The Canadian Investor - Sony, price anchoring and high dividend yields

Episode Date: November 8, 2021

In this release of the Canadian Investor Podcast, we cover the following topics: Chuck Akre’s list of characteristics to find outstanding businesses Price anchoring  The Sony Group Dividend 15 Split Corp Using a TFSA as a dividend income vehicle Evaluating an ETF Tickers of stocks discussed: TTWO, DFN.TO, NOBL, XUU.TO https://thecanadianinvestorpodcast.com/ Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Stratosphere 🚀 https://www.stratosphereinvesting.com/See omnystudio.com/listener for privacy information.

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and always joined by Simon Belanger at Fiat underscore Iceberg on Twitter. And you can follow our Twitter account for the podcast at CDN underscore investing. If you have an account there and if not, then you can just keep listening to the podcast here. But Simon, how are we doing? We got some fun ones today. We got some listener questions that we're going to finish the show with. We got four or five listener questions here. And I can kick it off here with another topic that I'll get into here. But you know, what's funny is looking here on the notes and we're talking about

Sony, a question we got earlier, it was about Sony, the stock, and we're both wearing Sony headphones right now. And you just bought a Sony TV and we're like, yeah, I don't love the stock. But that just goes to show you, you can't always be waiting on anecdotal evidence. Yeah, yeah, exactly. And it was an interesting question and we'll give our take. But yeah, I think Sony, it's kind of a mixed bag, just a preview of what we'll say. But we've got a few other interesting segments and then those listener questions, which we always love to do. Let me kick it off here with something I dug up from 1993. You might know from the podcast listening about Chuck Ager. Ager Capital Management is a fund and Ager has had tremendous success managing money for shareholders.

So I pulled something out from a letter he wrote from 1993. And I just wanted to highlight some things here because this is truly a quality basket of companies. He tries to own really, really high quality, wide moat businesses and hold them for the long term. And so these are some interesting things that he talks about now in 2021, yet has been talking about them since 1993. And it just goes back down to owning good companies and holding them for the long term yields fantastic results. And while the businesses may change from time to time, the businesses that dominate today in 2021 and the businesses that dominate in 1993 are different, yet he has the same investing framework over these multiple

of decades and it's yielded fantastic results. So he goes, these businesses possess some type of franchise that enable them to have reduced or diminished competition. This power, sometimes in pricing, sometimes in brand names, sometimes in exclusivity, properly used can further strengthen the business and enhance, even perpetuate, their high returns on an owner's investment. Among the characteristics of these outstanding businesses I look for are, and he has nine things listed here. I'll go through them. Number one, earn high returns on capital. Number two, are understandable to us. It's an important one. Three, see profits in cash, not mere accounting conventions. So even back to 1993, Acre was saying, accounting profits,

net income, not useful to me. I want to know free cashflow. And this is why we talk about free cashflow so much. And it's been so important for every manager as of late, but the smart ones are recognizing that there are issues with accounting many decades ago. Number four, have freedom to price in brackets, raise prices. How often do we talk about that? Number five, don't need a genius to manage. That's a very Warren Buffett style one where you don't need a genius to manage the business because eventually someone may not be a genius managing it and you still want to be awarded as a shareholder. It just speaks to it's such a good business that it doesn't necessarily rely on an expert CEO. Number six, have reasonably predictable earnings, some stability to their

earnings. Number seven, are not natural targets of regulation. So when we talked about that on the last episode, owning companies that are targets for regulation is tricky and something that affects oil and gas stocks, it affects our investment in Tencent and the market is going to price it as such. Number eight, require little capital investment. And number nine, have shareholders oriented management. So they're treating shareholders and trying to earn a decent return for them. So the reason I bring up this list is if you're an investor looking to buy and hold wonderful companies, like some of the best investors of all time, it is helpful to develop a framework like this. Now that framework can be improved over time. And what you write today

