# Are dividend stocks in a bubble?



## lonewolf (Jun 12, 2012)

Is there a bubble in buying yield accross the board from buying bonds to buying stocks ?

A dividend stock bubble might be a tricky monster to spot near historic bottoms dividends are high & investors buy stocks for dividends. @ historic tops investors are in a speculative frenzy & focus more on capital gains. If everything that trades can form a bubble would that not also include dividends?

So much talk on this forum about dividend stocks has made me wonder of a possible bubble in dividend ?


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## dogcom (May 23, 2009)

Everybody is chasing yield from bonds, dividend stock to junk and yes it seems on this forum as well. Of course this can go on for some time so shorting is usually not a good idea. The Fed it seems is also heavily involved here so this can extend the irrational exuberance for a long time. I personally think the markets are very scary right now across the board and this goes for both the bears and the bulls. For the bears of course the manipulation and money printing is a minefield.


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## doctrine (Sep 30, 2011)

Some are. It's important to look at valuation to get perspective. If a stock is trading at a P/E of 25, there needs to be some growth or you will have only a very small chance of good returns. A stock that is below a P/E of 15 is usually at a reasonable value. Of course, there are a lot of other factors, but my point is valuation always matters. And it can help you spot a bubble.

So, yes, some dividend stocks are trading at very high 20-30 multiples. Some, though, are trading at much lower multiples, 10-15. Those are not as overvalued and while any stock can fall, the fall will be less if your purchase price is less.


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## fatcat (Nov 11, 2009)

here are some with market cap greater than 5B and PE less than 12



SymbolNameP/E (TTM)Market CapitalizationFFHFairfax Financial Holdings Ltd5.34$7,571,000,000.00FMFirst Quantum Minerals Ltd5.67$9,535,730,000.00TCK.ATeck Resources Ltd7.58$20,175,700,000.00BPOBrookfield Office Properties Inc7.09$8,524,710,000.00REI.UNRioCan Real Estate Investment Units7.10$8,196,730,000.00ABXBarrick Gold Corp9.31$31,855,300,000.00NANational Bank of Canada8.45$12,724,700,000.00IMOImperial Oil Ltd9.80$35,929,800,000.00BMOBank of Montreal10.22$40,744,500,000.00MGMagna International Inc9.12$12,687,600,000.00BBD.BBombardier Inc8.12$7,042,510,000.00SUSuncor Energy Inc10.46$48,357,100,000.00BBD.ABombardier Inc8.20$7,094,420,000.00CMCanadian Imperial Bank of Commerce10.69$33,702,800,000.00BNSBank of Nova Scotia11.03$69,313,800,000.00PWFPower Financial Corp10.96$20,565,400,000.00POWPower Corporation of Canada11.61$12,332,600,000.00PREPacific Rubiales Energy Corp11.20$7,200,700,000.00CTC.ACanadian Tire Corporation Ltd11.19$5,559,350,000.00


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## gibor365 (Apr 1, 2011)

If you go to David Fish's CCC list (dripinvesting.org) you will find many stocks that increase dividends for many years and have P/E less than 12.... RTN and LMT just 2 examples


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## james4beach (Nov 15, 2012)

I'd like some forum feedback on this. We keep hearing that dividend stocks are pretty safe because the companies tend to be more reliable etc, but I pulled up stockcharts.com and looked at 2007-01-01 through 2010-01-01, which spans a significant period before the financial crisis through to recovery. Stockcharts includes dividends and shows total return.

XIU fell -35%
CDZ fell -40%
XDV fell -45%

So this looks like the dividend stocks did worse in the rough patch. Doesn't this dispute the conventional wisdom of dividend stocks for safety? Even in total return, the XIU did better


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## 1.5M (Apr 21, 2012)

james4beach said:


> I'd like some forum feedback on this. We keep hearing that dividend stocks are pretty safe because the companies tend to be more reliable etc, but I pulled up stockcharts.com and looked at 2007-01-01 through 2010-01-01, which spans a significant period before the financial crisis through to recovery. Stockcharts includes dividends and shows total return.
> 
> XIU fell -35%
> CDZ fell -40%
> ...


