Dividend FAQ

Lately I have been getting quite a number of emails from readers (keep them coming, I love to hear from you!). Many of these emails contained a common theme – how do I get started with dividend investing, what are some of my best tips, and etc. So I have decided to put together a dividend FAQ to summarize some of the common questions I have received so far.

 

Q1. I want to start investing in dividend stocks. How do I get starts?

A1: You can take a look at this guide on how to start investing in dividend stocks. Here I explained a few scenarios on how to get started.

 

Q2. I feel that the stock market is overvalued. Should I sell now, take in some profit, and buy in later?

A2: Perhaps this post on should I sell some stocks now and wait for market correction will help you making a decision. Essentially I don’t believe in market timing. I believe in valued investing and investing for the long term. Generally speaking, stocks have a tendency to increase their prices over long term, so if you keep invested, you should do OK in the long run. The key is not timing the market but time in the market.

 

Q3: Can you explain how to be tax efficient as a Canadian dividend stock investor? Do you have any tips for Canadian investors?

A3: Sure, take a look at my dividend approach on how we are trying to be as tax efficient as possible. We avoid any dividend withholding taxes by investing US listed dividend stocks in our RRSP. Here are a few tips for Canadian investors.

 

Q4: I want to create an excel sheet to track my portfolio. How do I do that?

A4: Here’s a step-by-step guide on how to create a dividend portfolio spreadsheet. If you are doing index investing you might want to take a look at the ETF spreadsheet guide.

 

Q5: How did you get started with dividend investing?

A5: Surprisingly, I started with dividend investing by accident. One of the first stocks I purchased in 2007 happened to be a dividend paying stock, which I still hold it today, 10 years later. I have always thought dividend income was the nice gravy that you get for investing in a company. I didn’t start focusing on dividend growth investing until around 2010/2011.

 

Q6: Which discount broker do you recommend?

A6: We use Questrade and TD Waterhouse. I highly recommend Questrade, here’s why. If you want a referral code for Questrade, please contact me.  Alternatively you can use my QPass Key 335712213387087 when signing up.

 

Q7: How much is your portfolio that would product over $1,000 a month?

A7: I don’t disclose our portfolio value so feel free to take a wild guess. Having said that, it shouldn’t take a rocket scientist or a mathematician to guess our portfolio value. Just use a dividend yield and work backward. For example, a 3% dividend yield estimate would mean a portfolio valued at $400,000 ($1,000 x 12 / 0.03).

 

Q8: Should I invest in my RRSP or TFSA? People told me to only invest GIC and bond in my RRSP because later RRSP will be counted as income. What are your thoughts?

A8: I don’t know your situation but why not both? Every year my goal is to maximize both our RRSP and TFSA contribution rooms before I buy investments in regular accounts. It is true that withdraws from RRSP are counted as income so you don’t get dividend income tax benefits. However, would you rather go with a lousy 1-2% annual return for 30 years to save 5% of tax or would you rather go with an 8% annual return and pay the extra tax? For me I think latter makes more sense.

 

Q9: Why dividend investing instead of real estate? Doesn’t real estate provide a way better return on equity?

A9: We do own our house so we are already investing in real estate. We haven’t considered rental properties for various reasons; we didn’t want to deal with tenants and potential tenant issues. Here in British Columbia, the rental laws are set up to protect tenants. Landlords don’t get too much protections when you have bad tenants (our friends recently had to deal with some bad tenants and it was painful). We like to have the peace of mind you get with dividend investing.

 

Q10: Do you hold all of your REITs in TFSA? What about USD REITs?

A10: Yes we hold all of our Canadian REITs in TFSA to avoid painful tax calculations. We hold all USD REITs like Omega Healthcare in RRSP for the same reason.

 

Q11: Are the dividend stocks in your portfolio equally weighed over time? Or do you have a preferred weighting? Do you ever re-balance or sell some shares?

A11: I haven’t shared portfolio weighing info on the blog. Since we own all 6 Canadian big banks, we are slightly heavy in the financial sector. Ideally none of the sectors in our portfolio would weight more than 30% but that’s a work in progress. We do re-balance our portfolio regularly by buying shares in underweight sectors. For example, if our financial sector weighting is high, we would buy shares in another sector like utilities or consumer staples to re-balance the portfolio. I typically don’t sell shares unless the company fundamentals have changed significant since the purchase of the stock.

 

Q12: When share price increases, do you continue with DRIP or do you collect dividend in cash only?

