Diversification the Key to Our Dividend Investment Strategy

Our main strategy for generating post-retirement income is to attempt to live off the dividends from our stock holdings. In our book "Retired at 48 - One Couple's Journey to a Pensionless Retirement", we describe in detail how we try to reduce risk through diversification.  For example, we buy many different stocks in various sectors and set limits for the amounts we would hold in each stock depending on market capitalization, setting lower limits for smaller, riskier companies and higher limits for larger, blue chip companies which are presumably safer and have a history of raising their dividends. 

The book also describes how we use the Globe and Mail Watchlist tool to check on the performance of our stocks.  In particular, we regularly monitor the dividend amount for each of our stocks, prepared to take action if necessary if one of them declares plans to significantly cut their payout.  Since we started with our dividend strategy many years ago, a majority of our stocks have raised their dividends, some of them multiple times on a regular basis.

Recently we did have one of our stocks take a relatively large dividend cut.  We purchased a small-cap stock in the health industry called CML Healthcare (CLC-T) in an attempt to diversify into different sector from the financial, telecommunications, energy, utilities and REITs that we are mainly concentrated in.  Based on our strategy of limiting exposure to smaller companies, the shares we acquired accounted for only about 1% of our portfolio.  At the time of purchase, it was paying a relatively generous yield of over 7%.  For various reasons, the company's earnings declined to the point that the dividend payout was no longer be sustainable.  This resulted in the share price plummeting by over 25% and the yield rising to an unreasonable level of over 11%.  The writing was on the wall that there would be a cut in the dividend, so we evaluated our options. 

We realized that even after the proposed 30% dividend cut from $0.75/share to $0.53/share, the yield would still be higher than most of our other stocks.  Because we owned so little of this stock, the net loss in dividends did not noticeably impact our annual dividend income.  Selling these shares would generate a capital loss that was significantly larger than the minor loss in dividends, and there was no clear replacement stock that could do better.

So in this case we decided to continue to hold the stock.  Our dividend strategy is designed so that no dividend cut in any single stock should create a major blow to our portfolio.  So far, this has worked out well.

We also encountered two scares that turned out to be false alarms.  The first was when it appeared that Telus (T-T) had cut their dividend by 50%!  Further investigation showed that Telus had actually executed a stock split.  So although their dividend payout was now 50% less, we also owned double the number of shares, each worth half the price.  The net result was the same... phew!

The second scare came from a data error from the Globe and Mail Watchlist.  For one solid week, both the Watchlist and the Saturday Globe and Mail business page showed that Cineplex Inc. (CGX.T) had dropped its annual dividend from $1.35 to $0.48, changing the yield from 4.2% to 1.39%.  This didn't make sense, since there was no news announcement or drop in share price (which usually accompanies a significant dividend decrease).  Checking both Cineplex's corporate website and other websites such as Reuters indicated that the Watchlist data was not correct.  In fact, rather than dropping their dividend, Cineplex has announced they would raise their dividend to $1.44.  We contacted Globe and Mail's globe investor support and advised them of their data error, which has since been corrected.  Another bullet dodged!

All in all, our buy-and-hold dividend strategy for generating retirement income continues to work well for us and we are insulated from the impacts of rollercoast stock prices as long as we continue to concentrate only on the stability of the dividends. 

Our recent experiences also accentuate the importance of paying close attention to your portfolio and being prepared to take action to re-balance when necessary.

Tips for Reducing Costs of Live Entertainment

We really enjoy watching live theatre, but tickets can be expensive.  We probably watch more shows in a year than the average patron, and have employed the following ways to minimize this expense.

We tend to buy tickets in the lower price range rather than going for the best seats in the house.  We don't mind sitting further back, opting to see many shows from afar rather than a few shows up close.  However we are mindful of sight-lines.  We have learned that we usually prefer seats further back and closer to the centre, rather than way off to the side, or even up too close, where our view is obstructed from part of the stage.  It helps to be familiar with the seating configuration of the major theatres and understand the implications of various locations.  We once watched a play from the centre of the first row of the Bluma Appel theatre, and found ourselves so close to the stage that we were craning our necks to see the actors and had a clearer than desirable view of their nostrils.

Subscriptions to a series of plays often offer a healthy discount over purchasing tickets separately for individual shows.  I have held my Mirvish seasons tickets for over two decades and have received as much as 40-60% off the base prices.  We were watching up to 7 shows for the price of separately buying tickets to 2 or 3 of them. Following our strategy of seeing more for less, our subscription falls in the lowest price range, although I've had this subscription for so long that I now hold some of the best seats within this section.  For the 2012-13 season, we paid $179 for 6 musicals (love musicals!!).  So I'll be watching The Book of Mormon for under $30.  The Mirvish subscription is one of the most flexible as it allows free ticket exchanges up to 48 hours before the show.

Now that we are retired, we are much more flexible as to when we can attend shows.  Often, matinee performances are offered at a lower rate, especially those held during weekdays.  We recently watched a Tuesday afternoon performance of the Toronto Symphony Orchestra Plays James Bond for $29 per seat.  This option was not available for the same show later that evening.  You need to be careful trying this with longer running shows, because often the matinee performance will feature the understudy as opposed to the star.  Some shows offer preview performances at a lower price.  You get a discount for agreeing to see a show before hearing the reviews. The Stratford Festival usually has a preview session for their shows early in the season.

One great tip I've discovered is that you can sometimes save most or all the online or over the phone service charges and extra fees by purchasing your tickets in person directly from box office, as opposed to paying for the convenience of buying online or over the phone.  I have had savings of over $20 for two tickets by going this route. 

If you are willing to wait for a sale and possibly miss watching a show, there are many opportunities to score cheaper tickets.  Some theatres such as Mirvish offer same-day, limited "rush seats" or promote ticket deals towards the end of a show's run.  Group discount websites like Groupon or TeamBuy occasionally offer up theatre deals, especially for smaller or less popular shows that need the attendance boost.

The shows at smaller venues like the Factory Theatre, Tarragon, Lower Ossington, Hart House Theatre, etc. are usually offered at a much lower price and sometimes even have a "Pay What You Can" day.  I often prefer the lesser known, more intimate shows over the big blockbusters that are sometimes overhyped.  One of my favourite shows from a few years back was "Ride the Cyclone", performed at the Theatre Passe Mureille.  I enjoyed this smart, dark comedy of a musical as much as I did watching War Horse and much more than The Wizard of Oz.

Once a year in July, we go for really small, sometimes experimental works by attending the Toronto Fringe Festival.  For a 12 day span, you can watch 45-90 minute performances for $10-$12, in all sorts of venues ranging from small theatres to wacky locations like a bar, a bra shop or a traveling bus.  You take your chances and often get what you pay for.  But every once in a while, a gem such as The Drowsy Chaperone or Kim's Convenience shows up at Fringe, becomes the theatre darling of the year and gets picked up by mainstream theatres for a professional run.