My number

There are countless little yardsticks that people use to measure how they're doing financially. Some people track net worth. Others worry about how much their stocks have grown (or shrank) by in percentage terms. These are all useful tools to track and ultimately improve one's financial health, but there's another number I've kept my eye on since I've become aware of the awesome power of dividends.

Every year, I like to sit back and calculate how much passive income my portfolio generates for me in the way of dividends -- cash in hand. With apologies to Lee Eisenberg and Alex Berenson, both of whom have written fantastic financial books with the same name on different subjects, I call it my "number."

I'm still relatively new to the investing game, but I've already figured out what sort of investor I am (Editor's Note: A bad one! *Rimshot*) in that I generally eschew newer companies with explosive growth prospects and nebulous earnings I can't figure out. I'm more drawn to established companies that I see and hear about everyday, which, for whatever reason, have stocks that are out of favour temporarily because the company's prospects have taken a tumble, or simply because their chosen industry isn't as sexy as some others. So I'd definitely call myself a value investor, but in addition to that, I'm especially keen on finding undervalued blue chippers that pay me dividends (and hopefully, steadily growing dividends) on a regular basis. I'm not sure what the trigger was, but I've learned that capital gains can come and go, so companies that consistently pay you for owning them regardless of the stock price are the way to go, long-term. For me at least.

It's for that reason that I always get a kick of how much dividend income my portfolio as a whole pays me in actual cash every year. I know my shares are going to go up and down from time to time. So I'm not all that concerned that my $70 BMO shares are currently worth in the mid-50s. They'll come back. And in the meantime, every single one of those little beauties spits out $2.80 a year to me, to reward me for my patience. As long as my total dividend payoff is going up, in a very general way, I think I'm on the right track.

This time last year, my number was at $697.83. I think I've had a fairly inactive year on the investing front (only three new positions taken) but apparently when you couple the organic growth from companies I own upping their dividends with my new holdings, my number has jumped quite a bit. It's now $1232.85.

Think about that for a second. I certainly have. If I added not one red cent to my investments all year, and even if every single one of those stock prices cratered, I'd still collect cheques adding up to $1232.85 of new income at the end of the year. That's more than two weeks pay, after taxes, for me. Probably more, in fact, considering the favourable tax treatment of dividends in Canada. To put it another way, my net worth went up by an impressive 25% in 2007, but my "number" went up by nearly 77%, which makes me even more excited.

I have numerous visions of retirement, but a recurring theme is one where I spend my days doing things I enjoy, and I pay off my modest expenses almost exclusively out of my dividend income. A growing number is an excellent way to make sure that happens. Net worth, a higher salary, cutting household expenses and other things are all very important and noble goals to strive towards. But to me, there's no better feeling than realizing my number's moving in the right direction -- up.