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to make a long story short, would like to generate some dividend income to add to our annual income, the dividend income will be under my wife's income for tax reasons

have $90,000 and looking to generate about $5000 per year if possible, from the Globe Investor site found this link
http://www.theglobeandmail.com/globe-investor/investment-ideas/number-cruncher/searching-for-canadian-dividend-growers/article1599895/

my question is how many and which stocks should I consider, would XDV or the Claymore dividend ETF be a better choice

thanks.
 

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Take a look at the PH&N Canadian Income Fund Series D which has been the top performing Canadian equity fund over the past 12 months according to the Globe and Mail.
 

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MoneyGal has talked about "internet investing advice" on other threads. My suggestion is that you either:

1) Do a lot of research. There are oodles of info on dividend investing and diversification, and from that you should be able to figure out which and how many stocks to buy.

2) Hire a fee-only advisor to design this portfolio for you. For a certain fee ($500-$1,000?) they can tell you exactly what to invest in.
 

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Discussion Starter #4
why would I pay someone $1000 and not know if I can trust them, understand the advice from internet but this forum produces a great deal of investment knowledge that I am guessing would be difficult to match from a fee-only advisor, having said that if anyone knows a respected fee-only advisor near London, ON please post some info
 

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Frankly, I don't think you'll find a 6.6% yield. But you could certainly start building a portfolio of dividend paying stocks and get a portfolio yield in the 4% range, which will grow over time. I'd suggest including a few of the banks (say, RY, TD), some of the life insurers (MFC seems like a deal at the moment), some oil/gas names (CPG has a high yield and is a well-run company--maybe Encana or Cenovus as well). If you have the ability to shelter the earnings in RRSP or TFSA, consider some REITs like REI.UN. You can pick some of the business income trusts as well, such as The Keg Royalties Trust, etc. but they may cut their distributions to pay their tax bill after conversion.
 

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Buy any broad market ETF in lots of 100 (or, better, a combination of low correlated ETFs with high open interest and higher volatility) . Sell one strike OTM covered calls with expiration next month (do this every month). This will produce an income substantially higher than 7%/year and is better for taxing purposes (the income is considered capital gains). In this high volatility period you'll easily get 2-3%/month (you'll give up potential gains above your strike, in exchange for this).
 

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XDV is all dividends, no income. You can have XDV unsheltered, and XRE and XTR sheltered. To me it seems cleaner to be able to separate the types of revenue.

CYH and CDZ provide mixed revenue, so do you shelter them or not?

You could pick up good defensive stocks that pay 4 to 5% dividend yield.
 

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Stick with companies with a solid record of dividend INCREASES (Manulife doesn't make the cut, they chopped the dividend), low payout ratios, upward growth in free cash flow, and earnings.

Some of the banks haven't raised dividends in a while. A recent dividend increase is also a good sign.

The Single Best INvestment by Lowell Miller is all about dividend growth investing, and explains it in good detail, tells you what to expect, what to watch out for, and how to construct various portfolios, depending on what you want to do, i.e income right now, or income later.

Hands down the best book out there on dividend investing.
 

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" ... Buy any broad market ETF in lots of 100 (or, better, a combination of low correlated ETFs with high open interest and higher volatility) . Sell one strike OTM covered calls with expiration next month (do this every month). This will produce an income substantially higher than 7%/year and is better for taxing purposes (the income is considered capital gains). In this high volatility period you'll easily get 2-3%/month (you'll give up potential gains above your strike, in exchange for this)."

i beg to differ with the foregoing suggestions. They effectively prevent the optimal returns that can be gained from an option strategy.

1) we don't buy ETFs with high open interest. The term open interest is applied to options only. I agree that one should hunt for options with high volatility & high open interest, ie avoid illiquid options.

2) advice to sell the next month's OTM call is given only by exchanges & brokers who will reap the frequent fees & commissions. It is exceptionally bad advice, because in every OTM option's final month of life the premium gained from selling is rapidly decaying down to zero. This is the theta of the option. Selling such a near option every month means that a trader is routinely harvesting only one-third to one-half of what he could gain if he went further out in time, to a 6-months otm call where premium decay has not yet begun, or even further. A 6-month call will offer a robust time value in its premium, depending upon the volatility of the underlying.

it is possible to build a laddered structure of short call options upon a long stock portfolio. Although every option sold is a 6-month or longer, and thus it captures a significantly greater premium than a 1-month, a laddered portfolio means that some options are nearing expiration each and every month.

an inexperienced trader might argue that interest costs mean that the premium received for the 1-month is the same as the 6-month. Not true. Any graph of any option's price evolution will show the rapid collapse of every OTM option's time value in its final month. So if one is a seller of OTM options, one never wants to be selling in that final theta-driven period. On the other hand, if one is buying back a short option position, one waits until very near the end so that the same theta effect will destroy the option's time value.

