income to cover my day-to-day expenses, I think I'm on a pretty good track. Here's hoping the increases in dividends keeps up with the inflation associated with my normal monthly expenses.

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