Weekend Reading – Dividends and Gains Edition

Weekend Reading – Dividends and Gains Edition

Hi Everyone,

Welcome to a new Weekend Reading edition about dividends and capital gains. 

Related to that theme or anything else on this site, I look forward to your comments as always below!

First up, a few reminders:

I updated this retirement income case study about a 40-something couple that wants to retire, in a few years, and would prefer to work part-time vs. full-time. Can they do it? How much additional investing (or not) would that take?

How your part-time job can support your retirement

I shared how lower interest rates (in the coming years) should help many Canadians here.

Weekend Reading – Dividends and Gains Edition

The DIY investing community is nothing but a long list of great perspectives including some successful ways to invest. I’ve found over the years/decades in running this site that no two portfolios are exactly the same. Yet, many of these DIY investors are equally successful – financially – they’ve done so well for themselves. 

How can that be?

I know investors that use higher interest savings accounts for savings, and lots of it (!), despite being fully taxable income.

*Gasp!*

I know DIY investors that invest only in Canadian dividend paying stocks, including owning those dividend payers in sizeable taxable accounts as well.

There are those investors that have invested in and focus on, private equity.

And yes, there are investors that dabble in real estate too. Real estate gains beyond your primary home is a good one, for those capital gains, however with a stroke of a government pen capital gains legislation can change too.

However you decide to invest, some of these decisions are likely to apply:

1. Determining your tolerance for investing risk – how much of an iron-stomach do you have to focus on equities or other assets that could dive in price by 10%, 15% or more? When it comes to the stock market at least, market corrections can and do happen – which must be planned for. 

How long do stock market corrections last?

2. Determining your investing timeline – how long will money be invested? Usually any money needed for near-term spending in the coming 1-2 years should not be in the stock market – at all. 

How much cash should you keep?

3. Determining your diversification needs – the idea of diversification is one of the most powerful ideas in investing because it helps us all navigate uncertainty – we simply don’t know what will happen in the future. It’s risk mitigation for us. For example, picking some stocks in some countries may or may not perform well long-term. 

Lessons learned in diversification – reducing my Canadian home bias

4. Determining your asset location – our Canadian tax system is a mess – it’s very complex. More recently,  I wrote about the taxation of income (below) which explains that it could be advantageous to you to own certain assets in certain accounts to be more tax efficient. 

Weekend Reading – Taxation of Income

We continue to evaluate items #1-4 above and I suspect we always will.

When it comes to fulfilling our financial independence journey we’re pretty close now – over 90% there – thanks to a mix of dividends earned and gains in our personal portfolio.

To finish off the final 10% we simply need to stay the same investing course that includes more risk mitigation planning ahead in 2024 and 2025. That’s pretty much it. 

I hope the same personal finance success applies to you as well, whatever path you choose. 😉

Financial Independence Update

More Weekend Reading…

A reminder:

2023 Financial Goals - May Update

Source: Behavior Gap.

A great reminder from Dividend Growth Investor.  @DividendGrowth. 

The cost of timing the market - Dividend Growth Investor

Kudos to EQ Bank (disclosure: shareholder here!) – they have introduced a really interesting new type of savings account to Canada this past week, called the EQ Notice Savings Account. It’s a bit like a very short-term guaranteed investment certificate (GIC) mixed with a savings account. The account allows you to enjoy a 4.5% interest rate if you commit to not withdrawing your money for 10 days, and a 5% interest rate if you commit to a 30-day deposit period. Maybe something to consider for your savings and risk mitigation plan. 

Partners of this site, 5i Research provided a good update on the upcoming TC Energy (TRP) corporation split.

“South Bow is going to be an oil infrastructure company focussed on liquids transportation and storage. Being a stand-alone entity will give South Bow more capital flexibility to pursue growth initiatives.”

Rob Carrick recently shared some harsh words about inflation – the damage has been done to many of us. (Sub). 

“Provided we avoid a sharp recession, we could be moving into a more settled period for the economy and household finances than we’ve had since 2019. But a lot of people are looking backward right now and not liking what they see. Having a decade’s worth of inflation dumped on you in a few short years will do that.”

Nice Q&A with a very successful investor and entrepreneur named Dividend Boomer here at Tawcan. His portfolio is now generating over $120k per year. Wowzers….

