Last year was the first year I set some personal finance and investing goals in black and white. I posted them on my blog for the world to see and scrutinize. I also posted them on my blog to keep me accountable. In years past, while I set financial goals, they were not written down and consequently not followed up on very well they floated around in my head. In hindsight, I think this blog was a huge enabler for meeting many financial objectives in 2010. I hope this year will be just as successful.

To recap, our goals from last year were:
Goal # 1 – Put down $20,000 on our mortgage.
Goal # 2 – Maximize TFSAs.
Goal # 3 – “Clean-up” RRSP Accounts (ETFs instead of high-MER funds).
Goal # 4 – Frequent contributions to DRIPs.
Goal # 5 – Optimize RRSPs.
Goal # 6 – Save for and take a great trip.

We were fortunate enough to accomplish every one above, 100%, except for #1. That goal was indeed lofty but I think you need to have stretch assignments, at least we like them. In the end we hit 55% of our target for goal #1 and while in grade school 55% means you almost failed, I dont think our efforts were too bad.
Writing about mortgage payments brings me to our first personal finance goal of 2011:

Goal # 1 Increase mortgage payments by $200 per month

With a new place there are lots of expenses. Lots. I dont need to list them because Im sure youve moved enough yourself and you know what they are. The list never seems to end. For us, the initial big ticket items were appliances and window treatments last month. These things werent cheap and neither are the small things when you add them up. Recognizing we can never do it all at once, weve decided to strike a balance in 2011; live for today, make our house a home and take small steps at paying off the mortgage.  If we increase our mortgage payments this year by $200 per month, we figure well save almost $30,000 in interest costs over the life of our mortgage and payoff the house about 4 years earlier – sounds pretty good to us.

Goal # 2 Contribute $5,000 each to TFSAs

Our government has been pretty good to us in recent years, OK, at least in one area with the introduction of the TFSA in January 2009. We figure we better take advantage of this financial tool because who friggin knows when, if or how the rules will change. Governments are famous for that. You already know the deal:

Including this year, you could have contributed up to $15,000 into a TFSA.
The money can be earned or withdrawn completely tax free.
Contribution room can be carried forward indefinitely.
You never lose contribution room when you withdraw money.
More benefits, more benefits

With $10,000 contribution room each, weve got lots of room to manoeuvre in 2011. Wed like to contribute $5,000 each to our TFSAs. We had to withdraw money from our TFSAs in 2010 to purchase those appliances I wrote about. We dont regret this transaction (because we need to eat!) but this purchase left a big hole to fill in our financial plan. 

Goal # 3 Optimize our RRSPs

Thanks to some savvy DIY investors and financial tutors like Canadian Couch Potato, Canadian Capitalist, Michael James on Money, Andrew Hallam, DIY Investor and others, Ive been schooled on the importance of managing our RRSPs efficiently. For many years, my wife and I werent managing our RRSPs, they were managing us. For almost 10 years we held various equity and bond mutual funds in our RRSPs. That changed last year when we accomplished our financial goal called clean-up our RRSP accounts. These knowledgeable DIY investors re-emphasized the drag management fees had on our retirement savings. Armed with this knowledge we made changes last year and now were using a few ETFs in our RRSPs to match returns of the S&P/TSX 60 Index and the DEX Universe Bond Index respectively, instead of equity and bond mutual funds that charged us 2% per year. These changes lowered our management fees by over 80%!

For 2011, we intend to optimize our RRSPs that is contribute only enough needed to avoid paying any more taxes come tax time. This way, we pay ourselves first but we also retain necessary funds for the rest of our financial plan. We figure optimizing our RRSPs in 2011 will cost us a few hundred dollars every month.

Goal # 4 Continue my full Dividend Reinvestment Plan (DRIP) with Bank of Nova Scotia

After making major investments (for us anyhow) into businesses like Bank of Montreal, Sun Life, CIBC and Enbridge some time ago, my focus early in 2010 turned to Bank of Nova Scotia (BNS).  I started investing in BNS for many reasons, one of the main reasons being they behaved (not just survived) very well out of the financial storm of 2008-2009.  They too, are a dividend stalwart:  paying dividends for over 150 years.

