Tag Archives: income

Using Dividend Paying Stocks to Create Monthly Income

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If you are trying to live off of your investments, you might want to try to have some new income coming in each month, rather than once a year or once every quarter. CPP, OAS, GIS, many annuities and most pensions pay monthly. It’s also possible to have some of the income from your investments pay monthly.

Written: 2012
Reviewed: 2023
Revised: 2023

Canadian Dividend Stocks that pay a Monthly Distribution

Many of the stocks that pay a dividend or distribution monthly are targeting the needs of people requiring a monthly income. They are often stocks that don’t offer huge potential to increase in capital value, but which can provide a steady, modest profit.

The industries these companies are in can vary widely.

Diversifying a Canadian Monthly Dividend Stock Portfolio

Uniforms
K-Bro Linen Systems (KBL) is a Canadian stock that pays a monthly dividend. This is one of those companies that keeps beavering away behind the scenes without most of us noticing them. They provide, wash and deliver linens including uniforms to many businesses across Canada. They started as a diaper washing service. Now they provide clean uniforms and bed linens to many major hospitals and other industries. But just as few people launder diapers nowadays, there is no guarantee that companies will continue to require a laundry service for their uniforms and linens.

So I’m not saying buy KBL. I’m just stating a fact: it pays a nice monthly dividend. And it’s in quite a different area of business than, say, A&W.

Mortgages
Firm Capital Mortgage Investment (FC) is another Canadian stock that pays a monthly distribution. According to their company website, Firm Capital “is a non-bank lender providing residential and commercial real estate finance.”

You’d have to look at the details on the company to see if you think their strategy is sound and whether it meets your ethical criteria. And, as anyone who invested in US real estate in the 2000s knows, supplying mortgages can be a risky business. Don’t buy shares in FC without investigating it yourself and understanding the risks.

UPDATE: Also be aware that as interest rates start to climb, companies that deal in mortgages may drop in value for reasons I don’t fully understand but which I have read more knowledgeable analysts talk about. Do your research!

Fast Food
Several of the fast food businesses are available as stocks that pay monthly distributions. These payments may be dividends, non-eligible dividends, interest or return of capital. You have to check the details before deciding if the investment is a good fit for you.

One example is A&W. Yes, shares in the root beer and burger chain are sold on the TSX under the symbol AW.UN. Distributions are paid monthly.

You have to decide for yourself whether they are financially stable and whether selling fast food which could potentially be unhealthy is ethically acceptable to you. I’m just saying the shares are out there.

Linens, mortgages and fast food. While I’m sure these all tie together somehow, they are not 3 stocks in the exact same category of business. So as you can see, you can diversity your holdings into various parts of the market, while still earning a monthly income.

Movies
There was a time when Cineplex paid a dividend. Alas not in 2023.

Disclaimer
I’m not saying “buy these stocks.” I’m just saying these are examples of Canadian stocks that pay monthly distributions. Do your research, or hire someone trustworthy to do it for you. I just want you to know there are choices out there that may meet your needs nicely.

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Do you have a favourite Canadian (or American!) stock that pays a monthly distribution? Please share your experiences with a comment.

The 5-year GIC Ladder Strategy

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Many financial advisors used to recommend setting up a GIC ladder of 5-year GICs to maximize GIC returns. Is this idea now outdated?

What is a GIC Ladder?

To make a GIC ladder, an investor would buy a GIC with a 1-year term, another with a 2-year term, a third with a 3-year term, a fourth with a 4-year term, and a fifth with a 5-year term. From then on, whenever a GIC matured, it would be re-invested for a new 5-year term.

Written: 2012
Reviewed: 2023
Revised: 2023

The idea was that this strategy would smooth out bumps in interest rates. Generally, the interest rate for a GIC that cannot be cashed for 5 years is the highest one offered for a GIC covered by CDIC insurance.

When the 5-Year GIC Ladder Strategy Worked Best
This strategy did actually result in optimized earnings for some investors. As interest rates fell year after year approaching 2010, investors found they were still earning good rates on their not-yet-matured long-term GICs.

However, when they went to re-invest, they could not get the same good rates for the new certificates. For example, one online bank was offering RSP 5-year GICs at 4% in 2008, but their best available 5-year had dropped to 2.3% in 2012.

When does the 5-Year GIC Ladder Strategy Work the Worst?
You can probably guess that this strategy is the most dangerous when interest rates are rising quickly and sharply.

If interest rates are increasing slowly and gradually, perhaps at 0.25% per year, then investors won’t lose too much by locking in for 5 years at a time.

However, if interest rates are increasing quickly, say at 1% per year, or sharply, say in a sudden spike of 3% one year, investors could lose a lot by being locked in for a long time at a lower rate.

Here are some examples of these scenarios.
Value of 1000 invested. For simplicity the interest is only compounded at the end of each year.

Year 1 Rate % Year 2 Rate % Year 3 Rate % Year 4 Rate % Year 5 Rate % Year 6 Rate % Year 7 Rate % Final Value
2.5 2.5 2.5 2.5 2.5 2.5 2.5 1189
2 2.25 2.5 2.75 3 3.25 3.5 1209
2 3 4 5 6 6 6 1366
2 4 4.5 4.5 6 6 6 1380

You can see that locking in for 5 years at 2.5% earns less than buying 1 year terms that increase by 0.25% per year. However, the difference is not painfully large.

Locking in for 5 years when rates are increasing 1% a year or when rates are spiking up 2% every few years however is costly. The investor was lost between $175 and $200 by locking-in. A loss of $200 on an investment of $1000 is a fairly considerable loss in income.

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Do you think you should stick with a rolling 5-year GIC ladder regardless of the rates? Please share your opinion with a comment.