Canadian dividend investing tips

Although we’ve been involved in dividend growth investing for a number of years, we are still learning. Mrs. T and I are always looking for ways to gain more knowledge on investment and personal finance topics. There are many ways to learn. Books and blogs are a great way to gain investment and PF knowledge. Finding like-minded people to have deep discussions is another great way to gain and share knowledge. Over the last few months some readers have asked us some questions on dividend growth investing. Here’s our version of a quick overview & tips on dividend investing with a Canadian perspective.

1. Good Dividend Books

Here are some books that are great to get you started on the dividend investing journey.

The Lazy Investor by Derek Foster
The Intelligent Investor by Benjamin Graham
The Single Best Investment: Creating Wealth with Dividend Growth by Lowell Miller

2. Dividend stock allocation

Maximize your tax sheltered accounts like RRSP and TFSA first. With the recent announcement of TFSA contribution limit increasing from $5,500 to $10,000, we believe TFSA is now THE tax-sheltered account to utilize for dividend stock investment.

Update: The $10k increase was a one time event. Regardless, I believe TFSA is a very powerful tax-sheltered account that everyone should utilize.

Hold Real Estate Income Trusts (REITs) and income trusts in TFSA. This is especially important if you’re enrolled in dividend reinvestment plans (DRIP) since calculating your cost basis with dividends from REITs and income trusts can be quite complicated. Although I’m a math nerd at heart, I like to keep my life as simple as possible when it comes to tax time.

Hold US dividend stocks in RRSP to avoid the 15% withholding tax. It is a good idea to use a broker that offers both Canadian and US RRSP, meaning your RRSP account will hold cash in both Canadian and US currencies. This way you will receive US dividend in US currency rather than having it converted back to Canadian currency. Having an RRSP account that allows you to hold dual currency will allow you to avoid having to constantly deal with currency conversion.

Hold Canadian dividend stocks from Canadian public corporations that pay eligible dividends in a regular (non-registered) account for the enhanced dividend tax credit. Eligible dividends get much more favourable treatment compared to active income. So when we get taxed on dividends, the actual tax amount will be relatively small.

3. Invest in Canadian brands that you know or use

This seems to be a common concept when it comes to investing in general but we think the concept is even more important when it comes to dividend investing. Invest in a brand that you know or use. For example we see Royal Bank and TD Bank branches everywhere and have experience banking with both of them. Their stocks both pay dividends, so it’s probably a good idea to spend some time to investigate whether it’s worthwhile to own these stocks or not.

Based on this logic, I have hand picked top 13 dividend paying stocks that I believe have great brand loyalty and have wide moats that allow to remain competitive for many years to come.

4. Enroll in dividend re-investment plan whenever possible

Become a good friend with Compound Interest. It’s one of the most powerful friend you can have in this world. When it comes to dividend investing, enroll in dividend reinvestment plan (DRIP) will allow you take advantage of the power of compound interest. There are two types of DRIPs – full/regular DRIP and synthetic DRIP. We are enrolled in regular DRIP for Baby T’s portfolio and synthetic DRIP for our dividend portfolio.

5. Use Online Tools for research

Here are some excellent websites that we use to for stock research purposes – excellent website for DRIP investors. You can get an extended list of US and Canadian dividend champions/all stars. – excellent website for doing research on dividend growth history. I also like using its Dividend Reinvestment Calculator to reenforce the idea that DRIP is very powerful in the long run. – a great website for getting stock evaluation information. – I use Yahoo Finance to find information like PEG ratio, return on equity (ROE), and other key company stats.
Graham Number Calculator – This is a neat calculator for finding the Graham Number for US stocks.

6. Have fun and Enjoy the journey

Don’t take dividend investment too seriously. Have some fun and enjoy the journey. Have some beer and watch a hockey game.  Enjoy the Canadian outdoor, whether it’s snowing or sunny outside. We live in one of the best countries in the world.

Do you have any tips or online tools that you’d like to share?

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23 thoughts on “Canadian dividend investing tips”

  1. Hi Bob
    Been reading you alot, because I need to redo my Non and RRSP accounts.
    I hold US in my RRSP and all I do to not have to worry about exchange rates is actually journal the shares from one exchange to the other. BMO.TO – BMO or vice versa

  2. Hey Bob,

    Excellent blog.

    We are new to the investment world and want some clarification regarding the investment allocation. Me and my wife are both self employed and have our own companies. I have set up my Non registered company investment account with TD. I want to invest 60 % in TD e series US index fund, 10 % in the Canadian bond fund and the balance 30 % in the top individual dividend paying Canadian stocks. I have two questions. Do you think this is the right allocation and secondly are there any implications of investing from the company NR account. Right now the only option i have is to invest from my NR company account. Thank you in advance.

    • Hi Vini,

      Without knowing what your age and risk level I can’t say if this is the right allocation. I’d need to know more about you and that’s needs more than just a simple comment & reply on the blog, unfortunately.