Form Jan 1, 2007 to today, XIU.TO is flat, CDZ is up 12% and the yield of CDZ is currently 3.23% while that of XIU is 2.69%. So it depends on the period you are checking. Most intervals (like 2008-2011, 2010-2012, etc.) CDZ beats XIU. 
If I'd go long today one of these two, I'd pick CDZ.


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## fatcat (Nov 11, 2009)

james4beach said:


> I'd like some forum feedback on this. We keep hearing that dividend stocks are pretty safe because the companies tend to be more reliable etc, but I pulled up stockcharts.com and looked at 2007-01-01 through 2010-01-01, which spans a significant period before the financial crisis through to recovery. Stockcharts includes dividends and shows total return.
> 
> XIU fell -35%
> CDZ fell -40%
> ...


XIU is a weird beast ... it seems to tell canada's story pretty well since it has so much energy and precious 

i don't think that anyone is saying dividend stocks are impervious to downturns especially one as big as 2008 which essentially tanked everything

it was a flight to cash so just about everything burned


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## My Own Advisor (Sep 24, 2012)

Apparently "experts" have been saying Canada is going to have a housing bubble as well....I'll believe it when I see it...

XIU is a great product, not necessarily a weird one.


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## none (Jan 15, 2013)

My Own Advisor said:


> Apparently "experts" have been saying Canada is going to have a housing bubble as well....I'll believe it when I see it...
> 
> XIU is a great product, not necessarily a weird one.


Ack. I think your _cred_ just took a hit


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## Sampson (Apr 3, 2009)

james4beach said:


> XIU fell -35%
> CDZ fell -40%
> XDV fell -45%
> 
> So this looks like the dividend stocks did worse in the rough patch. Doesn't this dispute the conventional wisdom of dividend stocks for safety? Even in total return, the XIU did better


This is an easy one to explain away, very easy.

We went through a bank crisis, look at the composition of the Canadian dividend funds.


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## james4beach (Nov 15, 2012)

Ah good point, dividend funds love financials.

I wonder if the best strategy then would be to find a dividend ETF that has the broadest sector diversification. CDZ looking the best in that respect? Too bad about the 0.67% MER.. that's extraordinarily high.


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## fatcat (Nov 11, 2009)

james4beach said:


> Ah good point, dividend funds love financials.
> 
> I wonder if the best strategy then would be to find a dividend ETF that has the broadest sector diversification. CDZ looking the best in that respect? Too bad about the 0.67% MER.. that's extraordinarily high.


i think it's too high and am planning to sell ... it has good sector distribution when you consider that so many of have financials and energy stocks directly or via etf ... if you want a dividend fund this is the only one that doesn't give you a huge helping of the usual suspects in financials and energy ... but the mer is too high


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## Squash500 (May 16, 2009)

fatcat said:


> i think it's too high and am planning to sell ... it has good sector distribution when you consider that so many of have financials and energy stocks directly or via etf ... if you want a dividend fund this is the only one that doesn't give you a huge helping of the usual suspects in financials and energy ... but the mer is too high


I guess you can say the MER of the CDZ is too high....but IMHO it's still way cheaper to buy the CDZ then to hire a financial advisor or to buy a dividend mutual fund in a discount brokerage on your own etc.


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## gibor365 (Apr 1, 2011)

Squash500 said:


> I guess you can say the MER of the CDZ is too high....but IMHO it's still way cheaper to buy the CDZ then to hire a financial advisor or to buy a dividend mutual fund in a discount brokerage on your own etc.


lIf it's for a long term and you have reasonable amount of money, it will be cheaper to buy from CDZ holdings best individual stocks, or let's say stocks that have sustainable payout ratio (for ex. less than 70%), not too expensive P/E (ex. less than 18) and never cut dividends and have yield at least 3%... from CDZ 62 holdings, you may be will find 10 stocks like those


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## doctrine (Sep 30, 2011)

Dividend paying stocks won't protect you in a downturn, if you're concerned about the short term value of your investments. In fact, it's unlikely any stock will. And it's impossible to predict which sector will be hit the hardest. But prices will return. They always do. The economy keeps moving, people need food, houses, shopping, loans, you name it. Meanwhile if you're sitting around for 5 years, it's nice to collect 4-5% a year in dividends.


