Dividend Investing - My Own Advisor

Dividends

June 16th, 2013

A major part of my investment strategy is dividend investing. I plan on using dividend income to pay for a big portion of our retirement expenses. My goal is to earn tax-efficient and tax-free dividend income (thanks to my TFSA) to the tune of $30,000 per year from Canadian companies. I figure that amount in dividend income in addition to the following should set up me nicely for retirement expenses:

My defined benefit pension at work.
Our paid off home.
Our indexed RRSP investments.

My objective is to have portfolio of $1 million CDN and a paid off home to retire on. When both of those objectives are met I intend to stop working.

My Dividend Investing Approach:

I only buy companies that pay dividends.
I buy established companies that have a history of increasing their dividends over time.
I reinvest dividends (DRIPs) for many of my holdings.
I try to avoid selling any company regardless how far the stock price falls.

Some more information about my dividend investing approach:

I keep Canadian dividend paying stocks unregistered or in my TFSA. Why?

Canadian dividend-paying stocks receive favourable tax treatment from our government; they are eligible for the Canadian dividend tax credit if left unregistered (outside TFSA and RRSP accounts). Over time, I will use my TFSA to hold primarily Canadian dividend paying stocks to generate tax-free retirement income. I will lose the Canadian dividend tax credit when I own these stocks in my TFSA but the income will be…tax-free.

I keep U.S. dividend paying stocks in my RRSP. Why?

U.S-dividend paying stocks do not receive any favourable tax treatment from our Canadian government. So, by keeping U.S. stocks inside an RRSP I avoid paying withholding taxes.

• U.S. stocks held inside an RRSP or LIRA – no withholding taxes.
• U.S. stocks held inside an RESP or TFSA - pay 15% withholding taxes.
• U.S. stocks held in unregistered accounts - pay 15% withholding taxes (which is recoverable) but you also pay taxes at marginal tax rate.

I keep Canadian REITs in my TFSA and RRSP. Why?

Real Estate Investment Trusts (REITs) are companies that invest in real estate assets and distribute their income (primarily from rent) to shareholders, usually in the form of dividends, return of capital, and income. While it depends on the REIT, if the REIT distributes a portion of their income as return of capital, interest, capital gains or dividends, each portion will be taxed accordingly. Keeping REITs inside a TFSA or RRSP avoids this tax complication.

My Asset Allocation Preferences:

Non-Registered: