Category Archives: Dividend Tips

How U.S. Dividends Affect Canadians’ Dividend Income And Its Growth

I’m a Canadian who invests in U.S. dividend stocks. So, I thought it’d be useful to explore how U.S. dividends affect my income and income growth. Is it worth it to buy and hold U.S. dividend stocks when Canadian eligible dividends are more favourably taxed?

First, I’ll look into the effective dividend yield and effective dividend growth when receiving U.S. dollar-denominated dividends as a Canadian. Then, I’ll discuss how to reduce the income tax on U.S. dividends for Canadians. Lastly, I’ll discuss why it may be worthwhile to hold U.S. stocks even with increased uncertainty due to fluctuating foreign exchange rates.

The effective dividend yield

On the Toronto Stock Exchange, I hold stocks that pay U.S. dollar-denominated dividends. They include Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP), Brookfield Renewable Partners L.P. (TSX:BEP.UN)(NYSE:BEP), Brookfield Property Partners L.P. (TSX:BPY.UN)(NYSE:BPY) and Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN), which yield roughly 4-6%.

This group of stocks has juicy yields partly because the U.S. dollar has been strong against the Canadian dollar.

I also get some nice yields of 4-8% from U.S. companies, such as Pfizer Inc. (NYSE:PFE), and Omega Healthcare Investors, Inc. (NYSE:OHI). However, the effective yield from these U.S. companies will be higher while the U.S. dollar remains strong against the Canadian dollar.

A Strong USD boosts current income

Essentially, a strong U.S. dollar (against the Canadian dollar) boosts my effective income today. However, if the U.S. dollar weakens (against the Canadian dollar), my effective yield from these companies would decline.

For the first group of stocks, depending on your brokerage, you may be able to call in and ask for the dividends to be paid in the U.S. dollar instead of having the brokerage automatically convert it toe Canadian dollars and possibly take a cut while at it. This only works for brokerages that allow holding of cash in U.S. dollars in the trading accounts.

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3 Tips to Maximize the Returns of Your Dividend Portfolio

Here are three tips I use to maximize the returns of my dividend portfolio. You can adopt the tips to improve your returns.

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The goal? To maximize returns while earning a growing dividend. Some investors think of dividends as a source of cash to pay their bills. That serves as a motivation for them to earn more dividends, until all bills are paid regularly. After which, they become financially independent.

That’s a fine way to think of dividend investing, but you can get to financial independence quicker. Here’s how. Read More

What is a Good Dividend Payout Ratio?

What is a good dividend payout ratio for a company? Is 70% too high? Does a company with a low ratio imply high dividend growth?

Using a concrete example, we’ll answer 3 simple questions to figure out if a company has a good dividend payout ratio that supports a healthy dividend. You can ask the same questions for any dividend company you’re interested in.

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However, a payout ratio based on earnings may not be appropriate for companies with big depreciation. Cash flows instead of earnings are better used in such cases, including for REITs and MLPs.

What is the payout ratio?

The payout ratio is the percentage of earnings that are paid out to shareholders as dividends.

For example, Fortis Inc’s  (TSX:FTS) is expected to pay out $1.525 per share of dividends in 2016. The company just hiked its Q4 dividend to $0.40 per share.

  • Fortis’s originally quarterly dividend per share was $0.375.
  • $0.375 * 3 + $0.40 * 1 = $1.525

Its earnings per share are estimated to be $2.17 in 2016. So, Fortis’s payout ratio is about 70%.

  • Annual dividend per share / Earnings per share
  • $1.525 / $2.17 = 0.7028

So, Fortis retained about 30% of its earnings to grow its business or repay its debt, etc.

A lower payout ratio implies a safer dividend than a higher ratio. Read More