# The Ultimate DRIP-folio



## Brad911 (Apr 19, 2009)

I posted *an article* on my site discussing this concept, but I wanted to get input from members here as well.

Basically *The Ultimate DRIP-folio* is a concept I came up with a short while ago for the potential of constructing/developing a diversified income portfolio that concentrates on re-investing dividends through a DRIP or SPP that a number of investors can share resources on. What I'd like to know are members' top choices (5-10) for DRIP eligible stocks that they would include in a portfolio or have in a portfolio already.

Here are my top choices in no particular order:
ALA.UN
BNS
CWT.UN
COS.UN
ENB
FTS
IPL.UN
MFC
REI.UN
SJR.B
T
TD
TRI
TRP


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## FrugalTrader (Oct 13, 2008)

Do any of these stocks offer a discount if you DRIP them? The stocks I like (and own) are:
BNS, CWT.UN, COS.UN, ENB, FTS, MFC, REI.UN, TD, TRP.


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## Brad911 (Apr 19, 2009)

I know that TD just announced a discount (I believe 2%) but this is partly why I wanted to do this exercise. If we could all pool resources together we might find out about some nice discounts on companies we already own and get a discount of up to 3% or more for some stocks we hold.


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## takingprofits (Apr 13, 2009)

Another high yielding stock that is popular for its drip is ax.un


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## stinsont (May 29, 2009)

FrugalTrader said:


> Do any of these stocks offer a discount if you DRIP them? The stocks I like (and own) are:
> BNS, CWT.UN, COS.UN, ENB, FTS, MFC, REI.UN, TD, TRP.


RioCan offers a discount. I also believe that YLO.UN discounts DRIP'pers'


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## CanadianCapitalist (Mar 31, 2009)

I think Royal and BMO offer a DRIP discount.


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## Cal (Jun 17, 2009)

Here is a link for some of the DRIP discounts:

http://cdndrips.blogspot.com/

Also...Brad911...are your DRIPs set up in a registered account or non? As some of the selections may be better suited for registered, than non.


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## stephenheath (Apr 3, 2009)

I'm not suggesting or recommending it, but I do know CSH.UN offers a 3% drip discount, although I think it's a 1000 share minimum before they'll do the drip.


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## kenwood (Apr 18, 2009)

It will be interesting to compare your picks against cbz.to or xdv.to.

Here are my picks: BCE, FTS, IPL.UN, TD, TRP


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## MoneyEnergy (Apr 5, 2009)

Are we distinguishing real/full/traditional DRIPs from synthetic DRIPs offered through the banks? 

I go with the "full" DRIPs and don't like any that have high minimum OCP amounts (high for me right now is $500). My current faves are probably:

T
TA
TRP (discount)
ENB (discount)
BA.UN
REI.UN
BNS


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## Chigu (Aug 6, 2009)

If a company offers a DRIP (such as Riocan), and you can purchase shares directly from the company (commission free). is there a way you can hold it in a TFSA to avoid the taxes on the dividend distribution?


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## Jon202 (Apr 14, 2009)

Chigu said:


> If a company offers a DRIP (such as Riocan), and you can purchase shares directly from the company (commission free).


yes.



Chigu said:


> is there a way you can hold it in a TFSA to avoid the taxes on the dividend distribution?


yes, but not at the same time as above.


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## michika (Apr 20, 2009)

Jon202 said:


> yes, but not at the same time as above.


How so?


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## Jon202 (Apr 14, 2009)

michika said:


> How so?


http://cdndrips.googlepages.com/canadiandripfaq

Questions #4, #6, #10.


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## Chigu (Aug 6, 2009)

Thanks for the info. I did the reading, so now I have a question. I am looking to exclusively invest my DRIPs in trusts (oil, gas, real estate etc), as they seem to provide about 8-10% dividend based on current dividends paid and the current market price/unit. 

Now my question is if I should hold the DRIP inside a TFSA (synthetic DRIP) vs purchasing from the company (trustee) themselves. Now the mix of companies I want to invest in has some that provide a discount in their DRIP (3% - 5%), and some don't offer a discount. 

Would it be beneficial for me to place all the units that don't offer a discount in the TFSA, and for the ones that do offer a discount I should do it outside a registered investment? 

My gut feeling is use the TFSA, b/c the loss of the discount and the fractional units may not offset the tax implications of keeping it outside the TFSA. 

Any suggestions would be helpful.


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## Jon202 (Apr 14, 2009)

All depends are your particular situation, goals, timeline and available capital. You'll have to weigh the pros and cons with that in mind.


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## Cal (Jun 17, 2009)

Chigu - I use tdwaterhouse for my tfsa, and they will honor the discounts on the company drips....but no fractional units.


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## leslie (May 25, 2009)

I think Chigu's criteria for buy stocks (highest distribution) is absolutely nuts, but he did now ask re that.

There are tax implications to the holding acccount. Most distributions from income trusts are fully taxable like interest income, because they are an allocation of the pre-tax operating results of the business. 

