Ultimate Goal

4 Jul

Hypothetically speaking, can one build a stock portfolio that is sustainable to churn out $20,000 per year in distribution/dividends to stop working and live off the dividends from your stocks?

I’ve been leisurely reading Derek Foster’s “Stop Working, Here’s How You Can!”  At the end of his book, he constructed a sample stock  portfolio where he collects $18,845 per year in distribution/dividends deprived from his original investment cost of $103,500.

Can I replicate his method in this day and age?

Let’s say I just invested the whole $103,500 into one of my high yielding stocks in today’s stock prices:

BPF.UN– $103,500/17.47= 5924 shares @ 1.20= $7108.80/yr
BMO– $103,500/57.77= 1791 shares @ 2.80= $5014.80/yr
KEG.UN– $103,500/14.04= 7372 shares @ 0.96= $7077.12/yr
IPL.UN– $103,500/19.27= 5371 shares @ 1.08= $5800.68/yr
CHE.UN– $103,500/15.85= 6530 shares @ 1.20= $7836.00/yr

Even if I did find a cheaper stock like PGF which is yielding about 12.79% at the moment.  I still wouldn’t be able to make it to my $18,845/yr goal:

PGF– $103,500/6.57= 15753 shares @ 0.84= $13232.52/yr

This just means I have to construct at least a $250K plus portfolio to realistically support the $20k per year in distributions/dividends.  That is a big feat to accomplish.  Currently, I am collecting around $275 per month.  I have a long ways to go before I hit my ultimate goal of working as a sole investor/trader.

Alternatively, trading stocks is more lucrative if you know how to time your trades to the tee.  One can easily reap the rewards faster with the daily swings of the market…

I’ve been inactive for the past month.  It’s time for me to shake off the bad trades in May and start anew!


6 Responses to “Ultimate Goal”

  1. Liquid July 5, 2012 at 2.33 #

    I have it sitting on my book shelf, was a nice read. Times have definitely changed. Mr. Foster wrote that during a bull market. But I think the strategy will still work today over the long term, it just requires more time to have the same success as he did. $275/month is already a great start. If you can be a master of patience, then you will be a master of anything else :).

    • agentfang July 5, 2012 at 2.33 #

      Yes, it was a fun easy read for sure! I skipped a few chapters as I read one of his newer books beforehand. I really need to master my patience, I have a short fuse and ready to go off anytime! If I didn’t lose my patience back in May, I woulda been back to my old status quo. OH WELLS… live and learn.

  2. Alex July 5, 2012 at 2.33 #

    i think realistically the number is much higher.

    the problem is while high yield looks great during accumulation years, where you can plow the income back into more dividend generating assets, it doesnt look as good in retirement years, where you begin to consume the income. without reinvesting the income, your purchasing power would erode unless the dividend stream grew on its own steadily over time, which high yielders have a low probability of doing.

    i’d estimate the top end limit on steadily growing dividend streams is around 5-7%. past that you begin to take on significant risk of future dividend cuts like ERF recently

    • agentfang July 10, 2012 at 2.33 #

      I know you’re not a big fan of unit trusts, there are some that are not very stable paying out high yields. I usually buy what I like, I never did like Yellow Media’s structure as a company even though they had high yield… I never threw my money in it… now it’s trading in the pennies. It was a dying company once the internet came on board. Most likely, big blue chip dividend players will come out on top for the later years for sure. I need to find some good deals… lemme know what you like 🙂

  3. A Young Investor July 10, 2012 at 2.33 #

    Ahhh, nothing like a fresh start. “Alternatively, trading stocks is more lucrative if you know how to time your trades to the tee. One can easily reap the rewards faster with the daily swings of the market…” You’re right.
    But I think you missed a key component in your calculation. What if those dividend paying stocks suddenly slashed their dividends (as what happens in poor economic weather)?
    That’s why I think living off a portfolio of dividends doesn’t work, unless you have so much money that even if dividends were slashed, you could still live off of the remaining dividends.

    • agentfang July 10, 2012 at 2.33 #

      You’re totally right about companies slashing their dividend cuts in the future… it’s all too common for companies these days. One must always be up to date on their stocks.

      One time, I met up with an investor who’s living off his stock portfolio. Living modestly, but he is able to do it. Thing is that he was not an active trader at all. It’s all passive income. Very inspirational.. but I bet his portfolio was really high though.

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