Many savvy dividend investors like The Rat, themoneygardener, Passive Income Earner and Echo from Boomer & Echo I recall got their invitations to the BNS dividend party years ago, now Im with them.  Glad to be with you gentlemen!   Last year I managed to contribute at least $50 per month into BNS stock, no commission fees, just the cost of a stamp and an envelope.  Hopefully sometime later this year I’ll be at a point whereby I’ll be earning at least one free Bank of Nova Scotia share via my full DRIP every quarter.   I look forward to seeing that compounding machine running.

Goal # 5 Start my full Dividend Reinvestment Plan (DRIP) with Fortis

Ive been meaning to do this for some time and I think 2011 should be the year, enough procrastinating already. An overview of Fortis:

Fortis Inc. is the largest investor-owned distribution utility in Canada, serving approximately 2,100,000 gas and electricity customers. Its regulated holdings include a natural gas utility in British Columbia and electric utilities in 5 Canadian provinces and 3 Caribbean countries. Fortis owns non-regulated hydroelectric generation assets across Canada and in Belize and upper New York State. It also owns hotels and commercial real estate in Canada.

Fortis (FTS) pays a healthy (and steady) dividend and is considered a Canadian dividend aristocrat, consistently raising its payout to shareholders year after year.  I want to be part of that payout.

Goal # 6 Build up our emergency fund to $10,000

We have some funds set aside for emergencies but not enough to satisfy our comfort level. Everyone has their own level and ours is $10 K. Weve got some work to do and 2011 is the year to do it.

Unlike last year, we wont be taking any grand trips to South America or any distant lands for that matter.  My wife and I have decided that 2011 is a year to get some work done around the house and furnish it the way we want to. Lawn chairs in our living room are not an option! Those efforts will take time and money and so in 2011, any additional savings beyond our emergency fund will be going towards home improvements.  Were still planning some weekends away, together, with friends and family but no big voyages. Although wed like to travel and experience new worlds there are things to do at home, literally. On the flipside, getting some objectives accomplished around the house in 2011 should give us much more freedom in 2012 – something to look forward to for sure.  I guess thats what goals are all about

What do you think of our financial goals for 2011?  What are yours?

I look forward to hearing from you, have a good weekend!
My Own Advisor

Scotiabank motives aside (selling products) that seems like a pretty high number almost 4 in 10 Canadians will retire but work in retirement to make ends meet.

The study goes on to state:

56% of Canadians think they will need less than $1 million to fund their retirement, half of those believe they will need less than $300,000 to retire on.
28% of Canadians think they will need between $1 to 2 million to retire on.
16% believe they will need more than $2 million to retire on.

 Financial necessity is a pretty vague term but I hope this doesnt include travelling for a few months each year, playing golf every day, going back to school or buying a house on the ocean like some retirees plan to do. None of these come cheap.

I wonder if they work at a Bell call centre in Toronto?

Whats your magic number? Do you have one?

Cheers,
Financial Cents/My Own Advisor

If you’ve been following my blog, you might recall a few months ago I called out to Derek Foster, wondering what Canadas Youngest Retiree has been up to.

Back in September, Derek was a busy guy.  I found out he completed an interview with MoneyTalk host Patricia Lovett-Reid, he was preparing for a speaking engagement in Toronto at Canadian MoneySaver’s Investment Conference, he was putting the finishing touches on his new book and as always, he was helping raise his five kids.  I don’t know about you but that seems more like a year’s worth of work, let alone one month.

For those of you who don’t know who Derek Foster is, here’s a quick bio (photo courtesy of his website):

• Derek was born in Ottawa in 1970.
• Derek was able to become a millionaire and leave the proverbial rat race at the age of 34 by using various investing strategies, many he believes any investor can emulate.
• Derek, ”Canada’s youngest retiree” is a well-known Canadian author and has shared his personal investment experiences and strategies in his National Bestselling Books:
• Stop Working:  Here’s How You Can!
• The Lazy Investor: Start with $50 and no Investment Knowledge
• Money for Nothing: And You Stocks for FREE
• Stop Working Too:  You Still Can!
• *The Idoit Millionaire (*Latest book, Fall 2010)
• When not writing books or giving speaking engagements, Derek spends time with his wife and five children in Ottawa (in my old neighbourhood no less).

