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Discussion Starter #1
Alright, I have done some reading on million dollar journey and given thought to a new strategy. I am relatively young and have time on my side but have had poor returns (and high fees) the past 10 years and want to start seeing some growth in my RRSP and not lose hundreds at a time the way I do now. I'm thinking that dividend stocks might be a good answer. I've reviewed a list that was posted in a thread from 2007 and it identified the top 20 CDN dividend payers. These seem to be paying about 5% a year. So if I grab something like perhaps BMO and CNR just to take two examples, and move the money I have in those high-fee mutual funds (that we discussed earlier) I currently have, would that work? Would this result in lower fees for me and more predictable, modest growth?

Another idea I read about was a grouping of these dividend payers...I believe this is called an ETF? Would this be better than just choosing 1-2 stocks?

Also, I'm guessing the procedure for this is as straightforward as calling up my bank (the # on my RRSP investment report) and having them switch the investments?

How does this sound?
 

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As a matter of fact, I just made a sizable purchase of a dividend based canadian ETF just yesterday... nice gain on my first day. :)

The more I think about it, dividend investing just seems to match my investing personality.

Check out CDZ and the stocks this ETF holds - a very nicely diversified group of canadian companies. Buying individual dividend stocks seemed like too much hassle to me.
 

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Discussion Starter #3 (Edited)
Thanks Jon. I read about this claymore site as well.

http://www.claymoreinvestments.ca/en/investment-options/exchange-traded-funds/fund-details/fund-summary?ticker=cdz

0.6% mgmt fee, quite a bit less than the 2-3% MG earlier calculated that I was paying now for my mutual funds. If I'm reading this right, the distributions are paid monthly and seem to be bringing in about 4.42%. So does this mean if I invest $x I will receive a 4.42% (or whatever the distribution % is) payout every single month? That means after 12 months I would receive a 48% distribution/increase in account value, assuming the 4.42% rate stays constant over that 12 months?

Am I understanding this right?
 

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0.6% mgmt fee, quite a bit less than the 2-3% MG earlier calculated that I was paying now for my mutual funds.
True, but you are comparing ETF MER with active MF MER.
Some might argue that 0.6% is a tad high for an ETF.

If I'm reading this right, the distributions are paid monthly and seem to be bringing in about 4.42%. So does this mean if I invest $x I will receive a 4.42% (or whatever the distribution % is) payout every single month? That means after 12 months I would receive a 48% distribution/increase in account value, assuming the 4.42% rate stays constant over that 12 months?

Am I understanding this right?
No, the 4.42% is annual, not monthly compounded.
If there were an ETF that paid 48% annualized returns, oh boy, would there be a riot :p
 

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Discussion Starter #5
Thanks Harold, that makes perfect sense.

Now, this 4.42% is based on the share price/value is it not? So if I have share value of $5K then my annual average payout would be 4.42% of $5K, right? Then if the share value goes up to $10K (regardless of my initial $ investment), I would get 4.42% of this new value plus a cool $5K extra in my pocket if I cash out at that point. Is this correct?
 

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Now, this 4.42% is based on the share price/value is it not?
Yes, yield is usually calculated based on previous closing price.
As unit price changes, yield rises/falls assuming payout stays the same.

So if I have share value of $5K then my annual average payout would be 4.42% of $5K, right?
Not quite. Payout is whatever the management decides to pay out and is a specific, fixed amount.
The 4.42% is your yield.
On the day you purchase the security, the yield and payout match up.
But next day onwards, the yield will change based on daily closing price, but nominal payout will remain same (until management changes it).

Then if the share value goes up to $10K (regardless of my initial $ investment), I would get 4.42% of this new value plus a cool $5K extra in my pocket if I cash out at that point. Is this correct?
No, if the unit price doubles, your yield would reduce.
Nominal payout (in $$) would remain the same.
You will have $5K of capital gains if you choose to sell.

Mind you, I don't know any specifics of this particular security.
These are just general concepts on how yield works.
 

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Discussion Starter #7
Thanks Harold, I understand what you have said. Makes perfect sense the way you answer my questions. I also spent some more time on that claymore site, it's a great one, appears very to-the-point and factual. Using their handy Portfolio Index Allocator I was able to look at the performance of this and one other ETF over the past 10 years and CDZ has done remarkably well, 2008 excepted.

Anyway, their report says "It is not possible to invest directly in an index." Does this mean I cannot buy this ETF fund by calling my bank and asking them to buy this in my RRSP?
 

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Royal Mail: Don't do anything hasty. Sounds like you have some research to do before you should start making investment decisions without advice from an investment advisor. The difference in MER for now will probably be nothing when compared to what a few mistakes caused by misunderstanding. No hurry!

Now, on the dividend yield of CDZ. It holds a portfolio of dividend paying stocks, and pays that dividend to shareholders on a monthly basis. This is not a fixed % yield on the price, but more a fixed payment amount. Of course, the dividend is not guaranteed. If any of the constituents of the index decrease or eliminate their dividend, your payout will similarly decrease. The dividend ought to grow gradually over time as the constituent companies raise their dividends.
 

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To buy CDZ, you need to open a brokerage account. Many banks offer this service, but they typically won't perform the transactions for you, but it's relatively straightforward.
 

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A "broker" is an intermediary between a buyer of securities and a seller of securities. A brokerage account is simply an account for the purchase and sale of securities.