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## Squash500 (May 16, 2009)

gibor said:


> lIf it's for a long term and you have reasonable amount of money, it will be cheaper to buy from CDZ holdings best individual stocks, or let's say stocks that have sustainable payout ratio (for ex. less than 70%), not too expensive P/E (ex. less than 18) and never cut dividends and have yield at least 3%... from CDZ 62 holdings, you may be will find 10 stocks like those


Excellent point gibor. I would rather just put 40-50k in the CDZ and hold on for the long term. Rather than put 10k into 5 individual dividend stocks etc. My total net worth is approx mid six figures so IMHO I don't really have enough money to properly diversify into enough individual stocks etc to be properly diversified.

I live a very frugal lifestyle....I have no kids, no car and no debt ....so as a result I decided to semi-retire eventhough I'm only in my very early 50's. I also like the fact that ETFS don't fluctuate in price per day as much as individual stocks do....that means that I'm less likely to sell ETFS in a downturn then I would be if I owned individual stocks.


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## fatcat (Nov 11, 2009)

squash, i think gibor was saying the opposite, i agree with him, why pay out .60 especially if you are planning to put 40-50K long term ?
here are a selection from the major sectors from CDZ
why not just spread your 40-50K among these and own them directly ?

SHAW COMMUNICATIONS INC. Consumer Discretionary
CORUS ENTERTAINMENT INC. Consumer Discretionary
SHOPPERS DRUG MART CORP Consumer Staples
TRANSCANADA CORPORATION Energy
SUNCOR ENERGY INC. Energy
BANK OF NOVA SCOTIA Financials
TORONTO-DOMINION BANK/THE	Financials
CANADIAN NATIONAL RAILWAY COMPANY	Industrials
ROGERS COMMUNICATIONS INC. Telecommunication Services
TELUS CORP. Telecommunication Services


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## My Own Advisor (Sep 24, 2012)

I'm with you fatcat!


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## My Own Advisor (Sep 24, 2012)

none said:


> Ack. I think your _cred_ just took a hit


Nah, no big cred here anyhow!


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## liquidfinance (Jan 28, 2011)

I can see the logic in what Squash is saying as it may suit him to hold the ETF even paying the fee. If it's a long term hold then that's still 10 stocks that you need to follow and read the reports of and make sure that everything is ok. 

With the ETF you can essentially buy and forget as long as the investment criteria of the fund meets your needs.

Even though the risks could be the same regardless. We all know how much the markets crashed before and not many things escaped it. But the psychology of the etf over the 10 individual holdings could enable a conservative investor to sleep a lot more comfortable at night.


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## Squash500 (May 16, 2009)

liquidfinance said:


> I can see the logic in what Squash is saying as it may suit him to hold the ETF even paying the fee. If it's a long term hold then that's still 10 stocks that you need to follow and read the reports of and make sure that everything is ok.
> 
> With the ETF you can essentially buy and forget as long as the investment criteria of the fund meets your needs.
> 
> Even though the risks could be the same regardless. We all know how much the markets crashed before and not many things escaped it. But the psychology of the etf over the 10 individual holdings could enable a conservative investor to sleep a lot more comfortable at night.


Thanks LF. I could be totally wrong ....but here's how I look at things. By owning such ETFS as the CDZ, XDV, XTR, CPD, XRE, and XFN....IMHO I will never have to pay a financial advisor any fees for the rest of my life and I'm only 51 years old--LOL. I also don't believe in buying any ETFS outside of Canada. I also have a very low job income....so my accountant told me that I'm much better off to buy ETFS such as CPD and XDV etc for my non-registered account to take advantage of the canadian dividend tax credit.

I also live in a small bachelor apartment in a big ontario city and I hate travelling. Therefore my mid six figure net worth could last me for the rest of my life as long as I remain frugal and keep out of debt. also I don't have to worry about leaving an estate to any dependents etc. That's why it doesn't bother me to pay the mers on the ETFS that I purchase.

As LF correctly stated....that means that I don't have to kill myself pouring over all these individual stock companies financial reports---LOL.


