Canadian MoneySaver magazine has provided Canadians with balanced insight into personal-finance issues since 1981. Through an exclusive arrangement
with The Costco Connection, Canadian MoneySaver’s experts provide Costco members with answers to their questions about financial issues.
higher interest rates but generally are more
stable. Industrial companies are affected by
the economy, and this can hurt their reliability.
Telecoms, utilities and pipelines are the most
reliable, in my view, and consumer staples are
very reliable but tend to pay low dividends. If
there were a serious economic event I would
have the most confidence in companies such
as TransCanada and Enbridge Inc.
Can you comment on U.S. dividend stocks
in a tax-free savings account (TFSA) versus a non-TFSA?
The U.S. does not yet recognize the TFSA,
so there is a 15 per cent withholding tax on
U.S. dividends. In a registered retirement savings plan, this does not apply. In a non-regis-tered account, the 15 per cent is held back, but
you can apply for a foreign dividend tax credit
to get some of it back.
Can you recommend the ideal geographical (U.S., Canada, international) percentages in a retiree’s portfolio?
Every investor has different needs, but I
think 70 per cent Canadian, 20 per cent U.S.
and 5 per cent international is about right, on
average. I tend not to consider cash, as most
retirees have some sort of other income, such
as pensions, Old Age Security and Canada
Pension Plan. C
EARLIER THIS YEAR, Canadian MoneySaver hosted a free webinar on dividend investing. We are presenting a few of the questions
posed by MoneySaver members and the answers
supplied by Peter Hodson of 5i Research Inc.
Does one’s dividend strategy change
with age? Should younger investors have
fewer dividend-paying stocks and focus
more on growth?
Generally, yes. We think younger investors need to focus on growth, but this can also
come from dividend-growth companies as
well as pure-growth companies paying no
dividends. As investors age, they can shift to
higher-yielding, slower-growth companies, as
these tend to be the most stable.
Do you place any credence in the supposed maxim that as goes the first week
in January, so goes the market for the
rest of the year?
There is a January impact, but more for
the month than the first week: The belief has
some relevance if you note that the January
barometer—the indicator that suggests the
stock market’s performance in the month of
January dictates the overall year’s returns—
has been accurate 80 to 90 per cent of the time
since 1950. Like all indicators, though, when
it does not work it can cost you a lot of money
(or missed profits). There is definitely a small-
cap January effect, which investors can profit
from. Small caps on average tend to do very
well in January.
For income investors, do you consider
return of capital to be the same as dividends? If so, would you prefer dividends
to return on capital and why?
Return of capital is simply getting your
own money back, effectively. This can, though,
have some tax advantages to defer tax and to
shift tax to capital gains, which have the lowest
tax rate. Much depends on your individual
situation. I do, generally, prefer dividends. I
want to see a company make money, not simply return your money.
Again, generally, I would also expect a
company paying dividends to have a much
better share performance than one simply
designed to float money back to shareholders.
Studies have proven that companies that grow
dividends are the best market performers
Please talk about the reliability of dividends from businesses in different sectors—e.g., financial versus resources
versus industrials, et cetera.
Generally, the more cyclical an industry is,
the less reliable the dividend is. One way to
look at it is, does the company really control its
own destiny? Right now, no matter how good
an energy company is, it has seen the price of
its sold product drop by 50 per cent in six
months, so the dividend is far less reliable.
Financial stocks sometimes get affected by
More in archives
On Costco.ca, enter “Connection”;
at Online Edition, search
Email to: moneyinfo@canadian
moneysaver.ca. Or send to:
Canadian MoneySaver, The Costco
Connection Q&A, 55 King St. W.,
Suite 700, Kitchener, ON N2G 4W1.
Selected questions are answered
in this column. Costco members
are offered a one-year (nine-issue)
introductory online or print subscrip-
tion for $19.95 plus tax. Order at
canadianmoneysaver.ca and click
7632. Online, use “CC” for the
discount code at the bottom of the
page. You can view a recent
edition and sample articles online
The opinions of the experts may not
apply to Quebec residents.