You can have a brokerage account through a bank's investment side, a "discount brokerage" (like an online discount brokerage - I use TDWaterhouse although I have no other business with them), or an investment advisory shop (largest one in Canada is Investors Group).
 

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I have shares in CDZ, I think buying an ETF is a better idea than buying 1 or 2 stocks. The ETF will buy you a small part in a lot of stocks so one dropping won't totally kill you. At the same time, one going up will be hidden partially also though.

If you are just buying an ETF I would look at what your commissions are and see how much benefit you get from RBC. Questtrade's about $5 a trade.
 

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Royal, get a copy of "The single best investment" by Lowell Miller, and "the investment zoo" by Stephen Jarislosky.

Both excellent books. The 1st book is all about dividend growth investing.

Growing income is what you are after and price fluctuation is the cost of the ride.

Since you are focused on the income stream, you can ignore the market fluctuations, and thus not worry that you are getting "killed" when prices drop.

You would focus on markets drops as an opportunity to make a killing, not get killed.
 

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When looking for income, consider a ladder of GIC's, bonds, real estate income trusts, preferred shares and dividend-paying stocks.
 

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So if I grab something like perhaps BMO and CNR just to take two examples, and move the money I have in those high-fee mutual funds (that we discussed earlier) I currently have, would that work? Would this result in lower fees for me and more predictable, modest growth?
Your plan is a reasonable one, but there are few downsides I see to the the approach:
- you will minimize your exposure to potentially large capital gains by focusing and relying on companies who give you the predictable 3-5% annual dividend payout. That of course depends on how you are structuring for tax and estate planning.
- Although tax-sheltered in your RRSP, I believe that RRSPs are probably one of the worst places to hold your dividend-paying investments, as your entire dividend is subject to taxation in retirement. Holding CDZ in your TFSA would make more sense to me, but that leads to another question...
- Have you calculated the fees/commissions to make such a move? Until you portfolio is very large, it may not be worth buying individual stocks or even ETFs until you reach the right level (which is why I'm still using Bank Index funds with lowest possible MER)
- Giants can/will fall: What if you had 10% invested in oil, and chose BP as your oil play? Unless one is paying very close attention, things can get ugly in a hurry when you only have a narrow set of investments

I don't see a 3-5% dividend as being desirable for all the risk one takes when in the stock market. There will come a time again when interest rates on bonds/GICs will far exceed 5%, with less risk and it may be worth trying to plan ahead.

The general theme of your direction is a positive step , downsizing those high-MER mutual funds in favor of a self-directed approach is almost always a good thing. :cool:
 

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For now, it seems that the ETF's would be the best step, until you gain a little more knowledge about the dividend paying stocks. They would give you some diversity as well, as opposed to putting all of your eggs in a few stocks.

The book mentioned by Lowell Miler is good. As well as 'The little book of big dividends'. It is american, but those are the dividend paying stocks that you would want to hold in your RRSP b/c of the foreign with-holding tax rules.

As for the CDN dividend paying stocks....'the lazy investor' is a simplified book on non-RRSP holdings. And if you are more interested in accumulating more shares, rather than cash flow to re-allocate, I would check out www.dripinvesting.org.
 

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Discussion Starter #18
Thanks all. Thus far I have learned that the ETF via a brokerage account such as questrade is probably the best way. I imagine the-royal-bank will charge me some sort of a fee to transfer the $ out of my mutual funds and into the questrade brokerage account. Only concern I might have is on ensuring that the transfer is done correctly as a transfer, so I avoid the TFSA situation we were discussing this morning.

I'll try to check out those books next time I'm in a library or book store.

Regarding the 3-5% rate as mentioned by 59, that's a good point. In better times I (like everyone else) might have access to better returns, though the cost of the CDZ ETF (for example) hasn't really changed much over the past 10 years. This would be a good thing to consider for stable growth at any time really, but if a better future investment opp should arise, then I would want to move around the money at that time.

I am wondering about something else though. The monthly dividends that are paid out -- if this ETF purchase was in my RRSP would the money remain in the account? It seems that Questrade will re-invest into my ETF (DRIP? DPP?) but only if the dividends from individual companies are enough to buy at least one share. I wouldn't have quite that much money for quite a ways off, so in the meantime where would the dividend cash end up? Remember my goal with this money is to save for retirement, so I don't need it now, just want to see results on paper for now.
 

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If you have any decent amount of savings, you should be able to get Questrade (or whoever) to cover the transfer fee.


One downside with ETFs is that you can't automate transactions. This may not apply to your situation, but my suggestion for anyone with less than $100k is to use TD e-funds. They are similar to ETFs, but you can set up a monthly purchase plan if that is what you want to do.

They have slightly higher fees than the cheapest ETFs but are more convenient.
 

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Discussion Starter #20
Hi Four, I took a look at the TD e-series funds as you suggested. I don't exactly understand why I would want to automate transactions...can you tell me more? I do have less than $100K but have no desire to setup a monthly purchase plan. I want to come in with a chunk of money from my existing bank mutual funds rrsp and transfer that money to dividend stocks. The CDZ ETF seemed to be the best deal and as you say I could get the transfer fees paid by the destination company. One of the ones I found on TD's site had a MER of 0.48%, quite reasonable.

http://www.tdassetmanagement.com/Content/Products/MutualFunds/Funds/p_FundCard.asp?FID=4817&TAB=OVERVIEW&PID=10&SI=4
 
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