# Dividend Strategy over 30 Year Plan



## Westerncanada (Nov 11, 2013)

CMF

I had a question regarding income investing around high yield dividend stocks. I would like to create a new portfolio of stricly income producing, monthly paying Dividend stocks and did some research and found 3 that I really want to get into. 

My question, is why are more people not investing in $25-$30 stocks that pay $0.18 cents per share per month in dividends? This is a 5-6 percent return with proven, secure companies? 

I feel like it's too good to be true but when I ran the math dropping $10K in one fund will pay $60+ per month in dividends increasing every month (with DRIP). Obviously $60 is not a ton of money, but if a person could maintain a $10K investment per year in these types of fund it would be a near million for just this portfollio in 30 years?


I understand this was more a rant then anything.. but just shocking the amount of money this type of fund pays out over time..


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## Just a Guy (Mar 27, 2012)

You have to look at how they pay for the dividend, and if it's a real dividend. 

Many companies, because of the low interest rate, are borrowing money to fund their dividends...not only is this not sustainable, but it could come back to bite them in the long run. Paying out large dividends also means that companies don't have a lot of cash to invest in themselves...if they want to expand, or acquire, they need to issue shares and dilute the stock.

As for the second part, not all payouts are "dividends". You have to look at the structure of the payout. A lot of former income trusts return capital in a variety of forms which are taxed differently.

A final thought, dividend investing has become the "hot stock" as it were...pushing up the price of the underlying stock. If there is a correction, and they cut the "dividend" you could be in for quite a loss. Not everything continues to go up.


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## gibor365 (Apr 1, 2011)

I'd think about dividend champion like AT&T , they increasing dividends every year by 1 cent and very likely will continue to do so....
If you invest $9950 (280 shares) , will DRIP and price won't change, in 20 years you will get $32,663


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## Eclectic12 (Oct 20, 2010)

Just a Guy said:


> ... As for the second part, not all payouts are "dividends".
> 
> You have to look at the structure of the payout. A lot of former income trusts return capital in a variety of forms which are taxed differently...


Good point ... though for some reason, people seem to grasp this for REITs but ignore that similar is generally true for ETFs or some MFs.

If for no other reason than determining how much bookkeeping as well as types of taxes to be paid, IMO a starting point is to confirm what type(s) of taxable income is being paid.


Cheers


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## cannew (Jun 19, 2011)

Westerncanada said:


> CMF
> 
> I had a question regarding income investing around high yield dividend stocks. I would like to create a new portfolio of stricly income producing, monthly paying Dividend stocks and did some research and found 3 that I really want to get into.
> 
> My question, is why are more people not investing in $25-$30 stocks that pay $0.18 cents per share per month in dividends? This is a 5-6 percent return with proven, secure companies?


1. What's the big deal about monthly dividends? You will have many more good companies to choose from that pay quarterly.

2. 0.18 cents for $25-30 stocks would be 7.2% to 8.6% yield. Sustainable????

3. Are you talking buying a Fund or individual stocks?


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## Westerncanada (Nov 11, 2013)

cannew said:


> 1. What's the big deal about monthly dividends? You will have many more good companies to choose from that pay quarterly.
> 
> 2. 0.18 cents for $25-30 stocks would be 7.2% to 8.6% yield. Sustainable????
> 
> 3. Are you talking buying a Fund or individual stocks?


First off.. thank all of you for the replies.. as of now these sit in my tfsa and are under limit still (23k currently) so not too concerned about taxation. 

1.) Nothing special about monthly other then seeing it come in on a regular basis vs once per quarter. 

2.) Not sure how sustainable it is long term.

3.) I am talking about these three specifically : 

Dream Office Reit: tsx 

Rio can Reit : tsx

Boston Pizza income fund tsx 

All three have strong dividend payment as well as low to mid risk levels. 


Thoughts ?


