Dividend Hikes Twinkling Brighter Than Salary Increases


It’s true. The rumour is resonating well in the office. According to our supervisor during a departmental meeting, management has reserved the necessary budget to increase salaries next year. Word on the street is for an average hike of 5% - not bad considering the Core CPI is resting at 2.2% this quarter.

As uplifting as it is, it’s still no match against the slew of dividend increases ringing under our Christmas tree:

  • Encana - 100% (100% from last year)
  • Parkland Income Fund - 8.6% (50% from last year) + ~4.7% of special dividend
  • Fortis - 19.0% (31.5% from last year)
  • Reitmans - 12.5% (12.5% from last year)
  • Scotia Bank - 4.4% (11.9% from last year)
  • Pfizer - 10.3% (10.3% from last year)

Not only that, most of these increases are tax-free, while about a third of salary increases goes to taxes.

Related post: Dividend Increase: Devoted Friend In A Stormy Market.

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Comment Number:
1
Written by:
Dividends4Life
Posted on:
December 24, 2007 at 2:25 pm

>Not only that, most of these
>increases are tax-free,

How are dividends taxed in Canada?

Best Wishes,
D4L

Comment Number:
2
Written by:
moneygardener
Posted on:
December 24, 2007 at 3:37 pm

D4L, You asked the right guy….

Comment Number:
3
Written by:
Financial Jungle Guy
Posted on:
December 24, 2007 at 7:13 pm

D4L - Dividends are taxed differently from province to province. Where I live (BC), one can earn up to ~$60,000 worth of dividends and pay no tax.

I’ve written a post on dividend tax credits here:

http://financialjungle.com/2007/05/10/taxes/how-to-calculate-dividend-tax-credits/

Comment Number:
4
Written by:
Dividends4Life
Posted on:
December 24, 2007 at 7:37 pm

FJG: Thanks for the link on how to calculate the Canadian tax credit. I find this fascinating. Earlier in December I wrote an article wondering why there were relatively so many Canadian blogs focused on dividend investing. Peter @ Plan Your Escape alluded to the favorable tax treatment.

Here in the U.S. we were elated when the marginal tax rate on “qualified” dividends was cut to 15%. Obviously, not all investments qualify. I assume that the same would be true in Canada, such as dividends from U.S.-based companies?

Again, thanks for your insight.

Best Wishes,
D4L

Comment Number:
5
Written by:
Financial Jungle Guy
Posted on:
December 25, 2007 at 5:14 am

D4L - So, US residents pay 15% flat on all qualified US dividends?

In Canada, US dividends are taxed as regular income @ marginal tax rate. However, US withhold the first 15% (outside registered accounts). This 15% is mandatory even if your income is below the personal exemption of $9,600.

Yeah, the Canadian dividend tax credit is a fantastic deal. e.g. if 2 portfolio generate identical total returns, the one with the higher dividend yield will dole out better after-tax return.

BTW, your blog is surging full steam ahead. Seems like only yesterday when you started your dividend blog, but now you’re a veteran.

Comment Number:
6
Written by:
Rafael Velez
Posted on:
January 7, 2008 at 5:34 am

Love the site…keep up the great work…I run an investment advisory firm on the west coast of North America (San Francisco). We are quite fond of many businesses in the public marketplace in Canada.

Did you get a chance to read Byron Wien’s “2008 Predictions List” on bloomberg.com this week? I am interested in your opinions about what he thinks will unfold this year. It is amazing that year-after year he puts out this list of items which are, often times, not conventional wisdom and a high percentage of them come true.

After you read his targets for gold, inflation and the unemployment rate…it is hard to imagine a good equity market environment. Happy New Year!

Comment Number:
7
Written by:
Financial Jungle Guy
Posted on:
January 7, 2008 at 6:59 am

Rafael - I’m honoured that you dropped a message on this Canadian blog. It’s clear to me after browsing through your web site, you’re one of the few good guys in the industry. :P I’m adding www.summit-advisors.com to my blogroll after this.

Okay, I just reviewed Byron Wien’s 2008 predictions list, but macro predictions aren’t my cup of tea so I probably can’t offer much insight into this. I also think that over the long haul, the “alpha” of tailgating every prediction will not compensate the cost burdens, namely tax drags, transaction costs and missed dividends.

Comment Number:
8
Written by:
Dividend Hikes Twinkling Brighter Than Salary Increases | Financial Solution News
Posted on:
January 7, 2008 at 2:28 pm

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