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## fatcat (Nov 11, 2009)

i respect squash's opinion, it is a _set-and-forget_ kind of purchase
however if you go to google finance and compare XIU and CDZ, you will see that they move in strong correlation, they are virtually the same line

so, if you really want a set-it-and-forget-it purchase
why not buy XIU and pay .17 MER instead of .60 ?

this is one of all time favorite articles, this fellow picked seven stocks for a long term hold: http://www.theglobeandmail.com/glob...ly-simple-must-have-portfolio/article4391968/

if you have a long time horizon and if you buy category killing high cap companies and you are prepared to be patient, you can do just fine with a pure equities portfolio ... it is a myth that you constantly have to pore over financial reports

canada has a limited number of companies that fall into the category of _long-term-hold-great-company_

just read the globe and mail regularly and you will be able to manage your portfolio just fine


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## Squash500 (May 16, 2009)

fatcat said:


> i respect squash's opinion, it is a _set-and-forget_ kind of purchase
> however if you go to google finance and compare XIU and CDZ, you will see that they move in strong correlation, they are virtually the same line
> 
> so, if you really want a set-it-and-forget-it purchase
> why not buy XIU and pay .17 MER instead of .60 ?


FC I'm really nervous about buying the XIU right now because of the fact that the XIU holds stocks such as silver wheaton and barrick as part of it's 60 stock holdings. As everybody knows...gold and silver stocks have been tanking lately and this affects the value of the XIU in a negative way. I realize that the CDZ also holds barrick but IMHO the barrick percentage weighting is much lower in the CDZ than in the XIU.

Also the XIU contains too many resource stocks IMHO. I also like receiving income every month from the ETFS that I own. XIU only pays out every 3 months. With all that being said....I have owned the XIU in the past and I certainly might buy it again in the future.


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## My Own Advisor (Sep 24, 2012)

Don't get me wrong, I'm a fan of dividend paying stocks directly but XIU isn't such an odd ball. XIU in the short-term is volatile like any other ETF. Over 10-years, the returns have been great.

I would gladly take 9%+ return (before inflation) over the next decade.


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## Squash500 (May 16, 2009)

fatcat said:


> i respect squash's opinion, it is a _set-and-forget_ kind of purchase
> however if you go to google finance and compare XIU and CDZ, you will see that they move in strong correlation, they are virtually the same line
> 
> so, if you really want a set-it-and-forget-it purchase
> ...


FC thanks for posting that awesome globe and mail article. I'm going to read it very carefully. I like the way that investor decided to "think outside the box."


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## gibor365 (Apr 1, 2011)

Just take a look at 5 biggest holdings of CDZ! I'd like to have those stocks in my portfolio. imho Dividends are unsustainable and if 1 or 2 of those cut dividends, CDZ will cut it too.... Also I don't know why are not lloking at US stocks, there are much more diversification and great companies... and if you hold some royal blue chip like JNJ or PG.... if market going down you can drip more sares and those guys increasing dividends every year for 50+ years. Yes, it's better to hold then in RRSP/LIRA/RRIF. If you have size of portfolio you said, you can easily to have great selection of such stocks with yield about 4.5% and just live from dividends


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## doctrine (Sep 30, 2011)

I prefer growing income from increasing dividends, and CDZ has issues. Contrary to the big print, over half the holdings have not raised their dividend for 5 consecutive years. If you read the fine print, there are exceptions. And those exceptions have floated to the top. The biggest companies in Canada aren't going anywhere. May as well own them directly. If you can spend 10 minutes a day on CMF, you can spend an hour a week on your investments which could be key to an early retirement!


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## Squash500 (May 16, 2009)

gibor said:


> Just take a look at 5 biggest holdings of CDZ! I'd like to have those stocks in my portfolio. imho Dividends are unsustainable and if 1 or 2 of those cut dividends, CDZ will cut it too.... Also I don't know why are not lloking at US stocks, there are much more diversification and great companies... and if you hold some royal blue chip like JNJ or PG.... if market going down you can drip more sares and those guys increasing dividends every year for 50+ years. Yes, it's better to hold then in RRSP/LIRA/RRIF. If you have size of portfolio you said, you can easily to have great selection of such stocks with yield about 4.5% and just live from dividends


Gibor the problem is that I have such a low job income that's it really not worth it for me to invest in an RRSP anymore. I only have about 35K in my RRSP. The only reason that my net worth is mid six figures was through a will inheritance I received two years ago. I would never have been able to accumulate this kind of money on my own.

