Investment, income and financial freedom. We are a regular family that wants to secure its financial future. For us, a secure financial future means that our passive income covers all of our expenses. To create that future, we will use all possible passive income streams, which will allow us a comfortable and possible early retirement.
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Is it affordable to buy a house in Vancouver? Vancouver is the second-most-expensive city in the world after Hong Kong, though I am lucky to live in this beautiful city.
Vancouver Real Estate Affordability
Quick google search showed up that
Employees in Vancouver, British Columbia make an average salary of $56,342.
The median total income for households in Metro Vancouver was $72,662 in 2015.
Perhaps some families have uncounted cash income, but for Vancouver families with two salaries, I am going to assume that an income of $150,000 is above average.
What can you buy with $150,000 in annual income? The rule of thumb is that you can afford a house that costs three times your annual salary (e.g., $150,000 * 3 = $450,000). Having an average annual salary of $150,000 means that $450,000 is the highest price you should consider when buying a home. Even if we consider a family income of $200,000, still, a $600,000 home is the limit. This is far from the current price range ($1,000,000 +) of detached homes in the city.
My point here is that even for those who have above-average salaries—for example, a nurse and an electrician—buying a home is not affordable in Vancouver. Stretching mortgage payments to thirty years and paying the whole paycheck for it each month is not affordability. It is, financially, the wrong decision.
What Are the Main Drivers of Vancouver Real Estate Prices?
1. Low Interest Rates
Interest rates have been low for a while, and, in my opinion, they are the main reason for the high real estate prices. Such low interest rates exist all across Canada, but the price jump occurs mostly in Vancouver and Toronto.
Real estate is always in the news. Of course, it is one of the main industries in British Columbia that fills the provincial coffers with money. You have certainly met or spoken to somebody involved in real estate—whether a realtor, a mortgage broker, a flipper, or a homeowner. It is the most popular topic at the poker table, at least at the one where I am playing.
3. One of the Most Livable Cities in the World
Good parks, public transportation, and climate and low crime make this city one of most livable cities in the world. Wild nature just an hour’s drive from the city makes it a very attractive place for nature lovers.
4. Need for Shelter
This point is relevant to any city. Most people buy a home not as an investment but as a place to live, and the desire to have a high standard of living pushes people to take on a lot of debt to buy a home. A house is a tangible object—unlike investment in a business, where growing earning per share is merely something on a sheet of paper.
Who Is Buying?
Foreign buyers? I am not sure. I think that foreigners’ contribution is smaller than that of locals. Locals are the main drivers of high prices. Low interest rates have contributed a great deal to the real estate prices, loading debt on the shoulders of borrowers.
As for me, I will be waiting for prices to go down to what I can pay. One scenario in which this may happen is when the global economy significantly slows down. In such a situation, it will be very hard for homeowners to keep paying those huge mortgage payments, and somebody will need to sell. Flipping houses, another contributor to high real estate prices, will not be a good business the way it has been during times of economic growth.
This has become a messy post with all my thoughts and feelings about real estate in Vancouver. I feel torn between the rationale of not buying at these prices and the wish to have a house big enough to accommodate our family of five.
Dear reader—what do you think about Vancouver real estate?
At some point in life, most of us want to have enough money for things that are really important to us. I do not believe this is often done quickly. Rather, I believe that disciplined saving and long-term investing is the way to financial freedom.
To get rich, all you have to do is to do only two things right:
Get access to cheap money
Invest cheap money for profit
Yes, it is that simple. Everybody does it: hedge funds, banks, and companies. Hedge funds and banks have their investors and companies place their shares on the stock market to get access to cheap money. Investing that money for profit makes them rich. This is exactly what we private small investors should do as well.
1. Get access to cheap money
How can we small investors get access to cheap money? Our savings is the first source of that money. It is not exactly cheap money in the sense of earning it. We pay for this money with our time, which is a very expensive resource. Once we save money we do not pay any interest on it, and therefore it is cheap (i.e., any profit earned with this money goes directly to our pocket).
Of course, if you are able to set up a successful business and issue shares to the stock market, that will be your access to cheap money. If not, like most of us, saving money is a more realistic option.
