Stocks or E-Series Mutual Funds? Looking long-term and for dividend income

What I'm interested in is making investments in funds/companies that will result in dividends being paid monthly.

Eventually, I'd like to get to the point where the dividend income I receive will be substantial...possibly even to the point where I'm capable of living off of it.

akaManny wrote: ↑I don't see why in your situation you would want monthly (or even quarterly) income. Presumably you will be reinvesting it anyway since you have other income. Why not do the opposite, look for something that will grow in the long term with minimal distributions. Then in the future, for monthly income, you can always switch to diviidend paying investments or just withdraw from any of your investments.

So my opinion is that there is no good opportunities for long-term stable income with low risk for someone with little interest in following the market. Largely in part because people are able to buy so much on margin.

wm009 wrote: ↑They don't exist.

Octavius wrote: ↑Hey everyone,

Looking for some financial advice here.

I'm making some pretty decent income, have 0 debt, am contributing in full to my pension fund at work, and have a healthy "emergency fund" and an unsecured LOC should the worst happen. I've got some extra cash in my savings account to play with, and I'm trying to figure out what to do with it.

I've got an E-Series Mutual funds account, but with virtually nothing in it
I've got a TD Waterhouse account, but with virtually nothing in it

Before making any major investments, I wanted to get some input from all of you first. These are cash accounts; they are NOT TFSA nor RRSP.

What I'm interested in is making investments in funds/companies that will result in dividends being paid monthly. Eventually, I'd like to get to the point where the dividend income I receive will be substantial...possibly even to the point where I'm capable of living off of it. Obviously, this is very ambitious, but setting a goal gives me something to work towards

The way I see it, I've got two options
1) Buy E-Series Mutual Funds focused on dividend income (main one was a non-E-Fund, TD Dividend Income...2% MER)
2) Buy stocks in dividend-paying corporations (banks, telecommunications companies, etc)

My strategy is to buy and hold for the (very) long term. I have no interest in being a day trader.

The amount I've got to play with at this moment in time is $4,000...got to start somewhere.

Which would you do? Why? Anything I should be wary/concerned about in going down one path vs the other?

Thanks everyone.

treva84 wrote: ↑Remember total return = dividends + capital appreciation. If you're young (sounds like you are) you should be more concerned with total return rather than just dividends. As another poster said, to live off divvys you'll need a portfolio of ~ 1,000,000 yielding 4% (40,000). You gotta get to that 1 mill first.

With $4000 to start at I would buy e series index funds for the following reasons - 1) No cost to buy / sell vs $10 to buy / sell stocks at TD DI 2) Instant diversification across sectors and countries with e series, when it would be impossible to do this with stocks at $4000 3) can hold fractional shares of E series (can't for stocks or ETFs at TD DI) so you can make the most of the DRIP.

When you have a portfolio of 1 mill then it would be a good idea to consider switching to dividend stocks to live off the income. Until then, indexing will do very well in growing your money. Is it sexy? No, but it's highly effective.

Intricated wrote: ↑In a taxable account, consider these two 100% equity investment scenarios on the opposite (but not ultimate) end of the spectrum:

1) Swap-based ETFs that (expect to) pay no distributions. Annual return of 6% all in capital gains, less 0.1% for ETF fees.
2) Mix of Canadian eligible dividend stocks. Annual return of 6%, 3% dividends paid out at year-end and 3% capital gains.

I am assuming:

- starting with 4k
- 30 year horizon
- marginal tax rate on ordinary income is constant 35%, so on capital gains is 17.5% and on Canadian eligible dividends it is 14%.
- no changes in tax brackets or to other tax rules
- no other contributions or dispositions outside of the initial and end transactions
- perfect DRIPing for #2 (every after-tax dividend $ goes straight into more shares, even if fractional)
- no brokerage account/trading fees

After-tax on disposition, swap-based ETFs would end with ~20.7k after 30 years. The dividend equities give you ~14.4k. Even if they paid out 6% dividends, it's 20k.

My takeaway is with such a long time horizon, it's better to maximize the return, whether that's dividends or otherwise, then near retirement, if a dividend income strategy is still attract, stick with or convert to it then.

mr_raider wrote: ↑Why are you not using a TFSA for this?

Any dividend you harvest from the account and withdraw will be readded as contribution room.

Octavius wrote: ↑My rationale for keeping these investments outside of my TFSA is that I've got my emergency fund in a TFSA savings account. While the interest earned isn't much (2.25%), interest is taxed as full income, whereas capital gains and dividends are given much more favorable tax treatment.

You guys think I should do this in a TFSA? I've still got about 8k of contribution room for the year...

Intricated wrote: ↑How large of an emergency fund are you keeping? Unless you have an extravagant lifestyle, 10-30k for emergency living expenses should do, before disability insurance, credit cards, LOCs, family, etc. Assuming you were 18 in 2009 and you haven't lost money in TFSA, you have at least 41k of room to work with, which will increase by 10k per year. You should now or at least very soon going forward have lots of TFSA room for non-emergencies.

Favourable tax treatment still means payable taxes. Focus on total return across your entire portfolio. Most equity or dividend income/growth strategies are looking to 4-8% returns. In a TFSA, that would be tax-free. Having an emergency fund even at 4% in non-registered accounts taxed at the highest 50% marginal rate is 2% (2.6% at a more middling 35% tax rate), much lower than the sheltered equity return. Your emergency fund would have to be returning 6%-8% pre-tax to start exceeding the lowest expected return of TFSA-sheltered stocks.

Octavius wrote: ↑Hey everyone,

Looking for some financial advice here.

I'm making some pretty decent income, have 0 debt, am contributing in full to my pension fund at work, and have a healthy "emergency fund" and an unsecured LOC should the worst happen. I've got some extra cash in my savings account to play with, and I'm trying to figure out what to do with it.

I've got an E-Series Mutual funds account, but with virtually nothing in it
I've got a TD Waterhouse account, but with virtually nothing in it

Before making any major investments, I wanted to get some input from all of you first. These are cash accounts; they are NOT TFSA nor RRSP.

What I'm interested in is making investments in funds/companies that will result in dividends being paid monthly. Eventually, I'd like to get to the point where the dividend income I receive will be substantial...possibly even to the point where I'm capable of living off of it. Obviously, this is very ambitious, but setting a goal gives me something to work towards

The way I see it, I've got two options
1) Buy E-Series Mutual Funds focused on dividend income (main one was a non-E-Fund, TD Dividend Income...2% MER)
2) Buy stocks in dividend-paying corporations (banks, telecommunications companies, etc)

My strategy is to buy and hold for the (very) long term. I have no interest in being a day trader.

The amount I've got to play with at this moment in time is $4,000...got to start somewhere.

Which would you do? Why? Anything I should be wary/concerned about in going down one path vs the other?

Thanks everyone.