For a couple of years now, maybe like some of you, I’ve been both entrigued and somewhat skeptical of Derek’s investment journey.  I’ve read a few of his books (Stop Working:  Here’s How You Can! and The Lazy Investor) and to be honest I’ve been more inspired than skeptical of his success.  Sure, he may have had some great timing on his side and some risker investments paid off, but sometimes you make your own luck as well.  I know others don’t feel the same and have written so.  That’s fine because everyone is entitled to their own opinion. 

Overall, I’m happy for Derek because he had a dream, saw it fulfilled and then some.  Investment timing, luck, skill or otherwise, he’s a fortunate guy. 

I’m glad I got the chance to chat with Derek for almost a couple of hours a few weeks back.  Here’s what he had to say in Part 1 of My Own Advisor interview.  I hope you enjoy the read.

*     *     *     *     *     *     *     *     *

My Own Advisor:  Thanks again for the interview Derek. It’s a busy time of year for everyone and I’m glad you got back in touch with me. It’s great to finally chat with you – enough email already!

Well, onto my questions.  Ready?

Derek:  Fire away Mark.

My Own Advisor:  Youve just released the latest book in your Stop Working series entitled The Idiot Millionaire: You Can Become Wealthy! What inspired you to write this book?


Derek:  To be honest, it was largely because of the 2008-2009 economic downturn. Because my personal situation had changed since I originally left the rat race at 34, (I was earning an income from other sources such as book sales, etc), I wanted to switch my portfolio to higher growing dividend-payers as this would save me tax and generate better returns over the long-term. BUT I wasnt as smart as I thought I was; hoping to sell my stocks at one price and trying to get back in at a lower price. In some cases, it worked. I bought businesses like JNJ, Shoppers Drug Mart and Phillip Morris at reasonable prices. For other businesses, it didnt work. For example, I waited too long for Canadian bank stocks. I missed the bottom and their subsequent run ups in price. Admittedly I missed that boat. I would buy some if prices to crept lower. I guess the title of my book really applies to me, kind of tongue-in-cheek.


My Own Advisor:  What makes this book unique in your Stop Working series?

Derek:  More so than any of my previous books, this one discusses a companys competitive advantage. I describe what I mean by this and how investors would do well to invest in those companies that have it and it also offers a list of those companies.


There are many companies out there that are worth owning, companies that pay dividends but they do not have any economic moat around them. This is important because ideally you want to buy companies that not only pay dividends, but that increase their dividends over time and also have great growth opportunities because of their advantaged products and services. My new book includes a pretty good list of these companies in Canada and the U.S. In the U.S. for example, Coca-Cola quickly comes to mind. In Canada, Enbridge.

My Own Advisor:  Switching gears a bit, tell me about your investment strategy. Still a dividend investor?


Derek:  Absolutely, but my approach or maybe should I say my focus has changed. Before I was more focused on higher yields for income generation, maybe slower-growing stuff but now my needs have changed. I mean the books generate income which was an unexpected surprise (because being an author or a writer is not usually the path to riches). Really though, Im fortunate to have some other income streams with no debt and so things are different for me at 40 than 34 when I wrote Stop Working (Heres How You Can Too!). Geez, that was six years ago. Im now more focused on companies that have their moats and good long-term growth prospects. I try to explain that in plain language in the new book.


Also, the reality is many folks dont retire from the workforce at 34, or even 40 or 50. They are working their way towards retirement bit by bit and hopefully this book will provide them with a more complete list of companies to help them out.

My Own Advisor:  A short time ago, when the market was falling (in 2008-2009) you sold all your dividend payers. I read a few articles about that. You took some heat. Can you walk us through that decision?

