Weekend Reading – Stock splits creating value, getting started, how many DRIPs are enough and more!
Hey Everyone,
Welcome to my latest Weekend Reading edition where I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.
You can find my last Weekend edition here where I discussed why I bought low-cost tech ETF QQQ, more on the safe withdrawal rate (SWR) debate and more.
This week, travel expert Barry Choi was on my site to answer a question: is travel hacking still worth it?
Too bad about the Raptors loss last night but they’ve had a great two-year run.
Even without some Raptors playoff basketball enjoy the weekend!
Mark
Weekend Reads
This 20-something figured out the major flaw in her FIRE (Financial Independence, Retire Early) journey – she was running away from something, not towards something.
Dale Roberts did his best to make sense of the markets this week.
On that note, these are not easy times to be an investor. More patience than ever before seems to be necessary. My plan remains intact (owning dividend paying stocks and some low-cost ETFs for extra diversification). I reinvest most dividends and distributions paid to buy more shares of what I own commission-free using DRIPs.
While DRIPs are fine and good, I’ll need to invest some cash in the coming months. I’m starting to look forward (a bit) to how I’m going to invest inside our Tax Free Savings Accounts (TFSAs) in 2021. We’re saving up for those contributions now as part of these goals.
I’m considering the following:
- More Canadian renewable-focused energy stocks such as Algonquin Power (AQN), Innergex Renewable (INE) or a few others? OR
- Owning more of what I already own: low-cost XUU (iShares Core S&P U.S. Total Market Index ETF) – that owns these diversified U.S. funds:
Thoughts? I’m leaning on the latter right now for the extra diversification.
Bryan Borzykowski wrote about the latest Tesla and Apple stock-split craze and summarized the perceived value creation for investors this way:
“The bottom line is that stock splits don’t mean a whole lot to investors other than perhaps providing some added flexibility. If you wanted to sell some of your Apple stock, but didn’t want to part with it all, you can now unload some shares and keep the rest. Otherwise, don’t get too excited about all those new shares in your portfolio.”
A millennial emailed me this week to ask how to get started with investing. I directed them to his post but I also shared the following prerequisites that worked for me:
- Do a net worth calculation. Understand your assets and liabilities. If you have lots of liabilities I suggest you pay those down to a manageable level first.
- Following your net worth assessment, understand your cash flow for investing. If you have money to spare/to invest, great, start figuring that out but don’t invest until #3 is in place.
- Establish an emergency fund. We’ve always had one and we keep ours steady at this level.
I believe once you have any small emergency fund in place then you’re able to withstand some small “what ifs” in life while striving to meet some longer-term financial goals. Comment away. I’d like to hear your take on that…
GenY Money shared what CDIC and CIPF cover.
Reader question of the week (adapted slightly for the site):
Hi Mark!
I really enjoy your site and your personal journey. You write about dividend reinvestment plans often and my question is: will you ever stop running those DRIPs and take the cash instead? You could likely be more strategic with your purchases (as cash builds up) as you well know. I mean, how many DRIPs are enough anyhow?
Curious to hear your thoughts. Thanks.
Great questions and thanks for your readership.
Your email and questions are very timely actually.
I’m likely going to stop some DRIPs in my taxable account rather soon for the following key reasons:
- I’m actually getting tired of calculating my adjusted cost base for the Canadian dividend paying stocks that I own there – such that – I need to know what that is for calculating any future capital gains or losses when I sell any taxable assets. I want to simplify my life. I don’t however have any intention of selling anything right now.
- I would like to start moving more non-registered money to our TFSAs in the coming years to shelter more tax. I wrote about that process and the considerations before.
While I will shut off the DRIP taps in my taxable account I will however keep all dividends and distributions reinvested inside our TFSAs, RRSPs and my LIRA.
How many DRIPs are enough? That’s a “it depends” answer for me. There is no hard and fast rule. Many investors, including myself, love DRIPs for many reasons that you can read about here.
I’ll keep that DRIPping process “on” inside those tax-free and tax-deferred accounts for the coming years until I really need or want to spend the cash in semi-retirement.
Readers, what’s your take on DRIPs? Do you believe in the same compounding power they provide as I do?
I have more reader questions to get to in the coming weeks so stay tuned for those answers. And…keep them coming!
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Last but not least I plan on posting my latest dividend income update soon so stay tuned for that 🙂
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. 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.
Will take a look at INE. I recently added 300 shares of AQN and might buy more.
I never do drip in my taxable account, too much trouble. The plan is to continue drip in RRSP until the day of retirement. Continue drip in TFSA until the day I need withdrawal from TFSA. I should invest any time I have money to invest but not able to do that. Dripping is one way to keep me from investing without regarding the market condition. I also found it’s a very good way to grow my investment income automatically.
I usually never DRIP any holdings in neither registered nor non-registered accounts. Maybe I should to save on the commission but I don’t. I mostly wait until the dividends get to around $800-$1000, then I pick an existing holding and re-invest in. Usually its the holding with the highest yield. I’ve been adding alot to BNS due to the high yield but since I’m already too overweight on banks, I am also choosing some other sectors such as utilities.
Interesting play. I’ve always decided on DRIPs (mostly, especially inside TFSAs and RRSPs) since I figure this is a total return approach. It allows me to keep my emotions out of my decisions. I too, own enough of the big-5 Canadian banks so I’m putting my money elsewhere with future dividends from taxable account.
Any particular utilities you are seeking to buy?
