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Dividend Earner by Dividend Earner - 1w ago

The US Dividend Aristocrats is the best list for filtering US dividend stocks. This should be your starting point to create your core portfolio. Why should it be part of your core portfolio? It’s simple, the companies in the list must have increased their dividends every year for 25 years.

Many of those companies also exhibit consistent growth in value which is what you want along with dividend growth. Dividend investing can be many things and when I started, I looked for high yields but I have since adapted my strategy to look for dividend growth stocks with a double digit dividend growth history. There are many other reasons why my filtering start with dividend companies, see my post on why I chose dividend investing.

S&P US Dividend Aristocrats Requirements

The following criteria must be met to become a U.S. Dividend Aristocrat:

  1. Universe: Member of the S&P 500
  2. Financial Viability: Must have increased dividends for 25 consecutive years
  3. Size: Have at least 3B$ in market capitalization
  4. Liquidity: Must have an average trading volume of US$ 5 million in the past 6 months
Here are specifics about the list itself:
  1. Reconstitution: The index is reviewed annually
  2. Stock Diversification: At each review, there must be at least 40 companies
  3. Sector Diversification: No more than 30% of a sector weight in the index
Many of the companies you are going to see have paid dividends for longer the 25 years and some have increased dividends for more than 25 years as well. That’s quite a commitment to shareholders. Below is the complete sector breakdown for the aristocrats.
DISCLOSURE: Please note that links to merchants mentioned within this post might be using an affiliate link. Using an affiliate link means that, at zero cost to you, I might earn a commission if you buy something through that affiliate link.
S&P US Dividend Aristocrats List

The constituents are listed below. See the Dividend Ambassadors for the best dividend growth aristocrats as not all dividend aristocrats grow their dividends at the same rate.

February 2018 Update

In 2018, C.R. Bard was removed from the S&P Aristocrat Index after it was acquired by Becton-Dickinson.  On January 24th, 2018, Praxair, Roper Technologies, and A.O. Smith were added to the USDividend Aristocrats Index.

Jonhson & Johnson

NYSE:JNJ

Market Trend

Exxon Mobile

NYSE:XOM

Market Trend

Walmart

NYSE:WMT

Market Trend

AT&T

NYSE:T

Market Trend

Procter & Gamble

NYSE:PG

Market Trend

Chevron

NYSE:CVX

Market Trend

Coca-Cola

NYSE:KO

Market Trend

Pepsi Co.

NYSE:PEP

Market Trend

McDonald

NYSE:MCD

Market Trend

3M

NYSE:MMM

Market Trend

Medtronics

NYSE:MDT

Market Trend

AbbVie

NYSE:ABBV

Market Trend

Walgreens Boots Alliance

NASDAQ:WBA

Market Trend

Abbott Laboratories

NYSE:ABT

Market Trend

Lowe’s Companies

NYSE:LOW

Market Trend

Colgate-Palmolive

NYSE:CL

Market Trend

General Dynamics

NYSE:GD

Market Trend

Automatic Data Processing

NASDAQ:ADP

Market Trend

Illinois Tool Works

NYSE:ITW

Market Trend

Becton Dickinson & Co

NYSE:BDX

Market Trend

Kimberley-Clark

NYSE:KMB

Market Trend

S&P Global Inc

NYSE:SPGI

Market Trend

Emerson Electric

NYSE:EMR

Market Trend

Ecolab Inc.

NYSE:ECL

Market Trend

Aflac

NYSE:AFL

Market Trend

Air Products & Chemicals

NYSE:APD

Market Trend

Sherwin-Williams

NYSE:SHW

Market Trend

Target

NYSE:TGT

Market Trend

Sysco Corporation

NYSE:SYY

Market Trend

PPG Industries

NYSE:PPG

Market Trend

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Canadian investors definitely have a conundrum when it comes to choosing between a TFSA or RRSP. It’s a good problem to have as it means you are saving money – congrats on this achievement. Growing your money tax-free is a great way to accelerate your portfolio growth and more so if you invest with a long-term horizon.

Like everyone else, I have also had the challenge of choosing which one to do first and also explain to my spouse why. I have created an infographic to make it super simple but before we dive into it, let’s make sure we all have the same background on what a TFSA and RRSP actually are.

Here is what you can expect as you read through:

  • Learn the differences between TFSA and RRSP
  • Review RRSP and TFSA scenarios (4 scenarios total)
  • 2 Step Process to choose between TFSA or RRSP
    • Step 1 – Quick selft assessment
    • Step 2 – Infographic decision map
Introduction – Your TFSA or RRSP Dilemma

While we should strive to contribute to both investment accounts, choosing between the Tax-Free Savings Account (TFSA) or the Registered Retirement Savings Plan (RRSP) is often necessary. To make it simple and easy to digest, a table is presented to show a simple breakdown of each account.

The Short Comparison – TFSA or RRSP

TFSA

  • Contributions are after-tax dollars
  • Growth is tax-free
  • Withdrawals trigger no taxes

RRSP

  • Contributions are made with pre-tax dollars
  • Growth is tax-free
  • You are taxed as income when you withdraw

The short comparison is an easy comparison but not enough to establish a strategy for your investments. Both have tax-free growth so it all comes down to paying your taxes before or after.