There is another option for cheap money: real estate property appreciation at a time of low interest rates. If you own a property and its value has appreciated, you can borrow the difference at cost of mortgage. Usually, when interest rates are low, money at mortgage rates will be cheap.
Another source of money is dividends. Owning shares of a company that pays dividends will provide additional money for investing. Utilizing a dividend reinvestment plan (DRIP) will automate this process. Here is our dividend portfolio, which generates about $800 monthly.
I heard that some credit cards may provide loans at almost no interest or at a very attractive interest rates. This is an option that I have to explore.
2. Invest cheap money for profit
Now, when we have affordable money, it’s time to invest it and make a profit.
Where to invest?
Why do we not do it like big player hedge funds and banks do?
All right, for some type of investments we do not have enough money, but we do have other investments we can take part in.
Banks loan money as mortgages so their customers can buy homes.
We can invest in private mortgages at very attractive rates. Buying homes? Banks see this as a safe investment. We should, too, and therefore we should wisely invest in real estate. We invested money into a private mortgage vehicle received from our property appreciation. Here is more about my positive experience lending money for private mortgage.
Hedge funds/banks invest in businesses by loaning them money.
Doing the same, we can buy shares of companies and invest on Lending Loop. I prefer dividend-paying stocks because they provide an income stream regardless of Mr. Market’s mood.
Accelerate your income by reinvesting dividends received from companies, and increase your overall investing portfolio with diversification in mind.
Is the author of this post rich?
The short answer is no, I am not yet. However, our passive income from various income streams rose from $1,537 in 2015 to the expected passive income of $30,000 in 2019. This is an impressive increase of 1851.85% within four years. All money received from our investments and saved from our salaries is immediately reinvested, fueling and accelerating future income growth and our projected financial freedom (i.e., being rich by 2025). It might happen even earlier.
It is definitely worth getting your hands on these two items, because the reward is so huge. For us, it is our time to spend with loved ones.
“Do not save what is left after spending, but spend what is left after saving” -Warren Buffet
First, let’s see how our financial goals served us in 2018. We set them here.
We received $7,808 in dividends, beating our goal by $808. It might be that we were too conservative in setting that goal in 2017.
From investing in private mortgages we profited by $4,971. We planned on receiving $5,906.
Income from rental property was $3,559; we missed our goal of $4,100. Our second condo completion date was late, and profit from it was relatively smaller than from the first condo. For 2019 our expectation from rental properties has been set accordingly.
From investing in Lending Loop we received $1,590, a greater return than the $1,200 we expected.
Our spending paid us back $883 through credit card cash back programs. Our total cash back of $828 included a $130 deduction for two Scotiabank Momentum VISA card fees and a $185 rebate from Capital One (primarily used at Costco).
Our total 2018 passive income was $18,811. It is a bit more than the planned $18,206 a year ago. Without credit cards cash back that was not taken into account when setting financial goals last year we would still be close to our projections.
Our passive income covered 18% of our expenses.
Our current projected income from dividends is $8,905. That number does not include dividends hikes in 2019. I am assuming that some of our holdings will increase their dividends despite uncertainty in the market now. Along with DRIP I would estimate the organic increase as of $200 in 2019.
We are going to maximize our TFSA contribution in the coming year. The TFSA limit is $6,000 in 2019, so the combined limit for my wife and me is $12,000. Receiving a conservative 3.5% profit on $12,000 would yield $400.
To compensate for receiving income from rental properties, we will deposit $10,000 into our RRSP accounts. By doing so, we would avoid paying taxes on the income from rental properties. At a rate of 3.5% that would add about $350 to dividends.
As a result, all anticipated dividends in 2019 would total $9,855.
We will challenge this goal through a stretch goal of $10,500 in dividends. It is achievable through allocation of additional capital toward dividend-paying companies.
Rental Properties $4,000:
Profit from renting our two apartments should be around $4,000. We have not refinanced the second property yet. It means that we will have additional capital borrowed at the cost of a mortgage to be invested in higher-paying assets as private mortgages. That means we anticipate an additional $3,000 in profits.
