Passive income from dividends. Is it a mistake?

[Zoot Allures]

Hmm, your ideas are intriguing to me and I wish to subscribe to your newsletter.

Waren Buffet and Jack Boogle are the wise older investors passing on their wisdom to help out the common man

I also like ben felix

Also I try to use my healthy skepticism such as mutual funds claims they
have a fund that does this or that and beats market

I think if you can do it why cant all funds? Which is more likely

1 One fund company has the secret know one else knows? Dont they all go to the same schools?
All a competitor has to do is match their funds as holdings are public and I suspect a lot do and
do not bother with the cost of research

2 They are playing a game . What they do is close their losing funds so they are not counted
then claim their aggregate beats the average and sooner or later they have funds that beat the average
10 years in a row by mere chance because they have so many freakin funds, them hawk them as great
funds with proven ability but then watch them collapse like a house of cards.
And that is the recorded history of 5 star funds


It makes no sense, none to me that you can beat the average

If it was possible then all the funds would do it then the average would
be unbeatable as the market would reach perfect efficiency as stocks
would be perfectly adjusted for risk

Yes some stock prices are inefficient but you will not find them and the argument
that some funds weed out the weaker stocks in ,for example, the TSX top 50 thereby beating the tsx 50 index
is just more marketing as separating the losers from the winners consistantly and beyond chance is impossibly hard
the proof , once again, is why does not everyone do it if it is so easy?

Then I think if professionals who run the funds need to use gimmicks to convince you they can beat the
average what chance do you or me have?

But, matching the average is easy as that is what index funds do for freakin free !! (I consider .01% free) so
why give all your profit to a mutual fund when you invest all the risk?

Let me explain my last sentence

A mutual fund takes 2.5 % The average rises 5% on average, inflation is 2.5 % on average
so you have lost all your profit , every last cent, after you put up 100% of the risk capital !!!


I just thought of something else.

You have just doubled your risk with a mutual fund!!

You not only have the market risk but the risk the mutual fund managers know WTF they are doing!

 

[Smallguy]

This is my style of investment, I like my zsp, atd, hba, Tourmaline, and love my riets Minto, apartment riets.
I do like growth etfs aswell.

 

[Zoot Allures]

Again, this is just my opinion. If anyone is interested in passive income investing or covered call ETFS, then this you tube video series is excellent. The host's name is Adriano, and he is sponsored by some ETF companies like Hamilton ETF, Brompton ETF, and Harvest ETF, so please keep this in mind.

Here's a sample of one of his videos, as there are many!!

Not a fan of derivatives like covered calls as they come at a price
derivatives go against the purpose of a market which is to put money
into companies so they can expand and create money and jobs


derivatives turn the market into a casino


Margo Robbie explains

 

[HungSowel]

TaxTips.ca - Ontario 2023 & 2024 Tax Rates & Tax Brackets

TaxTips.ca - Ontario tax rates for 2023 & 2024 for eligible and non-eligible dividends, capital gains, and other income.

www.taxtips.ca

.

In the best case scenario, you make ~50k income with ~37k from qualified dividends and ~13k regular income (taxed @ 20%) you get ~2.5k (37k x 6.86%) dividend tax credit which you apply to the ~2.5k taxes owing on the 13k (13k x 20%). It will look like you pay near 0 on your income taxes, but dividends come from after-tax profits and the typical corporate tax rate is ~25% so the 6.86% DTC means the taxes you pay is actually 18.14%, regular tax on income under 50k is 20% so you are saving 1.86% in taxes.

In all scenarios, the capital gains tax credit is much superior.

 

[Zoot Allures]

TaxTips.ca - Ontario 2023 & 2024 Tax Rates & Tax Brackets

TaxTips.ca - Ontario tax rates for 2023 & 2024 for eligible and non-eligible dividends, capital gains, and other income.

www.taxtips.ca

.

In the best case scenario, you make ~50k income with ~37k from qualified dividends and ~13k regular income (taxed @ 20%) you get ~2.5k (37k x 6.86%) dividend tax credit which you apply to the ~2.5k taxes owing on the 13k (13k x 20%). It will look like you pay near 0 on your income taxes, but dividends come from after-tax profits and the typical corporate tax rate is ~25% so the 6.86% DTC means the taxes you pay is actually 18.14%, regular tax on income under 50k is 20% so you are saving 1.86% in taxes.

In all scenarios, the capital gains tax credit is much superior.

