Best form of Return
Excuse my ignorance, but has someone ever figured out which form of return was better from a yield standpoint. ROC, dividend or WHY
Those are really just tax designations. Choosing dividend or ROC yield will not determine which investment gives you the best total return.
Maybe you want to ask from a tax standpoint, which yeild is more favorible?
Dividends are taxed at a favourable rate to interest or foreign investment income. ROC is tax deferred until the stock is sold, or sheltered, or if given a long enough time that the ROC portion fully reduces the ACB of your shares to 0. This would probably take decades of collecting ROC.
Originally Posted by Jungle
The thing is, from what I've seen you don't really get to choose one or the other. Most companies pay straight dividends. Then there are some (usually REITs and trusts) that sprinkly in some ROC every year. You have no way to 'only collect the ROC' or anything like that and I haven't come across any investments that pay purely ROC either so... Again, they are just very different and you don't have a whole lot of say in it anyways. And the point is totally moot anyways if you are putting securities in a RRSP or TFSA
+1 on the description of dividends and RoC etc.
Originally Posted by CashMoney101
I would add a few points, which may or may not be important to the individual.
Dividends - when one is retired and OAS kicks in, these are not that great as the income is "grossed up". So $1 in dividends will be reported as income of $1.38, putting one closer to the clawback faster than the other forms of returns.
RoC - while REIT and trusts are the most common, other investments such as ETFs and some mutual funds also pay RoC, so buyer beware. Using the iShares TSX Composite Capped ETF (symbol XIC) as an example, If one scrolls down far enough to the "Annual Distribubtions" section, it has been paying RoC for at least ten consecutive years. Last year also paid capital gains and eligible dividends.
Yes, "only collect RoC" is difficult but where the investor does his/her homework, they can influence the RoC content significantly.
The RioCan link below indicates that for 2011, 63% of the $1.38 distribution per unit is RoC.
For the last ten years, the lowest RoC is 30% and the highest is 63% where most years are around 50%.
Another example is NAL Energy Corporation, where in 1996 and 1998, 100% was RoC with 1997 at 93% plus 1998 at 83%. More recently, RoC is zero so it looks like they are headed more to eligible dividends than a trust distribution.
Yes - if one puts them in a RRSP or TFSA, then all that matters is what cash is delivered as there are no tax implications. Some investors will only buy investments that pay RoC in a registered account so that they can avoid the bookkeeping entries that RoC requires in a taxable account.
There are some Claymore-now-iShares funds that use swaps to convert interest or foreign dividend income into ROC and capital gains. They are the funds with 'Advantaged' in the name.