Private Mortgage $12,660:
Our expectation for profit from our current investments in private mortgage is $9,660. That number might be slightly affected if borrowers repay in full, which would require investment in a new deal. In that case we would not get paid for a month or two. Another $3,000 is expected from additional capital that comes from rental property refinancing.
Lending Loop $2,040:
Without investing more in Lending Loop, we expect to profit $2,040 from it.
Credit cards cash back $800:
Assuming our spending will be at the 2018 rate it is reasonable to predict cash back of about $800.
We plan receiving passive income of $30,000 in 2019.
At least 25% of our family expenses should be covered by our passive income streams.
Our goal of finding additional income sources has not materialized in 2018. But we will continue towards that goal in 2019.
An exciting year seems await us. Mr. Market has already started creating opportunities. Shares of Bank of Nova Scotia (BNS) are cheaper today than three years ago when we bought them. The lower share price the higher dividend yield and we like dividend yield.
We rent our primary residence and are always keeping eye on the real estate market. Who knows? perhaps a downturn in real estate, following an overall economical downturn, will provide an opportunity to buy a property to use as our own home. If that happens, money received from refinancing the second condo would go toward a down payment for property.
We hit a new record in passive income this month. Our passive income totaled more than $2,000 in October. More specifically, our October passive income totaled $2,174. Although there are uncertain times in stock markets and real estate seems to be on a downturn, our income streams continue to provide us with stable income. This is the first time I am glad to see red colors in markets. I am even waiting for a deeper correction that will bring more opportunities in both stock markets and real estate. Our cash flow from the income streams below is not affected by stock market fluctuations or real estate downturns. These income streams provide us with the ability to buy more equities, and the best time to do it is when the market is down.
We received $872.32 in dividends from 13 companies. Our average monthly income from dividends is about $650. Recent market uncertainty and its future drop will create opportunities to buy part in good businesses for less. We enroll in DRIP whenever possible; (i.e. when the dividend distribution is enough to buy more shares). With the market going deeper into correction, we will invest more in dividend-paying stocks. It not longer scare me to observe a market correction, because it offers an opportunity.
Our monthly profit from this investment is $805.75. We have invested more in this income stream and, therefore, profit from private mortgages increased compare to our March passive income report.
If you are interested in this investment type, you can read what is important to consider here.
If you are in the Great Vancouver area and looking for an experienced mortgage broker, please drop me a line.
It’s business as usual here, except that we are now collecting profits from two rental properties. Our $334 total profit from these rental properties is calculated as follows: rental income minus the mortgage, property tax, strata fee, and management company fee. Missing from this calculation is the fact that our debt is melting from year to year at a rate of about $10,000 annually. Let’s not forget property appreciation.
Wow, so exciting! Somebody pays our debt, we receive some money on the go, and the potential property price will go up in the long term for sure. The short-term property price might fluctuate or even go down, but who cares? If you want to know more about our successful investments in rental property, you can read more in my rental income post.
We earned $162,59 interest on Lending Loop in September. Our current exposure is 2.9%; meaning that any particular company that we lend to receives not more than 2.9% of the portfolio, which mitigates the risk.
Keeping our 2018 financial goals in mind, we are on track to receive planned income from this investment. We have already received $1,252, which surpasses the planned amount of $1,200. Well done!
If you would like to utilize this type of investment at no cost to you, I will earn a referral fee if you use the following link Lending Loop.
This tiny stream covers hosting expenses, but it is still too little to warrant discussion.
The more than $2,000 in monthly passive income streams makes our lives easier. In the best situation, you work not for money but to do what you like. In the same way for us, it is not about having more $2,000; it is about having more freedom knowing that we do not need to do anything for this money. Eventually our passive income streams will buy us free time. Free time will mean that we can do things not because we must, but because we want to do them.
One of our best-performing stocks is Domino’s Pizza. We would like to extend our investing into the restaurant sector, so Restaurant Brands International Inc. (QSR) looks like an excellent candidate. QSR is a 100% franchise model throughout its three brands: Tim Hortons, Burger King, and Popeyes. We always stop at Tim Hortons on our out-of-town trips for coffee, maple pecan Danish, and Iced Capp blended frozen coffee. Timbits are a sweet addition to any party, and both adults and kids enjoy them. I love Iced Capp creamed coffee with cookies. And, in my opinion, Tim Hortons coffee is the best among its competitors.
