# Building a DRIP portfolio: What to buy?



## ofogao (Jan 16, 2014)

Long time reader and first time poster.

So that you know, I'm a newb investor who just recently switched all of my investments (mutual funds with high mers that have performed poorly) to QT so I don't know too much but I'm willing to learn.

Like the title says, I'm in the process of putting together a DRIP portfolio.

So far I've bought a Fortis, BCE and BMO share in hopes of buying more in the future.

I also have the opportunity to buy more individual shares.

This is what I have access to:

ALA
AX.UN
BNS
CGI
CM
ENB
FTS
HR.UN
IAG
IMO
MFC
SLF
Telus
TRP

Any suggestions, tips, recommendations?

Much appreciated


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## Butters (Apr 20, 2012)

You have great picks so far

Can I refer you to the Model portfolio
http://www.theglobeandmail.com/glob...zls-model-dividend-portfolio/article15722679/

He has Fortis . BCE . BMO already
The one you're missing is ENB (or TRP)

Bank .. Pipeline .. Telecom .. Utility are among the core holdings (he has 2)

he goes to US for some consumer products and holds an ETF of REITs




Next you'll want to look at the projected earnings CM is lagging other banks right now, and T is on top of the telecom world


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## leeder (Jan 28, 2012)

@ ofogao: Do you have any money invested in the US and international equities? Is this part of your taxable account or TFSA/RRSP? What does it mean when you say you have "access to" those stocks? If those are the stocks you're interested in, I'd suggest you do a thorough research on them. If you're a newb investor (as you say you are) and willing to hold for the long term, I'd suggest you buy a broad index ETF to diversify. The nice thing about Questrade is that you can buy ETFs commission free. In the mean time, do lots of reading. Once you're comfortable with investing, then consider exposing your portfolio to individual stocks.


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## ofogao (Jan 16, 2014)

leeder said:


> @ ofogao: Do you have any money invested in the US and international equities? Is this part of your taxable account or TFSA/RRSP? What does it mean when you say you have "access to" those stocks? If those are the stocks you're interested in, I'd suggest you do a thorough research on them. If you're a newb investor (as you say you are) and willing to hold for the long term, I'd suggest you buy a broad index ETF to diversify. The nice thing about Questrade is that you can buy ETFs commission free. In the mean time, do lots of reading. Once you're comfortable with investing, then consider exposing your portfolio to individual stocks.


SheaButters leeder thanks for responding

leeder, all I own are some mutual funds in my RRSP which is small but I do contribute to a pension plan.

I don't have any us or international securities.

The DRIPs that I own are being held outside my TFSA and RRSP. In my TFSA all I have is cash but I am in the process of buying some ETFs, which ones I'm not really sure at this time. 

I'm using this guide to help me. http://www.theglobeandmail.com/glob...egies-remember-the-tax-angle/article22842779/


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## leeder (Jan 28, 2012)

The Globe article offers good suggestions. I'd recommend diversifying to include US and International equities. Index ETFS, like VUN and XEF, offer good exposure. Try to invest in your TFSA and RRSP before investing in your taxable account. I also would recommend you work out an investment plan and understand your risk tolerance. Don't run before you crawl.


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## ofogao (Jan 16, 2014)

leeder said:


> The Globe article offers good suggestions. I'd recommend diversifying to include US and International equities. Index ETFS, like VUN and XEF, offer good exposure. Try to invest in your TFSA and RRSP before investing in your taxable account. I also would recommend you work out an investment plan and understand your risk tolerance. Don't run before you crawl.


You would put VUN and XEF in your RRSP, correct?


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## leeder (Jan 28, 2012)

There's still withholding tax that is not recoverable if you invest in VUN and XEF in your RRSP. As the Globe article correctly States, you have to buy US listed shares or ETFs for withholding tax to be not applicable in your RRSP.


