Dividend Growth Investor Q&A series – Henry Mah

When we started our financial independence journey over a decade ago, we set a goal of becoming financially independent via dividend income by 2025. Why did I pick the year 2025? Because it was far out there and it ended with 5. I didn’t specifically pick the date by crunching a bunch of numbers. 

Fortunately, despite 2025 just around the corner, we aren’t too focused on the actual date. In 2023 we received enough dividend income to cover our core expenses. It’s only a matter of time for our dividend portfolio to generate enough dividend income to cover all of our expenses. 

One of the reasons why I started this blog is to share my knowledge with fellow investors and chronicle our financial independence journey. I’m forever grateful to have had many opportunities to connect with many like-minded people around the globe. 

Today I asked Henry Mah from Your Ever Growing Income. Henry is in his 80s and started investing at about age 50. 

Q1: Welcome to the blog Henry. Can you tell us a little bit about yourself? 

A1: Hi Bob. Thanks for inviting me to join the discussion with you. As you said I started investing late, at age 50, and I’ll be turning 82 in January.

We’ve been retired since 2007, though I continued to work remotely for about another six years.

Q2: It’s always amazing to learn from people ahead of us on the dividend investing journey. What sparked your interest in dividend growth investing originally?

A2: Unfortunately, we didn’t really know much about investing when we started, and only avoided disaster by luck, more than skill. After several years of trying to grow our money, we discovered an article written by Tom Connolly, who introduced us to dividend growth investing.

Tawcan: Reader B also mentioned Tom Connolly in the $360k dividend income interview. In case you’re curious, check out DividendGrowth.ca.

Q3: You have published four books on dividend income investing, focusing on generating salary for life. Do you have any plans for another book?

A3: Writing the first book was intended as a legacy to our kids and grandkids. They were not into investing and especially investing in stocks. I wanted to try and explain to them how easy it could be, and rewarding, if they concentrated on investing to earn an income.

I do want to thank my daughter who agreed to read and provide some input for the first book. I knew what I wanted to say, but as she read, she didn’t understand much of what I was trying to say. After much back and forth, I think we were both satisfied with the end result. She edited the other three and provided the cover graphics.

As to your question, I am working on another, but don’t expect to publish it for some time.

Q4: Why dividend investing over indexing? What are some key factors that made you like dividend investing over different investing strategies?

A4: That’s an easy answer for me; it’s the amount of income one can earn.

Indexing will only provide an average or a much lower income, than if one selects individual dividend growth stocks. Like many when I first began investing in dividend growth stocks, I included several higher yielding stocks. It took some time for me to realize that short-term higher income doesn’t, or didn’t lead to a long-term higher income.

Q5: How much dividend income does your dividend portfolio generate each year? Can you share with us your holdings?

A5: I’ve always avoided discussing how much income our portfolio generates, other than to say, that by the time we retired, we were earning enough dividend income to retire with just CPP & OAS. Because we continued working part-time our income continued to grow and far exceeded our needs.

Also, I avoid listing the stocks we own. I prefer that anyone interested in the Income Growth strategy, that they learn to evaluate and come to their own conclusion about which stocks they like the best. The book not only explains income growth investing, but provides them with almost everything they need to know to learn how to do it themselves.

Q6: If you were to summarize your philosophy of dividend investing, what would that be? 

A6: Here they are in point forms:

• Learn to evaluate dividend paying stocks.
• Develop a list of quality dividend paying stocks you like.
• Avoid all other dividend stocks, funds, ETFs, and other investment products.
• Use the Yield difference to decide which stocks to buy (from your list), and when.
• Reinvest the dividends.
• Add as much as you can, as often as you can, to your investments.
• Continue to hold as long as the stocks you own continue to pay and grow your income.

Q7: Can you go over the parameters you look for when evaluating dividend stocks? How do you determine which one you should buy on your list?

A7: I use a four-rule test to do the initial screening:

1. A company must not have cut their dividend in the past ten years (I sometimes go back further).

2. A company must have paid a dividend for at least 10 years, 25 years or more is much better.

3. A company must have raised their dividend at least 8 out of 10 years. The more the better.

4. The 10-year dividend growth should be 75% or higher, though there are several stocks that offer a bit less which I would not eliminate.

Finally, I use the Yield difference (the difference between the current yield, and a stock’s 10-year average yield to determine which stocks to buy and when).

Q8: Can you provide a detailed breakdown across non-registered and registered accounts? 

A8: This has changed over time. Our RRSP/RRIFs were the larger portion of our investments, but we’ve slowly increased our non-registered (56%) and TFSA (14%), and RRIFs are now at 30%.

We hope to eliminate our RRIFs in two or three years.

Q9: Do your friends and family know about your dividend income? Do you openly talk about investing and money with them? 

A9: My wife started an Income growth portfolio for our grandkids when they were ages three and five. We never discussed investing with them, other than to periodically show them how much income they earn, and how the income has continued to grow, even though funds were not always added every year, and the investment was being ignored.

