Weekend Reading – Financial dividends are coming
Big news this week folks, financial dividends are coming and some are already here!
Banks and many other Canadian financial institutions (think some life insurance companies too) have been sitting on mountains of cash over the last year or so – probably until now.
As of this week, Canada’s banking regulator has “cleared the way for banks and insurers to raise dividends and resume share buybacks.”
Peter Routledge, head of the Office of the Superintendent of Financial Institutions (OSFI), says the reasons for the ban that was implemented early in the pandemic “no longer stand.”
What does this mean for investors, like me, that hold hundreds of bank shares and lifeco shares in their portfolios?
Financial dividends are coming. If you haven’t been already loading up on bank shares, the time is now.
According to various reports, Canada’s largest banks (all big-6) could raise their dividends as much as 25% now that regulators have allowed them to do so.
Now, I personally can’t see higher dividends to that unprecedented level, but I could see some raises in the range of 15-20% from banks like National Bank (NA), Royal Bank (RY), TD Bank (TD), and maybe Bank of Montreal (BMO) in particular, which would be rather epic to my portfolio and semi-retirement dreams.
In fact, some raises (along with share buybacks) have already begun:
Manulife Financial raises quarterly dividend by 18% after ban on increases lifted. The extra payment results in a quarterly dividend of 33 cents per share to share, and Manulife also announced a plan to buy back up to 39 million shares, or about 2% of its shares.
More incredible news for shareholders is on the way…
Dividends are great but watch out for Canadian home bias!
Recently, my friend Dale Roberts wrote about the cost of having too much Canadian home bias in your portfolio.
While I would agree, for the last 10-years, it’s hard to beat what the U.S. stock market has done (including trouncing the Canadian market using low-cost ETF XIU as a comparator) do remember that earning over 9% in any 10-year run, even if some of your portfolio is in a broad basket of Canadian stocks is still very good.
I offered some reflections about Canadian home bias ownership in this thread – check it out.
Weekend Reading – Financial dividends are coming and more
When it comes to my own portfolio, certainly in the early years of starting this blog, I too was guilty of too much Canadian bias. I focused almost exclusively in the late-2000s on owning Canadian stocks like Enbridge (among others) as I ditched my big bank advisor and became: My Own Advisor.
Some further reading on that:
Then and Now – Owning Enbridge stock over the years
How to dump your big bank advisor
How and why to ditch your expensive mutual funds.
Yet as I built my Canadian dividend stock portfolio, earning juicy dividends and some benchmark-beating XIU returns along the way, I did recognize there is a HUGE investing world out there beyond Canada. So, over time, I have seized some opportunities to own some U.S. stocks and low-cost U.S. ETFs to bolster my returns and diversify away from Canada – just in case.
Further reading: Lessons learned in diversification.
Lessons learned in diversification – reducing my Canadian home bias
It is in closing that while investing beyond Canadian borders is quite smart to increase potential long-term portfolio returns, investing right at home isn’t so bad at all.
Keep those financial dividends flowing….
Millennial Revolution wondered if she should spend more now. Some interesting reflections from this early retiree that probably make you answer “yes”:
“Since I stopped working, I’ve been the healthiest in my life. I used to have to wear a wrist brace from carpal tunnel, take anti-anxiety and anti-depressants back when I was working. Since retiring, I’ve lost the wrist brace, stopped taking any pills. And because we bought back our time we can hike, swim, and eat healthy home-cooked organic food daily. In fact, after Wanderer’s checkup, his doctor diagnosed him as “obnoxiously healthy”.”
It’s always fine reading in the MoneySense weekly wrap-up: making sense of the markets.
My friend Barry Choi loves travel hacking – here is his guide for lazy people!
Mike Heroux (you know, The Dividend Guy…) shared his largest holding this week.
Juicy dividend income updates from the blogosphere:
Incredible work over at GenY Money.
Whoa Dividend Daddy, quite the income-level and purchases, as in over $13,000 in a month?!
In case you missed it, I posted my own new all-time high monthly dividend income update. Financial dividend increases pending!
A thanks to Rob Carrick once again for putting yours truly content in The Globe and Mail. To quote Rob:
“Want income…want growth?
Dividend ETFs might be what you’re looking for. Here’s a look at some top choices.” Indeed.