I've had job problems my whole life....but luckily for me I was always very frugal and never had any debt. I don't even have a credit card. Therefore IMHO to put blue chip US stocks in my non-registered account wouldn't be worth it as I couldn't take advantage of the canadian dividend tax credit.

At the present moment I'm not dripping any of my ETF shares as I'm living off the monthly income that these ETF shares produce. I'm still experimenting with my portfolio as I just received this will inheritance two years ago and for the first year I was just basically in GICS as I was still wondering if I could handle the inheritance on my own without using an advisor.

That's why I find all the suggestions that you guys have been giving me very helpful. Right now I'm just trying to live from the monthly payouts that these ETFS are producing and trying to preserve as much capital as I can.

Also I find Norbert's Gambit very confusing and I also hate having to keep checking how the US dollar is doing against the canadian dollar etc. I admit I'm a lazy investor in a lot of ways---LOL.


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## james4beach (Nov 15, 2012)

Squash500 said:


> FC I'm really nervous about buying the XIU right now because of the fact that the XIU holds stocks such as silver wheaton and barrick as part of it's 60 stock holdings. As everybody knows...gold and silver stocks have been tanking lately and this affects the value of the XIU in a negative way.


I've gotta say that I like XIU overall. The long term performance is excellent, so if you're after total return then XIU has a lot going for it. The low MER helps a lot.

The fact that metals & resource sectors are doing poorly makes me think it's actually better to buy XIU than CDZ (where everything is flying high). At least you're buying something at a depressed price, instead of at all time highs.

And the yield on XIU is 2.6% which is actually pretty good in historical terms. Consider for instance that even 5 year GICs at big banks pay only 2.25% and the 10 year bond is 2%


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## Squash500 (May 16, 2009)

james4beach said:


> I've gotta say that I like XIU overall. The long term performance is excellent, so if you're after total return then XIU has a lot going for it. The low MER helps a lot.
> 
> The fact that metals & resource sectors are doing poorly makes me think it's actually better to buy XIU than CDZ (where everything is flying high). At least you're buying something at a depressed price, instead of at all time highs.
> 
> And the yield on XIU is 2.6% which is actually pretty good in historical terms. Consider for instance that even 5 year GICs at big banks pay only 2.25% and the 10 year bond is 2%


Excellent point as usual James. I might in fact buy some XIU and sell something else.


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## gibor365 (Apr 1, 2011)

Squash500 said:


> Gibor the problem is that I have such a low job income that's it really not worth it for me to invest in an RRSP anymore. I only have about 35K in my RRSP.


OK, so you can have portfolio where you put those 35K solely into US high quality blue chips... in your TFSA you can have something like good quality Canadian REIT like REI, CUF , HR that yield about 6% and didn't reduce dividends even in 2008-09 and on in you cash account you can have or XIU together with some bonds ETF or solid Canadian blue - chips, like any of telecoms (BCE, RCI.B, T) , couple of Canadian banks, couple of utilities (like FTS), some high-yield foos stocks SRV.UN, KEG.UN, PZA.UN, GH, forenergy exposure for example CPG yielding close to 7%. Thus you can easily create portfolio yielding even over 5% and live from dividends. 
Just my 2 cents....


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## gibor365 (Apr 1, 2011)

btw, nothing is confusing in Norbert gambit if you have RRSP in TDW. You need to call up front and ask for US$ automatic "wash". You just buy TD-T (or any of other 5 big banks) and sell right away . Next day all proceeds will be in US$ MM fund and you can buy any US stock without paying FX rate


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## james4beach (Nov 15, 2012)

Squash500 said:


> Excellent point as usual James. I might in fact buy some XIU and sell something else.