The Long Comparison – TFSA or RRSP

All the details well laid out for consumption. This is not a pro’s and con’s table but simply the rules of each account type. There are some details that can have a major impact at some point in life.

TFSA RRSP
Tax Refund No tax refund from your contribution. Your deposit is a post-tax contribution. Yes, the contribution is deducted from your taxes creating a pre-tax contribution. Investment Options
Investment Options Stocks, ETFs, Mutual Funds, Bonds, GICs, cash Stocks, ETFs, Mutual Funds, Bonds, GICs, cash
Contribution Limit $5,500 per year after you are 18. Rules are subject to change. 18% of your gross income or the maximum of the year, whichever is lower. The maximum contribution is adjusted annually, be sure to double check every year.
Contribution Carryover Unused contributions from previous years are carried over to the following year. Unused contributions from previous years are carried over to the following year.
Contribution Room The total contribution room can be calculated as per the table below but you can also check with the CRA by accessing the ‘My Account’ service. See your tax statement as it reports your new RRSP contribution room after you file your taxes. You can also check with the CRA by accessing the ‘My Account’ service.
Taxation No taxes within the account and no taxes on the withdrawal. No taxes within the account, however, withdrawals trigger a tax. A percentage is to be paid immediately while the withdrawal amount is reported as income. Your tax rate at withdrawal time defines the amount of taxes you will pay.
Withdrawals You can withdraw any amounts and you are allowed to contribute it back starting the following year. Withdrawals trigger a taxation unless you are using the money towards the Home Buyer’s Plan (HBP) or the Lifelong Learning Plan (LLP). Each of those plans has their own repayment conditions.
Unused Contributions Starting at the age of 18, your contributions start accumulating and is not lost. The unused contribution accumulates as long as you file your taxes to report your income.
Spousal Contributions You can use your contribution room to make a contribution to your spouse account. This benefit can be a tax-efficient approach to managing your family’s RRSP. Income splitting is only supported through a Registered Retirement Income Fund (RRIF).
Termination No termination rules currently in place. In the year you turn 71, you have the following options:
* withdraw the entire amount (not very tax efficient)
* transfer to a RRIF
* purchase an annuity
DISCLOSURE: Please note that links to merchants mentioned within this post might be using an affiliate link. Using an affiliate link means that, at zero cost to you, I might earn a commission if you buy something through that affiliate link.

Often times, the usage of the RRSP is deficient as the tax refund is not put back to work. See the impact of that missed opportunity on your portfolio – 4 scenarios are reviewed below. In fact, you may find that the most efficient is to borrow extra money for a couple of months to contribute in the current year as opposed to the following year. Quick Tax can help you figure out the maximum loan opportunity. I have personally borrowed from my line of credit to increase my contribution and then used the tax refund to pay it back. Avoid the RRSP loans if possible and simply use your line of credits – it’s a good use of a line of credits. Which is better – TFSA or RRSP?

What better way to see what works best than running the scenarios. Below are 4 scenarios to review before you evaluate which account to choose first; TFSA or RRSP.

TFSA RRSP + Tax Refund Spent RRSP + Tax Refund in TFSA RRSP + Tax Refund in RRSP
Pre-Tax Income $10,000 $10,000 $10,000 $10,000
Income Tax (40%) $4,000 $4,000 $4,000 $4,000
Net Income $6,000 $6,000 $6,000 $6,000
Tax Refund $0 $4,000 $4,000 $4,000
Contribution $6,000 $6,000 $10,000 = ($6,000 + $4,000) $10,000
Value in 30 years @ 9% $79,606 $79,606 $132,676 = ($79,606 + $53,070) $132,676
Retirement Gross Value $0 $79,606 $79,606 $132,676
Tax on Withdrawal (40%) $0 $31,842 $31,842 $53,070
Net Withdrawal Value (40%) $79,606 $47,764 $100,834 $79,606
Tax on Withdrawal (35%) $0 $27,862 $27,862 $46,436
Net Withdrawal Value (35%) $79,606 $51,744 $104,814 $86,240
Tax on Withdrawal (30%) $0 $23,882 $23,882 $39,802
Net Withdrawal Value (30%) $79,606 $55,724 $108,794 $92,874

The math says that if you are in the same tax bracket between when you invest and when you withdraw you will receive the same amount between using a TFSA or RRSP + tax refund back in your RRSP. We obviously aim to make the most money at all time but if you know that you will have a lower tax rate, the RRSP + Tax Refund in RRSP could be the way to go over the TFSA as you can see when the tax rate goes down. This is where thinking of your situation in the future can help cement your decision.

What I find Illuminating is that that the RRSP + Tax Refund in TFSA does better than the other options. Just doing one or the other is not enough it seems and a balance is important. If you want to play with the numbers, WealthBar has some nice and easy to use calculators.

One option not illustrated is using the tax refund towards your mortgage payments. It’s an interesting option for those wanting to eliminate their mortgage fast. I am not a fan of it as your home is not an income producing asset unless you have a suite.