Norm Rothery, one of my favourite follows at The Globe also highlighted some stable Canadian stocks to consider for dividends and gains – at near-bargain prices. His recent screen/list included a few stocks in my portfolio and others I don’t yet own: BNS, CM, IGM, POW, SLF, TRP, TD.

From Norm:

“Overall, the portfolio has an average dividend yield of 5.2 per cent and an average earnings yield of 9.6 per cent. With a little luck, it’ll grow nicely over the long term.”

Pretty cool new ETF service I found, from the guys at Stocktrades.ca, one of my partners on this site:

Stocktrades ETF Insights – that new tool does the heavy- ETF-filtering for you if you need it, digging into the world of 5000+ ETFs trading on the markets today so you can identify stronger opportunities where that makes sense. Dan and his team have ranked ETFs based on their 5-star rating system focusing in one some of the most important aspects of a fund: its performance, fees, volatility, distributions, valuation, and expected growth. Those seem like good metrics to start from although some plain-vanilla, broad market ETFs will do too…

Reader Question of the Week (adapted slightly for the site):

Mark, you have written that you try to buy equities when they are ‘on sale’. Think you mentioned they were earlier in the year at one time. How do you decide when they are on sale? It seems they’ve just skyrocketed since start of the year. 

I have cash ready to buy… but when is a good time?? Now or wait… ? Thank you for your thoughts… and thanks for all of your newsletters, for sharing your journey, valuable knowledge and lessons learned!! I so appreciate it all.

I appreciate your readership and questions!

To be honest, I try and buy most individual stocks where I can near 52-week lows. I have that answer among others on my FAQs page. I don’t always get my wish though!!

For an example, I thought TOU was priced modest to low earlier this year, so I got some TOU (Tourmaline) when it was close to $60 per share. I shared that transaction in this recent monthly dividend income update.

Otherwise, I simply put my money to work when I/we have the money to do – into low-cost, broadly diversified ex-Canada fund XAW. I have focused on that ETF in recent years inside our TFSAs in particular….we own it for growth beyond our basket of Canadian dividend paying stocks that comprise of bank stocks, pipeline stocks, utility stocks, industrial stocks and more. I continue to own just a handful of U.S. stocks at this time but not very many like BLK and BRK.B. 

You are welcome to check out my Dividends page and my ETFs page for what I own and why. 

By buying an indexed fund for growth beyond Canadian content, if you believe in an efficient market theory, then today’s price for an indexed fund is the best price; stocks in an indexed fund already trade at their fair market value; this is why as a DIY investor you benefit from a passive, low-cost, indexed fund over time.

I hope that helps!

Save, Invest, Prosper!

As always, check my Deals page – partnerships and discounts to help you make the most out of your money – some of them you can’t find anywhere else!

Check out my partnerships with:

  • Dividend Stocks Rock (including my deep lifetime discount from Mike!)
  • 5i Research
  • StockTrades.ca
  • LegalWills
  • and more!

As always, you can also consider reaching out here for some low-cost financial projections services – anytime.

Cashflows & Portfolios

I launched this service with my DIY investor good friend – a service founded by DIY investors forDIY investors without the conflict of any advice, without costly fees (like some folks charge), while offering money-back guarantees because we’d expect that as DIY folks ourselves…

In fact, there are now two (2) low-cost services to choose from:

  • Done-For-You – we do the work and data entry, and provide your reports OR 
  • DIY – whereby you do all the work, you do your own data entries, and you get your own results in the software – we essentially open up some professional financial software for you to use to be your own retirement income planner!

As a My Own Advisor reader, you always get a discount off either service. Just mention my site. That’s it.  