Over at Cashflows & Portfolios, we piggy-backed on a previous TFSA post to share how soon you can retire by only maxing out your RRSP. The answer is: early!
Congrats to the winners of Sandy Yong’s book: The Money Master. I interviewed Sandy and giveaway six (6!) copies of her book here.
Sandy wanted to share, because she’s so nice, that for every single reader that didn’t win – use Sandy’s coupon code CYBERSALE21 from Octover 30 to November 30, 2021 to receive an additional $2 off the printed copy when you make a purchase.
Speaking of books, I have MORE giveaways next week planned so stay tuned for that and my interview with the author. I’m looking forward to publishing that…
A reminder this weekend – hire me!
A reminder you can Hire Me to support any retirement projections!
I also run a site with my partner called Cashflows & Portfolios, a site dedicated to free content for any age but also low-cost services about how to drawdown your retirement portfolio and provide personal, tailored answers to these time-tested questions:
- How much can I safely spend in retirement?
- Will I run out of money?
- What accounts should I drawdown first?
- What is the best drawdown order for tax efficiency?
- When should I take CPP or OAS?
- How much will my estate be taxed?
- And more!
All my best,
I came across this link:
The investor being interviewed doesn’t believe in RRSPs and prefers non registered accounts and only Canadian dividend stocks. No US or Global and no ETFs and I believe uses the capital gains and dividend exemptions to save taxes. The only problem I see is how one can cash out their RRSP if it is large without incurring large tax amounts.
Yes, a very interesting article Pat.
The interviewee probably doesn’t believe in RRSPs because they have amassed considerable wealth in their taxable account vs. RRSP or other.
Thanks to the Canadian dividend tax credit, a couple can earn combined about $100k per year in taxable account from CDN dividend paying stocks and essentially pay no tax if there is no other income. See this Weekend Reading edition.
The RRSP is an excellent account for retirement planning for many Canadians since you can defer taxes. I’m using my RRSP for that.
In my opinion XAW is the best ETF . Do you agree?
XAW is pretty good for ex-Canada investing for sure, very simple I believe personally.
Mark, thanks for another great weekend edition. I’m happy to hold a few banks and MFC stocks. I have a few questions for your opinions. I hold VOO, QQQ and a few US stocks in non-registered account and RRSP. However, I’ve decided to stop contributing into RRSP.
With $ 6000 TFSA contribution in 2022, I plan to transfer US money from non-registered account to be invested in my TFSA (US) and invest more Canadian companies in the non-registered account. What is your opinions 1) is it a good move to invest US money in TFSA or let US stocks stay in non-registered account 2) What are dividend US stocks or etf (US) should be invested in TFSA (US)?
Yesterday, I finally calculated my dividend from Jan-Nov. It was $4,600. Although it’s small comparing to your portfolio, I’m proud. Thanks to you and Canew/Henry (through your blog), I’ve consciously invested in DGI stocks and a few etfs. Thank you so much for your educational blog.
Kim, look where I started in 2008-2009. It has been a LONG road 🙂 You’ll get there too with saving and investing time. The math says so!
Very kind words Kim and thanks very much.
VOO, QQQ are outstanding ETFs. I own QQQ myself inside my RRSP.
I consider those ETFs as part of my buy and hold and buy some more over time funds. In doing so, I figure my money should double every 10-12 years. QQQ is actually up over 200% in the last 5-years but it’s been a wild ride upwards of late. I don’t see that repeating.
Hummm, I can only speak for myself for the TFSA in 2022 (can’t offer advice) but I’m personally considering adding more XAW.
I also own a few CDN banks inside my TFSA along with FTS, AQN and EMA. I like boring utilties for their dependable dividends but I have increased the “growth” component of my TFSA in recent years since I don’t intend to tap my TFSA for income until another 30 years.
Nothing wrong with investing in U.S. assets inside the TFSA, just know that you’ll be hit with 15% withholding taxes on dividends or distributions. The U.S. IRS doesn’t recognize the TFSA as a true retirement account (although I think it is…) and as such based on our U.S. – Canadian tax treaty you won’t get all VOO, QQQ or other distributions inside the USD TFSA portion. Just something to be mindful of!
Check out this dedicated page about withholding taxes.
Which books of Henry’s did you read? All of them? He comments here quite frequently and I consider him an investing friend for sure. A good guy.