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## HaroldCrump (Jun 10, 2009)

@Westerncanada, two of those are REITs and the third is a weirdly structured partnership holding a royalty corporation paying out almost all of its earnings.
Secondly, they are not dividend paying companies.
The REITs probably pay a combination of ROC, interest income, and ineligible distributions, and I don't believe the BP distribution is a dividend either.

Are you planning to do this in a taxable or registered account?

Thirdly, I wouldn't call any of them low risk. 
Rio Can is probably the lowest risk among the 3, but it is subject to interest rate (i.e. Q/E taper) risk.
Dundee REIT is particularly fraught with risk at this time because of a glut in the rental office space market, esp. out west where most of its holdings are.

Lastly, monthly payouts are a gimmick left-over from the income trust days (i.e. pre-2006), when many non-pensioned retirees invested 100% of their retirement funds in these types of investments to get "monthly income".
Please do not select investments based on the frequency of their payouts, or even the payout yield.


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## My Own Advisor (Sep 24, 2012)

@Westerncanada, Harold has a great point - be careful what accounts you hold these guys in.

I think the RRSP and TFSA are best for REITs.

As for the investments themselves, big fan of REI.UN and an owner of D.UN as well. As for Boston Pizza, somehow this place makes money. I never eat there and I wouldn't invest in the restaurant industry in Canada, that's just me, since that's the first place people start cutting back.


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## Eder (Feb 16, 2011)

A lot of risk....I doubt any 1 of those equities should exceed 5 percent of your investment.


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## cannew (Jun 19, 2011)

The title of your thread is "Dividend Strategy over 30 Year Plan". The problem is you are reaching for Yield, which is not a strategy I'd wish to follow for thirty years. 

I'd change your title to "Dividend GROWTH Strategy over 30 Year Plan" and stick with large, stable, non-cyclical, companies with a history of paying dividends and growing them. Here's what The Connolly Report says in his 4th Qtr Summary: 

http://www.dividendgrowth.ca/dividendgrowth/third_quarter_2014


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> @Westerncanada, two of those are REITs and the third is a weirdly structured partnership holding a royalty corporation paying out almost all of its earnings.
> 
> Secondly, they are not dividend paying companies.
> 
> The REITs probably pay a combination of ROC, interest income, and ineligible distributions, and I don't believe the BP distribution is a dividend either.


BP is definitely odd as it has maintained the trust structure, paying the extra taxes.

On the other hand, the FAQ states "Starting with the 2011 taxation year, the taxable component of distributions to unitholders are classified as eligible dividends from a taxable Canadian corporation." 
For 2013, this means 6.27% RoC and 93.73% eligible dividends.

http://www.bpincomefund.com/en/faq.aspx#anchor4


For the regular RioCan units - the last eligible dividends paid was in 2001. 
2013 wasn't a particularly tax friendly year with 61% as other income, 30% capital gains, 7% foreign income and less than 1% RoC.
http://investor.riocan.com/Investor-Relations/distribution-info/Income-Tax-Information/default.aspx

Dream is definitely a mix that includes RoC ... but the web site does not seem to be providing a handy chart, like the other two.


Cheers


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## gibor365 (Apr 1, 2011)

_I wouldn't invest in the restaurant industry in Canada, that's just me, since that's the first place people start cutting back. _ Not sure you are right  Boston Pizza is very cheap place (kinda MCD with beer ) ... imo , in the first place people will be cutting on expensive trips abroad..
Regarding stocks OP mentioned...there are nothing wrong with them (I hold personally 2 out of 3), but you need to hold it in RRSP/LIRA/TFSA and by no means they should be your portfolio core holdings (I hold them just to boost a little average yield).
Also, for 30 years portfolio , you will be better to hold stocks that constantly increase dividends ex. any of 6 big Canadian banks, 1 of 3 big telcos or even utility like FTS or EMA....
I just entered into spreadsheet stock A with yield 7% , but no div increases and stock B with yield 4% and 6% div increases. If you DRIP both , stock B after 10 years will overpass yield of stock A and in 30 years yield (on prurchase) of stock B will be 3 times higher than of stock A


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## HaroldCrump (Jun 10, 2009)

Eclectic12 said:


> BP is definitely odd as it has maintained the trust structure, paying the extra taxes.