Enjoy your weekend. 🙂

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

24 Responses to "Weekend Reading – Dividends and Gains Edition"

  1. Hi Mark: Greg, dad was 95 when he passed and the only time he sold stocks was when he figured they had gone up high enough and he would sell to use the money to buy more stocks. Keeping track of his net worth was what helped keep him sharp and since the dividends keep rolling in there was no reason to sell. speaking of dividends I had a large bill to pay
    (CRA instalment payment) so I went to transfer some money from the cash account to the checking account but while I was on Web Broker I decided to look to see if there was any activity and was pleased to see that dividends paid on the 15th were in on the 14th. One was up $40.00 and so I decided to have fun with figures. The company in question was RUS and that $40.00 would be an increase of $160.00 for a whole year. Now all stocks don’t increase every year so if that was cut in half that would be $80.00 and if you had 30 companies that would be an increase of $2400.00 per year and in 5 years that would be $12000.00 but there are some stocks that increase dividends each year so with compounding that $12000.00 could be $18000.00 or $20000.00 and in 10 years that could be closer to $40000.00. Now you take last years net worth and add $20000.00 or $40000.00 and that is what your income would be in 5 or 10 years. Not a bad future wage at all and the beauty of it is if you don’t sell any stocks then even if you transfer funds to pay for a trip or whatever then that same cash just keeps on rolling in so I see no sense to sell stocks to pay for future retirement costs. Also the more money that rolls in can also be used to buy more stocks when they drop in price so more money rolls in. I would say a vicious circle but I rather like this circle.

    Reply
    1. Great history, Ronald.

      Yes, I can imagine your tax bill/CRA installments might be very large based on what you own! 🙂

      I’ve never owned RUS (Russel Metals). Nice, recent 5-year run though…

      I don’t think I will sell any of our stocks near-term, in the early retirement years, but I will sell a bit for extra experiences over time and as I age. I have a few companies whereby I own more than 1,000 shares in each now, so that’s good compouding power and I don’t want to interrupt it! I would suspect you would agree with me.

      I appreciate your comments,
      Mark

      Reply
  2. Mark, thanks for all the info that you have provided over the years.
    One thing I have never seen any where here or elsewhere,is the answer to this question: When should you consider selling your portfolio, before you are incapacitated enough to be able to do so before getting to the point of having your power of attorney having to do it or your executor.
    Maybe this is just a silly question.?
    The reason I ask, I am eighty years old in relatively good health but do have some problems, but you never know at this age ok? should I cash in now or in the near future.?
    I would like to know what your thoughts are and what most readers think.
    Thanks to every body that replies, or for your thoughts and suggestions.

    Reply
    1. Like most investing questions, the answer is – it depends. When you sell there will be taxes to be paid. Are you able to pay them now? Are you worried that your spouse won’t be able to manage the portfolio? Do you need the money now? Everyone has different answers.
      For us, we have a son who will inherit all of it and continue to manage the portfolio as is. We are already calculating capital gains and other taxes that will be do on the estate. We have a line of credit on the house and think that we could pay all taxes by using it. And the entire portfolio would stay intact and continue to pay dividends. The dividends would pay off the loan. Of course it would depend on the interest rate at the time and other factors. But today that plan would work. The LOC is our emergency fund and this seems like a good way to use it.

      Reply
      1. Good insights, Div. It does really “depend” – the best answer in personal finance for sure.

        My parents have a cottage but it’s unclear what will happen to it long-term – may or may not keep.
        In our case, without any kids, all the estate after both of us pass goes to the nieces and nephews.
        We have an LOC to access but now without any debt, no need to tap it. 🙂

        How is your portfolio coming along Div – made any changes?
        Mark

        Reply
        1. Thanks Mark. Our portfolio overall is only up 2.5% this year. But indicated dividends up 9 percent so far this year. And that is how we measure success, dividend income. (about 200K now annually) Bought some XTSE-FN with some surplus cash, but otherwise no changes. We are looking at investing in some private lending at 12+ percent. My son got a summer job with a private lending firm that is very successful. Waiting for the onboarding package. we will use cash and some leverage to get started. Not touching the div portfolio.

          Reply
          1. Incredible…re: $200k annually in dividends – extremely well done.

            Why the risk for private lending? Because you can? 🙂

            Curious!
            Cheers,
            Mark

            Reply
    2. Thanks for this very important question/subject, Tim.

      I’ve got a few articles on my site related to aging, POA, etc.

      https://www.myownadvisor.ca/what-is-a-power-of-attorney-and-why-does-that-matter/

      https://www.myownadvisor.ca/healthcare-insurance-benefits-for-retirees-in-canada/

      I do need to write something specific related to aging/incapacitation.