How To Maximize Your RRSP

TFSA Annual Limits

Below are the annual contributions possible since the TFSA was introduced. In the year you turn 18, your TFSA contribution starts accumulating.

Year TFSA Annual Limit TFSA Cumulative Limit
2009 $5,000 $5,000
2010 $5,000 $10,000
2011 $5,000 $15,000
2012 $5,000 $20,000
2013 $5,500 $25,500
2014 $5,500 $31,000
2015 $10,000 $41,000
2016 $5,500 $46,500
2017 $5,500 $52,000
2018 $5,500 $57,500
Ineffective TFSA Usage

A deficient approach to the TFSA is to use it for an emergency fund or short-term savings. Technically, an emergency fund should represent a cash holding which has literally no income potential in the current low-interest rate environment we are in and therefore relatively no income taxes to pay. If you cannot afford to contribute to your TFSA outside your emergency fund, then go for it and save a few bucks from taxes but the real benefit is to shelter investments. The TFSA should really have been called the Tax Free Investment Plan to avoid any confusions.

Both, your TFSA and RRSP, should be part of your financial freedom plan and both accounts should be used to hold investments rather than cash for emergency. However, the exception is using these accounts to build a down payment for a home is appropriate.

2 Steps to Choosing between your TFSA or RRSP account

In a perfect world, you can maximize your contribution to both investment accounts but that is not usually the case. Considering all of our situations are different, it’s not trivial to provide guidance without knowing more about everyone’s individual or family situation.

Step 1 – Identify Your Personal Situation

Choosing a TFSA or RRSP is all about managing taxes today for tomorrow so understanding your situation today and also extrapolating in the future will help make the right decision.

To simplify the identification of your personal situation, the below assessment is broken down into four sections with a value assigned to each answer that best describes your situation. By adding the points together, you get an overall value of your priority which is meant to take into consideration your income tax bracket and ability to save.

As for extrapolating into the future, it’s hard for a new grad to do considering marriage and kids are not even on the horizon let alone the potential curve ball you can get like having twins or other unforeseen situations. Your future tax situation should be based on your personal ability to generate income. Only you can assess your aspirations;

  • Are you going down a path with a pension?
  • Do you intend to own a business?
  • Stay a blue color worker?
  • Evolve to be a white color worker?

For each of the sections below, pick the most appropriate answer and add the points together to use in step 2.

Employment Status

Your employment status says a lot about your tax situation. Self-employed business owners are usually paying themselves a low salary for a low-income tax rate followed by a distribution of dividend from the company also at a lower tax rate.

  • Self-Employed – Business Owner = 1 point
  • Student or Part-Time = 2 points
  • Self-Employed – Sole Proprietorship = 3 points
  • Full-Time Employee = 4 points
Savings Rate

If you cannot save money, it will be hard to contribute to either a TFSA or RRSP. Your savings rate matters a lot in your ability to maximize your contributions. If you review the wealth triangle factors, you will notice that the amount of money you can save and put aside plays a big role in generating wealth.

It should be no surprise that it plays a factor in deciding if you should invest in your TFSA or RRSP first. Below are the points assigned to your saving rate against your gross income. If you have it on auto-pilot, it should be very easy.

  • Under 5% = 1 point
  • Between 5% and 10% = 2 points
  • Between 10% and 15% = 3 points
  • Over 15% = 4 points
Income Bracket

Your income bracket also plays a key role as it identifies your potential tax refund. If you are a student making less than $8,000 (approximately), you start to generate RRSP contribution room but you don’t pay taxes at that rate.

  • Under $40K = 1 point
  • Between $40K and $80K = 2 points
  • Between $80K and $120K = 3 points
  • Over $120K = 4 points
Home Ownership

Since the biggest withdrawal attempt comes from making a down payment towards a home, it’s an important factor to take into consideration. You definitely need to plan the usage of the RRSP Home Buyer’s Plan (HBP) and see about making use of your RRSP. That money should not be invested in equity to avoid any market risks. Consider cash or fixed income depending on your timeline.

Remember that you can always start with your TFSA and then move the money in your RRSP at a later time.

  • Intend to buy in 10 years = 1 point
  • Intend to buy in 5 years = 2 points
  • Intend to buy in 2 years = 3 points
  • Home Owner = 4 points
Step 2 – TFSA or RRSP First?

The infographic below makes it easy to choose your path and is based on your self-identified situation. Look at it as an initial guideline and adjust as you need based on the 2 tables above.

TFSA or RRSP Summary

Some points of reflection, I believe the TFSA should be used like an RRSP with a focus on building wealth for retirement. One important factor difficult to assess is the retirement strategy for withdrawal as it depends on the entire family situation and the actual amounts in each of the accounts. Your age also plays a role in the withdrawal strategy as you could withdraw from your RRSP only to funnel it inside a TFSA prior to OAS benefits to avoid clawback. There are basically 2 key ages that matter for tax planning; 65 and 71.

One point to be aware of is that the maximum contributions have become quite high and they continue to increase. Consider that for a young adult, there may already be 4 to 6 years of unused TFSA room by the time they graduate university since it starts at the age of 18. At $5,500 per year, that gives a new university graduate an unused contribution room of $22K to $33K.