Derek:  I was an idiot but at that time, I sold my shares in early February 2009, I thought I could get back in later and at cheaper prices. Turns out I did and I didnt as I told you before. I managed to buy a lot of stocks much more cheaply but a large part of this was luck. I benefitted from put-option premiums and the incredible strength of the Canadian dollar. After I sold my stocks, I remember humming and hawing for a couple of weeks – should I say anything to the media? The books encouraged folks to do the opposite; buy and hold dividend-payers for income. I didnt want to be hypocritical but I can see why some people were a little put off, you know what I mean? In the end, my approach did save me money and I came out ahead but not on everything; I missed the boat on those Canadian bank stocks and some other companies I would like to own.


The book (The Idiot Millionaire) actually includes some of this stuff and Ive got some details in there about my prices when I got back in.


My Own Advisor:  Made any recent purchases?


Derek – Yeah, I bought Strayer Inc (a for-profit university) at a pretty reasonable price. It just made sense with our Canadian dollar being so high and the recent stock price weakness due to pending potential changes to loans for students. Im very comfortable with this holding but I realize there are potential risks. The stock price had dropped from over $250 earlier this year to under $140 where I bought it. This is even cheaper than at the March 2009 low of $159 and the Canadian dollar is much stronger now, so the stock price is actually 30% below the March 2009 bear market low (in Canadian dollar terms).


My Own Advisor:  Something more fun now. Whats on your Christmas list for 2010?


Derek:  Well with five kids in house, Christmas is really for them, not me. Ive never been one to covet stuff, Im not materialistic. I finally got a GPS this summer for our trip out West and Ive got a laptop computer. During our trip, once the kids were in bed and all the chatter had stopped for the day, I pulled out my laptop and wrote a couple of pages (for the new book). Honestly, Im a cheap guy. If a burglar came to my house, he would quickly leave in disgust as my material possessions are not really worth stealing (except perhaps for my Sienna minivan). When I look at stuff, I always ask myself, is this really going to add any value to my life? If the answer is no, I dont buy it. I guess nothing Mark. I dont even own a cell phone. I guess I dont consider myself important enough to need one.


I had to laugh at this last response. I mean, with five kids, how can Christmas NOT be all about them?
 
It was great to chat with Derek.  He’s a bright and funny guy.  Foster’s fast track to early retirement through  savings and diligent investing in Canadian and U.S. dividend paying stocks may not appeal to everyone but I think it’s inspirational.  In the end, we’re all trying to achieve financial freedom and regardless if you’re a fan or a critic, learning something from Derek Foster can and should be done.  That doesn’t mean you need to follow his path or emulate what he did.  Knowledge is always different than the application, but learning what works and what doesn’t for you is important.  I’m trying to build my investment knowledge and application all the time because in my opinion, continuous improvement is critical to success. 
 
In Part 2 of my interview, you’ll hear more from Derek about his portfolio allocation and his stock market predictions for 2011.  Stay tuned for that blogpost after Christmas. 
 
I hope you enjoyed Part 1 and as always, I look forward to any comments!
 
Cheers,
Financial Cents

I dont know about you, but applying for a mortgage can be frustrating and time-consuming. From our perspective, we were just another number applying for a bunch of numbers. Insert a great mortgage broker into the equation.

Heres a short (but not inclusive) list of great things a great mortgage broker can do you:

Give you customer focus – Unlike banking representatives, mortgage brokers are not tied to any one bank. Sure, they might have some favourites, but great brokers canvas the full field. Our guy was looking out for the customer (us), our terms, conditions and pre-payment options. He was working to find a product that fit our needs and situation, not his agenda. In brief, our mortgage situation is not ideal, we have a hefty penalty to pay if we break our existing mortgage and go with another lender within the next two years. (This is a reminder to look at the detailed print of your mortgage agreement before you purchase a new home .) In our case, a great opportunity arose and sometimes you simply cant pass those up regardless what the fine print says – life happens, choices need to be made and chances need to be taken. Back to my point, you can certainly make a strong argument that mortgage brokers work for themselves, not you, however without attention to personal detail, they wouldnt be in business. Our broker put our needs and requirements #1. He was always very responsive. He never said he didnt have time for us or needed to take another call.

Give you leverage The way I see it, using a mortgage broker to fund a mortgage, youre going to get more attention because the lender wants that broker to continue sending business their way. As an individual customer, were just a number apply for a bunch of numbers. In talking with our broker, I know if he sensed any run around from a prospective lender hed move on and our mortgage prospects would go with him.