      One idea for you with your assets in an annuity – basically creating your own pension. 🙂 This way, you don’t have to turn everything you own into a pension, just some of it. Retirement expert Fred Vettese actually recommends “pensionizing” part of your portfolio in your 70s and 80s, about 25% – 50% depending on asset values and income needs.

      https://www.myownadvisor.ca/retirement-income-for-life-retirement-calculators/

      Let me see what I can do to put something together on this one over time. I appreciate the inspiration!
      Mark

      Reply
  3. Mark, Thanks for the link to latest updates for TCP. I was thinking I might just sell the South Bow portion, but based on the possibility of higher growth, and the relatively small portion, I think I will hold it for a while to see how it does. I fear that all oil related stocks will start to drop in the next 5 years, with the peak (oil production) being predicted for 2030.

    Reply
    1. Hard to say HJ…re: what the next 5 years may or may not do!?

      I’m tempted to hold near-term.

      Longer-term I will eventually sell all our stocks as we age but nothing on the sale block right now.

      How long have you owned TRP? My ownership is about a decade+.

      Mark

      Reply
      1. I bought it in April of 2021, so I’m down a bit on that one. Really wonder what the dividend will be on the South Bow side. Do you think the dividends will be slightly lower but the same for both companies?
        What age do you think you will start to sell your stocks? It’s something that I think about, but don’t really have a plan yet. Hopefully my brain ages well and I can continue to fine tune our dividend portfolio for many years. I have considered trying to get one of my kids up to speed, but right now they are too busy with their own lives. I would hate to hand our portfolio over to a financial person, that didn’t go well the last time. Taking control of our finances was the best thing I ever did. That old “Teach a man to fish” proverb is bang on (even though I had to teach myself).

        Reply
        1. Ya, added a bit of TRP a few years ago…still holding a few hundred shares for sure here.

          I suspect it will be a split of dividend income? 50% stays with TRP and 50% to South Bow? Not sure. 🙂

          Q: “What age do you think you will start to sell your stocks? It’s something that I think about, but don’t really have a plan yet.”

          A: Neither do I! Ha, kidding aside, in the first 5-10 years of semi-retirement or retirement it is my hope we can largely “live off dividends” and avoid selling any stocks to feed the lifestyle. Once we pass that sequence of returns risk dangerzone per se, I believe we will slowly sell off the USD assets like BRK.B, WM, etc. and move a bit of that money into a money market fund to feed another year or so of spending needs.

          Referenced a bit here:
          https://www.myownadvisor.ca/where-to-put-your-cash-right-now/

          Our idea is to have 1-2 years’ worth of spending/RRSP withdrawals, etc. in cash equivalents whereby I don’t have to sell any equity assets over that time period.

          If your kids are just getting established/heads wrapped around investing, I can appreciate it will take some time to onboard them.

          “I would hate to hand our portfolio over to a financial person, that didn’t go well the last time. Taking control of our finances was the best thing I ever did.”

          100%. Smart. If you can avoid handing your money over to someone else, usually a good thing but I can appreciate some folks absolutely need and want support.

          Mark

          Reply
          1. We are living off my wife’s pension, CPP, our dividend portfolio and eventually OAS, so we will never need to sell stocks. I was thinking you were in the same boat. In my case I was thinking about simplifying our investments, but the dividend investing is actually pretty simple, just minor tweaks once and a while. I guess at some point I may start to sell stocks to shift money over to the kids, before we die, when they really can use it. If we live long enough I will have moved a lot into the TFSAs which will transfer tax free (hopefully).

            Reply
            1. Ya, we’re similar but I figure if I don’t sell some of my stocks or ETFs as I age, then I’m/we’re leaving lots of money/spending on the table.

              You probably read this post a few weeks ago, but I figure we could spend about $70k-$75k after tax starting in 2025 if we wanted to, with 3% sustained spending/inflation increases factored-in and that would still leave a portfolio value of $1.1M+ in our late-90s which is not ideal.

              https://www.myownadvisor.ca/financial-independence-update/

              I agree with the dividend investing + mix of my low-cost ETFs now (e.g., XAW and QQQ) = very simple. I just need to stick to the investing plan over time.

              The clients/members we help at Cashflows & Portfolios are realizing the same thing: the TFSA is ideal for estate planning. re: “If we live long enough I will have moved a lot into the TFSAs which will transfer tax free (hopefully).”