may not be what you have in five years. But what's really key here is that in 1993, Chuck still said that he was looking for businesses that meet these exact criteria. The fundamentals of competitive advantages have been the same for a long time. Even if the businesses that make up the market today have changed in a major way, this list of nine things is going to work in every single market because there are strong business characteristics like profits, higher returns on capital, understandable to the investor, has the ability to raise prices. These kinds of things are timeless. So almost 30 years later, still investing with this framework and the results have been

outstanding. So I've developed a framework and I use it and it's kind of a checklist type thing. Talk about it many times on this podcast. Maybe I'll talk about it again next episode. And I think establishing a framework is a helpful and useful exercise to think about the businesses that you want to own, not just tomorrow, not just next week, but in many years down the road. Yeah. I think it's a really good framework and it's astonishing how it can still be applied quite well today. The only thing I probably would think that I would add to that framework is the companies that actually treat their employees well because we've seen companies that do that and tend to perform quite well when they treat their employee well. But this type,

you know, not having that in 1993, there was a lot more focus on bringing shareholder value back then. There still is, but I think it's evolved a little bit over time. But everything else, I think, we've talked about free cash flow over and over. And I still get amazed how major media outlets like CNBC, for example, still only basically talk about earnings or earnings per share. There's still not much mention of free cash flow when those news headlines come out. It's because when the news headline comes out, they have to actually do some calculations on free cash flow unless it's in the press release, but that's for another discussion. It's a good point, right? The earnings and profits has been the easy one to put on a headline,

but at the end of the day, the actual free cash flow that the business is generating over time is what determines its intrinsic value from a long-term perspective. Okay, let's switch gears to another one here before we get into the mailbag questions, which is I got an email from a longtime podcast supporter and Stratosphere member. His name's Raph. Great guy. And he brought up a topic for the show that we can go back and forth on here. And I got some notes on as well, which is something that everyone battles with Simon, whether you are a new or experienced investor, this is something that you face and this is around price anchoring. Okay. So for both buying and selling price anchoring is a behavioral investing psychology thing at play. So let's talk about both of them. This is a concept around selling winners and buying losers is like cutting the flowers and watering the weeds. So let's talk first about price anchoring on your cost basis on a losing stock. So this is when a stock you own is down tremendously and you're waiting, like

arbitrarily waiting for the price to come back to what you paid. It is important to remember that you are trying to earn a good return on your capital from this very second onwards. And if the stock is something you wouldn't dare put fresh money into now, because this company is junk, it's lost its edge, or your investment thesis was just plain wrong, it's probably best to move on and cut your losses. Now, that cash is probably used better elsewhere. There's probably better opportunities. Now, if the company is actually great and the business results are solid and the share price is hurting, then that may be an opportunity. But if the real business fundamentals are slipping, waiting for the share price to arbitrarily recover to a price that you paid is living in la-la fairytale land.

It's an investing psychology nightmare and should frankly be avoided at all costs. Yeah. Yeah. Tom, what do you think about price anchoring on losers? It's just human nature. And I think you have to recognize when you're doing it yourself for a company that you own. And it's very easy to look and have these arbitrary price points that you have, whether it's making back your investment, just breaking even, whether it's selling once you 2x because you have that in your mind for no apparent reason. I think it's something that everyone kind of struggles with sooner or later. It's especially true, right? If you've thought about buying a

company, but you're like, oh, you know, I'll buy it, but I want to buy it $100 a share. And then you look back three years later, it's $300 a share, right? So I think that can happen. And you won't want to pull the trigger because now it's $300. You could have had it at $110, and you won't want to pull the trigger because now it's 300. You could have had it at 110, that type of mentality. It's really important to look at things where they are at right now. The market doesn't care what price you paid for the company. What really matters is what price it is trading right now, what the valuation is, what the future prospects is. And if you sell that investment at a loss, at the end of the day, it's not the end of the world if you can take that money, like Brayden said, just putting it in another investment and get