That’s why we like Tim Hortons, but we cannot say the same for Burger King or Popeyes. The numbers in the next paragraph will explain.
Readers who are unfamiliar with our process of choosing dividend stocks can read about it here.
Future QSR Dividend Yield
The current QSR dividend yield is about 3%. That is not high, but let’s review dividend hikes over the last four years. They started paying dividends three years ago, and the dividend increases have been impressive. QSR increased the dividends for two years in a row by 70% and 25%. That amounts to a 48% average increase over the last three years.
If you start with 3% dividends and they increase by 48% every year, after ten years you will receive more dividends annually than you invested.
After five years you will receive 15% dividends. That’s incredible. After ten years you will receive 102% dividends. If you invest 10,000 CAD today and the rate of dividend increase remains at 48% annually, after ten years you would receive only 10,988 CAD in annual dividends. Long-term investment in a good company will produce incredible returns.
The average dividend payout ratio over the last three years is 53%, which makes dividends a pretty safe investment (i.e., without increasing earnings, the company will be able to increase dividends by 47%). I am confident QSR will continue to increase its earnings over time.
It is not clear if the company will be able to keep the same high rate of dividend increases, but it is worth the investment even if the increases revert to a slower rate.
Earnings Per Share (EPS) Growth
Earnings per share (EPS) grew at a rate of 54% annually in the last three years, supporting dividend increases. The fast food and restaurant sectors are highly competitive but, based on past performances, our preference to select Tim Hortons and, most importantly, financial valuations, make us feel confident about this investment.
We have our own simple method of selecting dividend stocks, but it is also useful to know what others think about the company, so here are some of those views:
Morningstar rated QSR 4 stars, which is only one below its highest rating.
QSR is among the holdings of Berkshire Hathaway, Warren Buffett’s company.
Rob from passivecanadianincome.ca also thinks QSR looks promising, and he added more insight into Burger King in his post.
On September 13, we bought 85 QSR shares at $58.55 per share. Because we had capital in United States dollars (USD), we bought QSR shares trading on the New York Stock Exchange in our non-registered USD account. Investing US dollars in Canadian companies is an option because they provide a tax shelter. Because QSR рауs eligible dіvіdеndѕ, it may reside in non-registered accounts. More information can be found about where to hold your dividend-paying companies in RRSP, RESP, TFSA Or Unregistered Account.
Eighty-five shares will gain dividends of $38.25, which is insufficient to buy one more share upon distribution. Therefore, we will have to buy about fifty more shares to DRIP one share on every dividend received. We will definitely do that because we love compound interest and its implementation using DRIP.
PS: My fishing trips have become more productive because, in addition to seeing Canadian National Railway locomotives generating revenues while I am fishing, stopping at Tim Hortons on our way to fishing helps our passive income streams. I will have to drive my friends to Burger King next time we go fishing. And we should probably stop at Chevron service stations to contribute to the energy investments in our dividend portfolio. I already caught two king salmon at the beginning of 2018 fishing season.
This will be the second time we lend money as private mortgage lenders. Our first-time lending experience was pretty positive: the borrower deposited back the lent 100,000 CAD along with the profits we received over the last eight months. For our readers who may be interested in a private mortgage income stream, I will provide details about our next deal here. Information on our first experience with a private mortgage and what is important in this type of investment may be found here. Please be aware that the bank sees this type of investment as risky and may not be ready to lend to a borrower — you’ll need to determine for yourself if this is worth the risk for you. This investment offers a potential profit of 7 percent to 11 percent.
Is It Really a Risky Investment?
Let’s take a look at a real investment we are going to make. A borrower is looking to borrow money against his home in one of the cities in the Greater Vancouver area. The mortgage broker hired an independent appraiser to evaluate the home price. The appraisal report showed that the home’s market price is 2,100,000 CAD. The twenty-five-page report explains that the price given to the property was based on the following:
Sales in the immediate and surrounding areas for this style of dwelling
Current real estate market conditions
The bottom line is that an independent company has evaluated the house and determined its price. The property tax for the property has been paid. It has been verified by the city municipality.
