Canadian ETF Dividend Portfolio - Risky?

[suntan]

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I'm the last guy to begrudge armed forces members their compensation.

I never give cops and firefighters grief either. The shit they have to see...

[Buster]

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I'm the last guy to begrudge armed forces members their compensation.

Meh, my pops was career military. He's pretty straight up, but some of his friends find all sorts of shit to suck money out of the system. One guy I know golfs endlessly, but doesn't mow his lawn or shovel his driveway because of a "sore back". Taxpayer picks up the tab.

[bjstare]

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Meh, my pops was career military. He's pretty straight up, but some of his friends find all sorts of shit to suck money out of the system. One guy I know golfs endlessly, but doesn't mow his lawn or shovel his driveway because of a "sore back". Taxpayer picks up the tab.

Well if you aren’t fit and don’t do the right exercises and stretches, golfing will indeed give you a sore back. Checks out.

[ExtraSlow]

People abuse every career or employer. Shitbags be shitbags.

[suntan]

I know somebody that's been on LTD since her 20s for "lupus".

[sabad66]

Veterans also get a sweet deal on medical weed. The big medical LPs even reduce pricing on their higher end stuff (only for Veteran health plan members) just to stay within their price limits and keep the partnership going.

[Gainsbarre]

I watched this video in its entirety when it first came out - the guy's wife had been plastering this video in many investing groups on social media, ostensibly to provide advice. I personally feel that their true motivation is to lure people into their investment coaching scheme.

I couldn't downvote the video soon enough. The advice is almost entirely centered on an investment's yield, when the focus should be on total returns and prospects going forward. While he gives passing mention as to what each company/fund does, there's no looking at key metrics, such as their payout ratio or if the dividends are sustainable. A good dividend payer is one that has a growing/sustainable dividend, supported by growth/stability in the company's net income. I myself am a income oriented investor, and my overall portfolio yield is around 4%, nowhere near the 10% yield touted in the video. Obviously you need to investigate the financials of any company or fund, but generally speaking, I'd say that any annual yield of 7% or greater is a red flag that the dividend/payout rate may not be sustainable, and that a dive into the company's financials is mandatory. I also couldn't help but notice that nearly all of the REITS shown in the video TD has an investment banking relationship with. I've been a user of TD Waterhouse/Direct Investing for nearly 20 years myself and many of those REITS have been offered directly by TD in the past. I speculate that they saw the offing, noticed the high yield and made their investment decision on that. Never base investment decisions solely on the dividend/income yield. The video contains poor advice as I don't feel that most of these investments are sustainable in the long term.

I disagree with certain elements of the dividend irrelevance theorem. I agree that dividends shouldn't matter from the company's perspective, as their decision making process should be "what generates a greater return? Reinvesting net income into the company or distributing net income to shareholders?" As an investor, I see dividends as more of a set-it-and-forget-it / "sure thing." If a company generates the same return from reinvesting profits as they would from distributions I prefer the distribution - it's essentially locking that return in for you, and it's tax-advantaged income for you (at least in Alberta) up to a certain amount (somewhere in the $50,000 range iirc). Yes, you can create your own synthetic distributions by selling some of the stock (which presumably is now higher, reflecting the profitable reinvestment of net income into the company), but you're likely to incur trading commissions, plus it takes more work than simply watching dividends being deposited into your investment account. Total returns are what matters, but I see benefit in dividends for a passive income oriented portfolio, as long as the dividends and underlying companies are sustainable.

Here's an interesting Reddit thread on passive income from dividends from February 2018: https://www.reddit.com/r/financialin...rtably_off_of/

We benefit from hindsight here, and I think it's important to followup on what happened to some of the stocks/funds mentioned in that thread. User ""abdada" mentions a few companies (e.g. Golar LNG, Western Asset Mortgage, Anworth Mortgage...) that have been slaughtered in the three years since - many have seen their share price halved (or worse) and some don't even exist anymore (!)

[suntan]

Oh come on, just because he picks "ETFs" with negative EPS, those are totally sustainable!

[Buster]

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I watched this video in its entirety when it first came out - the guy's wife had been plastering this video in many investing groups on social media, ostensibly to provide advice. I personally feel that their true motivation is to lure people into their investment coaching scheme.

I couldn't downvote the video soon enough. The advice is almost entirely centered on an investment's yield, when the focus should be on total returns and prospects going forward. While he gives passing mention as to what each company/fund does, there's no looking at key metrics, such as their payout ratio or if the dividends are sustainable. A good dividend payer is one that has a growing/sustainable dividend, supported by growth/stability in the company's net income. I myself am a income oriented investor, and my overall portfolio yield is around 4%, nowhere near the 10% yield touted in the video. Obviously you need to investigate the financials of any company or fund, but generally speaking, I'd say that any annual yield of 7% or greater is a red flag that the dividend/payout rate may not be sustainable, and that a dive into the company's financials is mandatory. I also couldn't help but notice that nearly all of the REITS shown in the video TD has an investment banking relationship with. I've been a user of TD Waterhouse/Direct Investing for nearly 20 years myself and many of those REITS have been offered directly by TD in the past. I speculate that they saw the offing, noticed the high yield and made their investment decision on that. Never base investment decisions solely on the dividend/income yield. The video contains poor advice as I don't feel that most of these investments are sustainable in the long term.