better returns there. I guess you have to be ruthless when it comes to that and really take out your emotions completely out of it and really look at it from an objective matter. I know it's really easier said than done, but that can also apply for real estate. I've heard a lot of people that want to buy a certain home. They have a price in mind. The seller doesn't want to sell it to them. And then a year or two later, they realize that the market's gone up 10 or 15%. I'm not saying pulling the trigger at all costs to buy real estate. That's not what I'm saying, but people tend to have a price in mind and you can flip it around for real estate as well. When you're selling a home, you may have a price in mind and the market's telling you that it's not worth that and you're being stubborn on it. And then same thing can happen a few years later.

Maybe you get your price, but the extra cause that you incurred actually makes it a losing proposition. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly.

Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still

focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. It is a behavioral problem that should just be avoided. And what you're talking about is price anchoring also to cost basis is on a winner, right? Which is, it can be difficult to add to winners just like it can be difficult to sell losers. So this is part two, which is price anchoring. Before we're talking about price anchoring on losers, there's also price anchoring on winners. Now, look, if the business you own, the stock you own is getting better and the share price keeps winning, if it trades at all time highs, it absolutely should trade at all time highs. The business

has gotten better over time. You made a great investment. Your thesis played out. And sometimes that great investment deserves some more fresh capital. I have added to winners after 5X-ing my initial investment. The stock has earned my conviction over time and potentially opened up new optionality for growth. And it commands more weighting. It's one more weighting in my portfolio. And sometimes it deserves more fresh capital because your best idea, very often your best idea is something that you already own. And that's why adding to winners that have had such run-ups, but the optionality has improved. They've gained more market share. The brand has improved. They've flexed all the correct things about your investment thesis. And the runway for growth

remains large. Maybe you've even got some multiple expansion that you're hoping for. Given all those things, sometimes a position demands more fresh capital if you're investing more money. And it's counterintuitive because sometimes an investment, a stock will have performed so well for you. And like you said, you might be up two, three, four, five times on the stock. While when you look at the business now, even considering that it's much more expensive to buy one share just on a dollar basis, the company might actually be

cheaper than when you initially purchased the investment based on your initial growth thesis. Maybe the growth is accelerating. That's why it's trading at such a premium. And I know you've been a big proponent of that for the, I don't know, Fagma or whatever acronym you use, the fangs or you include them all or with Facebook, I'm not sure what their new name, what it'll be, but... Yeah, Magma, I think is what people are proposing. The new Magma. So, I know you've been a big proponent where yes, they have had huge run-ups, but a lot of them still have huge runways for growth. So you can make a case that they're probably trading even cheaper than they have at some point in time in the past five, six, 10 years. Absolutely. Yeah, that's a great example. I think that's a perfect example where

some of these things on a risk reward basis moving forward have gotten cheaper over time, even though their share price might trade at all-time highs. The risk-reward moving forward, not only have they widened their moat, they've generated an absurd amount of cash, have a rock-solid defensible balance sheet, the share price might be higher. But from a multiple perspective and from a risk-reward opportunity moving forward, the stock might be as cheap as it's ever traded from that perspective. So, that's a great example. Simon, let's let you kind of lead the mailbag segment here. We have the first question here from Aaron. Do you want to take this one? Yeah, definitely. And before I get started with Aaron, thank you to everyone who's sending us emails via our website. I mean, we do get to all of them. Sometimes we're a bit behind, but we try to reply to at least everyone. We may not put all the questions on the mailbag episodes,

but we do appreciate you guys, the engagement and all the good questions that we're getting. And Simon, that is thecanadianinvestorpodcast.com, right? Yeah, exactly. thecanadianinvestorpodcast.com. It's a long URL, but it's fairly easy to remember. Yeah, yeah. A lot of people have used it. So, if you want to send us a question, definitely you can use it as well. So, now, like you said, question from Aaron. Hey, guys, been listening to the podcast since early summer and been trying to get more up on stocks and appreciate all the work