Since writing my book(s) they have all embraced income growth investing with their own portfolios.

Q10: Tax planning is very important when you start living off dividends or start withdrawing from your investment portfolio. What’s your withdrawal strategy to minimize taxes? Do you have an early withdrawal RRSP strategy? 

A10: When we started saving and investing, the RRSP was the best place to invest. Unfortunately, by the time we retired, our RRSPs represented about 85% of our investments, and generated most of our income.

When we converted our RRSPs to RRIFs, we were extremely pleased that our income exceeded our minimum withdrawals, and the funds went into our non-registered, and TFSAs.

It wasn’t till recently, say the last five years, that we began to realize that if we couldn’t deplete our RRIF accounts, and once we were required to withdraw 20%, or if we passed away, the tax on those funds would be about 45-50%. Also, as our non-registered and TFSA income grew, we found that we really didn’t need the income or capital in the RRIFs to live on.

That’s when we began withdrawing much higher amounts from our RRIFs, paying a bit higher tax, about 28%, and then gifting most of the remaining funds to our kids and grandkids.

Q11: If you had the choices, would you have done it differently with your RRSPs? Would you have considered making withdrawals earlier to reduce the amount of money in your RRIFs?

A11: Definitely.

I would have put much more into our non-registered, paid a bit more taxes, and likely not have our OAS clawed back to zero.

I don’t know that I’d withdraw RRSP early, unless you needed the income or could delay other income. The problem is that most other income is taxed at the same rate. We did max out our TFSAs each year.

Q12: There are a lot of debates on which is superior, dividend investing vs. index investing and living off dividends vs. 4% withdrawals. What are your thoughts on this topic? 

A12: For me, it’s no contest. Since we switched to income growth investing, we totally ignore the value of our investments, even when one or more of our stocks are showing a loss.

Our objective was always to earn more income than we needed to live off. Achieving that goal resulted in a zero-withdrawal rate, unless we wished to sell capital.

Q13: Given the high inflation rate and ever rising interest rates, are you concerned that companies like Canadian banks, telecoms, and utility companies won’t be able to pay dividends? Why should someone invest in dividend paying stocks now when they can invest their money in safe 5% GICs?

A13: The current situation, and fears of a recession, have not affected our income or income growth. Our income has continued to grow, even though we are gifting fairly large amounts.

Fixed assets have never made up any portion of our investments. One should always maintain savings or emergency funds, but for their investments, I recommend 100% quality dividend growth stocks.

One might get 5-6% from GICs today, but will that rate grow? No. Will they be able to renew at the same or a higher rate? Not likely.

Q14: Has your investing strategy evolved over the years? What are some of the challenges you have faced? Do you see your investing strategy evolve moving forward? 

A14: Yes, I’ve become convinced that one will be better off investing in just the best dividend growth stocks, and avoiding excessive diversification.

I prefer a concentrated portfolio of quality stocks, then any other combination. Challenges, getting rid of the lesser quality stocks we bought.

Q15: What’s your retired life like? Walk me through your typical day. How do you keep yourself busy and stay engaged? 

A15: When we first retired, we travelled quite a bit. Later we found that staying in one place, in Arizona, was much easier, and more enjoyable. Unfortunately, I am now a full-time caregiver (with help from my daughter) and have remained homebound. The first year was difficult, but we’ve settled into a routine, and all is going well.

I kept busy writing my books, working on my blog, and more recently providing some financial counselling (where they are required to make a charitable donation for the service).

Q16: Do you have any advice for someone who is just starting their dividend investing journey or someone like us who is planning to live off dividends one day? 

A16: I strongly recommend that one take the time to learn about investing and decide what they want to achieve when they invest their money.

It’s my opinion that income growth investing is one of the easiest, simplest, and safest ways to invest. Not to mention that one really can achieve the goal of living off their income.

Not everyone needs $100k of dividend income or more to be comfortable in retirement. If one has time on their side, it doesn’t take that much in savings to achieve the goal of being able to live off your income.

Q17: Any final comments you’d like to share with us to wrap up this Q&A? 

A17: Learning about investing means more than just knowing about different investment strategies.

One must learn that investing in stocks is less about skill, especially if one invests for capital growth, than luck. If you invest for growth, or market returns, success will be difficult if you get caught up trying to chase hot stocks or panic when the market drops.

There is no one way to achieve financial freedom, but I doubt that there is an easier method than Income Growth investing.

Thanks, Bob for the interview.

Dividend Growth Investor Q&A series – Wrapping it up

Thank you Henry for your honest answers and valuable insight. I love how you learned over time that short term dividend income doesn’t lead to a long term higher income. That’s why if your investment time line is long, it is beneficial to focus on low initial yield, high dividend growth stocks.

I hope you enjoyed reading this Q&A. Please stay tuned for more Q&As with other dividend growth investors.