Mark
I recently added to my FTS.TO existing position, I’d like to add more because seems like the shining star of the utility sector right now. My original cost base is quite low at $30. But I doubt that price will ever come again. So anything 51 and under I’ll add more.
I also added some ACO-X.TO to another existing position earlier. But my preference is still Fortis (FTS) for now.
That’s a good cost base. Mine is not that low since I’ve been adding FTS over time, just not this year. I’ll continue to DRIP that stock as well which changes the cost base.
Hi Mark,
do you use the adjustedcostbase.ca website for calculating your adjusted cost base for your stocks in your non-registered accounts?
I do and have but I have also kept my own spreadsheets. No longer required since I’m turning off DRIPs inside my taxable account now!
By turning off my DRIPs I will effectively “freeze” my book value going forward unless I make new purchases (which are very, very limited). Only focusing on maxing out registered accounts for the coming years = TFSAs, RRSPs and also paying down debt as we move to semi-retirement in the coming years 🙂
Great stuff as usual Mark, thank you ! I’m a shareholder of AQN + INE + QQQ and I couldn’t be more happy, definitely a good choice toward the future !
Big fan of all of those stocks and QQQ as well. I hope to add more QQQ over time inside my RRSP or LIRA.
A small investor perspective: I don’t use DRIPs within my TFSA where all my investments pay dividends. I have chosen this because I am building my TFSA to produce income for when my modest pension runs out. I want the flexibility to make specific stock purchases with the dividends that accrue — I am not withdrawing them yet and hopefully not for some time — to ensure that I will have a consistent monthly income from the dividends when I need it. I don’t want $600 one month, $1,000 another month, then $400 another month. I don’t let the dividends sit as cash for long and don’t mind paying the cost of a movie to make purchases every two months. Plus I enjoy the bits of time I put into building my portfolio.
That’s interesting and I’m not “there yet” for my TFSA but I can see your point as you may prefer to draw down your TFSA along with your pension.
As long as you are not trading the small commissions really don’t matter much a few times per year.
I recently discontinued the DRIPs on the ETFs in my self directed RRSP (I only have tax sheltered investments). I did this so I could put the funds in the fixed portion of my portfolio (GICs, despite the currently poor rates) as a way to re-set the asset allocation. Once that allocation is where I would like it to be, in a year or so perhaps, I will have the DRIPs reactivated. Great way to rebalance (albeit gradually) without paying trading fees.
I think that’s wise for portfolio rebalancing Darlene. By turning off my DRIPs inside my taxable account I’m effectively doing the same thing – redeploying the cash elsewhere as that cash value adds up.
Raptors are still a top 8 team and fun to watch. NFL in full swing so happy about that.
Solid guidance for the millennial investor just starting out. Like that you started with net worth and getting debt manageable (not eliminated) before investing. Emergency funds are a great idea. Have you done any writing on debt to income ratio? Nice to see it falling but I believe it’s not a very good indicator of how financially Canadians truly are.
We actually did a combination of both with our DRIPS. Left some on and turned some off. I still like seeing the DRIP grow (it’s an addiction) but also created the flexibility of taking cash or if didn’t need the cash, reinvesting.
All the best.
Writing on my debt to income ratio? Not yet but I might tackle that at some point. I really don’t worry about my debt now since my mortgage could be effectively paid off with our taxable account alone if we really wanted it to.
At the macro-level, less debt for Canadians is overall a good thing although I can appreciate some minor form of leveraged investing is fine as long as you understand the risks!
I’ll keep my DRIPs “on” for all registered accounts. I mean, even in doing so, that still means I’m DRIPping >70 shares per quarter 🙂
Sorry Mark, I wasn’t referring to your DTI (that’s a bit too personal), but just a general discussion article. I think that using DTI is a bit misleading and using debt to asset is a much better indication of Canadians financial position. People get all stressed out about having $200K in debt while they live in a $500K home plus.. Agree that less debt is best.
Ah, gotcha! Yes, those metrics are misleading but at the end of the day I go with a simple behavioural metric – if you can sleep at night and not worry about debt whatsoever then that’s a good test! We’re getting there on that note. Debt load/mortgage should be close to 5-figures in the coming year.
“How many drips are enough”
When the dividend payout so low that it is prohibitive to reinvest the monies because of the transaction fee.
Case in point. My granddaughter’s RESP is set up to drip because it is more economical that way. The value of the stocks is so small that the dividends would have to be accumulated for the whole year before reinvesting them with the following years contribution. By dripping the dividend is immediately put to work.
When you are getting several thousands per month in dividends then it is probably more effective to take the cash and reinvest to diversify.
RICARDO
I’m going this way Ricardo (take cash, diversify) in taxable given the run-up some stocks have had there. I’m very likely to keep all DRIPs “off” for my taxable account going forward.
I will still max out TFSAs and RRSPs – keeping those DRIPs “on” there for various stocks and ETFs. I like the idea of money making money tax-free or tax-deferred.
“The bottom line is that stock splits don’t mean a whole lot to investors other than perhaps providing some added flexibility”.
In theory splits don’t change the value of you holdings, just the number of shares you own. But, splits do indicate company growth and as investors are driven a lot by sentiment, growth encourages purchases. If the trend continues than probably the company and interest in the company continues to grow, as will your value and income you might receive.
I also believe stock splits do signal growth (since they encourage investors to buy at now lower prices than before) but unto themselves, it’s still the same shareholder value.