Canadian Money Forum banner

1 - 11 of 11 Posts

·
Registered
Joined
·
2,953 Posts
Discussion Starter #1 (Edited)
I would appreciate any thoughts or opinions on the subject ETF:

https://www.spdrs.com/product/fund.seam?ticker=DWX

This would be a long term, buy-and-hold investment.

I am considering moving a small portion of the monies that I currently have invested in bonds, to dividend ETF's and am thinking about the DWX as a possibility due to potentially larger dividend yields on foreign stocks.

Frankly, I am a little afraid of bonds right now even though I have always felt that you should set your asset allocation between fixed income and equities and stick with it.

Now, however, I find myself tempted to lower my bond allocation in favour of a slightly greater tilt towards equities.

Would dividend ETF's currently be considered an appropriate alternative to bonds or only an alternative to other equity investments?
 

·
Registered
Joined
·
6,865 Posts
You would need to evaluate the after tax implications. Are you getting clawbacks of the age and OAS exemptions (15 cents per dollar)? If so then yes switching to non-qualifying dividends might be attractive.

Otherwise, it is an expensive investment choice.
 

·
Registered
Joined
·
373 Posts
Why this one in particular? What's so special about it versus any of the other competitive foreign dividend ETFs?
 

·
Registered
Joined
·
2,953 Posts
Discussion Starter #4 (Edited)
To be honest, this foreign dividend fund was a recent 'top pick' of one of the guests on BNN's 'Market Call'. It was stated that foreign companies often pay higher dividends than their North American counterparts.

I have always understood the importance of asset allocation but today's low bond yields and the spector of rising interest rates is causing me to look elsewhere for yield. From all that I have read, on this forum and elsewhere, dividends seem to be one alternative to bonds to consider.

Do you agree?

Thus, I am considering lowering my 40 percent fixed income component, now invested in bonds, and moving some of those monies to dividend income funds.

If foreign companies generally pay higher dividends, then why not go that way?

I realize that this has been chewed over many times on this forum, but I am aware that, as we age, we should actually INCREASE the fixed income portion of our portfolio but this is tough to do with all of the current talk about bonds being a losing proposition going forward.

What are some of the rest of you older investors doing with your fixed income allocation in your portfolios at this moment in the economic cycle?
 

·
Registered
Joined
·
7,252 Posts
This fund's return since inception is a pathetic -4.20%
40% of its holdings is concentrated in 3 countries - Spain, France and the UK.
As I'm sure, you are aware all three are facing deep financial crisis, esp. the first two and the fund has over 30% invested in these two countries.
The dividend yield (the whole reason to buy this in the first place) is an unimpressive 3.4% - you are better off with a Canadian bond fund.

With the prospect of a falling EUR vis-a-vis the CAD, that's going to wash away any pitiful gains you may make on this fund.

I see no reason to buy.
 

·
Registered
Joined
·
373 Posts
I have always understood the importance of asset allocation but today's low bond yields and the spectre of rising interest rates is causing me to look elsewhere for yield. From all that I have read, on this forum and elsewhere, dividends seem to be one alternative to bonds to consider.

Do you agree?
Yes, they are an alternative. Having said that, dividends won't protect you from rising rates. If this is what you are looking for, then you would need to focus on those companies with a long history of increasing their dividends.

Of course, there's another "safer way to protect yourself from rising rates and that is to convert some of your nominal fixed income into real return bonds.

Thus, I am considering lowering my 40 percent fixed income component, now invested in bonds, and moving some of those monies to dividend income funds.

If foreign companies generally pay higher dividends, then why not go that way?
Focusing some of your funds on dividends is fine, but I would likely be inclined to do that within my equity allocation. You seem to be worrying about yield without giving adequate weight to risk in achieving that end. If you want to start reaching for yield in your fixed income component in an effort to protect your portfolio from inflation then RRBs and Canadian preferred shares in combination might be a better way to do it than looking to foreign dividend payers.