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Dividend Earner by Dividend Earner - 2w ago

Every year comes the RRSP season. Advertisements will be bombarded your way until we reach the RRSP deadline and I wanted to discuss how to maximize your RRSP. Financial institutions will want you to invest with them, or even offer you an RRSP loan but before you pull the trigger and take action, have a plan to effectively maximize your rRSP.

There are two concepts to maximize your RRSP:

  • how you use your tax credit
  • the tax-free growth

Let’s review those 2 critical advantages for a clear understanding on how to maximize your RRSP contributions.

RRSP Tax Credit

The RRSP tax credit is simple in that all your RRSP contributions (up to your maximum) provides you with a tax credit at the end of the tax year. Here are a couple of examples for 2 different incomes.

Examples With RRSP Without RRSP With RRSP Without RRSP
Income $60,000.00 $60,000.00 $120,000.00 $120,000.00
RRSP $5,000.00 $0.00 $10,000.00 $0.00
Taxable Income $55,000.00 $60,000.00 $110,000.00 $120,000.00
Taxes (BC) $10,359.00 $11,844.00 $29,294.00 $33,364.00
Disposable Income $44,641.00 $48,156.00 $80,706.00 $86,636.00
Paid Taxes $11,844.00 $11,844.00 $33,364.00 $33,364.00
Tax Refund $1,485.00 $0.00 $4,070.00 $0.00

You’ll notice that for the same amount, the higher the tax bracket, the higher the tax credit is. It’s one of the reasons why you may want to reserve your contributions for when you are in a higher tax bracket. The TFSA can help with that since you can invest in a TFSA until you want to maximize your RRSP contribution.

What the scenarios above outline is that you get a tax break when you contribute to your RRSP but what it doesn’t show is what you do with the tax break, and this is where you can truly maximize your RRSP. If you usually see your tax break as a gift, I would strongly suggest your reconsider because the tax man intends to collect it later on when you withdraw funds from your RRSP. Although it can be used to pay for your car insurance, home insurance or your trip to a sunny destination, it’s much better to re-invest it The age old dilemma is whether you invest it (TFSA anyone?) or pay down your mortgage. Both options can offer the power of compound growth. My personal take is if you are early in your mortgage, pay down your mortgage for a little while, it will have a significant impact over time. Otherwise, it’s your choice; one has a guaranteed rates, and the other has a potential investment return rate. In either case, you will benefit greatly compared with paying for insurance or any other spending.

Tax Refund Scenarios RRSP Growth @ 4% for 25 years

I used the $120K example from the scenario above as it can be representative of a family income. As you can see, it takes hard work and a lot of savings to reach 1 million dollars. This example represents just the RRSP contribution and assumes you spend the tax refund.

RRSP Tax Refund invested in a TFSA

Same scenario as above but with the $4,070 tax refund invested in your TFSA. Little by little, your TFSA will grow. After 25 years, you would have $169,498 in your TFSA. Not too bad if I may say. The growth is also simulated with a 4% annual compound growth which is probably conservative if you invest in equities. A good 10-10 dividend strategy should help you grow it faster due to the 10% growth in your dividends annually, and you’d expect a company that can do that to also increase in value.

RRSP Tax Refund invested in your Mortgage

Here we apply the tax refund to your mortgage with a 3.5% rate (might not be realistic for 25 years but for immediate comparison it works). We use the same $4,070, and you can see that you shave 6 years off your amortization for a total saving in payments of $18,864. For the last 6 years, you should invest the tax refund to kick-start your savings, and you could reach $26,996 at 4% annual growth. If you are capable at not adjusting your lifestyle once your mortgage is paid and you invest the same payments for the next 6 years with your tax refunds, you would have $144,161. That’s still $25,000 short, but it’s possible with a strict budget and willpower.

The Mortgage + Tax Refund pays a total of $108,779 of interest total whereas the default mortgage will pay $149,343. It’s an excellent saving on the mortgage but after 25 years, what do you have to show? No extra investment and no extra equity … Is that where you want to be? Something to consider.

RRSP Tax Refund invested back in your RRSP

With your tax refund invested back in your RRSP, the total assets land at $673,387.11 – no small change. The tax refund re-invested allows the contributor to increasing the tax refund which increases the amount invested in total. The RRSP value is the same as all the other scenario but the re-invested tax refund ends up higher than a TFSA in this scenario at $256,928.03 compared with $169,498.85. That’s almost $100,000 greater.

If you compare investing your tax refund in your TFSA compared with accelerating your mortgage, you will notice that after 25 years, in both scenarios your mortgage will be paid with a possible clear winner depending on your ability to continue saving.