3) the income is not considered capital gains unless the trader buys back the short option to close his position. Otherwise, amounts earned by selling short call options are taxed as straight income. This means Do Not Let Your OTM Options Expire. Buy Them Back.

4) as for losing potential gains above an option's strike price, this is not necessary at all. There are several strategies that will rescue a long-stock-short-call position which has risen into the money. These include buying back the ITM option near its expiration date (so as to benefit from the collapse in its price) and selling other options further out in time; or substituting a LEAPs option for the stock; or occasonally shorting the stock.

in the best scenarios, the trader is able to buy back the original option at its low-theta no-delta price as it nears expiraton; and sell another call option with a higher strike that is further out in time; and collect a credit in the rollover.
 

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2) advice to sell the next month's OTM call is given only by exchanges & brokers who will reap the frequent fees & commissions. It is exceptionally bad advice, because in every OTM option's final month of life the premium gained from selling is rapidly decaying down to zero. This is the theta of the option. Selling such a near option every month means that a trader is routinely harvesting only one-third to one-half of what he could gain if he went further out in time, to a 6-months otm call where premium decay has not yet begun, or even further.
That's the whole idea of this strategy, to collect theta. If the premium is rapidly decaying to zero, that's the advantage of the seller who gets to keep it. Time decay is highest in the last month. Before the last month, time decay is slower, so the seller profits are lower (which is better, six 3% returns or one 6% return?). Every options book that I've read suggests selling options close to expiration (and buying further out).

3) the income is not considered capital gains unless the trader buys back the short option to close his position. Otherwise, amounts earned by selling short call options are taxed as straight income. This means Do Not Let Your OTM Options Expire. Buy Them Back.
From what I've read from the MEX site, I don't think so. Do you have a link for this?
 

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in general you are right, we do buy long positions farther out in time, and sell options closer in time.

what i oppose is the sell-the-nearest-strike-nearest-month strategy. I don't mind going out 2 months to sell, for example skipping the julys & selling the augusts. For these latter time decay has not yet begun.

personally, i look farther out in time, and i also wait for counterparties that are willing to sell or buy at advantageous prices. These are more likely to appear on US markets than on the montreal exchange.

in the nearest-month-nearest-strike strategy, the cash intake will be piffling. Commissions will devour this cash. Anyone paying full-service commissions, or even paying the higher fees at discount brokers that apply to small accounts & broker-assisted trades, will get eaten alive if he tries this strategy 12 times a year.

there are also stock commission costs to consider. In a worst-case scenario, the stock will rise steadily for an entire year & our hypothetical nearest-month-nearest-strike will get assigned 12 times. So the trader has to add all these extra stock commission costs - both the inbound and the assignment commissions, which tend to be far higher - to the overall cost of his strategy.

as for taxation of option premiums received, tim cestnick has good explanations on his website. I also went over this with the tax authorities some years ago. I'm not sure what you're reading on the mtl ex website. Certainly one of their paid consultants, richard croft, is aware of this taxation matter.

speaking of the mtl ex, i believe their website offers a workshop audio presentation that also recommends avoiding the nearest-month trap and selling instead 3 or even 6 month options.
 

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At 25% volatility, the time value of the nearest month (30 days to expiration) is about 3% for at the money options. For a stock trading at 100, that is $300 time value per contract. The commissions for stock and call are $16 (or $28 if assigned) in a regular rrsp/tfsa account (with Questrade). If you trade more contracts, the commissions are substantially lower (in %). With a non-registered account with a deep discount broker (interactive brokers) the commissions are $2 (or $3 if assigned).
What I'm trying to say is that commissions are not eating a good chunk of the profit of this strategy. Of course, if you pay crazy commissions to predatory brokers/banks, you'll be better off trading just once a year and buying dividend paying stocks for income.

Link to Montreal Exchange tax explanations: http://www.m-x.ca/f_publications_en/brochure_fiscalite_kpmg_en.pdf
 
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