Nov 232015
 

Discounted Reinvest Plan ?

Normally when we buy a stock we can expect to pay the market price for it. But there’s a guaranteed way to purchase certain stocks at a discount to the market every time. 🙂

This unfair advantage has saved me hundreds of dollars so far!

Stocks that pay dividends often offer a Dividend Re-Investment Plan (DRIP) for its shareholders. I’ve written about how that works in previous posts. It basically means instead of receiving cash distributions, investors can choose to reinvest the dividends by automatically buying more shares or units of the same stock.

Today I will demonstrate this example with one of my holdings, Smart REIT, which I blogged about a couple months ago. Currently Smart REIT (SRU.UN) pays a distribution of $0.1375 per unit every month.

The distribution date for this month was on November 16th. The average TSX market price of SRU.UN over the 10 business days prior to this date was used to determine the DRIP price for existing investors who wish to reinvest their distributions.

The average price of SRU.UN over the 10 trading days preceding the monthly distribution date was about $31.32. This is the market price that most investors would have to pay. However, when my Smart REIT distributions re-invested, I was able to purchase a new unit this month via DRIP for only $30.44, as shown in my portfolio activity below.

15-11-smart-reit-drip-purchase-discount-dividend-plan

$30.44 is 97% of the average price on the market over the 10 business days. 😀 This 3% discount in this cased saved me 88 cents! Wow! ?

DRIP Purchase Discounts

DRIP discounts are very effective at retaining investor loyalty. 🙂

Unitholders who elect to participate (in the DRIP program) will see their monthly cash distributions automatically reinvested in units of SmartREIT at a price equal to 97% of the average TSX market price over the 10 business days preceding the monthly distribution date.” ~Smart REIT’s website.

While everyone else pays the market price to acquire SRU.UN, existing investors who DRIP can pick it up for cheaper. Other companies like Enbridge and Sun Life Financial offer DRIP discounts too. Some REITs such as Allied Properties even offer discounts up to 5% to its investors! Imagine purchasing new shares and units of our favorite companies that we already own, and paying less than market price for it every time with no commissions or fees. 🙂 Great Scott! Over time this should give us a significant leading edge over other investors who don’t DRIP and only purchase stocks at market price.

Continue reading »

Sep 052015
 

Simple Tax Saving Tips for Anyone

People who work for either the CRA or the IRS often feel stressed out because their jobs are so taxing. ? Everyone has to pay taxes of course, but here are a few easy tax saving tips that you can use to minimize your tax burden.

15-09-easy-tax-saving-tips

  1. Income-split with your trusting spouse.
    It’s easy to shift the tax liability from a family member with a higher income to a family member with a lower income to reduce the overall tax a household has to pay. 🙂 Opening a joint non-registered account allows couples to income-split any capital gains down the road, which can save a lot of tax money if one spouse earns more than the other. And if anything happens to one person, the other person takes over the entire account with no messy legal or estate business. A spousal RRSP strategy can also achieve similar results.
  2. Earn more money from investments, instead of working.
    Capital gains and dividends are taxes less than active income such as from salary or wages. For example, in Canada, you can make up to $50K a year without paying any income tax, 😉 as long as all your income comes from eligible dividends. This is why it’s so important to prioritize investing over spending, especially at the beginning of someone’s career. Once an investment portfolio is large enough it will have enough momentum to continue growing by itself without any more additional savings. A job delivers high-risk income because it’s relatively common for jobs to be lost, along with the income. But investment gains, on the other hand, are low-risk. Counting on a steady stream of dividends in a diversified portfolio is much more reliable than relying on income from work or from running a single business.
  3. Make use of tax-advantaged accounts.
    401(k) and IRAs can be used by Americans to shelter their taxes. In Canada, the best vehicle we have is the Tax-Free Savings Account (TFSA.) The combined TFSA contribution room for a couple is $82,000 today. That is more than enough to invest in a broad range of low-fee index funds, where the future gains won’t be taxed. 🙂 If you manage to max out all your TFSA room, or if you’re a high-income earner with 140K+ salary, you have up to $25,000 of contribution room in your RRSP for just this year alone. Max out all your tax efficient vehicles before buying stocks, bonds, or ETFs in a regular cash (or non-registered account.)

By using just the 2nd and 3rd tips in this post, I save more than $5,000 of income tax every year. A little planning can go a long way!

————————————————————————
Random Useless Fact: 

15-09-body-language-tip-fact-toes

Nov 142011
 

This idea came to me after watching an episode of The Big Bang Theory in which Leonard and Penny bicker about which movie they should see. Morale of that episode seems to be that guys are willing sit through boring movies with their girlfriend if it means they can score afterwards. I did a little research on the whole film distribution business and found that Cineplex Inc (TSE:CGX) practically has a monopoly in Canada.

After further scrutiny I put about $2000 into this company. I purchased 80 shares at $25.28/share. I think this will be a very good investment in the long run. They serve over 70 million guests every year and operate all the largest theaters in the country like Famous Players, SilverCity, Scotiabank Theatres, and IMAX. They make serious doe from concession sales as well. 85% margin on popcorn and drinks! And they are still growing and opening up new locations.

Their financials hold up nicely too. A long track record of solid earnings, a 5% dividend yield, and 50% payout ratio. What does that mean? Well, even if the economy and Cineplex’s earnings stagnate forever then one year from now this company will still be worth 10% more than today. Even if it drops in the short term, no big deal, I’m getting paid $100 in cash every year just for holding on to it. Patience begets wisdom. Or was it the other way around?

Aug 312011
 

I’ve mentioned in an earlier post that most of the big 5 banks in Canada are raising banking fees this year. But there is a silver lining. See if you can follow along with this plan.

The minimum balance required to wave the $3.95 monthly fee on my TD bank account used to be $1000. So for that reason I’ve always held at least the minimum in my account before. I basically save $47.40 a year. In other words, if I could make more than $47.40 a year (after tax) with that $1000 (or 4.74%), then I would be better off investing that money in the financial markets and just pay the monthly service fee.

However, starting this month, the minimum requirement to waive the fee has gone up to $1500, but the fee itself remains unchanged at $3.95/month. I now have $500 more capital at my disposal if I choose to invest it. $47.40 from $1500 means I only need to make a 3.16% total return (after tax) in order to cover my bank account fees. Making 3.16% per year for the foreseeable future sounds a lot more doable than 4.74%. So from now on I’ll put the $1500 (that would’ve been tied up in my checking account) into buying common shares of TD Bank, and just pay the $3.95 monthly fee. Here’s why.

TD shares currently pay a healthy dividend of 3.50%, at less than 50% payout ratio (very safe,) which means the dividend alone paid to me, even after tax, which ends up being about 3.3%, is enough to cover the 3.16% return I need, to break even. Not to mention the future potential for dividend growth and capital appreciation. Plus, many people who kept $1000 in their accounts before to avoid the monthly fee will just top-off to $1500 starting now, which will give TD more capital to grow its business boosting value for its shareholders (me.)


In the end, this method is a little risky but if the banks are going to grow and make money at the expense of their customers, then it’s like that saying if you can’t beat them, join them. Of course only time will tell how this will play out. Don’t try anything on this blog without consulting with a financial advisor first.