Save you money No doubt mortgage brokers are compensated by the lenders they strike the deal with but a) that means you dont pay them and b) as long as the rate and conditions of the mortgage are better than what you could have obtained youre saving money. Potentially lots. Like I mentioned earlier, our broker worked hard to get us a good deal. He knew his stuff and actively monitored bond yields for us. We more than appreciated that because without our new great rate and its associated terms, we wouldnt be coming out ahead over our hefty mortgage penalty. Weve taken our lumps and learned from them. My advice? Dont take a five-year mortgage term if theres even a chance you might move within that term period. Sure, you can sometimes port your 5-year fixed term to your new home (it doesnt cost anything but the mortgage appraisal and sometimes a small discharge fee) but that wasnt ideal for us. In hindsight, we should have taken a shorter fixed term a few years back or instead, given historical research, a variable rate. Click here to read more about variable mortgage rates and how more often than not, you come out a winner over a fixed rate mortgage.

In closing, mortgage brokers can be a tremendous resource, if you have the right one. Were glad we worked with our guy. Actually, we still are.  He’s still checking in with us to ensure all the rebates we were able to take advantage of are coming our way, including one for the mortgage appraisal.

I know if I have mortgage question going forward, Ill drop him a line. Hell take my call, hell listen, hell provide good customer service and objective feedback. I dont mind sharing who we used because the experience was very positive.

Thanks very much Rob!!

Click here if you want his contact information.

Do you agree or disagree what a great mortgage broker can do for you?
Any positive or “other” experiences youd like to share?

Cheers,
Financial Cents

Wow, Christmas is almost here…are you ready?

Although Snoopy is, we’re not.

My wife and I are normally the types to have our acts together but this year, with our move to a new home just days away and many other things on the go, weve fallen behind in our holiday preparations. It doesnt feel good because its not our style.

Luckily for us, most of our family is committed to a wine bottle exchange for Christmas. Well, at least the adults are! 

Kidding aside, we have tons of shopping to do over the next week while getting settled into the new place; well be brave and hit the odd store besides the LCBO but at least weve got a few things to be proud of we managed to achieve many of our financial goals for 2010.

Lets take a quick look at what did and did not happen this year…

Goal # 1 Put down $20,000 on our mortgage



Yep, this one was a BIG stretch assignment for us, but why not have lofty goals?  Earlier this year, I think we were actually on pace to meet this goal by way of some frugal living but things quickly changed when we fell in love with a house and our purchase offer was accepted on it.  Life happens, things change that was early fall. Up until that point, we managed to put down many lump sum mortgage payments but have since diverted money towards moving costs, lawyer fees and other monies required for the move.  Moving is certainly not cheap, we’re reminded of.  In any event, in the end we 55% of our target. In grade-school, 55% means you almost failed. I dont think our efforts were too bad!?

Goal # 2 Maximize TFSAs


Earlier this year, I was proud to say we accomplished this goal and I still feel that way. My wife and I opened discount brokerage TFSAs and promptly filled them with ETFs and one REIT, HR.UN. The XBB in each of our TFSAs has yielded a tidy 4% all year long and the one REIT we hold has had a very nice runup.

Goal # 3 – “Clean-up” RRSP Accounts (ETFs instead of high-MER funds)



This housekeeping exercise was a big one for us, probably just as important as the lump sum payments on our mortgage.  If youve been reading my blog for a bit, you might recall this exercise started in earnest in late 2009 after revisiting our RRSP mutual fund holdings and their performance over the last few years. This work also accelerated because my understanding and passion for index investing has grown. Canadian Couch Potato, Canadian Capitalist, Michael James on Money, Andrew Hallam, DIY Investor and others, have been great tutors to me and have helped me see the index investing light in recent years (thanks guys).

Ive written about the benefits of ETFs before.   Their low-cost structure and strong allegiance to the indexes they follow give them advantages in the long-run over almost every actively-managed mutual fund out there. This makes ETFs great products for our RRSPs.

