Harvesting money

Tough times call for tough measures.

But cashing out all your equities and sitting on cash with little or no return on your money, while global markets melt down, may be a mistake.

So says Canada's youngest retiree Derek Foster, who was able to leave the workforce at age 34.

Foster, who lives off his investment nestegg and proceeds from his book, Stop Working: Here's How You Can (stopworking.ca), is a big fan of solid, blue-chip stocks that pay sweet dividends. And, believe it or not, some are actually hiking their dividends, even in these times of markets plunges and recession fears.

Foster, as well as a number of financial gurus, argue dividends can help investors weather this storm. He calls his strategy the "sleep and get rich" approach.

"If you focus on cash dividends, it does not matter what the stock market does," said Foster. "You simply keep collecting your income."

Foster says he retired four years ago and his income keeps going up by 6% or more. "How much does your salary go up every year?" he asks.

Simply put, most people earn money from one company, the one they work for. And unless they're in the management ranks enjoying bonuses and stock options, chances are pay raises have been a dismal 2% or less.

Foster earns money from 20 or more that he's invested in.

One is Canadian Oil Sands, which cost him $40 a share five years ago, while it paid out $2 in dividends for a 5% return. After a five-for-one stock split, dividends grew to $15 a share. "So I'm making 40% a year in cash on my initial investment," he said.

Foster also likes our Big Banks, who've been paying out dividends for more than 100 years.

Most have been exposed to the subprime madness and have been forced to take big write-downs over their investments in risky, non-bank asset-backed commercial paper. But experts argue the worst is over.

"Get some of your money back from bank fees by owning the banks," said Foster.

Foster also advises investors to check out "dividend aristocrats" -- a list of 58 companies that have raised their dividends for 25 or more consecutive years. Just Google "dividend aristocrats."

He likens his investing strategy to a farmer sowing his fields: "I planted the seeds (buying stocks) and now I simply wait for the fruit (dividends) to ripen every year and I eat the fruit (spend the dividends)."

Foster says he'll do this forever to keep his income growing by 6% or more.

"Sure beats working for a living."