Then again Squash500, you are correct about the current weakness in the commodities sector. I wouldn't blame you for avoiding that sector in the short term... in fact among all the sectors I track globally as part of my technical analysis strategy, only one -- TSX materials/metals -- is flagged "bear".

In the longer term big picture view I still like XIU the best.


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## Squash500 (May 16, 2009)

gibor said:


> OK, so you can have portfolio where you put those 35K solely into US high quality blue chips... in your TFSA you can have something like good quality Canadian REIT like REI, CUF , HR that yield about 6% and didn't reduce dividends even in 2008-09 and on in you cash account you can have or XIU together with some bonds ETF or solid Canadian blue - chips, like any of telecoms (BCE, RCI.B, T) , couple of Canadian banks, couple of utilities (like FTS), some high-yield foos stocks SRV.UN, KEG.UN, PZA.UN, GH, forenergy exposure for example CPG yielding close to 7%. Thus you can easily create portfolio yielding even over 5% and live from dividends.
> Just my 2 cents....


Hi gibor...thanks for the great response. I really appreciate it. The problem is that my approx 35k rrsp is right now in a 5 year gic ladder which I started in 2009 when the interest rates were higher then they are now. In my TFSA (which is fully maximized) ....I just have the XTR in there and I'm dripping the XTR shares every month but just in my TFSA only. I also own some XTR in my non-registered account which I don't drip and just take the cash income each month.


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## gibor365 (Apr 1, 2011)

Squash500 said:


> . The problem is that my approx 35k rrsp is right now in a 5 year gic ladder which I started in 2009 when the interest rates were higher then they are now.


I see  But just imagine what would be your return if your 35K in 2009 you were invested instead into well known blue-chuips like MCD, PG, JNJ, KMB, KO/PEP


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## LOST (Aug 30, 2010)

I have often thought about going the etf route but I find I can do better with just a little bit of research. Right now my portfolio returns 6.65% with a 34 % capital gain ( just from last year ). My income is monthly and in stocks that I drip, i get a 10% discount. I have a RBC M/F that pays me 7% monthly that I would like to get rid of, but can't find a suitable replacement. The monthly income is nice but a little CG would be nice. I don't have a job as yet and am hoping to live of dividends for the rest of my life. I am a little young to retire at 55 but I have no kids, no credit card debt, buy everything cash. I personally recommend pipelines as a good monthly source of income/dividends with the prospects of dividends increasing over time. Pembina,Keyera, IPL,ALA, ENB are all good and will go up when the GIC'ers have to redeem and look for more return for their buck. I think their p/e ratios won't mean a thing 5 years from now. Sorry for the rant. Good luck portrfolio.


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## Nemo2 (Mar 1, 2012)

LOST said:


> I am a little young to retire at 55


I stopped working 24 years ago, at age 46....didn't think I was too young then...don't now.......


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## My Own Advisor (Sep 24, 2012)

I would love to retire at 55. That's the goal


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## gibor365 (Apr 1, 2011)

LOST said:


> My income is monthly and in stocks that I drip, i get a 10% discount..


How you get 10% DRIP discount , if no one gives more than 5% discount?
http://www.dripprimer.ca/canadiandriplist


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## LOST (Aug 30, 2010)

Sorry about the 10% figure, I was just approximating. I don't know how current your list is.My company is not even on there, but you are right. It probably is only 5%. Still happy with return. It probably has the discount because of its low liquidity. Thanks for the URL. It is good to be kept truthful as this is a resource that I believe in. I have gotten lots of good advice from here. As for retiring at 55, I don't know if it is possible. At a 2% inflation rate ( if it can be sustained ) your buying power doesn't seem to go very far. The other day I went to an Updated Mcdonalds and purchased 2 hot chocolates. It cost me $6 and they weren't even hot. Mcd's is even becoming too expensive. It seems like what I used to pay for with a fiver now takes $20.


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## LOST (Aug 30, 2010)

I just checked drip reinvestment. The drip repurchased @ 21.75 and the stock closed at 22.98 that day. It works out to about 5%. I'll take that any day, though 10% would be better.


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## gibor365 (Apr 1, 2011)

Don't you speak about CUF.UN?! I have very similar numbers in this DRIP...


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