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## gibor365 (Apr 1, 2011)

leeder said:


> There's still withholding tax that is not recoverable if you invest in VUN and XEF in your RRSP. As the Globe article correctly States, you have to buy US listed shares or ETFs for withholding tax to be not applicable in your RRSP.


imho, It's better to buy VTI and VEA into your RRSP than VUN and XEF


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## leeder (Jan 28, 2012)

gibor said:


> imho, It's better to buy VTI and VEA into your RRSP than VUN and XEF


Agreed that ETFs, such as VTI, VEA, VWO, VXUS, etc., that trade on the US exchange and pays distributions are most tax efficient. However, if the ofogao only has a small amount in his/her RRSP to convert to USD or contributing a small amount periodically to his/her RRSP, then I would suggest to stick with Canadian listed ETFs. In fact, I personally prefer sticking with the Canadian listed ETFs just because I don't have to convert my annual contributions into USD for the sake of avoiding the withholding tax. I'll buy the unhedged products to take advantage of the decreasing Cdn $.


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## My Own Advisor (Sep 24, 2012)

A DRIP portfolio that includes FTS, BMO, BCE is a good start.

Here are more suggestions, although I don't like any "selling" part every year as part of your two minutes.
http://www.theglobeandmail.com/glob...s-not-likely-to-happen-again/article22387835/

Buy most of the energy, financial, industrials, etc. and hold them for good in Canada.

Get your consumer discretionary stocks, healthcare and IT from the U.S. stocks.

To round out your portfolio, I would suggest buying the aforementioned VTI or VUN, or VXUS or VDU in your RRSP for the passive investing and diversification. This way, as you build your dividend war chest, one or two stocks that might take a beating (likely short-term anyhow) won't affect your portfolio too much.


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## Oldroe (Sep 18, 2009)

To understand drips you should just try to sell one. It's a nightmare.

Only buy what you are willing to die with.


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## My Own Advisor (Sep 24, 2012)

You're talking about full DRIPs Oldroe? With stock transfer agents?


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## Beaver101 (Nov 14, 2011)

^ True DRIPs? and why the nightmare?


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## Toronto.gal (Jan 8, 2010)

Doesn't matter true or synthetic DRIP, as Oldroe is referring to the record keeping that's required for non-registered accounts, ie, recalculating the ACB. If you only DRIP within registered accounts, then there is nothing to do.

Since most of my DRIPS are quarterly [not monthly], on a yearly basis, it takes me less time to calculate the ACBs than most people spend watching TV on a weekly or even daily basis.


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## OnlyMyOpinion (Sep 1, 2013)

Good point TG - "how much time do you spend watching TV" and "how much time don't you want to spend on your finances"?
I spent more than avg time yesterday figuring out ACB for MCD held since 2007 and just sold. It required lookup of BOC conversion of each quarterly DRIP purchase from $US to $CDN. It was not a big (meal) deal.


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## Beaver101 (Nov 14, 2011)

^ But I don't think OldRoe watches much tv so I like to hear his version of nightmare(s) with DRIPS. :biggrin:


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## ofogao (Jan 16, 2014)

SheaButters said:


> You have great picks so far
> 
> Can I refer you to the Model portfolio
> http://www.theglobeandmail.com/glob...zls-model-dividend-portfolio/article15722679/
> ...


SheButters,
Where would I find the projecting earnings of a company? I guess there prospectus??
Why would you want to know their projected earnings? Is this all you look at when considering a purchase?

cheers


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## ofogao (Jan 16, 2014)

Toronto.gal said:


> Doesn't matter true or synthetic DRIP, as Oldroe is referring to the record keeping that's required for non-registered accounts, ie, recalculating the ACB. If you only DRIP within registered accounts, then there is nothing to do.
> 
> Since most of my DRIPS are quarterly [not monthly], on a yearly basis, it takes me less time to calculate the ACBs than most people spend watching TV on a weekly or even daily basis.


What is the ACB of a dividend stock and is there a better way to do it, like an online calculator?


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## ofogao (Jan 16, 2014)

gibor said:


> imho, It's better to buy VTI and VEA into your RRSP than VUN and XEF


VTI and VEA are both US listed ETFs, correct?


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## Toronto.gal (Jan 8, 2010)

ofogao said:


> What is the ACB of a dividend stock and is there a better way to do it, like an online calculator?