  • With 25 years of TFSA contribution, your portfolio will have grown by an extra $169,498
  • With extra mortgage payments, your portfolio will have by an extra $26, 996 (not taking into account the ~$1,500 per month possible investment form the mortgage payments)
  • With extra mortgage payments and extra monthly payment in savings, your portfolio would have an extra $144,161
  • With extra mortgage payments and extra half-monthly payment in savings, your portfolio would have an extra $85,875
  • With 25 years of RRSP re-invested tax refund, your portfolio will have grown by $256,928.03
It’s really interesting when you sit down and really look at the numbers. It’s mind-boggling how clear it can make it. I expected it to have a larger impact on the mortgage but due to the structure of mortgage interest (front-loaded), the added payments later in the term don’t make the same dent, so you reach a point of no return other than the satisfaction of being done.
RRSP Tax-Free Growth

Tax-free growth only implies that your money can grow tax-free, but it’s important to organize your investments to maximize the tax-free benefit. If you just want to compare investments from a tax perspective, a buy and hold strategy of an equity may be better outside of an RRSP than inside since all you have to do is pay capital gains when you sell whereas you would pay your marginal tax rate when you withdraw from your RRSP. Tax-free growth also requires growth. It’s also quite important to understand which investment account you should use for different investments. Spousal Contributions

For families, I am introducing another way to maximize your RRSP. ALWAYS have the higher income spouse make the contribution when you can since the higher income will receive the tax break. The tax refund can be quite nice. All you have to do is open a Spousal RRSP and contribute to it just like you would do for yours. Let’s look at a scenario.

  • Wife makes $90,000 with a marginal tax rate of 38.29%
  • Husband makes $70,000 with a marginal tax rate of 29.70%

As you can see, there is almost 10% different in taxes. Assuming they each put $5,000, the individual tax refund is:

  • $1,897 for the wife
  • $1,485 for the husband
  • A total of $3,382

Now if we let the wife take a $10,000 RRSP contribution, her tax refund would be of $3,522. That’s an increase of $140 dollars. If you start increasing the RRSP contributions, the tax refund will also increase, especially if you change tax bracket.

Final Thought

Work towards investing in both your TFSA and RRSP if you can. If not, choose a strategy that works for you and work on saving more to do both when you can.

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Dividend Earner by Dividend Earner - 2w ago

Can blue chip stocks be part of your winning investment strategy? A successful long term approach to investing is to pick winning stocks and as you probably know, it’s a lot harder to do for a consistent period of time than you can imagine.

Many investors and stock analysts will share their opinion on many different stocks but the reality is that there are proven businesses with a long history of growth and success through good and bad times. Those blue chip companies often have a leg up on the competition and lead the way with consumers for recognition.

Here is what you will learn:

  • What a blue chip stock is
  • The complete list of blue chip stocks on the Toronto Stock Exchange
  • The top 10 blue chip stocks
What Are Blue Chip Stocks?

A blue chip stock has the following characteristics:

  • The company is a leader in both market capitalization within its sector, its country and in its business segment.
  • The company will often have products that are well-known to everyone and established within the household.
  • The company will often pay a dividend and have paid a dividend consistently for many years. While it’s not required to pay a dividend, or have increased the dividend, they usually have established the pattern.

Blue chip stocks are considered to be more defensive with the ability to weather stock market storms. It doesn’t mean the stock price will not go down, it means they are expected to recover due to their established business and strong foothold.

The blue chip reference comes from understanding that a blue chip is the most valuable poker chip if you are curious about the reference. Watch this video for a great explanation.

Stay on top of your next investment decision with the Dividend Snapshot Canadian Dividend Performance List. Review the Chowder Rule along with the 3, 5, and 10 year ratios for dividend growth, EPS growth and the payout ratio to pick a solid investment for your portfolio.

DISCLOSURE: Please note that links to merchants mentioned within this post might be using an affiliate link. Using an affiliate link means that, at zero cost to you, I might earn a commission if you buy something through that affiliate link.
Canadian Blue Chip Stocks

Here is what I consider to be the complete list of blue chip stocks on the Toronto Stock Exchange. A identified a total of 47 blue chip stocks from the Toronto Stock Exchange.

Royal Bank of Canada

TSE:RY

Market Trend

TD Bank

TSE:TD

Market Trend

Bank of Nova Scotia

TSE:BNS

Market Trend

Enbridge

TSE:ENB

Market Trend

Canadian National Railway

TSE:CNR

Market Trend

Suncor

TSE:SU

Market Trend

Bank of Montreal

TSE:BMO

Market Trend

CIBC

TSE:CM

Market Trend

Bell Canada

TSE:BCE

Market Trend

Manulife

TSE:MFC

Market Trend

Brookfield Asset Management

TSE:BAM.A

Market Trend

TransCanada Pipeline

TSE:TRP

Market Trend

Canadian Natural Resources

TSE:CNQ

Market Trend

Thompson Reuters 

TSE:TRI

Market Trend

 

Alimentation Couche-Tard

TSE:ATD.B

Market Trend

Great West Life

TSE:GWO

Market Trend

Canadian Pacific

TSE:CP

Market Trend

Sun Life Financial

TSE:SLF

Market Trend

Rogers Communications

TSE:RCI.B

Market Trend

Imperial Oil

TSE:IMO

Market Trend

Telus

TSE:T

Market Trend

Loblaw

TSE:L

Market Trend

Magna International

TSE:MG

Market Trend

 

Power Financial

TSE:PWF

Market Trend

 

National Bank

TSE:NA

Market Trend

Pembina Pipeline

TSE:PPL

Market Trend

Teck Resources

TSE:TECK.B

Market Trend

Barrick Gold

TSE:ABX

Market Trend

 

Dollarama

TSE:DOL

Market Trend

 

Fairfax Financial

TSE:FFH

Market Trend

Fortis

TSE:FTS

Market Trend

 

Franco Nevada

TSE:FNV

Market Trend

Saputo

TSE:SAP

Market Trend

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2018 is in full swing and the dividend keeps on coming. As a Canadian, I hope you have diversified into the US to benefit from the red hot US stock market. Regardless of your investing strategy, you should have exposure to the US market.

