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Highest Yielding Dividend stocks in RESP or Non-Reg

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  • Jan 9th, 2019 10:36 pm
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Feb 1, 2006
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Ontario

Highest Yielding Dividend stocks in RESP or Non-Reg

So I've decided to invest in TD and BNS. TD's dividend is about 4% while BNS's is almost 5%. I will allocate some to RESP and some to non-registered.

My question is: is it better to put the higher yielding stock in RESP or non-reg?

I initially thought it's better to put BNS in non-reg because at my income, dividends have a slightly negative marginal tax rate. So they will allow me to pay slightly less in tax overall.

However, the trade off is that a higher dividend income will reduce our CTB and other income tested benefits.

Any thoughts?
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May 11, 2014
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minimalist wrote:
Jan 9th, 2019 5:04 pm
So I've decided to invest in TD and BNS. TD's dividend is about 4% while BNS's is almost 5%. I will allocate some to RESP and some to non-registered.

My question is: is it better to put the higher yielding stock in RESP or non-reg?

I initially thought it's better to put BNS in non-reg because at my income, dividends have a slightly negative marginal tax rate. So they will allow me to pay slightly less in tax overall.

However, the trade off is that a higher dividend income will reduce our CTB and other income tested benefits.

Any thoughts?
You're looking at it wrong.

If say you were holding let's say a fund with fixed income vs one with dividend income, you could start looking at tax advantage allocation.

But when you are looking at two individual stocks, the dividend yield should not have any impact, especially considering that typically, the Big 5 banka generally have similar dividend yields. Scotia underperformed in 2018 due to a large amount of takeovers, exposure to emerging markets, and their weakness in retail deposits, so their yield has increased as the stock dropped. The thing is, the banks more or less fluctuate so while initially having the higher dividend yield non-registered helps as dividend income is treated more favourably and the fact that RESPs withdraws can trigger income. But another problem with that is your child will likely have very little income tax to begin with since they get tuition credits possibly or no income in general.

So the thing you should focus on instead is how do I maximize my investments. Whether the TD is better in one, Scotia the other will have little to no effect in the long run.

That being said, with Scotiabank having a higher yield than TD, you could use the strategy of always buying the underperforming Big5 bank as a maximization strategy. So skip buying TD and buy Scotia only.
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Are you really talking about RESP, not RRSP ? When managing a RESP, you should see yourself as the subscriber and not the beneficiaries so you're the custodian of money that will ultimately belong to someone else so the strategy should be assessed separately than your own.

Instead of focusing on a few Canadian dividend stocks, you should probably use a globally-diversified-low-cost approach using the all-in-one portfolio ETF's from Vanguard, Ishares or Horizons.

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