I didn't mean just the income trust taxation structure.
The whole enterprise structure is complex (IMHO).

It seems it has been set up to protect the ownership of the founders and ensure they benefit from all the cap appreciation, not the unit holders.
IMHO, this structure severely limits any capital appreciation.


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## My Own Advisor (Sep 24, 2012)

True gibor, people cut back on travel, then Boston Pizza!

I also hold REITs and trusts in registered accounts, I hate the tax mess in non-registered accounts.

Also, for 30 years portfolio, and I agree - "you will be better to hold stocks that constantly increase dividends ex. any of 6 big Canadian banks, 1 of 3 big telcos or even utility like FTS or EMA...."

I own all of those (all major banks, all major telcos, and a handful of utilities) for exactly that reason.


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## gibor365 (Apr 1, 2011)

My Own Advisor said:


> I own all of those (all major banks, all major telcos, and a handful of utilities) for exactly that reason.


Me 2 also I own RCI.B and you (as far as I remember) Telus


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## Tawcan (Aug 3, 2012)

If you're planning to hold for 30 years I'd get stocks that are on the dividend aristocrats list. Try to DRIP these positions as much as possible.

I'm with Mark, hold REITs and income trusts in registered accounts to avoid tax mess.


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## gibor365 (Apr 1, 2011)

Tawcan said:


> If you're planning to hold for 30 years I'd get stocks that are on the dividend aristocrats list. Try to DRIP these positions as much as possible.
> 
> I'm with Mark, hold REITs and income trusts in registered accounts to avoid tax mess.


I understand that OP wants TSX stocks and only aristocrat there is FTS


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> I didn't mean just the income trust taxation structure.
> The whole enterprise structure is complex (IMHO).


Just on the income paid it's odd as most others I can recall have at least three types of income where they have only two (RoC & eligible dividends). Then too, a trust with a high amount of eligible dividends is also uncommon. Most I can recall that are in this sort of territory converted to corps so that the RoC part was dropped.




HaroldCrump said:


> It seems it has been set up to protect the ownership of the founders and ensure they benefit from all the cap appreciation, not the unit holders.


If the aim was for "all", they slipped up :biggrin: ... I'm currently at something around a $7 capital gain.


Cheers


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## HaroldCrump (Jun 10, 2009)

Eclectic12 said:


> If the aim was for "all", they slipped up ... I'm currently at something around a $7 capital gain.


For you to have a $7 nominal capital gain, you'd have bought around the $13 level, which hasn't been seen since the 2011 European/US debt crisis.
That was admittedly a good time to buy most stocks, esp. over the summer months.

A lot of that is yield compression...since 2010 most yield stocks have experienced outsized capital gains.
You picked a good entry point - congrats !

The structure of the organization, coupled with the fact that they have never raised their distributions above the 2008 levels despite organic growth has kept me out of this name.


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## Westerncanada (Nov 11, 2013)

HaroldCrump said:


> @Westerncanada, two of those are REITs and the third is a weirdly structured partnership holding a royalty corporation paying out almost all of its earnings.
> Secondly, they are not dividend paying companies.
> The REITs probably pay a combination of ROC, interest income, and ineligible distributions, and I don't believe the BP distribution is a dividend either.
> 
> ...


I will have to do some more research on what ROC, Interest Income and ineligible distributions are because as I understood the financials it stated it would be paid back in shares via the DRIP.

I was planning on using a registered TFSA Web Broker Account.. 


How do you evaluate dividend stocks if Yields/Payouts are not a factor? 

Thank you again for the reply.