We completed our transition to holding ETFs in our RRSPs this summer and we havent looked back since (and won’t).

Goal # 4 – Frequent contributions to DRIPs


After making major investments (for us anyhow) into businesses like Bank of Montreal, Sun Life and CIBC a year ago, my early 2010 focus turned to Bank of Nova Scotia (BNS).  I turned to BNS earlier this year and started investing in this company since it behaved well out of the financial storm of 2008-2009.  Not only that, they’ve been a dividend stalwart:  paying dividends for over 150 years.  Why not me?  Although my portfolio at the time was entirely comprised of stocks from the financial sector (this is no longer the case), I wanted BNS in my portfolio since it was (still is) a very good company and I couldnt resist my entry point at just under $47.  Since February, I’ve had my Scotiabank stock DRIPping.  While BNS did not raise their dividend this year, unlike most over the last three decades, I bet they will in 2011.  Many savvy dividend investors like The Rat, themoneygardener and Passive Income Earner got their invitations to the BNS dividend party years ago, now I’ll be able to join them!  This year I managed to contribute at least $50 per month into BNS, free of charge, no commission fees – just the cost of a stamp and an envelope.  Hopefully sometime in 2011 I’ll be at a point whereby I’ll be earning at least one free Bank of Nova Scotia share via my DRIP every quarter.   For this year at least, goal accomplished. 


Goal # 5 Optimize RRSPs


Ive already written about this goal in a few other posts, but its worth repeating. My wife and I believe we should only contribute enough money to our RRSPs to avoid paying any additional income tax. This is not because RRSPs arent a good savings vehicle (they are, we have them, we fill them with ETFs) rather we feel our income is better used elsewhere if RRSP optimization is achieved.  Paying down our mortgage for one, buying and holding established dividend paying companies for two.  For the most part, I consider this goal complete.


Goal # 6 – Save for and take a great trip

If you spent some time on my blog last month, youll know my wife and I took our highly anticipated trip to Argentina. Visiting Buenos Aires, spending half a week in the jungle in northern Argentina, taking a high mountain bus tour through the Andes and a private wine tour around Mendoza were experiences and sights well never forget. While saving and planning for retirement are important, so is living for the day.  Thanks to our super simple automatic savings plan, disciplined budget and clear financial goals, we were able to take an unforgettable vacation.  Mission accomplished.


Looking back on our 2010 financial goals, I cant help but think it was a successful one. Did we hit the mark on everything? No, but we weren’t that far off.  Weve been fortunate in 2010 and are thankful for that, very thankful.  Even if you have good plans and goals things don’t always work out and things tend to change.  That’s life, and I’m learning to accept that more and more.  However, on the road to financial independence, what I’ve learned this year is having a few goals to work towards is certainly an enabler to getting to your destination.  This blog has helped keep me honest and accountable by putting our financial objectives in writing.  That unto itself was progress and I hope to accelerate that ride down my financial independence road in 2011. 

How about you – any financial goals you were proud of this year?
Got any BIG or small plans for 2011?

Cheers,
Financial Cents

SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance

Burst This!: Frank McKinney’s Bubble Proof Real Estate Strategies

End the Fed

Master Your Debt: Slash Your Monthly Payments and Become Debt Free

Sway: The Irresistible Pull of Irrational Behavior

Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asian Markets for Millions

No One Would Listen: A True Financial Thriller

Buy–DON’T Hold: Investing with ETFs Using Relative Strength to Increase Returns with Less Risk

The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations

Wrong: Why experts* keep failing us–and how to know when not to trust them *Scientists, finance wizards, doctors, relationship gurus, celebrity CEOs, … consultants, health officials and more

Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions

Dividend Stocks For Dummies

How Capitalism Will Save Us: Why Free People and Free Markets Are the Best Answer in Today’s Economy

Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs (Wiley Trading)

What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions

The Forever Portfolio: How to Pick Stocks That You Can Hold for the Long Run

Jim Cramer’s Getting Back to Even

A guest article by John Nyaradi, author of Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs

In this era of ultra low interest rates, income is hard to find almost everywhere. Money markets yield next to nothing, treasury bonds and bills are about the same, and corporate dividends were drastically slashed when profits dropped.

