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Special to The Globe and Mail

Ron Watson, 68

Occupation Retired

The portfolio

Many preferred and dividend-paying stocks, including the preferred shares of Bank of Nova Scotia (Series 15 and 16), CIBC (Series 27 and 32) and Sun Life Financial Inc. (Series 5); units of RioCan REIT; common shares of Emera Inc. and AltaGas Ltd.

The investor

Ron Watson taught high school for several years. Then he ran a business that was later sold. He's been retired for 16 years, and lives in Thunder Bay. One way he keeps busy is by volunteering at the local college, where he gives workshops on entrepreneurship and financial management.

How he invests

"My portfolio has about 30 different stocks in it," Mr. Watson says. "There is a combination of preferred shares and dividend-paying common shares."

He's a fan of dividend stocks for several reasons. One is the lower tax rate. Because of the dividend tax credit, a person in Ontario can receive over $40,000 in dividends tax-free each year (if they have no other income), he observes.

Another reason is dividend growth. Many firms raise their dividends regularly; over time, the dividend yield on the money invested can rise to 15 per cent or more.

But what Mr. Watson really likes are the dividend reinvestment plans (DRiPs). All of his stocks have them. Of note are the discounts between 2 and 5 per cent offered by many companies when dividends are reinvested in their shares. For example, a discount of 3 per cent is available from RioCan and 5 per cent from Emera and AltaGas.

"The combination of the dividends and discounts gives me returns of 6 to 10 per cent, not counting capital growth [or dividend increases]," declares Mr. Watson. He asks his discount broker to set up a DRiP when he buys a stock. But brokers only reinvest dividends if there is enough to buy a full share; investors who want to reinvest in fractional shares need to set up DRiPs directly with the company, advises Mr. Watson.

Best move

"Learning about DRiPs and discovering that many of them give discounts."

Worst move

"Nortel - lost a fortune. I stay away from tech now."


"Do not be greedy; high risk is not worth it. Read the Canadian MoneySaver Magazine for their list of DRiPs and the companies that give discounts."

Want to share your strategies?


© 2007 The Globe and Mail. All rights reserved.

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