The legal side of the deal is secured by a law corporation, and the borrower must pay all the related expenses. The borrower must also pay all additional expenses relevant to the deal, including the mortgage broker’s fee.
How Much Is the Owner Going to Borrow?
The borrower has a 607,648 CAD mortgage on the house, with no issues making payments on the mortgage. The mortgage broker we work with is going to lend an additional 800,000 CAD to the borrower. Out of that 800,000 CAD, our portion of the private mortgage will be CAD 150,000. In total, the borrower will have a debt of 1,407,648 CAD. This amount is 67 percent of the house’s real value, which means the market would have to go down more than 33 percent for the borrowed money to be at risk. It is like an asset on sale for 33 percent less than its book value.
Why Is the Bank Not Ready to Lend Money to
To be honest, I have no idea why the bank isn’t interested in this deal, but maybe it is because the house is still under construction. It may be because of a bureaucratic rule the bank must follow, or perhaps the 33 percent safety margin is not enough for the bank. If any bank employee familiar with mortgages is reading this post and can shed light on this puzzle, I would be happy to receive his or her comment. Although I do not understand the bank’s decision, I do see an opportunity for us to earn a juicy 10 percent profit. The analysis I provided in the previous paragraph makes me confident to invest in this deal.
What Could Go Wrong with This Investment?
The worst-case scenario here is that the borrower is unable to pay his debt and must file for bankruptcy. In this case, the house would be collected and sold. After the sale, the money would be returned to the owners of the property. All the lenders possess joint title to this property (i.e., they are the owners of the property until the whole debt is paid), and therefore, they will all receive their lent money. Of course, the procedure of collecting and selling the property may take time, but eventually, all the lenders will get their money. True, the amount the lenders get might be less than what they lent, but for this to happen, the price of the property must fall by more than 33 percent. A case in which all the money cannot be paid back to the lenders is simply impossible because the property price cannot go from CAD 2,100,000 to zero even in the case of a major disaster that destroys the home itself, the land will still hold significant value in this market. The borrower agreed to pay 10.45 percent interest—we will be collecting a nice profit.
We like the private mortgage income stream because it is almost a passive process. The nonpassive part of the process is depositing a check once a month. We will continue increasing our investments in private mortgages.
I would like to be able to identify the best dividend stock in our portfolio. The best performing stocks will be good candidates for increasing our holdings, and the worst performing stocks will get a closer look at their inclusion in our dividend portfolio. Tracking and analyzing our investments makes us better investors.
The First Question: How Do I Determine the Best Dividend Stock?
Obviously, the purpose of any investment is to maximize its return over time. Therefore, the formula for determining the best dividend stock should account for capital gain and dividends. Usually we do not include capital gain in this assessment because it may fluctuate within a short period of time, and we may need to sell the capital asset to realize the gain. To determine how well a stock does, I will calculate the capital gain. Capital gain also shows market appreciation of the asset at the time of evaluation. The period of time that we hold onto the asset is also important; this is why I will add it into formula used to identify our best dividend stock. By summarizing capital gain and dividends and dividing that figure by time (in years) that we have been holding the asset, we will determine the annual profit of the dividend stock:
Annual Profit = (Capital Gain + Dividends) / Time of Holding in Years
The stock in our dividend portfolio with the highest annual profit will be the best dividend stock among our holdings.
Our main purpose in investing in companies that pay dividends is to receive cash (dividends) every one or three months; therefore, the formula above gives more weight to dividends. For calculating annual profit, we will use the last received dividend for the whole period of asset holding. Because of dividends hikes during the asset holding period, the last dividend received usually will be higher than the dividend in the first period of the asset holding.
Our Best Dividend Stock
Following the calculation above, Domino’s Pizza, Inc. (DPZ) yielded a 57% annual profit. This is the highest profit among our holdings. We have been holding DPZ for a bit less than a year. Our DPZ dividend yield is 1.19%, which is $144 annually. The dividend yield, together with a spectacular capital gain of 56% within the holding period for this asset, puts this investment in first place among our holdings.
There is a Domino’s Pizza shop in our neighbourhood, and we are happy customers. We discussed all of our decisions regarding buying shares of Domino’s with our kids, trying to get them involved in the process. For now, our older son, who is 11 years of age, thinks his dad is doing right in investing for the long term.
