Salary + bonus
The salary + bonus investment strategy is designed to generate a predictable flow of income, while providing growth of capital over time. Every holding in the portfolio generates income to form the SALARY. And, the expected rise in the income price payout and the price of the underlying securities in the portfolio forms the BONUS.

How does the strategy work?

Every holding in the portfolio generates income to produce a salary you can rely on. Interest income is earned from high quality GICs and bonds. And, tax-efficient dividend income is earned from investing in the preferred and common shares of large, well regarded, dividend paying companies. Depending on your need for income and tolerance for risk, the portfolio can target an income flow (i.e. yield) between 3% and 5% of the market value, thus producing a reliable, tax-efficient salary for you.

The bonus return comes from the potential rise in the price and dividend payment of the high-yield common stock component of your portfolio. Today, there are many excellent companies that pay their shareholders annual dividends between 3% and 5%. Plus, the companies I select regularly increase their dividends, so you tend to get a raise each year, protecting you from inflation. These dividend payments are only a partial distribution of earnings to shareholders. Usually an equal or even greater portion of earnings are retained by the company to finance the growth of the business. Over time, the growth in corporate earnings should produce a higher share price. Hence, you should expect a bonus return from participating in the growth of the companies that are also paying you a salary.

Tax Smart Execution

The salary + bonus strategy can be executed in a tax-efficient manner. Not all investment income is taxed in the same fashion. For example, interest is income is fully taxed. Canadian dividend income is eligible for the dividend tax credit. And, only 50% of capital gain income is subject to tax. To improve the after tax rate of return of your portfolio, we try to position fully taxed interest income producing securities inside tax shelter or deferral accounts (ie. RRSPs, RRIFs, TFSAs, RESPs), while holding more tax-friendly dividend and capital gain producing securities in taxable accounts.