Dividends are starting show signs of revival, however, and dividend producing Exchange Traded Funds are one option for investors to consider.

Dividend ETFs give you opportunity to gain exposure to dividend paying stocks and at the same time eliminate single stock exposure because youre buying a basket of stocks. Plus the ETF providers have the resources to pick the best candidates and so do the research for you and can save you money, time and costly mistakes.

If youre interested in ETFs that pay dividends, here are some for your consideration.

One of my favorites comes from the iShares family and is the iShares Dow Jones Select Dividend Index (DVY). It has more than $4 billion in assets under management, charges a 0.40% management fee, and returned 10.99% in 2009. The ETF’s main holdings are:

Lorillard Inc.
Entergy Corp.
Centurylink
Chevron
McDonalds
PPG

Other good candidates are PowerShares High Yield Dividend Achievers (PEY) which focuses on financial sector stocks. For investors who are afraid of the financial sector because of its recent near death experience, Wisdom Tree offers a dividend paying ETF called the Wisdom Tree Dividend ex-Financial ETF (DTN).

More ETFs to consider are Vanguard Dividend Appreciation (VIG), Claymore Dividend Rotation (IRO) and Wisdom Tree Small Cap Dividend Fund (DES) each of which takes a slightly different angle in search of quality dividend production.

So in todays tough environment where growth has been tough to find and interest income options have wilted, dividend paying ETFs offer another option for investors looking for ways to try to maximize current income and total return.

John Nyaradi is Publisher of Wall Street Sector Selector, an online newsletter specializing in sector rotation and exchange traded funds and author of Super Sectors: How to Outsmart the Market Using Sector Rotation and ETFs.
(www.supersectors.net)

Disclaimer:
All material herein is believed to be correct but its accuracy is not guaranteed. This article represents solely the opinions of John Nyaradi and readers are encouraged to consult their investment advisors prior to making any investment decisions. All information herein is for general informational and educational purposes only. The information is of an impersonal nature and should not be construed as individualized advice or investment recommendations. There is risk of loss in all trading and readers are encouraged to read the full disclosure statement at http://www.wallstreetsectorselector.com/disclosure.html. None of the information in this article is intended to be investment advice or any kind or offer or solicitation to buy, sell or otherwise invest in any fund, company or security. Nothing herein represents a recommendation, claim, promise, guarantee or warranty regarding the suitability or profitability of any investment.

In last months dividend income update, I said the following:

We might add more to our BNS position, maybe another $50 or $100 if we can but even if we dont, I bet our dividend income will increase again regardless of what Mr. Market does. I look forward to sharing that with you.

Well, Mr. Market had a decent run until today, but regardless of how Mr. Market feels today were happy – because our stocks are paying dividends and our dividends are buying more stock. Our dividend income has moved up.

This month alone, we had or will have in a matter of days, the following Canadian companies pay us: Bank of Nova Scotia, BCE, CIBC, TransAlta and TransCanada. Thats in addition to RioCan and H&R REITs who pay us every month

My post today reminds me what Tom Connolly has posted on his site, DividendGrowth.ca:

First you have to know about dividend growth investing and understand how dividend growth builds wealth. Second you have to believe it works. Third you have to resist the temptation of ‘story’ stocks, to control your behaviour and finally you need the patience to execute the strategy (to wait for the value buy price, and then wait for the dividends to grow). Nothing spectacular will happen in the short term. Good luck.

My portfolio doesnt have what many DIY investors might consider the best of the best dividend-payers, but I think its a decent start. Im working on it. Its a journey, not a get rich scheme I remind myself. Dividend investing is part of my retirement strategy, not the full-meal deal. I’ll make mistakes, and I’ll move on. I’ll learn from them…

