An all-Canadian $75,000 TFSA looking for global dividends
One woman's search for income-producing securities
One woman's search for income-producing securities
TFSA total: $75,000
Strategy: Dividend-paying stocks, all Canadian
|North West Co.||TSE:NWC||10%|
|Canadian National Railway||TSE:CNR||10%|
|Brookfield Asset Management||TSE:BAM.A||10%|
|New Flyer Industries||TSE:NFI||10%|
Anna Maria M. is a corporate director and international trade advisor living in Winnipeg. In 2014, she downsized her home and did two things with the proceeds: she rented a condo and beefed up her investments, which meant she made her full contribution to her TFSA. “I knew the TFSA had been around for a while and I had been good about maximizing my RRSP contributions. With the money from my home sale, I was able to top up my TFSA and I’ve been doing so ever since.”
At the time, Anna Maria visited a financial planner for advice, but she has always done her own investing. “I parked the money in a GIC for a while and deepened my knowledge about investing,” says Anna Maria. “Then I topped up my TFSA focusing on high-quality dividend-paying stocks.”
She also made a decision about her living arrangements. She became a renter, which was a big shift for Anna Maria who has been frugal throughout her life and had actually paid off her home in 10 years several years ago. “I read Alex Avery’s book The Wealthy Renter and now I’m a happy renter,” says Anna Maria. “The book taught me that building wealth is not so much about whether you own a home or not, it’s about what you do with the money you save by not owning. I invest it and will likely build wealth just as easily as paying a mortgage.”
Anna Maria’s portfolio today includes 10 dividend-paying stocks that are spread throughout many sectors, including life insurance companies, banks, telcos, industrials, consumer staples, real estate, and utilities. Her holdings include Telus, Sunlife, TD Bank, CIBC, Canadian National Railways, North West Co., Fortis, Brookfield Infrastructure, Brookfield Asset Management, and New Flyer Industries. “I sometimes use the reinvestment plan with my dividends or collect the dividends in cash as I consider new stocks. I like a diversified blue chip, dividend-paying portfolio. I pay only $6.95 a trade using Investor’s Edge and keep my fees low since I don’t do much trading.”
If there’s one concern Anna Maria has with her portfolio it’s that all her holdings are Canadian. “Canadian stocks make up only about 3% of the total international market so I wonder if I should be looking at perhaps adding a U.S. or international dividend paying company to add some diversification.” Her RRSP portfolio is well diversified globally.
Still, Anna Maria can’t complain. Her returns have averaged 8% net over the last three years. Right now, her eye is on buying one or two more dividend-paying stocks with her 2019 contribution. Or, she may just add to the dividend stocks she already owns. “I have no specific plans right now but am looking at Parkland Fuel Corp (PKI-T) as a possibility to add a bit more growth but I need to do more research before making my final decision.”
“I have to admit that I’m surprised by how many people focus on dividends when making investment decisions. Dividends are usually a good proxy for profitability and stability, but they are not necessarily a proxy,” says Industrial Alliance Securities portfolio manager John DeGoey. “There are plenty of poor companies that pay dividends (i.e. unsustainably) in order to attract investors like Anna Maria and there are others (like Berkshire Hathaway) that are well‐run but do not pay dividends. In short, what you should be looking for in investments is sustainable and growing profitability. That might mean a steady (growing?) history of dividend payments, but it might not.” DeGoey makes other good points for Anna Maria.
For one, the bigger problem that Anna Maria has identified is her extreme home country bias. Before buying a single other dividend‐paying stock, I would get more diversification from stocks representing the other 97% of the world. Imagine going to a big box store with 32 aisles and deciding arbitrarily that you’ll only buy items from one of those aisles. The items might be perfectly good—but how many other good items are being foregone due to the self‐imposed limitation? My view is that she should be adding something that is globally diversified—perhaps iShares MSCI World Index ETF ()XWD from Blackrock—to her portfolio … and to add to that position in the next few years, as well.
John De Goey is a Portfolio Manager with Industrial Alliance Securities Inc. and the author of The Professional Financial Advisor IV. Industrial Alliance Securities Inc. is a member of the Canadian Investor Protection Fund. The opinions expressed herein are those of Mr. De Goey alone and may not be aligned with the opinions and values of Industrial Alliance Securities Inc. or any of its affiliated companies. This does not constitute a trade recommendation.
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