Safe Dividend Investing

In 2000, I lost $300,000 in mutual funds that an investment advisor had put my lifesavings into.... I lost it because I had entrusted it to an industry that does not educate investors nor encourage them to look closely at what that industry is doing with their money..... I set out to find a better, safer way to invest..... My podcasts relate to what I learned in creating a generous, reliable income and in growing my wealth.... A few of the more important lessons I learned and explore are:.... (1) It is critical that you become a self-directed investor.....(2) If you can not easily measure the risk and potential in an investment, then do not invest in it. This excludes from your portfolio bundled investment devices, like mutual funds, ETFs and Index funds,..... (3) Financially strong companies who have paid “good dividends” for decades will continue to stay strong and continue to pay good dividends because it is both part of their "character" and in their executives selfish interest.....(4) Diversification is critical. Investing equally in the best 20 strong dividend stocks is the ideal.....A portfolio of 20 limits your risk in any one stock to 5% of your wealth..... No matter how strong you think a stock is, do not fall in love with it..... I have lived very well off my steady dividend income for 18 years, through two market crashes and one pandemic. I have watched my portfolio’s capital more than triple from where I started, despite taking out a generous dividend income every year to live on... In charts, for my second investment book,(Safer Better Dividend Investing), I spent months scoring all 628 dividend stocks paying dividends of 6% or greater traded on the TSX, NYSE and the NASDAQ. I discovered dozens of stocks that can provide not only a generous dividend income but outstanding capital growth.....Financial independence is realizable for careful, patient, dividend investors.

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Safe Dividend Investing

Safe Dividend Investing- US AND CANADIAN INCOME TAX SUPPLEMENT - 14april2025

April 14, 2025 • Ian Duncan MacDonald

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SAFE DIVIDEND INVESTING'S

US & CANADIAN INCOME TAX SUPPLEMENT

In response to listeners enquiries I explain in this short podcast the differences between what US dividend investors have to pay in income tax and the tax break that Canadian dividend investors can receive.

Ian Duncan MacDonald

www.informus.ca

imacd@informus.ca

Podcast: Safe Dividend Investing

6 Dividend Investing Guides at amazon.com including:

NEW YORK STOCK EXCHANGE'S 106 BEST HIGHS DIVIDEND STOCKS -ANALYZED AND SCORED

CANADIAN HIGH DIVIDEND INVESTING - 215 SCORED STOCKS

Ian Duncan MacDonald
Author, Artist, Commercial Risk Consultant,
President of Informus Inc
2 Vista Humber Drive
Toronto, Ontario
Canada, M9P 3R7
Toronto Telephone - 416-245-4994
New York Telephone - 929-800-2397
imacd@informus.ca

Safe Dividend Investing – A Supplement on 14 April 2025

My name is Ian MacDonald the following is a supplement to my last weekly podcast.

A few US listeners have asked me to explain a comment made by me in an earlier podcast that my portfolios consisted of only Canadian stocks traded on the Toronto Stock Exchange. My wife and my investment portfolios do totally consist of Canadian high dividend stocks that generate a significant six-digit dividend income for us both. (I manage my wife’s portfolios which means I had better be right in my investment strategies). When we make a joint Canadian income tax return almost $120,000 of our joint dividend income is tax free. This results in a significant tax saving that I especially appreciated when I was building our retirement savings.

As an executive in a large corporation, I had been used to paying income tax approaching $100,000 a year. It surprised me when I retired and started to live off my dividends that the income tax, I paid fell to a few thousand dollars. Our lifestyle had not changed but I found I had far more disposable income.

This saving on taxes allowed me to in invest our unneeded dividend income which resulted in a compounding effect where more and more our income was derived from the invested dividend income. Of course, as the dividend income grew, we eventually ended up paying tens of thousands of dollars in income tax.

A growth in income and wealth is certainly not what investment advisors warn retiring investors as to what they should expect. The advisors are quick to warn those savings for their retirement that they will outlive their income and be left destitute unless they invest in expensive annuities, bonds and other fixed income investments. Could it be that they receive a commission for selling these products. You are also supposed to be liquidating your portfolio at 4% of its value each year to provide enough income to live on. Chopping 4% out of your savings each year seems to me to be a losing proposition.

Advisors have never lived through retirement. They seem to have little experience with the realities of investing in financially strong companies whose dividend payouts steadily increase a pensioner’s income as the strong dividend stocks increase in value. Even during an inevitable market crash and recessions the strong dividend incomes do not shrink even though the share prices and the value of their portfolio may temporarily decrease.

What is the thinking behind this tax break by the Canadian government? + The way they look at dividend income is that as a shareholder you are a part owner of a company. If that company makes a profit, the company then pays a tax to the government on that profit. The dividend from the same profit is paid to shareholders after the government is paid. To now bill the shareholder again for this dividend money derived from the profits would be double taxation. Since so few taxpayers will ever generate enough dividend income to exceed the tax break, it appears the Canadian government feels they can get away with taxing the “wealthy” few. There is little sympathy for the wealthy. This is a bit hypocritical.

Thus, the reason I only invest in Canadian stocks traded on the Toronto Stock Exchange is that I cannot claim stocks traded on the New York Stock Exchange or the NASDAQ in my tax-free dividend income tax allowance. I could still invest in US stocks but then I could be paying income tax to the IRS on every dollar of dividend income earned on these stocks. Being a Canadian, US financial institutions would holdback 30% of+ my US based dividend income plus I would have to pay currency conversion costs and pay a US based accountant to file a US income tax return. The older I get the fewer hoops I want to jump through to meet bureaucratic expectations.

While it is a bit complicated, the income tax on dividends in the US do not appear to be onerous. +While “ordinary dividends” are taxed at the same rate as salaries and interest income. You do receive a tax break on “qualified dividends”. Lower dividend earners are taxed at 0%, middle earners at 15% and high earners at 20%. With a high earner paying an income tax rate of 37% the 17% savings received in only paying 20% of their dividend income is significant. To be a “qualified dividend” the taxpayer must have held the stock for more than 60 days but with my dividend investment strategy where stocks are held for years or decades all my dividend income would be “qualified”.

If I were based in the US, I would be invested 100% in stocks traded on the New York Stock Exchange and the NASDAQ. There are far more financially strong high-dividend stocks traded on these two stock exchanges than on the Toronto Stock Exchange. This can easily be seen in my last two investment books “Canadian High Dividend Investing” and “New York Stock Exchange’s 106 Best High Dividend Stocks”. The two US stock exchang es dwarf any of the other stock exchanges in the world. In them not only can you invest in companies based in the US but there are hundreds of foreign stocks (for example over 400 Canadian stock) listed to add the strength of diversity to your portfolio.

Until the next Safe Dividend Podcast this is Ian MacDonald wishing you good dividend returns.