Friday, September 25, 2015

Dividend Stocks to Offset Specific Life Expenses

My definition of financial independence is reaching the point at which my passive income exceeds my life expenses. With that goal in mind, I started to invest in dividend paying stocks in order to generate passive income to offset specific life expenses. Additionally, realizing most of my life expenses would grow over time, my focus was on investing in stocks that grew their payouts so that my rising passive income would exceed my rising life expenses.

The first time I explicitly invested in a company with the goal of neutralizing a specific monthly bill was Bell Canada. I had recently moved into a one-bedroom condo, and hated paying the $22 monthly cost of a having a telephone landline. Although there was definitely a convenience associated with having a landline, sending a monthly cheque to Bell (which had a monopoly for home phone services in Ontario at that time), was mentally tough on me. The day I realized that by acquiring 200 shares of Bell Canada, I would reach a point where my dividends (200 shares x $0.33 per quarter x 4 quarters = $264) would offset my yearly payments $264 ($22 x 12 months = $264), I was on a mission! I immediately started on a quest to accumulate 200 shares in Bell Canada. After completing my quest that year, I was ecstatic. In my mind, Bell Canada was no longer making a dime of profit off of me. Psychologically, I felt like I had beaten the system and I was getting my home phone service for free! Better yet, after Bell raised their dividend to $0.365 a share per quarter, and my bill didn’t go up by as much, I was basically being paid by the company to have a home phone J

Other specific bills that I’ve manage to offset include
-          Cable and Internet: Thanks to Rogers and Telus, my monthly Videotron bill is eclipsed.
-          Bank fees: Thanks to the six Canadian banks I own, I no longer care what CIBC (the one major bank I don’t own) charges me in fees.
-          Property taxes (at least my share of these): Thanks to Riocan REIT, H&R REIT, and Realty Income Corportation I considered my property taxes covered.
-          Fast food: Thanks to my position in McDonalds, I don’t hesitate to indulge in fast food when there’s no healthier and more convenient alternatives.

There are three bills I’m currently working on offsetting:
-          Heating: By growing my positions in Enbridge Corporation and Enbridge Income Fund Holdings, I soon hope to be in a position to neutralize the cost of heating my house through Enbridge’s subsidiary Gazifere.
-          Electricity: Although my position in Canadian Utilities helps to offset these costs, the late fall IPO of Hydro One (from Ontario) might prove interesting to me, depending on its price.
-          Gas: Since we have two cars, but mainly drive my wife’s car, I can generally get by with filling up the tank of my Honda Civic once a month, costing about $40. With Suncor paying a $0.29 quarterly dividend, my long-term goal is to acquire enough shares of the company (~400 currently) to completely offset my gas costs.

Clearly, not all of the companies I have invested in perfectly offset my monthly bills. For instance, instead of investing a small fortune in Quebecor, and relying on their paltry 0.5% dividend yield to offset our cable and Internet bill, I’ve chosen their better managed and more diversified peers, Telus and Rogers with dividend yields over 4%. Additionally, I know that my REIT holdings don’t truly relate to my property taxes, but I figure my approach of having real estate income offset real estate expenses is close enough. I also understand that my imperfect hedges totally ignore taxation on dividends. That said, the majority of my stock holdings are held in my RRSP and TFSA, where dividends are not taxed. Plus, the mental and emotional boost I get from setting up these offsetting stock positions more than makes up for the reality of being imperfectly hedged.  There's also the fact that I have positions in a number of dividend paying companies that don't specifically offset any expenses (i.e. Pfizer, Omega Healthcare, Alaris, etc.).

In the long-term, if I can set up enough positions in dividend stocks to offset each of my regular life expenses, I’ll acheive my goal of financial independence. In the short-term, it’s extremely fulfilling to be able to offset another monthly bill by building a position in a dividend paying company.

Are there companies that you have invested in as a way to offset the amount you pay them? 

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