The other issue that raises its head is taxation of foreign dividends. They are taxed at your full marginal rate when held in taxable accounts. When held in registered accounts, the foreign withholding tax is non-recoverable.

I realize that this has been chewed over many times on this forum, but I am aware that, as we age, we should actually INCREASE the fixed income portion of our portfolio but this is tough to do with all of the current talk about bonds being a losing proposition going forward.

What are some of the rest of you older investors doing with your fixed income allocation in your portfolios at this moment in the economic cycle?
The current idea that bonds will be a losing proposition is more than a bit misleading. For starters, if you buy a bond today with even a piddly 2% YTM over the next 5+ years, you will still get that return no matter what happens to interest rates and inflation. You can't lose unless you sell before maturity at a loss. That doesn't promise that you will get a good relative return, but you aren't buying at a loss. With foreign (or domestic for that matter) equity, you have no such assurance especially if you require that capital in the same time frame. You may have had a nice income stream of dividends along the way, but if you're forced to liquidate at a 20% loss, you're worse off than with the bond.

As far as my own fixed income allocation is concerned, I will continue to do what I have always done; roll my bond ladders, accept the return of the market and don't try and outguess an unknowable outcome.
 

·
Registered
Joined
·
2,953 Posts
Discussion Starter #7
Thanks to all for the replies. I think that I will put my plans to convert some of my bond investments to equity income investments on the back burner and maintain my current 40% bonds/60% equities asset allocation including some RRB's in my bond portfolio via the XRB.

I can sleep well with that!!
 

·
Banned
Joined
·
678 Posts
Right now might be a good time to lower bond allocations.
Some of this is actually being forced on me, as several bonds I owned were called early, and I refuse to buy any new bonds, or bond funds at these prices.

Heres my thinking....

Interest rates have nowhere to go but up....Im confident they cant go any lower. Inflation will inevitably come in the future, whether that be in 1 or 3 years, nobody knows.
Due to this flight to safety, and general fear out there, and all the money on the sidelines, and with this low interest rate environment, present values of existing bonds are high.

Equities , although no longer truly cheap, as they were last year, are still reasonably priced, and the div yields are now higher than 10 year treasuries, which does not happen often.
Buying low p/e stocks, with reasonable debt, and good historic 10 year ROE, and dividend growth, which also have a good sustainable yield, seem like a better bet.......and may actually be less risky than bonds!

If the old adage of " buy low, sell high", is correct, and the complete opposite of what most investors,( and fund managers), do, which is "buy high ( when markets are great)...then sell low, ( when markets tank)......then it stands to reason that it may be time to sell bonds,(eg, high right now),,,and buy dividend equites, (eg buy low or reasonable right now)

Everyone wants bonds right now.....time to go against the herd.

What do you guys think? any insights I missed?? thanks.


BELGUY: you may want to just own several international dividend stocks on your own. UK, by the way , does not have witholding taxes on divs to foreign holders..either does Brazil.....Spain holds 19%...several withhold 35%,,denamark, Switzerland.
If these are in RRSP....thats ok....outside you have to be able to use them as "foreign taxes paid"...this happens only if your canadian taxes are higher than the foreign taxes you paid, otherwise the foreign taxes you paid are gone forever.

I own, Vodaphone, AstraZeneca, Nestles, ABB, and several others as well as US companies with global reach, such as JNJ, Baxter, Intel. I try to buy them when they are "out of favour".
All are long term holds.

Good luck.
 

·
Registered
Joined
·
2,953 Posts
Discussion Starter #9
I am not a stock picker. I am a buy-and-hold index investor.

Can anyone suggest an international dividend ETF worth looking at?
 

·
Banned
Joined
·
190 Posts
CYH has a yield of of 4% but it has consistently dropped since inception. Given the crash, this isn't totally surprising.

XEM is doing quite well atm, but the yield is very low.

VT increased it's yield to 1.52 - up from .63 this year.

I don't know enough to analyze it all but CYH seems decent to me and VT (from what i've read) is held in high regard.
 
1 - 11 of 11 Posts
Top