'*More complex situations*
Tracking the ACB takes a bit more work in some cases. For example, if your shares are enrolled in a dividend reinvestment plan (DRIP), the ACB will change every time additional shares are purchased. For that reason, many DRIP investors use a spreadsheet to track their ACB. There are also online resources that can help, such as adjustedcostbase.ca.'

http://www.theglobeandmail.com/glob...-your-acb/article17838427/#dashboard/follows/

Oldroe is correct that DRIPping makes more sense if holding long-term, especially true DRIPs.


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## ofogao (Jan 16, 2014)

Toronto.gal said:


> '*More complex situations*
> Tracking the ACB takes a bit more work in some cases. For example, if your shares are enrolled in a dividend reinvestment plan (DRIP), the ACB will change every time additional shares are purchased. For that reason, many DRIP investors use a spreadsheet to track their ACB. There are also online resources that can help, such as adjustedcostbase.ca.'
> 
> http://www.theglobeandmail.com/glob...-your-acb/article17838427/#dashboard/follows/
> ...


Thank you for the link!


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## ofogao (Jan 16, 2014)

This is what I've decided to buy or at least thinking about it.


Energy Sector-ENB and IMO

Utilities-FTS (already own) and TRP

Banks-BMO and BNS and CM

Telecom-Telus and BCE (already own)

REIT-ALA or HR.UN (Don't really know which one to buy)

Financial Services/Health Services-IAG and SLF or MFC (Don't really know which one to buy)

What do you think?
Do you think I have too many companies?
Any errors in your opinion? Any recommendations?

Thank you


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## My Own Advisor (Sep 24, 2012)

Not too many companies, likely 20 are needed for decent diversification, and that's only Canada which is 4% of world market.

I would suspect that looks like most Canadian dividend investor portfolios, at least half of those stocks you listed.


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## gibor365 (Apr 1, 2011)

leeder said:


> Agreed that ETFs, such as VTI, VEA, VWO, VXUS, etc., that trade on the US exchange and pays distributions are most tax efficient. However, if the ofogao only has a small amount in his/her RRSP to convert to USD or contributing a small amount periodically to his/her RRSP, then I would suggest to stick with Canadian listed ETFs. In fact, I personally prefer sticking with the Canadian listed ETFs just because I don't have to convert my annual contributions into USD for the sake of avoiding the withholding tax. I'll buy the unhedged products to take advantage of the decreasing Cdn $.


Don't understand your point.... I contribute into RRSP in CAD$ and buy US equities...in CIBC IE FX rate practically = BoC spot rate...
Hedging is not so good
http://canadiancouchpotato.com/2015/02/04/stepping-back-from-the-hedge/


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## leeder (Jan 28, 2012)

gibor said:


> Don't understand your point.... I contribute into RRSP in CAD$ and buy US equities...in CIBC IE FX rate practically = BoC spot rate...
> Hedging is not so good
> http://canadiancouchpotato.com/2015/02/04/stepping-back-from-the-hedge/


Maybe CIBC IE has a good FX rate, which allows investors to convert money at spot. Some discount brokerages don't. Some rely on Norbert's Gambit to convert CAD to USD in their RRSP, which requires about two to three trading commissions in order to buy the US ETF/stock. What I'm getting at is if someone has a small RRSP investment and/or is contributing a small amount monthly (e.g., $300 every month) to his/her RRSP, it might not be worth performing the currency conversion and incurring a number of commissions or losing money through the regular conversion process, all in the name of avoiding the 15% withholding tax.

Also, if you go back to my post, I said I would invest in "unhedged" product not "hedged". The article you posted would not apply, as I agree with it.


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## gibor365 (Apr 1, 2011)

If you contribute $300 every months , you gonna pay trading fees for every trade in most discount brokerages...so it doesn't make sense at all... also, you pay trading fee only when you buy ETF, but gonna be paying 15% withholding tax as long as you hold it


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## leeder (Jan 28, 2012)

You may be right. I'm too lazy to calculate it out . I prefer the simplicity of buying and selling securities on the TSX. Not to mention, in case I need to withdraw from the RRSP for any purposes (from first time home buyer's plan to RRIF), it's nice to have it in CAD.


