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Dividend Investing For Dummies?

probyn

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Mar 4, 2010
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I am thinking of investing in Dividend Stocks and using recommendations from The Globe And Mail. My bank is the TD Canada Trust, and I would like to put the stocks in my Canadian Tax Free Savings Account. Can anyone provide me with a basic description of how to do so?: a sort of Investing In Dividends For Dummies. Any recommended stocks or investing books would also be appreciated.
 

39ajaxmale

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Jan 13, 2012
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Let them know you want to open a self directed TFSA through TD Waterhouse discount brokerage. That allows you to trade for a minimum cost, $7-$10 per buy/sell transaction. You can buy stocks, mutual funds, bonds, gic's.. whatever you want to invest in.

As for recommendations.. well.. everyone can tell you to invest in something, it's impossible to do so with absolute confidence at any time.
What you should keep in mind is the current economy is in turmoil at best. Europe could still be on the brink of default and bankruptcy. The Asian markets show strong growth, but little returns. The North American markets have companies making decent money, but, it's not showing in the equity markets. The coming US election also is a wildcard with regards to the markets.

I work in the industry, and have recently been scaling back my own equity portfolio and buying more into bond funds. TD has one of the best bond money managers in the industry, Satish Rai. He manages a few funds, among them his TD Canadian Bond fund, (TDB306) and TD Real Return Bond Fund (TDB755) both are Front End load, meaning they have no deferred sales charges and are essentially liquid if you want to sell. Both of these funds pay a monthly dividend, which you can re-invest or have paid out as cash. TD Canadian Bond fund last year was up almost 9%, and the Real Return Bond fund was up over 18%.

If you are looking for equity dividends.. I'll defer to a blog who has done a lot of research:

http://www.thedividendguyblog.com/

If you scroll down below his first few charts, you'll find a link for his suggestions of "Best Canadian Dividend Stocks for 2012". He's included some technical data with his suggestions.

You're going to read a lot about 'blue chip' companies that you will probably recognize as being around forever. They pay out Dividends to keep their shareholders happy. Companies like banks, who are frowned upon when they report billion dollar earning years. Companies that are socially undesirable like Oil companies, and Fast Food chains. You'll find the big 5 banks among the top dividend paying companies, McDonalds, Exxon, Suncor, Johnson & Johnson and GE, telcom's like Telus and Bell, communication giants Shaw and Rogers..

What you won't find in the dividend market are growth companies, who may offer a better investment strategy in a growth market like is expected next year. Tim Horton's, Lululemon, and Dollarama. Companies that are considered growth don't pay dividends because they retain their earnings to re-invest. New Products, new locatons, new ventures. Growth.

If you're keeping your investing lowscale - under $20k since you're talking TFSA, you might want to pick a few SOLID stocks, and avoid mutual funds with their Management Expense Ratio's. Which do cut into your profits, but are typically earned due to their active management.

http://www.theglobeandmail.com/globe-investor/personal-finance/preet-banerjee/would-you-give-up-44-per-cent-of-your-investment-over-25-years/article2280899/

If you do choose to manage individual equities yourself, I would recommend choosing 2-3 top dividend picks, and 1 or 2 quality growth stocks. Split your cash equally and watch the difference in growth.

Remember, with ANY investments, they are meant to be long term and reacting to short term volatility will seriously hurt your returns. "Buy low, sell high" is your friend.
 
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Davenash2

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Sep 10, 2007
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What year are we into now. Is it year 4 for TSFA? So $20K max. Right? I have been waiting a few years and wanted to do this, but with the first year of only 5K it did not jive. Buying less than 100 share of a company does not work. But now if it is 20k, I should be able to diversify with at least 2 or 3 companies.
 

39ajaxmale

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Jan 13, 2012
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2012 is year 4, $20k. Definately an exceptional investment option.

David Chilton (of the Wealthy Barber fame, he's got a new book coming out too) did a very in depth study of TFSA vs RRSP and the results.. surprizingly were almost IDENTICAL in terms of tax treatment.

The bonus with TFSA's is you can take money out, and re-invest the principle back in the following year. With RSP's you can't do that, you can't take money out and EVER re-coup the cap space.
 

JakeB

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Sep 8, 2010
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Another option is Exchange Traded Funds. ETFs such as BMO's ZDV and iShares XDV are much cheaper than mutual funds and each holds a basket of dividend paying stocks, thereby giving you more diversity.
 

39ajaxmale

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Mencken

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Oct 24, 2005
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Some banks have a minumum amount you need to invest to get a "no fee" self directed plan (TFSA or RRSP, etc), and they also have minumum amounts to get lower cost trades...i.e 9.99 instead of 39.99 per trade at TD Waterhouse. Compare different banks and online brokerages...you will probably find one that will give you that with only a 20,000 TFSA....
 
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