September 2017 Dividend Income Update
Welcome to my latest dividend income update.
For those of you new to these posts on my site, every month I discuss our approach to investing focusing on Canadian dividend paying stocks. We believe buying and holding a number of Canadian dividend-paying stocks in our tax-free (thanks TFSA) and non-registered accounts will, over time, provide some steady monthly income for future wants and needs in retirement.
This month, I got some more reader questions:
Hi Mark, I’m a newb. I have some money in a RRSP in a daily interest account. Would it be wise to convert this account in order to buy a combination of ETFs and dividend stocks? Also, I’m thinking about DRIPping my stocks with a transfer agent but I’m not clear on the tax implications. Can you help?
Well, I can certainly offer some perspectives but ultimately your financial decisions are your responsibility.
That said, I believe any money saved and invested inside any RRSP should focus on growth and income generation, not daily interest. You can check out my RRSP 101 post here. So, because I believe in this I choose to own low-cost, growth and income oriented ETFs inside my RRSP. I also own a few Canadian dividend paying stocks and U.S. dividend paying stocks inside my RRSP – for growth and income. The RRSP is an excellent tax-deferred growth and income shelter account for many Canadians to take advantage of. (The TFSA might be even better though!)
Now, to your question about DRIPping stocks with a transfer agent. I think that’s a difficult call and certainly not one I could make without knowing your complete financial situation.
Given you’re using your RRSP to hold daily interest products, I’ll assume you’re starting out on your investing journey. If so, I would probably steer clear of non-registered investing (with transfer agents) at this time. While there are benefits of owning Canadian dividend paying stocks for growth and income, there are a number of tax implications associated with non-registered investing – you can read my comprehensive DRIP series here. Instead of non-registered investing I would strongly consider you read up about the benefits of the Tax Free Savings Account (TFSA) in my links above and strive to maximize all contributions to that account first. Since the inception of the TFSA, assuming you haven’t used all your contribution room yet, that would mean you could contribute $52,000 to this account – to invest in your ETFs or stocks. That’s a good chunk of change. I believe tax free investing and therefore tax free dividends is far better than taxable investing – including all “newbs”! Once you get your TFSA fully maxed out, along with your RRSP, then potentially non-registered investing could be right for you.
When it comes to our plan, we buy a number of Canadian stocks, some of them listed here, and hold them. Many of these stocks are inside our TFSA. We don’t trade them frequently nor do we sell them when we hear bad news. For the most part, we collect dividends from those stocks and we reinvest those dividends every month and quarter inside our TFSA for future income. Since my RRSP is already maxed out, we do invest in the aforementioned non-registered account as well for dividend growth and income. We’re optimistic if we keep maxing out our TFSAs every year, reinvesting most dividends paid and with any money left over we invest inside our non-registered accounts, we’ll come close to reaching $15,000 in dividend income later this year.
This would be exactly halfway to our passive income goal for an early retirement – ignoring any assets inside our RRSPs or future workplace pension plan income.
Things are coming together for us and I’ll be back next month to share another update.
Thanks for your questions and keep them coming.