I disagree with certain elements of the dividend irrelevance theorem. I agree that dividends shouldn't matter from the company's perspective, as their decision making process should be "what generates a greater return? Reinvesting net income into the company or distributing net income to shareholders?" As an investor, I see dividends as more of a set-it-and-forget-it / "sure thing." If a company generates the same return from reinvesting profits as they would from distributions I prefer the distribution - it's essentially locking that return in for you, and it's tax-advantaged income for you (at least in Alberta) up to a certain amount (somewhere in the $50,000 range iirc). Yes, you can create your own synthetic distributions by selling some of the stock (which presumably is now higher, reflecting the profitable reinvestment of net income into the company), but you're likely to incur trading commissions, plus it takes more work than simply watching dividends being deposited into your investment account. Total returns are what matters, but I see benefit in dividends for a passive income oriented portfolio, as long as the dividends and underlying companies are sustainable.

Here's an interesting Reddit thread on passive income from dividends from February 2018: https://www.reddit.com/r/financialin...rtably_off_of/

We benefit from hindsight here, and I think it's important to followup on what happened to some of the stocks/funds mentioned in that thread. User ""abdada" mentions a few companies (e.g. Golar LNG, Western Asset Mortgage, Anworth Mortgage...) that have been slaughtered in the three years since - many have seen their share price halved (or worse) and some don't even exist anymore (!)

Refreshing to see a useful post. How in the hell do you get 8 posts in almost 20 years tho. That's some serious lurking skill or a very strategic alt. Either way...nicely done.

In terms of your criticism of irrelevance theory - nothing to really disagree with there. Other than the fact that if the biggest criticism is essentially that income investing reduces transaction costs, then that sort of proves the point. Same as if the tax advantage threshold is modest or almost irrelevant.

- - - Updated - - -

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I'm curious, when you're ready to retire, how are you planning to draw cash out?

My company may be sold soon, I get to "retire" at the ripe old age of 47.

Are you asking me personally, or are we talking general theory on this stuff?

[suntan]

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Are you asking me personally, or are we talking general theory on this stuff?

You personally.

[Buster]

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You personally.

I'm not sure how relevant my situation is to others. My wife is quite successful and has T4 income which we use for our immediate liquidity requirements. She also will have a (corporate) defined benefit pension which will allow flexibility in our post-retirement cash management. We likely won't need to liquidate investment assets on regular basis but rather for specific expenditures. Assets generated from my activities I tend to keep in holdcos and I invest more heavily than most people in private placements which I see due to the nature of my day-to-day. The capital that I can't effectively deploy privately goes into ETFs owned by the holdco waiting for opportunities. So my private investments DO throw off dividends, but that's more a matter of the nature of the investments than a dividend strategy. I'm quite happy to have a management team redeploy cash to accelerate growth. In fact, I consider that their primary job. If a management team can't figure out a way to deploy a dollar of excess cash in a fruitful manner to see greater returns than I would in an ETF, then it makes me wonder about the management team.

[suntan]

You didn't really answer the question. You have no choice but to take income from your wife's pension, but you specified no plan for your own assets.

[killramos]

His holdco is going to buy a boat. The size of the boat will depend on how well he does.

[Buster]

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You didn't really answer the question. You have no choice but to take income from your wife's pension, but you specified no plan for your own assets.

Oh, I'm just focused on total returns for those assets.

- - - Updated - - -

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His holdco is going to buy a boat. The size of the boat will depend on how well he does.

yeah, maybe. I don't dream of vacation properties or big boats or whatever. Biggest advantage of assets is managing my clinical anxiety, lol.

[killramos]

Maybe a boat with a boat

[90_Shelby]

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I'm not sure how relevant my situation is to others. My wife is quite successful and has T4 income which we use for our immediate liquidity requirements. She also will have a (corporate) defined benefit pension which will allow flexibility in our post-retirement cash management. We likely won't need to liquidate investment assets on regular basis but rather for specific expenditures. Assets generated from my activities I tend to keep in holdcos and I invest more heavily than most people in private placements which I see due to the nature of my day-to-day. The capital that I can't effectively deploy privately goes into ETFs owned by the holdco waiting for opportunities. So my private investments DO throw off dividends, but that's more a matter of the nature of the investments than a dividend strategy. I'm quite happy to have a management team redeploy cash to accelerate growth. In fact, I consider that their primary job. If a management team can't figure out a way to deploy a dollar of excess cash in a fruitful manner to see greater returns than I would in an ETF, then it makes me wonder about the management team.

At least now we understand who made the final decision on the Ridgeline instead of the TRX.

[suntan]

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Oh, I'm just focused on total returns for those assets.

Yeah but how are you going to unwind those assets?

[Buster]

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Yeah but how are you going to unwind those assets?

What do you mean by unwind? I'm not sure I understand what you are trying to ask.

Are you asking how I plan to turn assets into spending money?

[dirtsniffer]

I think Suntan just wants you to say, that you make that pussy DRIP

[killramos]

New pet peeve. People who misuse the term. DRIP