Some stocks like TransAlta (TA) have very high payout ratios and run the slight risk of cutting dividends by a few cents if earnings dont keep pace. Until that happens, dividends are paid. Other stocks like Sun Life have been beaten up since the recession started and are having a hard time rebounding amongst some sector peers (such as Great-West Life Co.). In the meantime, dividends are paid. Until major dividend cuts happen we need to hold the line. I need to remind myself there will always be threats to the system; stories of better performers, analysts and skeptics that write-off many companies when signs financial trouble or takeovers arise. You shouldnt own those because you should own these they say. Thats fine. I wont sell anything until I’ve been handed a very significant reason to do so. If nothing more, risks of TA and SLF remind me that my small basket of stocks should be further diversified, not sold. My small basket needs to be more like a full shopping cart, and unlike a trip to WalMart on a weekend, I enjoy this type of shopping. Buying Emera (EMA), Fortis (FTS), and Crescent Point Energy (CPG) are some fine examples of shiny products I can see down my shopping aisle. We’ll save over the many months that follow and try to buy those payers when the time is right. Until the sky gets very dark, were going to enjoy our $4,200+ in dividend income this year, but only for a bit, because its quickly reinvested to buy more stock.

This year’s stars could be next year’s duds but in the end, dividends never lie. Companies can either to afford to pay their shareholders or they can’t. As long as my companies consistently pay, I think it pays to consistently own them. Overall, we just need to stick to the plan; buy and hold established companies that have a history of paying dividends. Simple plan, extraordinary results over time.

Cheers!
Financial Cents

One way to reduce risk is by finding a stock that pays a regular dividend, because capital is returned to you on a periodic basis and the income provides some stability to the stock price. WallStreetNewsNetwork.com has turned up a list of over 20 gold and silver mining stocks that pay dividends, including Freeport-McMoRan Copper & Gold Inc. (FCX) with a yield of 1.4% and Newmont Mining Corporation (NEM) which pays 1.0%.

However, there is one dividend paying gold stock that stands out. Hecla Mining (HL) is a major producer of gold, silver, lead, and zinc. The company, which was founded in 1891, has operations in Idaho and Alaska. But the common stock doesn’t pay a dividend.

However, the Hecla Mining Company Preferred B (HL-PB) shares pay 7% of the $50 par value or 87.5 cents each quarter, generating a yield of 6.5% based on the recent price of 53.80. Another benefit, besides the income, is that the shares are convertible into the common shares of Hecla at $15.55 per share. The current price of the stock, at 6.38 is far away from the conversion price, but a continued strong move in gold could send the shares shooting past that level.

The dividends are cumulative, meaning that any missed dividends need to be paid before any dividends are paid on the common stock, and before the shares get called. The cumulation actually took place last year when the company paid $4.375 in December after missing four payments in a row.

You should be aware that the preferred shares are redeemable at the option of Hecla at $50 per share. It would be to the advantage to Hecla to have the common rise enough for the conversion to take place as once the preferred shareholders convert, the company would save over $550,000 each year in non-deductible dividend payments.

There are many other dividend paying gold mining stocks to choose from, including one that pays dividends monthly and has done so since January of 2004. To see a free list of the top yielding gold and silver mining stocks, go to WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time the article was written.

By Stockerblog.com

Many years ago, probably like most of you, I got interested in personal finance because of David Chiltons book, The Wealthy Barber.

For the minority of you who may not be familiar with this all-time Canadian bestseller, Chilton takes the reader through a series of fictitious conversations amongst several friends, family members, and the local barber (Roy). Roy, the millionaire barber and the financial hero in the book, lays out some guidelines for personal financial success. Some of those include:

Pay yourself first
Save 10% (of your income) and invest it for long-term growth
Start an RRSP and stay invested
Live within your means
Know the difference between a want and a need
Buy enough (life) insurance for what is needed (i.e., to pay off all debts; taxes)
Have a will
Pay down your mortgage

Since Chiltons book, Ive been drawn to learn more about investing and personal finance and thanks to Chilton’s book (and kick-in-the-butt), I believe I’m much better off because of it.

Its also why Im happy to hear the sequel to The Wealthy Barber is due out next summer. Yes, to follow-up a bestseller after 20 years is a little odd but Chilton does a decent job justifying the wait on his website.

If only out of curiosity, Ill probably add Chiltons sequel to my financial library.

Will you?

Do you have any favourite books or articles that helped you become more financially literate?

Cheers,
Financial Cents