              🙂
              Mark

              Reply
              1. If all goes to plan, based on my excel calculations I should be able to transfer all of our registered accounts to the TFSAs by age 80, and if I live to age 90 the TFSAs will be almost 5 million. Dividend income between our 2 accounts could be over $600,000. This assumes dividend growth of 6%, and investment growth of 5%. Cool eh? My Dad just passed away at the ripe old age of 102, so it’s possible I might make it to 90 or beyond.

                Reply
                1. Jeepers… Wowzers.

                  That is bonkers, so well done HJ.

                  If I added in our dividend income from TFSAs, other assets/future pensions (?) we might be close to $60-65k now per year without government benefits like CPP and OAS in the coming decades but no way our TFSAs will be ever worth $5M.

                  What on earth did you invest in, to have them projected to be so much? Indexing won’t do that. 🙂

                  We assume 5% growth and 3% inflation for our personal projections. If I get 6-7% or more like I have been over the last 10-15 years I will be thrilled of course.

                  Kudos.
                  Mark

                  Reply
                  1. When I started investing in dividend stocks during a downturn at the end of 2018, my main rule was Canadian stocks with >5% yield and minimum average div growth of 3%. Because of the downturn I think I averaged close to 7% yield. There were a few bad apples in that batch, and covid definitely exposed them. If the dividend was cut, I sold and replaced with a stronger stock. My next big purchase was during the major market drop in March of 2020. I had transferred our TFSAs from EQ to TD and I bought a lot of CNQ at a yield of around 9%. My average yield during that time was even higher. So fast forward to 2024 and we have 25K dividend income from our TFSAs with stocks that did not lower dividends during the covid downturn. I just turned 64 so if you do the calculation where you add 7K plus 24K each year and invest in stocks that grow at 5%, it grows pretty fast. So I think high yield with strong dividend stocks is key here. I don’t focus on capital growth though, the income is really all that matters in retirement. Imagine 600K income from TFSAs, unfortunately I would be 90, and not able to enjoy it much. But the projection shows $110K per year at age 75, pretty comfy retirement income (tax free ;-).

                    Reply
                    1. Ah, projected to be $600k per year in dividend income at age 90 from your TFSAs, got it.

                      Even still, wowzers.

                      Great call and timing on CNQ. It’s about 4% of our total portfolio now and we own over 1,000 shares post-split.

                      Our TFSAs churn out about $13k+ per year combined but we also own a few growth names there like BN and CP inside our TFSAs that have done well, returned better than the index in recent years. 🙂

                      BN = up about 60% in the last 5-years.
                      CP = up about 61% in the last 5-years.

                      That will work long-term if I can continue to get that!

                      Continued success to you, sounds like you are doing amazing.
                      Mark

  4. Just a note. Find it frustrating to click on a link such as the Globe and Mail article you reference and find that unless I subscribe to the Globe (and don’t intend to) that it is not available to us. This happens on most other sites as well. Thanks for what you do…always look forward to reading your posts.

    Reply
    1. Hi Greg,

      I will do a better job and providing more details or not always link to the Globe. I appreciate that feedback and will improve.

      I can also send you a link / site whereby you can read the entire Globe article. 🙂

      Try this (without any subscription)!
      https://www.printfriendly.com/

      I hope that helps and thanks for your readership.
      Mark

      Reply
  5. Mark have you looked into how to invest inside your corporation. I have been looking at tax rates and now with the capital gains changes . I have not taken any money out of the investments yet but wondering what investments best option and does setting up a holding company help. I hope to leave the capital and only spend the dividends in a couple of years. Thanks again for all your great posts !

    Reply
    1. Hi Jeff,

      I have, a bit. I have considered putting some cash to work in likely HXS.
      https://www.globalx.ca/product/hxs

      I haven’t purchased it yet, but will consider within the next year or so.

      More near-term, very likely to put some cash into some business savings account to earn a bit more interest.

      I might be drawing down a bit of the corp. in the coming 5-10 years for living expenses; maybe $10k-$15k or so per year.

      I’m treating my corp. like a larger emergency fund. 🙂

      Thoughts?
      Mark

      Reply

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