Our Worst Dividend Stock
We have owned AT&T (T) stock since January 2015. Our dividend yield is 4.7%, which comes to $285.60 annually. These dividends have compensated for part of our capital losses, but as of today our losses with this investment are 9% annually. AT&T is the second-largest US wireless carrier, serving more than 100 million subscribers, including about 65 million postpaid phone subscribers. Market capitalization is more than $230 billion, and the company has plenty of free cash. Capital loss is not a sufficient reason for us to sell our position, however. A reduction in revenue or a cut in dividends might be a trigger for a position sell. Until then, and hopefully forever, we hold and DRIP our position in AT&T.
Capital Gain and Mr. Market
Sometimes Mr. Market sets a price on an equity that does not exactly follow the company’s fundamentals but rather is based on the players’ mood. Because Mr. Market defines the equity price, it might be offset from the actual equity price. If there are no fundamental changes in company valuations—such as revenue, earnings per share, and dividends—we continue holding onto that equity.
One of our fundamental income streams is our dividend portfolio. Typically, it does not require any maintenance except for the rare sell of a position, but more often, it is either adding to the existing positions or buying new dividend-paying stocks. In this update, we describe having sold one of our holdings, bought one new stock, and increased positions in ten companies.
Math is a great science that deals with the logic of shape, quantity, and arrangement. Math is all around us and in everything we do. It is the building block for everything in our daily lives, and almost everything can be calculated with the power of math. You can identify the best soccer player by checking the statistics on how many goals he scored and how many assists he had. In applying the magic of math to stocks, we use our simple steps to select dividend stocks. Sometimes the best soccer teams lose, and similarly, some of our dividend-paying stock picks do not deliver (i.e., cut their dividends).
In the first half of 2018, only one of our holdings cut its dividend. Cominar REIT (CUF.UN) reduced its dividend by 45 percent in March. We rely on passive income from our income streams, and any dividend cut puts us at risk of not having enough passive income in the future. This is just one of the reasons why we sell equities that reduce their dividends.
Dividend stocks are great while the payouts last, but if payments are cut or eliminated, investors may be stuck with an investment that no longer has any appeal. Naturally, if a stock has had to reduce its payouts because of an unfavorable situation, it usually means the company has been performing poorly. So, when a dividend is reduced or cut, an investor is left not only with a lower dividend but also with a poor-performing stock.
Monthly payments of $0.1225 were reduced in September to $0.095 because the company wanted to keep its cash payout ratio under 90 percent.
The REIT has gone through remarkable changes in the past couple of years. These changes include selling its non-core assets and cutting or reducing its dividends twice. Even though its debt ratio and dividend payout ratio have improved remarkably, improbability still remains because there will be more dispositions in 2018 and in the future.
Enough about bad-performing assets. The asset has been sold. Let’s talk about the assets that perform well.
We added twenty-six shares to our position of sixteen stocks in Boeing (BA). The company increased its dividend by 20 percent in December 2017 and was fueled by improved financial valuations. Relatively low oil prices mean cheaper airfare, which makes flying attractive to more people, thus increasing the need for more aircraft. Plus, the financial strength of the company was exposed in its dividend hike, and the last financial report makes us very happy to be investors in this business. What are the chances that another company starts making aircraft? Almost zero.
We bought forty-two shares of the Canadian Imperial Bank of Commerce (CM), increasing our holding to ninety-seven shares. This purchase aims to yield enough dividends to buy one share upon every distribution. With one additional share purchased with DRIP on July distribution, we now own ninety-eight shares. CM is one of the top Canadian banks. We like the Canadian financial sector, and this is our biggest sector, at around 30 percent, in our dividend portfolio. All of our other holdings in this sector have already been enrolled for DRIP, and now it is time for CM to follow its predecessors in the portfolio.