you're doing. Well, first of all, Aaron, thank you very much for that. I first dipped my toes in the water back in 2012 when I bought $10,000 of Take-Two Interactive at a little more than $11 a share. I listened to my co-workers advice and at the time and sold it at $14 a share and waited for the dip which unfortunately never happened. After that lesson I decided I needed to learn more before getting back into things. I'm a gamer and I wanted to get your opinion on Sony Group. We did cut the question a little bit because it was quite long, but that was the most important part that I thought. And yeah, definitely, I think Take-Two Interactive performed quite well over the years. But you know, you have to learn a lesson. And at the same time, you still made a decent amount of profits, even though you sold probably

a bit too early considering where they're at right now. So let's look at Sony. I'll start off looking at just a few general things when I had a look at their financials. When people are looking at their financials, keep in mind this is a Japanese company, so it's always referring to yen. I'm not going to specify specific numbers here, just a few percentages. Revenues have stalled a bit over the past five years for Sony, so that right there is a bit of a red flag for me. Free cash flow has been pretty stable over the past four years, although it hasn't really grown. The good news is they don't have that much depth on the balance sheet, which is always something I like to see. Overall, Sony has six segments, game and network services, music, pictures, electronic

products and solution, imaging and sensing solutions, and the last one, financial services. Looking at their results, you'll notice that their margins are not very high. They're about 26.5%. This was based on their last full year results. The two largest segments are game and network services and electronic products and solution. So even the motion picture segments, when you think about it, it's something that can really be hit or miss in terms of return on investment. So it does make sense that their margins are a bit lower. There's a lot of hardware here as well. So you're looking at a company that relies a lot on hardware sales to make their profit. And don't get me wrong,

like Brayden said, they do have, I think they have a lot of great products. We're using their headphones. I just bought a TV. It's a Sony as well. One thing I did notice, I was interested in seeing what management said. They did mention that they are expecting lower sales in the electronic products and solution segment due to supply shortages and especially semiconductors. So that's something I'm constantly looking for right now, especially for businesses that are producing goods that would involve microchips or semiconductors. Overall, my take is I'm not that interested because the margins aren't great. They make great products, like I just said, but unless you have a brand that's solid like Apple,

you're going to have a hard time with getting really great margins on your hardware. There might be some upside here of their segment, but I wouldn't put them in the same basket as a Take-Two Interactive, EA, Activision, Blizzard, or Tencent. So, Brayden, do you want to add a bit on that? Yeah, there's a few things to deconstruct. They bought 10,000 of Take-Two Interactive at $11 and sold it for $14 a share because their friend told them to sell it. And then she waited for a dip, he or she waited for a dip to buy back in, which it never dipped. Okay. So there's two things happening there. One, your coworker told you to sell the stock on what basis? Take-Two Interactive was developing some great games and you clearly

knew about the business. They had the fantastic GTA series and the Red Dead Redemption series. There was a cultural phenomenon with these games. So you sold it on what basis? The fundamentals seem solid. And then it goes back to the previous discussion that we just had, which is price anchoring. So you're waiting for a dip because you first added $11 per share. It just doesn't matter anymore what that cost basis was. It's over. It's gone. From a behavioral perspective, throw it away emotionally. That does suck. But perhaps take two is a great opportunity as we speak right now. I think a lot of the game publishers are. Back to Sony, they do have some

interesting tech and competitive advantages, especially in the imaging and sensing solution segment. Really cool business. But for the major narrative on Sony right now is that the console cycle just straight up sucked. There's no other way to put it. The console cycle flopped. It sucks for Sony with PlayStation, and it sucked with Microsoft for Xbox. The thing about Microsoft with Xbox is if the Xbox segment is weak on Microsoft, it gets thrown under the rug. No one cares because you have this cloud Azure business growing at 50% and the entire system sales on Microsoft are well over 20% for a business that's $2.5 trillion in market cap. It's just a small piece of the pie. So with this console cycle weakness, Sony, it really hurts the business, right? So I don't play video games anymore.