I was researching industrial stocks and nearly all of the 30 stocks I had listed were trading at their peaks. That’s impressive as it was most of the stocks and not just 1 or 2.

If you have been following me over time, you would know that I have a portfolio strategy where I target a certain percentage per sector and I also limit my exposure to 5% or less which establishes how many stocks I should hold per sector at a minimum. These two portfolio strategy pillars take the emotion out of investing;

  • Sector targets
  • Holding cap in portfolio.

I have adjusted my target a few times in the past 5 years based on my self discovery and investment learnings. I started with a more averaged approach across sectors but I had a few realizations along the way:

  1. I have no bonds. The strategy of having a bond to stock ratio based on your age is not a strategy I find adequate in the low interest rate we are in and with our life expectancy. As I approach living of my portfolio, I will establish a laddered bond strategy for cash access over years.
  2. I have no Basic Materials. I simply do not understand the markets and the commodity business is not a field I want to spend time learning. As such, I decided to drop Potash and Agrium a while back and stay out of the sector.
  3. I have no Consumer Cyclical. In general, I found it difficult to find companies that I wanted to hold. I had McDonald’s NYSE:MCD for 5 years and as my portfolio grew and needed to find other holdings, I could not settled on any stocks and preferred other sectors. I made the decision to stay out of the sector.
Stock Trades

I finally added a new stock to my industrial sector using my cash on hand and my 2018 TFSA contribution. I purchased 3M NYSE:MMM and it represents 3.38% of my portfolio while Canadian National Railway TSE:CNRNYSE:CNI represents 7.34% of my portfolio.

While I could sell 30% of my CNR holdings, my healthcare exposure has grown and AbbVie NYSE:abbv leads the pack with an 8.22% portfolio exposure. According to my portfolio strategy, I also need to add another healthcare stock. With a 16% target and a maximum exposure of 5%, I need 4 holdings and I only have three with Johnson & Johnson NYSE:JNJ, AbbVie NYSE:ABBV, and Cardinal Health NYSE:CAH.

Sector Diversification – January 2018

After the purchase of 3M and the earnings season, my diversification looks like below. I like to leverage new money to rebalance but it may be worthwhile to use February, May, August and November as the month to do some rebalancing. It’s the month after the earnings season which would take into consideration the fluctuations incurred from the earnings.

Stock Selection Made Easy

Dividend Income

My January 2018 dividend income is $1,485.79. It’s $400 more than January 207 and around a 40% increase year over year. I had a 25% growth the year prior. Since I switched to focus on a dividend growth, my dividend income has seen the growth year after year. My stock selection criteria focuses on dividend growth stocks with a 10% CAGR growth over 10 years and it has worked out well.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.

Image: Master isolated images / FreeDigitalPhotos.net

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One of the most challenging aspects of starting with dividend investing may be to not know how much money we need to get started. I started investing in mutual funds back in my 20’s and I was focused on growing my RRSP (Registered Retirement Savings Plan) and maximizing my contributions. That’s what you were supposed to do …

Well, the reality is that the benefits of RRSP when your income is low is not all that great from a tax saving perspective. It’s great that you start early since you will leverage the years of growth but wouldn’t it be nice to also get the benefits of compound growth with dividends? Let’s cover the options when you are young to put dividend investing in perspective.

Dividend Investing Options In Your 20’s

You just got your first job and you want to save some money or build a nest egg for early retirement. Chances are that you don’t have thousands of dollars available for investing. Between paying for the rent, food, and transportation, you’ll probably have a few hundreds of dollars available per month to possibly invest. With such small amounts, the options are usually the following:

  • High-Interest Savings Account – Not really a growth account but at least you are putting your money aside and not spending it. The current interest rates don’t even keep up with inflation. I am not sure if they ever did …
  • Guaranteed Investment Certificate (a.k.a. GIC) – The banks will often offer GIC when you have a small amount of money to invest outside a registered account. It pays more than a high-interest savings account but it locks your money for a certain period. Interest is paid and is therefore treated as regular income if done in a non-registered account.
  • Mutual Funds – Any accounts will let you invest in mutual funds. You can do it form your TFSA, RRSP, Non-Registered or even through the bank. Mutual funds allow you to invest very small amount at any kind of interval you want. It tracks fractional shares and it makes it very easy for anyone to invest in. I started with mutual funds but I am mostly in stocks now. If investing in mutual funds is appealing to you, I suggest you read about index investing. Canadian Couch Potato has a great site for index investors. These options tend to be what most of us are aware of when we are young. I wish I knew what I know know, as I know stock investing is well within reach when you are young. I thought it was too expensive but that was a myth.
  • Exchange Traded Funds (ETFs) – It’s similar to mutual funds but you do need a discount broker account as it trades like a stock. There are discount brokers offering free ETFs transactions, do your research and settle on the appropriate discount broker. You can find ETFs that pay monthly income but most indexes also pay dividends since they hold dividend stocks.
  • Stocks – Is it too expensive when investing small amounts?
Mythical Cost of Stock Investing

Stock Investing usually requires a discount broker account. I say usually because I’ll show you how you can invest in stocks without it.