Hi Mark, thank you for your reply. I really appreciate your time and support for newbies like me. I bought QQQ about 3 years ago with 81% and VOO 52% at the same time. I think it’s hard to beat US market so I tend to buy etf instead although I also hold MSFT, AAPL, AMD b/c I love those companies.
I sometime debate myself with DRI vs. Growth stocks b/c I’ve started late so I don’t have much time to accumulate. Henry’s approach makes sense but needs time to grow. I read 2 books: Income investing explained and Your ever growing income. Should I be a Rabbit or Tortoise in this journey? Look forward to your next post. Take care!
Kim, I too debate about whether I should own more QQQ, XAW, etc. But at the end of the day, I figure I make the best decision I can and don’t look back.
I will likely buy more XAW in my TFSA for diversification from CDN stocks, continue to buy more CDN stocks/DGI stocks inside my taxable in 2022, and finally, when RRSP room opens up, more of QQQ or VTI for my RRSP. Very boring, but boring works over time.
Henry did a great job with his books, I’m an income fan too, but where Henry and I differ is with going beyond Canada for investing. I know he only holds 12 CDN stocks now but I couldn’t do that since I feel I would be giving up some total returns in doing so. If you look at XIU vs. VOO or VTI for the last 5-years, or even 10-years, you’ll see a Canadian only approach would have created less wealth.
Will that continue to happen in the future? No idea 🙂 I can say that my CDN stocks AND owning some U.S. stocks might put the odds in my favour though. Time will tell.
Thanks Mark, I was sure that the banks and insurance CO’s would raise dividends soon, it’s great to know they have the green light. It’s like getting a raise,
It will absolutely like getting a raise! Thanks for your readership.
Congratulations on the raises Mark in advance 🙂 I was so happy about MFC with the 18% raise in dividends and also I’m not sure if you missed it but Telus as well raised theirs 4% and I’m sure more will follow.
as for the debate about home bias I’m by far the last one I can talk about it due to my little knowledge in the market but I think there’s no right or wrong here ,one can always look at those big Canadian companies like Enbridge TC energy AQN Fortis Emera MFC SLF etc…all these companies are well invested in the US europe and Asia not to forget Latin america so yeah it makes sense to have most of your holdings here in Canada and on the other hand you can have one etf that cover the whole world but sometimes I honestly don’t understand the purpose of holding like 14000 stock in one etf like VEQT for example :)) even though I started as an undexer but now I see more benefit in having a bit of concentration something that I understand .
yeah l think there’s no right or wrong as long as your saving and investing whether it’s index or DGI.
Yes, MFC was nice.
SLF, GWO to come. All big-6 banks to come. IFC too.
I did see Telus, that was nice but a bit expected.
I get VEQT for many investors – a simple all in one really. They don’t have to think about anything other than continually adding money to it. That said, I like seeing my income stream grow and with DGI you get that part given the higher yield over VEQT.
Here’s to more raises over the next 3-4 months!
SLF announced 20% raise. I just added a little bit SLF last Friday, 46 shares using the dividends not dripped in RRSP. Pretty happy.
Yes, that raise was nice. Own a few hundred shares of SLF.
Big-6 banks coming too! I suspect GWO will raise a bit as well.
I have sold GWO after many years of disappointment. But I have few hundreds of PWO now. I assume PWO will raise the dividends too.
I suspect they will! Making money off Wealthsimple 🙂
Investors always seem to talk about how well the U.S. markets have done over the past decade, but take a look at TD e-Series with inception dates going back to 1999. TD Canadian Index Fund outperformed both TD U.S. Index Fund and TD NASDAQ Index Fund over that time period. BTSX had even better performance over 20 years versus the TSX60, so it would have just trounced these U.S. indexes that everyone seems to love now.
Sure we have a balanced global index ETF in the registered accounts.
Then again, aside from that, the vast majority of our equity assets are in individual Canadian dividend companies in the taxable account.
TD efunds have done very well overall for sure. The timeline bias is important. If you look at multiple decades of investing history, the U.S. market tends to outperform the Canadian market. Depending when you cherry-pick any dates, that may or may not be true of course.