  3. I live in Canada. If I buy the Vanguard FTSE Canada High Dividend Yield Index ETF (share code=VDY) in both my TFSA and non-registered taxable accounts, will the dividends from this VDY index fund be eligible for the dividend tax credit? I believe up to $50,000 of Canadian company dividends can be tax free provided you don’t have an income, so if you are retired for example. Are Canadian company dividends from the VDY index fund eligible for this tax credit or only dividends from individual Canadian stocks are eligible?

    • I have not examined whether VDY’s distributions would be eligible for the dividend tax credit or not. I suspect most of the distributions would be but you wouldn’t qualify for distributions that are counted as “capital gain.”

  4. hello, just found out,
    “ calculator will be inoperable for the foreseeable future. ”
    are there any viable alternative?

  5. Hey Bob, came a bit late to the investment game, but seeing my parents in a bad situation right now close to retirement got me moving pretty quickly. I’m determined to get Dividend’s going by the end of this month. Would you mind elaborating on this a little – “Hold Canadian dividend stocks from Canadian public corporations that pay eligible dividends in a regular (non-registered) account for the enhanced dividend tax credit.” Are you saying that you should hold Canadian Dividend Stock in a NON RRSP account. I have a Trading Account with TD, with both US and CAD TFSA’s and RRSP’s. I hear what you said about putting the US Dividend stocks in the US RRSP, but are you saying to not put the Canadian Dividend Stocks in the CAD RRSP? Should they go in the TFSA?

    • Hi Colin,

      Sorry that your parents are in a bad situation right now. What I meant is… if you are investing in taxable accounts, make sure you invest in dividend stocks that pay eligible dividends so you get better tax treatment. Ideally maximize your tax-advantage accounts first.

  6. Simply cannot go wrong with Diversification, Tax Efficiency and Compounding! The more you know the sooner you will be able to live free! For me, I just need to get the DRIPs set up and I’ll be rolling!

    Thanks for the research tool links.

    • Hi Dividend Wisp,

      DRIP is a great idea and makes life a lot easier. Definitely set it up if you can. Cheers!

  7. Tawcan, I have already read the book The Intelligent Investor by Benjamin Graham. The book is really a great investment. And, what I mostly love about this book is that it teaches us to develop long-term strategies in investment. Highly recommendable book indeed!

  8. Tawcan,

    Impressive detailed summary and it show that it’s complex to make passive income.
    It comforts me in a way to continue investing only in Swiss Market to avoid all these hassles.



    • Hi RA50,

      It’s always good to venture out of your own country and add some international exposures though. There are a lot of good European dividend paying companies out there. Definitely take a look.

  9. Grest advice.
    The book that got me on the raod to dividend investing was Motley Fools”s INVESTMENT GUIDE. Although some of it has been disproved it was a good start to get the mutual fund cobweb out of my brain.
    Personnally I prefer CDN companies over US comapnies at least at present because of the exchange rate. I don’t feel like betting where the exchange rate is going, up or down, as well as trying to pick the “right” company. The recent appreciation of the CDN $ is a good example. Buying 100 stocks at $100 US each (JNJ as an example) could be up to $600 CDN (exch rate @ .28 or @ .22) in COP. That is a lot of dividends to make up.
    Besides, one can diversify your stock allocation quite well with Canadian dividend paying stocks.
    Picking the right stock, don’t we all wish we could do this, is the big thing to keep in mind. Dividend payout on COP is a stat to keep in mind but if you can sell out a stock and double your dividends then that is something to consider. I got lucky with JNJ selling them with a 45% cap appreciation (all in my RRSP) and bought KMI before it consolidated. So I got a company that has increased in value AND pays me more than twoce the dividends that JNJ was previously. So the buy and hold strategy can be good but don’t be blinded by it at the same time.

    Keep up the good work TC

    • Hi Richardo,

      I’ll have to take a look at Investment Guide. Haven’t heard it before and it sounds interesting. I think CDN companies are great but when it comes to having more international exposure and truly global companies, US exchanges do offer more choices. You have a good point about don’t be blinded with buy and hold… that’s why we need to evaluate the portfolio holding from time to time. Thanks for taking the time to comment.

  10. Excellent summary! Question: “Hold US dividend stocks in RRSP to avoid the 15% withholding tax..: I have read in a few blogs that you can claim back the 15% withholding tax in non-registered accounts. Can you describe how that would be done? I happen to have some US div. paying stocks stuck in my non-reg. account. How they got there? My inept former investment advisor bought them. Now, the capital has appreciated so much that if I sell them, I would have significant capital gains tax to pay.

    • Hi Helen,

      You can definitely claim the 15% withholding tax if you hold US dividend stocks in non-registered accounts. You can claim foreign tax in your tax return. Having said that if we can maximize in RRSP why not take advantage of that?


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