Discount Broker – Transaction Fees

The standard way of buying stocks is through a broker, and if you are like me, you are using a discount broker. The cost of investing with a discount broker can vary but I’ll highlight some of the costs depending on your broker.

  • Trading Fees – It can range from $4.95 to $29,99. Questrade is by far the cheapest discount broker in Canada.
  • Account Fees – Some account will have a fee depending on your capital invested and who the broker is.

Before I saw the light and did my research, I thought I’d have to pay $29.99 to trade stocks and that’s a bit steep when you only invest under $1,000.00 dollars. It can add to the share price over time. Assume you have $500 to invest every few months and you want to buy a bank. For simple math, assume they trade at $50 per share. Your 500$ only allow you to buy 9 shares. We’ll raise your capital to cover the transaction fees to buy a total of 10 shares.

  • With a $29,99 fee, you would add $3.00 per share. That’s adding over 5% to your cost.
  • With a $4.95 fee, you would add $0.50 per share. That’s adding 1% to your cost. Not much but it’s the cost of a low mutual fund MER (Management Expense Ratio).

Add to this any account fees for the year if you have any due to low investment capital and it starts adding up. The power of dividend investing is the ability to DRIP shares and that’s very difficult to do with a discount broker account and little money as you need to purchase enough share to generate a dividend payment that is above the cost of one share. Usually, that’s well in the thousands of dollars.

Transfer Agents – No Transaction Fees

I saw the light after reading Derek Foster’s The Lazy Investor. Through his book, I discovered Computershare and Canadian Stock Transfer. They are transfer agents for corporation allowing you to buy shares directly and at no fees. So far, all Canadian companies I have purchased do not have fees but I believe some US corporations have fees (I have not purchased any US companies through transfer agents yet). As the book title says, you can start with only $50.00. The transfer agents allow you to purchase fractional shares and most companies available also pay dividends which makes it perfect for dividend investors. The initial setup could be expensive as you need a share certificate but I found a way to get a share certificate for the price of 10$ only. It beats the cost of any discount brokers! Requesting a share certificate from a discount broker requires you to buy a share plus pay for the certificate. You could end up paying 2 or 3 times the price of the share just to get set up. The cheaper way of doing it is having someone transfer a share in your name.

That’s where ‘The DRIP Investing Resource‘ comes into play. I bought all my first share of my 11 holdings with Computershare and Canadian Stock Transfer through other dividend investors I found on the forums. For just 10$, as a thank you for doing the work, I got set up with all these amazing dividend friendly companies. I can DRIP and let my money work for me. Just to show you how small you can invest, I’ll show you my holdings with Computershare. My total account value with Computershare is just slightly above $7,000. As you can see, you can invest in solid Canadian dividend paying companies with little money. In fact, most of my contributions over the past year have been between $50.00 and $300.00. You get the benefits of fractional shares and re-invested dividends (DRIP). All of it at no cost. All you have to do is let your money work for you! Snapshot from 2009

Image courtesy of David Castillo Dominici - FreeDigitalPhotos.net

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Comparing dividend stocks by sector is an important step in my stock selection process. As your portfolio grows, you should have more than one dividend stock per sector to limit your exposure. As you get ready to invest more money either from dividends or from new money, which sector do you add to or which stock? It’s entirely possible that one of your holdings is underperforming and you want a replacement. It happens. Understanding your options by sector is a diligent and smart investing approach.

Sector Classifications

Sector classification is driven by a set of standards across North America, stock market and indexes. There is a specific company classification referred to as NAICS (North American Industry Classification System) managing a set of classifications. Statistic Canada is also a partner with defining the NAICS with company counts for different classifications.

While the company classification is critical to understand the evolution of industries, it is by far too detailed to manage for investors and all companies can be grouped under a sector. The best visual tree I could find is under Wikipedia's Global Industry Classification Standard.