A12: We are enrolled in DRIP whenever we are eligible. If the share price increases to a level where dividend collected isn’t large enough to buy a full share, we then fallback to collect dividend in cash. We would DRIP a full share again if the share price drops or when there is organic dividend payout growth.

 

Q13: Your dividend income amount seems to be roughly the same each month. Is this planned or by design?

A13: This happened by accident. A number of stocks that we own in our dividend portfolio pay out monthly dividends. Somehow, the quarterly payment stocks seemed to spread equally across the different months, resulting our monthly dividend income amount to be relatively the same every month.

 

Do you have any more questions you think I should add to the FAQ? Please comment below or contact me.

 

 

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14 Comments

  • Reply
    Physician on FIRE
    April 4, 2017 at 9:10 am

    Nice job taking tax considerations into account when planning asset Location (as opposed to Allocation). It’s obviously a bit different in the US, but the tax treatment of dividend paying stocks are one reason I tend to avoid them.

    Best,
    -PoF

    • Reply
      Tawcan
      April 4, 2017 at 6:05 pm

      Whether you are withdrawing from principal or utilizing dividend income, I think being as tax efficient in FI is extremely important. 🙂

  • Reply
    Divi Cents
    April 4, 2017 at 11:25 am

    Nice info Bob,

    As a fellow canuck I use Questrade and RBC. I have previously used Scotia-Itrade(E-Trade before) and TD waterhouse.

    I find Questrade to be the best overall and would use them exclusively if I didn’t have so much day to day stuff locked up in RBC.

    • Reply
      Tawcan
      April 4, 2017 at 6:05 pm

      I like Questrade a lot as well, they have improved the trading interfaces a lot too.

  • Reply
    Troy @ Market History
    April 4, 2017 at 1:33 pm

    Although I think the market is overvalued right now, we are nowhere near the end of this bull market. The U.S. economy is simply too strong (just look at the data), so there’s no way we’re going to dip into a recession right now.

    • Reply
      Tawcan
      April 4, 2017 at 6:08 pm

      It’s hard to say when the bull market will end. It could end tomorrow, it could end 5 years down the road. Either way if you’re investing for the long term it market timing shouldn’t be your focus.

  • Reply
    Mr. Tako
    April 4, 2017 at 1:43 pm

    I like the idea of the FAQ Tawcan! I often get a lot of similar questions, as our approach to investing is pretty similar.

    Thanks for posting!

    • Reply
      Tawcan
      April 4, 2017 at 6:08 pm

      Thanks Mr. Tako. Have been getting a lot of questions on dividend investing, hence I think this FAQ would be helpful.

  • Reply
    Paul
    April 4, 2017 at 2:49 pm

    HI Bob, nice update. Have you ever read “Learn to Earn” by Peter Lynch. Its an older book published in 1995 but it is still a good read. In regards to the question about the market being high and trying to time sales and purchases there was a good part in the book that talked about this. I had to go back and find what I was looking for but he states that from 1970 until 1995 if you were to invest the same amount of money each year and you happened to buy at the top of the market every year then your return over that period would have been 8.5%, however if you would have been able to buy each year at the bottom of the market your return would have been 10.1%. So you would have made a little more but would the risk of trying to time the market would the difference be worth the risk? His premise is it is better to buy high quality and ride out the market ups and downs as good quality companies tend to perform better in the long run.

    • Reply
      Tawcan
      April 4, 2017 at 6:11 pm

      Hi Paul,

      I have read a few books by Peter Lynch but I haven’t read “Learn to Earn” yet but I have heard similar analysis about buying on the top vs. buying on the bottom. Makes a lot of sense in terms of risk and reward. Buying high quality for the long term is the important thing. I’ll have to read that book. 🙂

  • Reply
    Dividends Down Under
    April 6, 2017 at 11:15 pm

    Great FAQ Bob, I agree with all the good points you make 🙂 It’s great to hear that so many people are interested!

    Tristan

  • Reply
    Eric Escobar
    April 12, 2017 at 6:00 am

    Hey Bob,
    Thanks for the FAQ.
    One question I had is whether you have compared your portfolio to a benchmark. How does it perform with respect to yields and growth with VDY for example. Maybe an easy way for people who want to do dividend investing to get started is to simply buy VDY. What do you think?

    • Reply
      Tawcan
      April 12, 2017 at 11:11 am

      Good question will have to look into that and possibly write a post on it later.

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