Canadian National Railway (CNR) has the advantage of being a stable, dividend-growth railway stock. We bought 140 shares of CNR to have enough shares for the DRIP, one share for every distribution. Our assumption is that railways will be in use for a long time for heavy item transportation. Company valuations like low payout ratio (around 30 percent) and continuous dividend increases over time, plus the advantage of having rails net, which is a huge barrier for competitors to enter this market, put this stock in a strong position in our dividend portfolio. Sometimes, when I am fishing on a lake and I see a CN locomotive passing by in beautiful British Columbia, I share my thoughts about this investment with my fellow fisherman and tell him that I earn money while we have been fishing.
Dream Global Real Estate Investment Trust (DRG.UN) is a growth-oriented real estate investment trust. One hundred and fifty shares of Dream Global have been added to our dividend portfolio. This business, along with paying dividends, added capital gains of more than 50 percent. We like such businesses and gladly increase our holdings in them.
One hundred shares of New Residential Investment Corp (NRZ) have been added to our position of 200 shares. We have held this company since 2016, and this is one of our best performers. Now it is yielding 11.09 percent and seems like an attractive, high-income opportunity. NRZ invests in high-yield residential mortgage-related assets that offer steady, long-term yields. Everyone likes a juicy dividend!
We bought 200 shares of H&R REIT (HR.UN). We sold Cominar REIT but would like to keep our exposure to REITs; therefore, we replaced Cominar with H&R REIT. Usually, the REIT dividend yield is higher than the yield of non-REIT companies, but the dividend hikes are more moderate. At the time of purchase, the yield was 6.75 percent.
DRIP Two Shares
We are content with the performance of the following companies; therefore, we increased their holdings in our dividend portfolio to allow a DRIP of two shares upon every distribution:
Emera Inc (EMA) 30 shares
TransCanada Corporation (TRP) 88 shares
AT&T (T) 40 shares
Canadian Utilities (CU) 40 shares
BCE Inc., formerly Bell Canada Enterprises (BCE) 50 shares
Dividend Portfolio Stats
Our portfolio dividend yield is 4.02 percent, and buying the same portfolio today will yield 3.43 percent. The difference in yield comes from dividend hikes of companies that we hold in our portfolio for more than a year and proves the statement “Focus on time in the market, not market timing“.
We aim to hold companies that sustain their distributions, thus providing us with reliable passive income in the future. Most likely, dividend-paying stocks with the best financial stats will continue to show their strength and benefit their shareholders—us.
In 2017 we sold our position in Dream Office Real Estate Investment Trust (D.UN), and this year we sold another REIT. We will be more selective in choosing REITs.
Dividends income stream is passive income, and your bank accounts are filled with new distributions on a monthly and quarterly basis.
RRSP, RESP, TFSA Or Unregistered Account which one is the best account to hold dividend stock or investment for Canadian. Before you start as a Canadian dividend growth investor, that is the first questions you must ask yourself
Given all the different types of accounts accessible to Canadians, discovery the most tax-efficient way to hold dividend stocks can be very puzzled among RRSP, RESP, TFSA Or Unregistered.
Before determining which best accounts among to keep your dividend stocks or investment, first, we need to understand the different types of accounts available to Canadians. In short, there are two types of accounts you can hold dividend stocks Among RRSP, RESP, TFSA Or Unregistered Account which one is the best account to hold dividend stock or investment for Canadian..
In unregistered accounts, capital gains and dividends are taxed. However, both are taxed at a much lower rate than your working income.
If you hold US investment in a regular account, the US government will first charge a 15% withholding tax on any dividend income that you receive.
Since US dividends are not eligible for Canadian dividend tax credit, US dividends will tax like interest income (i.e., at your marginal tax rate) But you do get a foreign сrеdіt fоr the amount wit by thе 15% withhold tаx. The fоrеіgn сrеdіt can then be applied uѕеd fоr deduction whеn уоu file your Cаnаdіаn іnсоmе tаx.
TFSA, RRSP, RESP Account
Whеn іt comes to tаx advantage ассоuntѕ, thеrе аrе fеw options аvаіlаblе tо Canadians. The mоѕt соmmоn tаx аdvаntаgе accounts are – RRSP, RESP, and TFSA.
RRSP – Registered Retirement Savings Plan
A ԛuісk nоtе on ореnіng a ѕеlf-dіrесtеd RRSP account, ѕоmе brokers wіll сhаrgе аn annual fее unlеѕѕ уоu hаvе a сеrtаіn аmоunt оf mоnеу іn уоur RRSP account. If you think аbоut іt, іt’ѕ a silly fee since thеѕе brоkеrѕ аrеn’t doing anything for you, so definitely do your research before opening a self-directed RRSP.