Confusing and complex as dividend tax credit takes coporate tax paid on dividend before distribution into account
with a formula so you do not pay it all over again which is why it is believed
dividends pay less taxes but it seems like a shell game

Regardless, I suspect taxes are secondary to income generated by the market

 

[Zoot Allures]

IMHO, what you pay in income tax is very important, and is overlooked by a lot of investors. IMHO, the cdn dividend tax credit is a total gift as far as income tax goes. However, a lot of investors prefer US securities or Bonds or GIC's in their non registered acct. In that case, they will be paying income tax at their marginal tax rate!!

As a side note, the cdn dividend tax credit, is only relevant in a non-registered acct. It's not applicable to your TFSA or RRSP etc.

Thanks for the valid point of what stock to put in registered account once you have bought it

You have not made a case that you should have bought it in the first place because it
was the wisest investment

 

[Zoot Allures]

Yes, Covered call ETFS come at a price. However, you earn more monthly income with covered call ETFS, then even dividend ETFS etc. Also, another plus is you don't need a margin acct to buy covered call ETFS, as the professionals at various ETF companies buy the covered call options for you!! As usual, just my opinion!!

You may have that wrong as ETFs are not buying the call they are selling it thereby generating income

covered calls generate income but the price is losing out if stock that are covered rise
and giving that capital rise in stock to the buyer

people seperate income generated through dividends or covered calls from capital
gains but $ is $ no matter how it is generated

 

[Zoot Allures]

I solved the market timing thing !

here is the secret to retirement investing !

and it could not be easier!

No dividends, no covered calls, no market timing required

Put money you need for a decided time frame into GIC , say maybe 5 years to allow for a market cycle,
the rest goes into high voltility index like the S&P.

If you need money you draw from the GIC and a robot rebalances every day
and you never touch the S&P monies (the robot does)

As market goes into bull the robot rebalances and takes monies
out of the S&P into the GIC IE you have sold high

As market goes into bear the opposite occurs and you buy low

You will get richer in retirement ! even as you spend more ! as your monies stay invested for maximum return !

This works regardless of your wealth

 

[jeff2]

First of all, I totally respect Ben Felix, but I don't agree with him. Let me explain why. IMHO, Index funds like XIU, XSP, are good for investors who are married or have kids etc In other words, have someone to leave their estate to.

If you hold XIU and XSP for 20-30 yrs you will create a tremendous capital gain, as the stock market goes up, more than it goes down. However the yield on the XSP is about 1% and the yield on the XIU is about 3%. In other words the only way you can make money by holding index ETFS is by selling part of them to make a capital gain or capital loss etc. This involves making extra market decisions, or in other words "timing the market," which is a tough thing to do.

If you're divorced, single, or don't have kids, then IMHO, your much better off having a hybrid combination of covered Call ETFS and dividend etfs, especially in your non registered account. Not only is this strategy tax efficient, but you get to draw out a high income stream each month, without selling any shares. Therefore, you don't have to time the market, which is a good thing.

Also you don't have to pay a financial advisor like Ben Felix to manage your money. This is a rather easy strategy to implement yourself in a discount brokerage. As usual, just my opinion!!

I remember many years ago I held XSP and one year the tracking error was just horrible. Maybe it is better these days.

 

[themaxx]

I 100% don't agree with this strategy, but I'm enjoying the debate......LMAO If you need money how can you withdraw money from a GIC,when a GIC is not liquid??

Want to REALLY enjoy the debate?
Pull up a chart comparing any, or all, of the big 5 Cdn Banks to the TSE for say, the past 30 years. Post the chart here & we can all discuss. Maybe also throw in BCE and ENB, for fun.

 

[themaxx]

I would be happy to do it, but I'm terrible at posting charts. If you would be good enough to do it, I would really like to participate in the discussion!!

If I could of, I would of. Remember, I'm old. Old men suck at newfangled gizmos.
But I'm sure that out of all the participants in this discussion thus far, theres surely one technologically adroit enough to find and post such a chart.
Important point is to pull up such a chart and look at it.

 

[Zoot Allures]

I 100% don't agree with this strategy, but I'm enjoying the debate......LMAO If you need money how can you withdraw money from a GIC,when a GIC is not liquid??

You ladder the gic. They come due whatever time period you chose IE once a month, one every week or even every day.
It is a common way to buy GICs for steady income

In my scenario the ones due in the end of the 5 year cycle would gain the most interest as the longer the gic the greater the interest
the holder will pay which is great if rates drop not great if they rise

this is a great discussion . Everything I hoped for when I started

My brain is getting tired LOL

 

[Zoot Allures]

Want to REALLY enjoy the debate?
Pull up a chart comparing any, or all, of the big 5 Cdn Banks to the TSE for say, the past 30 years. Post the chart here & we can all discuss. Maybe also throw in BCE and ENB, for fun.

