How dividends came to the rescue of Canada’s ‘youngest retiree'

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Investing author Derek Foster, Canada's self-described "youngest retiree," always preached the virtues of buying and holding stocks for the long run.

In his self-published 2005 book, Stop Working: Here's How You Can!, he served up plenty of sound guidance, such as: "only invest in companies that pay a dividend"; "invest in companies that are 'recession-proof'"; and "once you've bought the perfect company, never sell it!"

But in February, 2009, with stocks in a ferocious bear market triggered by the financial crisis, he ignored his own advice: At 38, fearing more losses ahead, he sold everything.

It turned out to be the ultimate contrarian indicator. Within weeks of Mr. Foster's decision, the S&P 500 hit bottom and then embarked on an epic bull market that is still raging more than eight years later.

"It's very easy to look back and say, 'look, the market went up.' But nobody knew at the time," Mr. Foster, now 47, says. "Some people were comparing it to the 1930s and saying it was only the beginning."

Fortunately for Mr. Foster, he didn't stay out of the market for long. Initially, he sold put options to raise cash. As it became clear the crisis was fading, he began wading back into stocks, acquiring blue-chip U.S. names such as Colgate-Palmolive, Johnson & Johnson, United Parcel Service, Procter & Gamble and – his biggest winner from that time – Visa.

In the years since the financial crisis, his portfolio – now split roughly equally between Canadian and U.S. stocks – has posted a string of double-digit returns, pushing its value well into seven figures. "I'm fully invested now and I've been fully invested for many, many years," he says.

What did he learn from the experience?

"It really did reaffirm, in my opinion, that investing in dividend stocks, what I call 'idiot-proof stocks,' works," Mr. Foster says, echoing the title of one of his books, The Idiot Millionaire.

He cites Colgate-Palmolive. Even during financial crisis, people kept brushing their teeth and the dividend kept growing. "You really have to focus on the moats or the competitive advantages that the company has," he says.

Just as Mr. Foster's approach to retirement and investing followed an unorthodox path, other aspects of his life have been equally unconventional.

In 2012, three years into the new bull market, he sold his house, bought a travel trailer and set off across North America for a year with his wife and five children, who were home-schooled on the road. After returning home, the couple had a sixth child, then a seventh. The nine-member family now lives in a four-bedroom house in Ottawa – with a swimming pool, but no cellphones or Internet service.

"A few years ago, the kids were online all the time and it was becoming kind of a problem. So we just cancelled the Internet," he says.

If his children need to do homework online, they go to the library. That's also where Mr. Foster spends a few hours every day reading the newspapers and monitoring his investment portfolio.

He doesn't like to discuss specific dollar figures, but says he has two main sources of income these days: dividends from his stock portfolio and monthly payments from the Canada child benefit program, which is intended to help families with the cost of raising children. Even households with significant investment assets can qualify for the CCB by structuring their affairs to minimize their taxable income. The more children a family has, the greater the CCB cheque.

As for his career as an author, he hasn't published a book since 2012 and has no plans to write another one.

"One, I've become kind of lazy. Two, I'm kind of busy. And three, I think I've written what I have to say," he says.