Second GWO Trade

The markets can have a mind of their own at times … The recent pull back is reminescent of 2009 when many financial stocks were discounted.

Corp Account Guidelines

A reminder on the account guidelines:

  1. Preserve capital by not taking unnecessary risks while not expecting growth per say.
  2. Earn income from the investment with a yield above 5% from dividends or distributions.
  3. Keeping up with inflation is not necessary as it’s not a retirement account.
  4. No re-investment of income. It will either be used to pay taxes, or withdrawn from the corporation as dividends to myself.
  5. Focus on Canadian currency.

Screening Method

The method I used to screen GWO during my first trade is still valid.

I did, however, double check for better options. Income trusts or ETFs were currently excluded in my filtering as I wanted to focus on a dividend stock due to the market drop.

The short list is the following with a yield close to 6%

I had a look at the banks and only Scotia Bank had a yield near 5% and still not in the attractive territory unlike many of the life insurance stocks.

I opted to stick with Great West Life instead of its parent company or Manulife.

Interestingly, Great West Life was also highlighted as a top pick on BNN last week.

Tax Efficiency

At this point, I have 60% of my initial contribution in dividend stocks while 40% in an ETF which is more tax efficient for a similar yield.

The difference is that Great West Life will increase the dividend over time while the ETF will stay relatively fixed.

It’s a balance and not just a play on tax efficiency.

In a corporate account, capital gains are very efficient and many covered call ETFs pay a return of capital. You get money back without any taxes until you sell and trigger a capital gains.

See the ratios below to understand the actual tax rate of the ETF distribution.

BMO ZWU Distribution Details 2021

Note that I am still learning about corporate tax for investing … While I have a good handle of personal taxes, it’s my first year doing corporate taxes with an accounting firm. Hopefully, I am not making too many inneficient decisions.

Next Steps

The markets can always make me adjust my plans but my next contribution of $5,000 will be earmarket for an income trust or ETF.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.

5 thoughts on “Second GWO Trade”

    • The Canadian banks are still around 4%. Only BNS reached 5% recently but it has not crossed over the 5-year average yet.

      BCE is usually in the 5% but I prefer insurance these days with increasing interest rates and their PE is really really low.

  1. So many bargains in the market for the last couple of weeks and definitely lifeco are a safer bet if we’re looking for a decent yield.l


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