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## Moneytoo (Mar 26, 2014)

Back to the original subject, here's another sample portfolio (with some of the OP's picks): http://spbrunner3.blogspot.ca/2015/01/sample-portfolio.html - and a great blog in general (sorry, don't remember who recommended it on this forum last year - but thank you, love reading her analysis and recommendations! )


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## gibor365 (Apr 1, 2011)

leeder said:


> You may be right. I'm too lazy to calculate it out . I prefer the simplicity of buying and selling securities on the TSX. Not to mention, in case I need to withdraw from the RRSP for any purposes (from first time home buyer's plan to RRIF), it's nice to have it in CAD.


Don't know and don't care about first time home buyer's  , but there is no any problem converting RRSP to RRIF... just account registration will be changed and all holdings will stay


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## ofogao (Jan 16, 2014)

Moneytoo said:


> Back to the original subject, here's another sample portfolio (with some of the OP's picks): http://spbrunner3.blogspot.ca/2015/01/sample-portfolio.html - and a great blog in general (sorry, don't remember who recommended it on this forum last year - but thank you, love reading her analysis and recommendations! )


Thank you for the link


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## Tawcan (Aug 3, 2012)

ofogao said:


> This is what I've decided to buy or at least thinking about it.
> 
> 
> Energy Sector-ENB and IMO
> ...


Are you DRIPing in regular account or RRSP/TFSA? For REITs it would be a good idea to DRIP in TFSA if you can (synthetic DRIP) to avoid the complicated math calculation.


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## Eclectic12 (Oct 20, 2010)

^^^^

I can agree that the REIT RoC as well as DRIP calculations are tedious ... but the math is simply subtracting the RoC from the cost (i.e ACB) and adding the DRIP shares purchases to the cost (i.e. ACB). With a good spreadsheet and the info at hand, it is similar to reconciling a CC statement.

On other hand ... if said REIT is like RioCan where a high percentage is paid as income which is taxed at the highest rate (ex. 2013 69% of distribution was taxed as income, 2012 44% of distribution) - IMO that is a far more compelling reason to make sure it is held in the TFSA.

In comparison, Chartwell Retirement REIT in 2013 paid under 22% as income and 78% as tax deferred RoC (regardless of when it needs to be paid, now or when the investment is sold - it will be taxed as a capital gain).


Cheers

*PS*

In a taxable account, the same DRIP calculations to adjust the cost (ACB) are going to be needed for *any* stock (ex. TRP, BMO, EMA etc.) ... the same as when one decides a stock already held is a bargain and buy more shares.

The only added component for the REIT is the RoC component ... which other investments such as ETFs or split shares also may have.


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## Oldroe (Sep 18, 2009)

Still nobody has stepped up and told you about selling a DRIP. If you invest in a dog think 2 months to sell your position. With absolutely no control on when it's sold.

Most of the drip promoters will say just avg. down. Remember you need to triple your investment to avg. down. So stock AAA drops 50% and you have 5k in this stock, you need to put another 15K in to get near the current price.

And you need to wait to get your money in.


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## Toronto.gal (Jan 8, 2010)

Oldroe said:


> 1. Still nobody has stepped up and told you about *selling a DRIP.*
> 2. If you invest in a dog think *2 months to sell* your position. With absolutely no control on when it's sold.


*1.* And so you're talking about true drips.

Most of my DRIPs are synthetic, the ones I hold with transfer agents are a few well-thought-out selection of companies. They were set-up with the intention of not selling for decades to come, just increase my positions on a regular basis [commission-free], and that I'm pretty sure will be around long after I'm gone, so I'm sorry I 'can't step up to the plate' when I have no experience selling. By the time I'll want/need to sell, and/or are transferred to someone else [most likely scenario], I'm sure true.DRIP.land, if it will still exist, will surely be different from today.

If OP is interested in both, he should obviously study all the cons and pros of each.

*2.* Is it 2 weeks or 2 months?
http://canadianmoneyforum.com/showthread.php/8022-DRIP-or-not-to-DRIP?p=74349&viewfull=1

I prefer to be labelled a DRIP enthusiast than a promoter.