Folks could do FAR worse than to own XIU or TD Canadian Index eFund and just keep adding to it for the next 40 years. 🙂
Looks like my CM will be called away in January. Thinking about what to buy using the money. Among the 6 banks, I have cleared BMO early this year, still hold the other 5. I wanted to concentrate on only RY, TD and NA. MFC didn’t do well with stock price and it’s such a nice surprise to get an 18% dividend hike. Expecting dividend raise from SLF, IFC and POW too. I feel this year’s dividend raises will be higher than my salary raise. But working salary is still more reliable. I got big raise last year and my dividends raises/cuts added up negative last year.
While I love Canada and be very proud to be a Canadian, I do have doubt in Canadian economy, so I think it’s prudent not to focus on Canadian market only. I will shift gradually to invest more outside of Canada for sure. Canadian DGI stocks are and will be my core holdings, it’s the sleep tight factor of my portfolio and very important. But I feel I already have enough of those and new money will be at somewhere else. I also realized for us, maybe even in retirement, if we want to melt down RRSP significantly before 70, then the tax benefit for Canadian eligible dividends might not be better than capital gain, if the government will not raise the inclusion rate for it. Even if the government does, I think capital gains are more flexible to manage tax wise.
I’m with you May. DG stocks will always be at the core of my portfolio but my explore is actually low-cost ETFs like VTI, QQQ and XAW in particular. There will always be growth beyond Canada and I would want that action 🙂
Capital gains are definitely an efficient form of tax. Good thinking on your part.
I’m with you Cannew but mostly because I’m stuck with a huge portion of my investments in my non registered account (due to very poor investment choices in my TFSA and RSP years ago). So, I’m inclined to keep it Canadian and focus on dividend payers. I’ve thought about being a bit more diversified in my RSP but a lot of the revenue from my holdings originates in the US already even though they are Canadian listed stocks so I feel like it’s balanced enough for my liking.
Cannew/Henry is very disciplined and has high convinction in his holdings. I admire that. I know for me James, I couldn’t just invest in CDN stocks because I’d be giving up some returns from the U.S. if I did. See XIU vs. VTI or QQQ over the last 10 years. I rest my case.
That said, many investors will do amazingly well if they follow an ever-rising-income approach that Henry speaks about for part of their plan.
Honestly, I question my portfolio weighting’s all the time. For my kids they are well over 80% ETFs and they are much closer to 50/50 CDN-US. My daughter has maxed out her TFSA and has started a sizable non-registered account as well. She’s a budding entrepreneur, and all the new money she invests is for ETFs with that split. My son lags in contributions and he really wanted to pick some stocks so I went along with it, but he will also be encouraged for more ETFs.
All that is to say I know I should practice what I preach, but I struggle with selling!
Ha. Don’t sell. Just keep buying to rebalance your portfolio!
“Dividends are great but watch out for Canadian home bias!”
I’m always surprised, actually not, that many dividend growth investors, still concern themselves worrying about owning 100% or a high percent in Canadian equities. Dividend growth investors look to earn an income from their investments, as your introduction emphasizes. But I guess the majority are still of the mind that Total Return is what really counts, yet many hope to be able to live off their dividends. Sounds like saying one thing, but meaning another.
Oh well, just me reminding some that one can be invested in 100% Canadian equities, without worrying about market corrections, diversification and even total return, and still be financially independent. Or is it just me and Tom Connolly who believe it?
The fear is real right Henry? Maybe a post for you on that – why the fear towards high equities in Canadian stocks? Some companies are rather diversified for sure….
I’m striving for about 50/50 – CDN content and then U.S./International content over time. I figure that’s a good mix for me and my income needs too.
Are you still holding the same 12 CDN stocks? You might be getting some major bank raises soon my friend.
If you could buy 100 shares of one Canadian bank for a long term hold, which one would you pick and why?
Jill: I’d invest in a bank stock which had a good DG history and one offering a reasonable yield today. Likely, one could buy all six bank stocks at some point in time, and still do well. Remember, I’m only interested in buying the stocks for the income they provide, not capital growth. Capital growth may or may not follow, but it doesn’t matter.
I’ll be more specific. Not advice of course and cannew might have different picks but I like both RY and TD for dividends and growth beyond Canadian borders. BMO would and then NA would be #3 and #4 for me personally to buy more of.
Just me. I happen to own all big-6 banks (a few hundred shares of each).