I really wish I had time to do that. but perhaps this is poor anecdotal evidence again, but the console cycle and hype for the latest PlayStation and Xbox just completely evaporated. So much effort from an SG&A perspective. So when I say SG&A, I mean sales general and administrative expenses on the income statement, SG&A. So much SG&A goes into this console cycle. And if you can't get the product into consumers' hands who want it now, it's a tricky environment to navigate. So as an investor, it's definitely not on my watch list. As a consumer, I love Sony. They make great electronics. We're both wearing the Sony WH-1000XM4 headphones that cost $350 at

best buyer or Amazon and Canadian dollars. I value a good pair of headphones, not only for the podcast, but when I'm in deep work, I need some good comfy headphones to get me going. And these Sony XM4s are unreal. So I recommend them. Yeah. And just to show, these are really good quality headphones and they cost $350 and they're pretty similar to the new Apple headphones that came out wireless. A lot of similar features, but the Apple ones are selling for about like three times the price. And that's just kind of reinforces what I was saying in terms of pricing power. I mean, I love getting good value. That's why I love these headphones. They're great. But another thing to add on to what Brayden said is the music and pictures segment,

they could be in for a lot of disruption. Music, first of all, there's a lot of movement going on there. We're seeing Spotify. They're starting to get more and more leverage. So I don't know how much that will impact Sony Music going forward. That's the other thing that concerns me. And the picture. So motion pictures, landscape, theaters are not back to what they were. So how does the box office affect their revenues there? Are they going to do a hybrid kind of box office, streaming, pay a premium to watch a movie before it releases? So to me, there's a lot of question marks around that part of the business as well.

I'm not sure where they fit into the landscape there, to be quite frank, with movie streaming and their production of films with the Sony pictures. Yeah, I don't. It's just a, you know, it's still a, it's kind of a question mark. There are some question marks and a lot of this business is just stalled out right now. And I think that the share price probably reflects that. So, let's kick it off to the next one. We had a question about DFN.TO. It's this dividend high yielder co, which basically holds a basket of companies. Do you want to talk about this?

Because we've had, this is a good example of questions that we get all the time, not only from email, from Twitter, from whatever saying, hey, can you check out this dividend company that's yielding me over 10% on the dividend? What's the story here? And usually it's the same story. So, what's happening here? Yeah. So, this is a question from John. Like you said, John, I would love to hear your opinion on DFN.TO. It was yielding around 15% at the time. Is it too good to be true? I love your podcast. I love your long-term approach to investing. Well, thank you, John. Like Brayden said, for me, it's always a red flag. Anytime I see something that's like, let's be honest, double digit, I will not even look at it. We had the question, so I figured I'd have a look into it. So this one is a bit of a nod case.

So DFN.TO is called Dividend 15 Split Corporation. They offer two types of shares, preferred shares and class A shares. It's basically a holding company that pays a monthly dividend. If you look at their investor relations page, what they state is basically they own the highest yielding Canadian company. So some names here is BMO, Bank of Nova Scotia, BCE, CIBC, Enbridge, Manulife, National Bank, Sun Life, Thomson Reuters, TransAlta, like a lot of the classic Canadian listed high yielder. It's banks, insurance, and telcos. Yeah. The big yielders. Exactly.