With RRSP, you will be taxed only when you withdrawal from the account. What makes RRSP so awesome is you get a tax deduction at your marginal tax rate for money you put in. Furthermore, due to the tax treaty between US and Canada, you are exempted from paying the 15% withholding tax on US dividends.
RESP – Registered Education Savings Plan
With RESP, you can contribute $50,000 per child until the child turns 31. RESP is for post-secondary ѕаvіng fоr your children. Althоugh уоu don’t get tаx dеduсtіоn for RESP, the Cаnаdіаn government will соntrіbutе to уоur сhіld’ѕ RESP tо help thеіr ѕаvіngѕ grоw. Such contribution іѕ called the Canada Eduсаtіоn Savings Grant. The basic CESG provides uр tо mаxіmum of $500 оn a аnnuаl contribution оf $2,500.
Thіѕ grant іѕ available uр untіl thе еnd of thе саlеndаr уеаr іn which thе сhіld turnѕ 17. When RESP is wіthdrаwn, the amount is tаxеd on thе rесіріеnt’ѕ tax rаtе. Sіnсе RESP is mеаnt fоr роѕt-ѕесоndаrу students, thе rесіріеnt, in this саѕе, thе ѕtudеnt wіll uѕuаllу рау little оr no іnсоmе tax due to tuіtіоn сrеdіtѕ. Unlіkе RRSP, уоu nееd tо рау the 15% wіthhоldіng tаx оn US dividend іnсоmе.
TFSA – Tax-free Savings Account
TFSA is my favorite tax advantage account. The idea is straightforward, each year the Canadian government announces the contribution limit. The money you put inside a TFSA can then grow tax-free.
If уоu withdraw аnу amount frоm TFSA, уоu wоn’t gеt tаxеd, аnd you can соntrіbutе thаt аmоunt аgаіn in the futurе plus any additional соntrіbutіоn lіmіtѕ.
The beauty оf TFSA іѕ thаt аnу dіvіdеndѕ аnd саріtаl gаіnѕ are tаx-frее, mаkіng TFSA thе реrfесt vеhісlе fоr Cаnаdіаn dіvіdеnd grоwth іnvеѕtоrѕ. Although TFSA is a registered account, іf уоu receive US dіvіdеndѕ, you wіll nееd to рау the 15% withholding tаxеѕ аnd will nоt receive any foreign tаx credits.
Where Should I Keep my Dividend Stock?
Wіth so mаnу accounts, which ассоuntѕ ѕhоuld I uѕе for dividend іnvеѕtіng for mаxіmum tаx efficiency? Aftеr a bіt оf rеѕеаrсh and саlсulаtіоn, bеlоw іѕ a ԛuісk summary
Best for holding Cаnаdіаn dіvіdеnd ѕtосkѕ thаt рау eligible dіvіdеndѕ.
Bеѕt for hоldіng US dividend-paying stocks аnd US-lіѕtеd ETFѕ.
Bеѕt for hоldіng Canadian dіvіdеnd ѕtосkѕ аnd Cаnаdіаn іnсоmе trusts & REITs.
Among RRSP RESP TFSA Or Unregistered which one is the best account to hold dividend stock or investment for Canadian
Notice that I dо nоt rесоmmеnd hоldіng Cаnаdіаn іnсоmе trusts & REITѕ in rеgulаr ассоuntѕ. Inсоmе truѕtѕ аnd REITs typically pass their іnсоmе, a return of capital, іntеrеѕt, саріtаl gаіn, fоrеіgn business income tо thе ѕhаrеhоldеrѕ аѕ раrt оf thе dіѕtrіbutіоn (і.е., dіvіdеnd). Each portion wills then bе tаxеd аt a dіffеrеnt rate.
These results in complicated tax calculation, especially when you are enrolled in the dividend reinvestment plan (DRIP) and sell the shares later. To avoid any a headache and complicated math, keep income trusts and REITs inside an RRSP, RESP, or TFSA.