Holding the securities outside RRSP/RESP/RRIF/TFSA means the distributions are fully taxed. As a general rule mutual funds are best held inside tax-sheltered accounts. 

There are some O&G trusts that used to have piles of pre-paid tax credits so that their distributions were returns-of-capital (no tax - reduces ACB). I would think those companies are now saving up those credits to be used after 2011. Check each company's website for their disclosure on distribution tytpes.


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## Chigu (Aug 6, 2009)

leslie said:


> I* think Chigu's criteria for buy stocks (highest distribution) is absolutely nuts, but he did now ask re that.*


My criteria for purchasing trust units with the HIGHEST distribution is not going to by my ONLY factor. I will do the appropriate research as well, but I was curious as to why holding all the high distribution trusts in a TFSA would be disadvantageous?? The distributions regardless of what type will be tax-free. 

Definitely want to hear other point of views and why this is a bad idea? There may be other risks out there that I am overlooking. Any help would be greatly appreciated.


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## HaroldCrump (Jun 10, 2009)

Chigu said:


> I am looking to exclusively invest my DRIPs in trusts (oil, gas, real estate etc), as they seem to provide about 8-10% dividend based on current dividends paid and the current market price/unit.


Can you please explain why you wish to initiate your position at this time instead of waiting until 2011, esp. non REIT positions?
Distributions are sure to be cut in 2011 when most trusts are forced to convert to taxable corporations.
Why not wait until a couple of distribution periods after the conversion and then take your position?
It'll be great if you can explain your strategy.


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## Chigu (Aug 6, 2009)

HaroldCrump said:


> Can you please explain why you wish to initiate your position at this time instead of waiting until 2011, esp. non REIT positions?
> Distributions are sure to be cut in 2011 when most trusts are forced to convert to taxable corporations.
> Why not wait until a couple of distribution periods after the conversion and then take your position?
> It'll be great if you can explain your strategy.


That is a very VALID question. I really haven't had the money to invest before in a non RRSP vehicle. I was saving for house/wedding etc. Now that I have everything stablilzed I am planning on investing outside my RRSP. 

You are completely correct in assuming I should wait until 2011, which I fully intend to do. I am planning on doing this in early 2010, and with my 5K contribution room I plan on putting it exclusively in various REIT's. I know that's not proper diversification, however 5k is not a lot to risk, and I doubt that ALL the REIT's will suddenly fold up. I plan on RIOCAN, DUNDEE, as well as POSSIBLY a few in the U.S. 

My rational with my strategy is that with MOST stocks, the only way you could make money from them is by capital appreciation. I'd rather have a steady distribution, and not have to worry if the price of the unit moves at all. 
My interest in income trusts was that most people 'hope' to achieve at least an 8% return in their portfolio, when there are actually many trusts out there that distribute greater than 8%. In the past it may have been disadvatageous to hold trusts due to distributions being a mix of other income, dividends, and ROC; but with the introduction of the TFSA those negatives are eliminated. 

Example:

Boston Pizza Trust units low for the year was 6.49/unit on December 18, 2008. The distributions from September 2008 - September 2009 = $1.38 (11.5 cents per month). That is return of 21.2%, not INCLUDING appreciation of the stock. Currently that trust is tradiing at 11.08, even at that price its still a return of 12.45%. 

So if you purchased the stock in Dec 2008 you would have a total return of 
70.7% on stock appreciation. 
21.2% on distributions.


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## scomac (Aug 22, 2009)

Chigu said:


> Example:
> 
> Boston Pizza Trust units low for the year was 6.49/unit on December 18, 2008. The distributions from September 2008 - September 2009 = $1.38 (11.5 cents per month). That is return of 21.2%, not INCLUDING appreciation of the stock. Currently that trust is tradiing at 11.08, even at that price its still a return of 12.45%.
> 
> ...


So, what does this prove? You can pick a winner ex-ante. If you had bought Teck Resources in Dec. 2008 and held through till today, you would have a 700% gain without the benefit of any dividend. 

Just because you buy a security with a high distribution that doesn't mean you will actually earn that as a return. The unit value could just as easily collapse leaving you with nothing more than a return of your original investment...or not if you are really unlucky.


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## Sampson (Apr 3, 2009)

Chigu said:


> My interest in income trusts was that most people 'hope' to achieve at least an 8% return in their portfolio, when there are actually many trusts out there that distribute greater than 8%.


I think Harold's point is that these high distributions will all but likely end when income trusts convert to corporations since they will no longer be able to afford such high payouts after they get taxed within the hands of the corporation. 

I would suggest you look at the payout ratios of some of these income trusts - many even payout out greater than 100% of their earnings - its not sustainable even in the current tax favorable scheme, how could it continue being so when they get taxed.

Holding REITs within the TFSA makes lots of sense, I do it myself, but they represent 5% or less of my portfolio. But as pointed out, REITs (many of them) will not be affected by the 2011 changes so should be able to continue to payout the majority of their earnings.