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## My Own Advisor (Sep 24, 2012)

Toronto.gal said:


> *1.* I prefer to be labelled a DRIP enthusiast than a promoter.


+1 I like that!

Yes, True or Full DRIPs with stock transfer agents are time consuming and involve some paperwork. This is why when I had enough shares in some companies to run synthetic DRIPs, meaning, with the brokerage, I stopped Full DRIPs.

Synthetic DRIPs are not that complicated - you call the brokerage and they do all the work.


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## Toronto.gal (Jan 8, 2010)

The aim of the traditional DRIP had been twofold for me: to reinvest full dividends, and to be able to make optional cash purchases commission-free. So far, given that I make purchases at regular intervals, I have saved quite a bit on the latter over the last 5 years. Now, the dividend payment grows each quarter, letting time/compound interest work its magic, and just watching this part of my portfolio grow exponentially.

Synthetic DRIP:

- easy set-up with just a phone call,
- can turn DRIPs on/off at any time, 
- can set-up any account type, at account/company level, 
- no fractional share purchases, so need to have enough dividends for at least 1 full share. 

Traditional DRIP:

- paper/certificate process to set-up,
- non-reg. accounts only,
- full dividends are reinvested, so fractional shares can be purchased,
- optional cash purchases available with some companies, but only able to buy on set-dates, ie, on the 1st business day of every month.

The sale process with the traditional DRIP depends on whether the shares are certificated or electronic, which I explained some time ago, but I 4got the details since I have not done any selling, just have the instructions written somewhere that I'm sure will change with time anyway.


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## OnlyMyOpinion (Sep 1, 2013)

Re/ tracking ACB of stocks in synthetic DRIP program - Our experience is that the Book Value being carried on our TDW statements is within pennies of what we calculate the ACB to be (share purchase cost + purchase commission + DRIP share purchase cost) - if you have always made your share purchases and DRIPs within that account. This would not necessarily hold if you had transferred shares in at some point. We still do the math ourselves, but in these instances the listed BV could have been used.


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## Oldroe (Sep 18, 2009)

I was in a group buy for 1 of the banks. This poor lady made a mistake that took 5 months to straighten out. She would e mail every few weeks with the painful story. So I got 1 done in 2 weeks but I would count on 2 month's.

Markets are getting a little more interesting. I think you are going to complete the circle of investing soon. Then you find out how much you like it.


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## Eclectic12 (Oct 20, 2010)

Oldroe said:


> Still nobody has stepped up and told you about selling a DRIP. If you invest in a dog think 2 months to sell your position. With absolutely no control on when it's sold.


In a DRIP held with the transfer agent - yes ... which is why most people I can recall advised sticking to conservative companies. IAC, I'll have to check the one I have from a former employer ... I recall there being an option to have it transferred to my broker, I just don't recall the time frame.




Oldroe said:


> Remember you need to triple your investment to avg. down.
> So stock AAA drops 50% and you have 5k in this stock, you need to put another 15K in to get near the current price.


Potentially ... but then again, if it's a conservative company with a viable business - it should be bouncing back regardless similar to 2008/2009.
In the meantime, any dividends will buy more shares at the lower price. Compare that with those who were too nervous to buy anything at the lows or sold at the low.




Oldroe said:


> And you need to wait to get your money in.


There's been changes so I'm not sure what they are doing now ... but this is one of the reasons I liked Canadian Share Owner as for the more popular stocks, one could trade four times a month - where the less popular stocks were monthly and the company DRIP was quarterly.


So yes this is an important consideration ... but for stocks like ENB, EMA, TRP ... I'm not sure I'd worry about it.

Worst case ... after one has built a big enough position, one can transfer it to a brokerage to take advantage of the synthetic DRIP with it's ability to sell daily.


Cheers


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## Oldroe (Sep 18, 2009)

I to like Canadian Share Owner and accept that selling immediately is expensive and a little less on scheduled days. Transferring in kind is very very expensive. But what you need to do if income is needed.


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