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 to 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. How to get started with dividend investing?
A1: You can take a look at this guide on how to get started with dividend investing. 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.
Given that the bull market has lasted the last 10 years, here’s what I think about starting with stock investment today.
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: Do you have top picks for Canadian dividend stocks and Canadian dividend ETFs?
A5: Sue thing. Here’s my top 13 picks for Canadian dividend stocks. In case you’re wondering, here are my top picks for Canadian dividend ETFs and here are my top picks for US dividend ETFs. I also put together the best Canadian monthly dividend stocks for those investors looking for monthly dividends.
You might also want to check out the best Canadian utility stocks while you’re at it.
Q6: Should I invest in US dividend stocks or US dividend ETFs?
A6: For diversification purposes, I think you should definitely invest in US dividend stocks if you’re comfortable holding individual stocks. Check out the best US dividend stocks for a list of stocks you might want to consider.
If you want to be as passive as possible, holding one of the best US dividend ETFs might be a good idea.
When it comes to investing in non-Canadian dividend stocks, you need to consider the dividend tax drags. Check out how foreign withholding taxes work for non-Canadian dividend stocks.
Q7: How did you get started with dividend investing?
A7: 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.
Q8: Which discount broker do you recommend?
A8: We use Questrade, Wealthsimple Trade, and TD Waterhouse. For the most part, I’d recommend Questrade, here’s why. You can use my Questrade referral code. Alternatively, you can use my QPass Key 335712213387087 when signing up.
Now if you are planning to contribute small amount of money (<$500) and want to purchase a small amount of shares each time, WealthSimple Trade might be a good option for you. You can use my WealthSimple Trade referral code here.
In addition to Questrade, National Bank Direct Brokerage offers free commission trading so you may also want to check them out.
Q9: How much is your portfolio that would produce over $1,000 a month?
A9: 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).
Q10: 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?
A10: 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.
Q11: I maxed out my TFSA and RRSP, where should I invest now?
A11: First of all, congrats on max out your TFSA and RRSP. Once you have maxed out both of these tax advantage accounts, you should invest in taxable accounts. Take a look at my comprehensive guide here.
Q12: Why dividend investing instead of real estate? Doesn’t real estate provide a way better return on equity?
A12: 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 protection 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.
Q13: What’s the best way to analyze a dividend-paying stock?
A13: For me, before doing a deep dive of a stock I am interested in, I would take a quick look at some of the key financial numbers like P/E ratio, payout ratio, PEG ratio, free cash flow, debt to book ratio, etc. These numbers typically give me a good idea of how the company is doing. The next step, which can take a bit more time, is to read the company’s annual and quarterly reports and determine the financial trend of the company. It is also interesting to read the CEO message and see if the narratives change over time.
Q14: Do you hold all of your REITs in TFSA? What about USD REITs?
A14: 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. Check out the Best Canadian REITs here.
A15: 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 significantly since the purchase of the stock.
A16: We enroll 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.
Q17: Do you have any recommendations on which Canadian dividend stocks I should consider?
A17: Definitely! You can take a look at my 12 picks for the best Canadian dividend stocks.
In case you want to build a portfolio that pays consistent dividends each month, you may want to check out this Canadian Dividend Calendar I put together.
Q18: What are some dividend investing resources that you use?
A18: Here are a few sites that I use for dividend investing:
- DRIP Investing – – excellent website for DRIP investors. You can get an extended list of US and Canadian dividend champions/all stars.
- Morningstar – a great website for getting stock evaluation information.
- http://longrundata.com/ – an excellent website for doing research on dividend growth history. I also like using its Dividend Reinvestment Calculator to reinforce the idea that DRIP is very powerful in the long run.
Q19: Should I invest in Canadian Depositary Receipts (CDRs)?
A19: That totally depends on your approach with currency exchange. I examined Canadian Depositary Receipts and answered if I would invest in them.
Do you have any more questions you think I should add to the FAQ? Please comment below or contact me.
22 thoughts on “Dividend FAQ”
If I will purchase a stick with 3% dividend yeild and hold it for 5 or 6 years then can I get dividend every time? Or do I neet to sell or bye as per the ex-dividend date every time?
Yes, you get dividends whenever there’s a payment, as long as you hold the stock.
Since you live in Canada… what do you think about Smith maneuver strategy? Did/do you use it?
No we don’t use it but you can read about it here – https://www.tawcan.com/the-smith-manoeuvre/
I understand that WealthSimple Trade offers commission-free ETF and Stock trading. I assume this is now a better place to setup a dividend stock portfolio than Questrade? Or does Questrade still have some other advantages?
You can’t go wrong with either one of them. Questrade still has some advantages over WealthSimple Trade. I’m working on a comparison article.
If you plan to regularly contribute small amount of money and buy a few shares of stocks, then WealthSimple Trade might be a good broker for you.
HI Tawcan, Quick question, I have investments in RRSP, LIRA and RESP. My understanding is that since these are all registered accounts, I wont have any tax implications every year on the dividends earned. I will only be taxed on the withdrawals (When they happen from the RRSP, LIRA accounts). Could you confirm. I hold REITs, ETFs (Split across my RESP, RRSP and LIRA) accounts.
BTW, I use Questrade and love them
That’s correct the tax implications are on withdrawals. If you hold non Canadian dividend paying stocks in TFSA you’ll get hit by the 15% withholding tax.
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?
Good question will have to look into that and possibly write a post on it later.
Great FAQ Bob, I agree with all the good points you make 🙂 It’s great to hear that so many people are interested!
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.
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. 🙂
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!
Thanks Mr. Tako. Have been getting a lot of questions on dividend investing, hence I think this FAQ would be helpful.
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.
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.
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.
I like Questrade a lot as well, they have improved the trading interfaces a lot too.
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.
Whether you are withdrawing from principal or utilizing dividend income, I think being as tax efficient in FI is extremely important. 🙂