Sectors Industries
Basic Material Chemicals, Construction Materials, Containers & Packaging, Metals & Mining, Paper & Forest Products
Communication Services Diversified Telecommunication Services, Wireless Telecommunication Services
Consumer Cyclical Auto Components, Automobiles, Household Durables, Leisure Products, Textiles, Apparel & Luxury Goods, Hotels, Restaurants & Leisure, Diversified Consumer Services, Media, Distributors, Internet & Direct Marketing Retail, Multiline Retail, Specialty Retail
Consumer Defensive Sector Food & Staples Retailing, Beverages, Food Products, Tobacco, Household Products, Personal Products
Energy Energy Equipment & Services, Oil, Gas & Consumable Fuels
Financial Services Banks, Thrifts & Mortgage Finance, Diversified Financial Services, Consumer Finance, Capital Markets, Mortgage Real Estate Investment Trusts (REITs), Insurance
Healthcare Health Care Equipment & Supplies, Health Care Providers & Services, Health Care Technology, Biotechnology, Pharmaceuticals, Life Sciences Tools & Services
Industrial Sector Aerospace & Defense, Building Products, Construction & Engineering, Electrical Equipment, Industrial Conglomerates, Machinery, Trading Companies & Distributors, Commercial Services & Supplies, Professional Services, Air Freight & Logistics, Airlines, Marine, Road & Rail, Transportation Infrastructure
Real Estate Equity Real Estate Investment Trusts (REITs), Real Estate Management & Development
Technologies Internet Software & Services, IT Services, Software, Communications Equipment, Technology Hardware, Storage & Peripherals, Electronic Equipment, Instruments & Components, Semiconductors & Semiconductor Equipment
Utilities Electric Utilities, Gas Utilities, Multi-Utilities, Water Utilities, Independent Power and Renewable Electricity Producers
DISCLOSURE: Please note that links to merchants mentioned within this post might be using an affiliate link. Using an affiliate link means that, at zero cost to you, I might earn a commission if you buy something through that affiliate link.
Industrial Stocks

I have identified 30 industrial dividend growth stocks from the S&P 500 dividend achiever list. Of that list, 11 are S&P500 dividend aristocrats with 6 of them in the dividend king category. As a quick summary, here is what each of the classifications means:

  • Dividend Achiever: A stock that has increased its dividend for 10 consecutive years.
  • Dividend Aristocrat: A stock that has increased its dividend for 25 consecutive years.
  • Dividend King: A stock that has increased its dividend for 50 consecutive years.

As you probably know, a longer streak doesn’t mean a better stock. There are many more criteria that must be evaluated but what a long streak tells us is the commitment to shareholder value the company has and its ability to manage the company’s cash.

There many more industrial stocks but the list below is a good start to find an industrial holding for your portfolio.

3M

NYSE:MMM

Market Trend

Union Pacific Corp.

NYSE:UNP

Market Trend

United Technologies

NYSE:UTX

Market Trend

Caterpillar

NYSE:CAT

Market Trend

Lockheed Martin Corporation

NYSE:LMT

Market Trend

FedEx

NYSE:FDX

Market Trend

General Dynamics

NYSE:GD

Market Trend

 

Illinois Tool Works

NYSE:ITW

Market Trend

Raytheon Company

NYSE:RTN

Market Trend

Northrop Grumman

NYSE:NOC

Market Trend

CSX

NASDAQ:CSX

Market Trend

Emerson Electric

NYSE:EMR

Market Trend

Waste Management

NYSE:WM

Market Trend

Cummins

NYSE:CMI

Market Trend

Roper Technologies

NYSE:ROP

Market Trend

Parker-Hannifin Corporation

NYSE:PH

Market Trend

Stanley Black & Decker

NYSE:SWK

Market Trend

Republic Services

NYSE:RSG

Market Trend

Cintas

NASDAQ:CTAS

Market Trend

L3 Technologies

NYSE:LLL

Market Trend

 W.W. Grainger

NYSE:GWW

Market Trend

Fastenal Company

NASDAQ:FAST

Market Trend

Dover Corp

NYSE:DOV

Market Trend

CH Robinson Worldwide

NASDAQ:CHRW

Market Trend

Pentair

NYSE:PNR

Market Trend

JB Hunt Transport Services

NASDAQ:JBHT

Market Trend

Expeditors International of Washington

NASDAQ:EXPD

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With 2017 behind us, it’s time to reflect and establish your action plan for 2018. The deals were definitely not easy to find but could still be found. Don’t dwell on 2017 and learn from it then figure out your action plan.

In some cases, you could simply add to your winners and in others, you may have to plan on doing some dollar cost averaging. One thing that is clear to me is that you should always be invested. Staying on the sideline waiting for doomsday means your money is not working for you and it highlights that you fear a stock drop. The fear may come from not being confident in your stock selection.

I am reminded of a quote …

Risk comes from not knowing what you are doing.– Warren Buffett
Stock Trades

No trades in December. As I have been discussing, I only have 1 stock in the industrial sector which represent 7.43% of my portfolio. Based on my portfolio management rules, I am targetting having under 5% of exposure per stock and I should have 2 stocks in the industrial sector to cover my target of 10% exposure in the industrial sector.

Sector Diversification – December 2017

I am sitting on CAD$17,000 cash from previous adjustment and my TFSA contribution for 2018 which should help rectify the industrial sector. I just need to pick the industrial stock and I am still undecided although MMM is high on my list.

Stock Selection Made Easy

Dividend Income

My December dividend income is $1,413.71. My portfolio has an annual rate of return of 13.04% since inception. It continues to beat the index by 3% which validates my approach to portfolio management and stock selection. I compare my portfolio by simulating a purchased in the TSX and SP500 indexes when I make my own purchase. It’s the most accurate comparison I can imagine

I made $15,703 in dividend for 2017. It represents a 24% growth over 2016 which is a factor of dividend growth and new money being invested.

You can see my growth of dividend income over the years. A systematic approach leads to a growing dividend income year after year.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.

Image: Master isolated images / FreeDigitalPhotos.net

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