Great idea. Especially the 30 year idea as that compares performance through economic cycles

 

[HungSowel]

Yes, but if you're in the lowest or second lowest marginal tax rate, you pay literally no income tax in your non-registered account, due to the canadian dividend tax credit!!

It's -6.86% not 6.86%!! In other words you could have $50K worth of cdn dividend income in your non-registered acct, and literally pay no income tax on this, except for the cdn health premium!!

The DTC is 6.86% not -6.86%, a -6.86% tax credit is a double negative so it means you pay 6.86% more.

The DTC is not a refundable tax credit, you need other income to apply it against. If your only income is 50k worth of qualified dividends then you get no DTC and implicitly pay ~25% tax which is the corporate tax rate which is higher than the 20% you would pay for regular income.

 

[HungSowel]

You ladder the gic. They come due whatever time period you chose IE once a month, one every week or even every day.
It is a common way to buy GICs for steady income

In my scenario the ones due in the end of the 5 year cycle would gain the most interest as the longer the gic the greater the interest
the holder will pay which is great if rates drop not great if they rise

this is a great discussion . Everything I hoped for when I started

My brain is getting tired LOL

There are cashable GICs that have ~1% lower interest rate, not very attractive but it is an option. Right now you can park your money in a Wealth Simple account and earn ~5.5% interest IIRC. You can also buy a cash ETF like CASH.TO which gives ~5% interest rate, this is the highest risk move as the funds are not FDIC insured.

I currently have non-committed funds parked at Tangerine earning 5.5% interest but that is a promotional rate that ends in September, after September I will likely move the funds to Wealth Simple. I will probably move money between Wealth Simple and Tangerine based on the best promotional rates.

 

[craig_hoxton]

You can also buy a cash ETF like CASH.TO which gives ~5% interest rate, this is the highest risk move as the funds are not FDIC insured.

This is true but for CASH.TO to fail, things have to go very, very, very wrong. The last bank failure in Canada was 1923. I'm from the UK and remember seeing people stood in line outside branches of Northern Rock.

 

[HungSowel]

This is true but for CASH.TO to fail, things have to go very, very, very wrong. The last bank failure in Canada was 1923. I'm from the UK and remember seeing people stood in line outside branches of Northern Rock.

I agree with you, but those who are into interest are on the risk adverse side of the spectrum so it is likely a consideration to them.

 

[K Douglas]

In an article in the Globe & Mail, Benjamin Felix claimed focusing on dividend stocks would prevent from getting an optimal return and that index ETF investing is a lot better. Ben's says focusing on dividend investing leads to poor diversification.

Are dividends taxed 100% assuming you made the minimum $ to get into higher tax bracket?
While capital gains have higher taxes they are taxed 50%

Dividends have favorable tax treatment compared to interest and capital gains provided your taxable income is under $112K

Taxable income of $85,000
Interest/other income 29.7%
Capital gains 14.85%
Eligible dividends 6.4% (must be Canadian owned public companies)

Taxable income of $125,000
Interest/other 43.4%
Capital gains 21.7%
Eligible dividends 25.4%

So if you a retiree and have average income you would far prefer your domestic portfolio to pay out dividends as opposed to capital gains. If you want to hold US/foreign assets you're best to index invest and earn capital gains.

 

[ValuedSupporter]

The DTC is 6.86% not -6.86%, a -6.86% tax credit is a double negative so it means you pay 6.86% more.

The DTC is not a refundable tax credit, you need other income to apply it against. If your only income is 50k worth of qualified dividends then you get no DTC and implicitly pay ~25% tax which is the corporate tax rate which is higher than the 20% you would pay for regular income.

Sigh....wrong, you are just wrong. Try referencing where you get your answers.

taxtips.ca $50K dividends, Ontario, $0 tax.
$80K? $622 in 2024.

This is a BASIC calculator. Use the detailed one for better answers.

TaxTips.ca - 2025 & Earlier Basic Tax Calculator - compare 2 scenarios

TaxTips.ca - 2025 & Earlier Basic Canadian income tax calculator - Total taxes for each province, marginal tax rates for capital gains, eligible and non-eligible Canadian dividends, and other income.

www.taxtips.ca

 

[ValuedSupporter]

Ben Felix is (of course) a very knowledgable guy but there are a LOT of wankers out there that misunderstand that every investor has a different objective depending on their situation.

Youtube investing bros are stupid dicks that just repeat his shit over and over again without really understanding the context of what an investor is trying to achieve.