And people may look at these, well, why the hell are they paying 15% dividend? Well, the reason why they can pay such a high dividend is because they use the covered call strategy and they can use the premium to increase the dividend. So, I've talked about this strategy before, covered call ETFs. strategy before covered call ETFs. If you go to episode 93, so if you go on our website, thecanadianinvestorpodcast.com, look up episode 93. I explain how they work. But essentially, you get a higher yield, yes, but you limit the upside. And oftentimes, well, they always tend to trail their equivalent non-covered call if you're looking at ETFs. Personally, I would not invest into that. If you want a nice dividend, honestly, just choose the name that they're investing in and just own them outright. You won't get as high of a dividend, but at least

you're going to get the upside of capital gains here, where at the covered call, you really limit your capital gains upside. And that's one of the reasons it hasn't performed well. If you want to own those Canadian high-yielding companies because you are seeking dividend income in retirement, perhaps you own some of the names in here on their own. Don't own them in this weird split corp. Look, the reality here is that the share price on DFN is down 25% over the past five years. It basically bleeds value over time and it's lost more than that if you go to a 10 year view, but it pays this huge 15% dividend. So new investors might go, oh, this is great. The yield trap alarm should be sounding as soon as you see something like this. There's just nothing to say here. No, thank you. As do-it-yourself investors, we want to keep

our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by money sense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questtrade.com.

Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation, and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host.

Question here from Curtis. First of all, very big fan of the show. Thanks, Curtis. I'm starting my transition into retirement. Oh, congratulations. I have a few more years before I enjoy the fruits of my investing. I have a defined contribution pension, which maxes out my RRSP. I'm now playing catch up with my TFSAs and I'm looking at using a portion of my TFSA for a monthly passive income. Do you have any recommendations on finding out the best stocks or ETFs that pay a monthly dividend? Thanks, Curtis. I guess I'll start off with this one. First of all, I think it's a great approach, Curtis, that you want to maximize your TFSA contribution since your, I'll say DC pension, so defined contribution pension will be taxable income when you start drawing on it. The first

thing here that you have to be aware, you probably are already, but for those who aren't, Canadian companies will oftentimes be more attractive when you're looking at dividend payers because there's not a withholding tax that's 15%. Specifically in a TFSA, should be mentioned. Specifically in a TFSA, exactly. That would be applied to US stocks. A withholding tax is simply the US government saying that they keep that 15% and then the rest of the dividend is paid out in your TFSA. It does not apply to RSPs because there's a reciprocal agreement between both countries, but because the TFSA is not considered a retirement account, then the withholding tax applies.

In my view, it doesn't mean that you can't have US dividend payers here, but if you're looking at two very similar business and one is Canadian and one is U.S., I would definitely give the edge to the Canadian company with all other things being equal. So if you're looking at a tiebreaker here, the Canadian one would make much more sense. Having said that, 15% is just 15%. It's not a crazy high percentage and it can make sense to add a few U.S. dividend payers there. Remember that if you do get capital gains on those US stocks, that's still tax-free. So that's still a big advantage of

having it in the TFSA. An easy way to find stocks is using a screener based on dividend and add a few other qualities like revenue growth, for example. If you're using yield, like we mentioned the previous question, be careful screening on too high a yield. So you'll want to use something that's pretty reasonable. That way you'll get more quality businesses as a whole. Make sure with whatever result you get that you do research a company. Another way you can find companies that's fairly easy without using a screener is just looking at ETFs that focus on dividend payers. One that I find very interesting for US listed company is the Noble ETF. So NOBL, which is the ProShares S&P 500 dividend aristocrat. And just look at the

holdings and start your research from there. You can use other types of ETFs as well that pay dividend. That would be a good starting point just looking at the constituents. Yield is important when looking for income, but making sure that the dividend is sustainable is extremely important. And we talk about that all the time. So you'll want to look at the payout ratio here. Make sure you also get some diversification in there because companies that pay a nice dividend tend to be heavier in certain sectors or industries than others. With a previous question, the names that I rifled up give you an indication, a lot of banks in there. Yeah, well put. I mean, the TFSA is an incredibly good account. Unless you're owning US banks or energy high yielders type of companies,

then those are probably best suited in RRSP. But using your TFSA in a non-registered account, those two are good if you have a pension, like you mentioned. So this is not investment advice. You got to do your own for your own situation. But if you have a contribution, defined contribution pension plan, a TFSA is the way to go just because it becomes tax inefficient if you're using an RRSP at the same time. Right, Simon? Yeah. Yeah, exactly. And oftentimes, if you have a generous DC pension or even defined benefit pension, if they're generous, you usually won't have that much room to contribute to an RRSP anyways. So the TFSA kind of becomes the default option.