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## Eclectic12 (Oct 20, 2010)

Westerncanada said:


> I will have to do some more research on what ROC, Interest Income and ineligible distributions are because as I understood the financials it stated it would be paid back in shares via the DRIP.


RoC, Interest/Other/Foreign income, eligible dividends, capital gains or non-eligible dividends are types of income. The only connection with shares bought via a DRIP is that it's the income type that gave the cash paid. The DRIP is taking the cash paid to buy more units/shares without a commission.

Here's a link written for trusts ... but the same applies to an ETF or any other investment that pays a mix of income types.
http://www.taxtips.ca/personaltax/investing/taxtreatment/incometrusts.htm


In a taxable account, knowing the income types is important for a couple of reasons. 

The first is that different income types can dramatically change the after-tax return. To use an extreme example to illustrate for an Ontario resident using the 2013 tax rates - who is making $45K before investment income. Let's say the investment pays $100. If the full $100 is "other income", the tax due is charged at 31.15%. If it's fully RoC that is reducing the ACB, there is no tax due.
http://www.taxtips.ca/priortaxrates/tax-rates-2012-2013/on.htm

The second is that some types of income are simple, with no bookkeeping required. For example, eligible dividends are reported by the broker on a T5 slip, the investor enters the numbers onto their tax return and the tax return calculates the taxes. RoC on the other hand, figuring out the amount then recalculating the ACB and if the ACB is negative, recording the RoC payment amount as a capital gain.




Westerncanada said:


> I was planning on using a registered TFSA Web Broker Account..


This takes care of the tax aspect ... with the one exception that US dividend paying stocks are still subject to the US gov't 15% withholding tax (RRSPs waive this tax). [So it's usually good to avoid US dividend paying stocks in a TFSA.]

It is still useful to know that the income type is. For example, a low income earner is better to put a GIC in a TFSA rather than a stock paying an eligible dividend. Putting the GIC in the TFSA avoids a 20% tax bill. Putting the stock in removes the 1.89% tax refund they would have made, in addition to the dividend paid.




Westerncanada said:


> How do you evaluate dividend stocks if Yields/Payouts are not a factor?


I believe the point is to go deeper than only the yield/payout. 

If the investor is not tracking that the investment is paying RoC, how will they apply the risk factors mentioned in this link? 
http://howtoinvestonline.blogspot.ca/2010/07/return-of-capital-separating-good-from.html

Or from a more practical point of view - some will choose to put investments that regularly pay RoC into their TFSA to avoid the bookkeeping having the same investment in a taxable account requires. Then too, as I discovered - finding out about the RoC bookkeeping after the company has been bought out twice and the RoC numbers are no longer readily available is to a big headache in a taxable account.


Cheers

*PS*

If you are not familiar with these income types, I'd suggest borrowing a book from the library on either taxation or investing as they tend to have a chapter or two on the subject.


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> ... You picked a good entry point - congrats !


Thanks




HaroldCrump said:


> ... , coupled with the fact that they have never raised their distributions above the 2008 levels despite organic growth has kept me out of this name.


On the other hand, since Sept 2005, it's been a steady progression of distribution increases. The one drop was when the SIFT taxes kicked started in Jan 2011, where the new taxes cut the amount received.

The next distribution increase was implemented seven months later.


Cheers


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## Westerncanada (Nov 11, 2013)

Mark .. where is the list of dividend aristocrats?


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## banjopete (Feb 4, 2014)

Lists for dividend aristocrats for the US and for Canada are fairly easy to come by with a quick internet search. Good luck with your plans, there are lots of great blogs that discuss this at length (dividend strategies that is) and some are even hosted by people that have already replied to your thread......


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## My Own Advisor (Sep 24, 2012)

http://ca.spindices.com/indices/strategy/sp-high-yield-dividend-aristocrats-index

Links to US and CDN aristocrats.

I'd be careful with owning some in the CDN list, especially AGF.

CU, FTS, BNS, T and a few others, they are dividend studs.


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