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## Chigu (Aug 6, 2009)

scomac said:


> So, what does this prove? You can pick a winner ex-ante. If you had bought Teck Resources in Dec. 2008 and held through till today, you would have a 700% gain without the benefit of any dividend.
> 
> Just because you buy a security with a high distribution that doesn't mean you will actually earn that as a return. The unit value could just as easily collapse leaving you with nothing more than a return of your original investment...or not if you are really unlucky.


That's my point exactly. I wouldn't really care if the *market value* of the unit decreases, distributions are based on a per unit basis, not based on market value. If i hold 1000 units, that wouldn't change regardless of the increase/decrease in market value. The only impact is if the distributions will decrease (and that's where research comes into play). My plan is to purchase and not sell, just collect the tax-sheltered distributions. 

As for 2011, that's why I am planning on holding the REIT's that meet the criteria to remain an income trust.

eg: Let's take probably the most well known REIT. RIOCAN. At TODAY's market value of 17.69/unit, and a distribution of 11.5cents/month. That's still almost an 8% return/annum on your ORIGINAL investment.


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## Jon202 (Apr 14, 2009)

Chigu said:


> That's still almost an 8% return/annum on your ORIGINAL investment.


No point having an 8% yield if the total return is negative. 

YIELD + PRICE INCREASE = Total Return

The price per unit for trusts swing around so much that even a 10-15% distribution yield could be useless if the unit price is cut in half. I'm all with you on the payout for the long term so long as the share price is even or increases.

I prefer RioCan but even it suffered the last year for no reason, but so long as you didn't sell at the low and even bought more you would have done better.


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## Chigu (Aug 6, 2009)

Jon202 said:


> No point having an 8% yield if the total return is negative.
> 
> YIELD + PRICE INCREASE = Total Return
> 
> ...


True on the Yield + price increase = total return. But the price increase only is realized once you sell, but if a person gets the units at a reasonable value and holds them forever just for the distribution (for cash flow purposes) won't that mean price flux's are irrelevant?, however if you definitely can purchase a trust which will go up in value in the long-term, then that's even better!


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## HaroldCrump (Jun 10, 2009)

Chigu said:


> True on the Yield + price increase = total return. But the price increase only is realized once you sell, but if a person gets the units at a reasonable value and holds them forever just for the distribution (for cash flow purposes) won't that mean price flux's are irrelevant?


Sounds like you wanna use income trusts as bonds.
If you like a bond, then buy and bond and hold it to maturity.
That way you get the distributions and your investment back at maturity.
You take on credit risk, but no interest rate risk if you are commited to hold till maturity.
I find income trusts volatile and somehow can't trust any investment that pays out more than earnings - who knows what devils hide inside their financial books.
Seems very Madoffish to me.


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## Chigu (Aug 6, 2009)

HaroldCrump said:


> Sounds like you wanna use income trusts as bonds.
> If you like a bond, then buy and bond and hold it to maturity.
> That way you get the distributions and your investment back at maturity.
> You take on credit risk, but no interest rate risk if you are commited to hold till maturity.
> ...


Good analogy, I basically do want to use them as bond's. But I dont' think a bond will be able to provide that sort of a distribution. I don't want to rush into it, and hopefully purchase the units as close to bottom as I can. Obviously trying to time the market doesn't work, but I hope to find some values.


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## scomac (Aug 22, 2009)

Chigu said:


> Good analogy, I basically do want to use them as bond's. But I don't' think a bond will be able to provide that sort of a distribution.


You are reaching for yield. You are discounting all risks associated with your proposal as insignificant when in fact these are very significant risks. Income trusts are not bonds and you will find this out the hard way in due course most likely through a permanent loss of capital.


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## HaroldCrump (Jun 10, 2009)

Chigu said:


> Good analogy, I basically do want to use them as bond's. But I dont' think a bond will be able to provide that sort of a distribution.


Correct, you'll need to buy very high yield (junk) bonds, and possibly in the far spectrum of high yield bonds.


> I don't want to rush into it, and hopefully purchase the units as close to bottom as I can. Obviously trying to time the market doesn't work, but I hope to find some values.


I think that boat has sailed as far as income trusts are concerned.
The REITs are mostly back up to at or near their 52-week highs.
The best time to buy was between last Nov and this March.
There may be a drop close to the 2011 date for incoem trust conversion but anyone who wanted to sell would have sold by then.
The yields are attractive but I'm nervous about trusts primarily because of their nature i.e. simply pass through earnings without any value add.
But then that's just me....


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## CanadianCapitalist (Mar 31, 2009)

Chigu said:


> Good analogy, I basically do want to use them as bond's. But I dont' think a bond will be able to provide that sort of a distribution. I don't want to rush into it, and hopefully purchase the units as close to bottom as I can. Obviously trying to time the market doesn't work, but I hope to find some values.


As other posters have pointed out, when you want higher returns, you are taking on more risk. Lots of investors purchased income trusts for their yield and are now looking at capital losses in addition to having their distributions chopped. Take a look at Consumers Water Heater, Yellow Pages, Epcor, Algonquin etc.


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