And if you do have room, make sure you have a good sense of what your income will be once you start drawing on it. Because again, we're talking about tax brackets here. And then you could end up paying quite a bit of taxes thinking that you were just deferring for when you would pay less taxes. Obviously, like Brayden said, this is not investment advice. Every situation is different, but these are all things to keep in mind. Curtis did mention that he was asking for some stocks that pay monthly dividends. Two thoughts there. One, don't worry about that so much. If it pays a quarterly dividend, that's very normal and very fine. If you really want one that pays a monthly dividend, CapReit, the Canadian apartment REIT, which is a residential real estate investment trust,

they're about $10 billion in market cap. They do pay a monthly dividend. It is a well-run company. It's a very solid, best-in-class real estate investment trust. And they do pay monthly dividends. So if you're looking for monthly dividends, you're mostly going to be looking at real estate investment trusts. That's very typical for them to pay a monthly distribution. With all these questions, we always get so many questions on dividends. And, you know, like Simon, it's just never ending. Right. And it's an important thing to take away here is if you have a longer horizon and you're not like Curtis stepping into retirement, do not base your investment thesis or strategy based on if a company pays a dividend. I'm done saying this, but I'll probably say it a

million more times on this podcast, but unless you're in retirement or a year away from retirement, stop, PSA, stop just basing your entire investment strategy on dividends. It's a terrible way to go. You're going to end up with mediocre companies because some of the best companies in the world today don't pay dividends. Does that mean that they're bad investments because they don't pay dividends? Absolutely not. Some of them will crush the index without paying dividends. And I think that many Canadians need to start recognizing that. And the sooner they do, the better they will do. Yeah. The only thing I would probably say, I would probably say within five years of retiring, for me, people may want to focus a bit

more on dividend. But I do agree with you. And I forgot to answer that part of the question, the monthly dividend. That would not be a consideration for me at all. Just plan your dividend payments, build a calendar, just know when the quarterly dividend is happening. Some are semi-annual. You can have a few monthly dividend in there, but that really, if you're using that as a criteria, you'll basically end up only with REITs like Brayden said. You'll only own real estate investment trusts. That's right. Yeah. Well put. Yeah. So, just back to what I was saying is, I love getting paid dividends. I own companies that pay dividends. That's not the reason I own them. And I think that

that's really important to know. I see all the time guys in their 20s, girls in their 20s that own a portfolio of just strictly Canadian high yield dividend payers. Don't do that. Simon, don't do that. That is not a good way to own an investment portfolio. Just mix it up a little bit. Yeah. You know what you should do instead of that? Go buy an S&P 500 index fund. Go buy XUU, 500 index fund, go buy XUU, which is BlackRock's S&P total market index fund that owns US stocks, and you will do much better. All right, here we got a question from Melanie. Last question for the show today. Melanie says, hey, love the show. Thanks for all that you do. Not a problem, Melanie. We do this so that you guys can learn. Not sure if you've covered this or not. Maybe I haven't listened far back enough, but was hoping if you could cover how to evaluate an exchange traded fund, ETF.

I have a good knowledge of what to look for in investing in individual companies, but I don't know how to evaluate ETFs. Thanks in advance, Melanie. Well, thanks for the kind words, by the way. And I can start with this one, Simon, which is with ETFs, don't overthink it. Really don't overthink it. There are going to be a multitude of ETF providers that provide similar products, and they're basically competitors of each other. So I just mentioned XUU, which is the total US market from BlackRock. Vanguard has one called VUN, and it's the exact same product. They cover the exact same index. I think it's like 0.01%

difference between the two on the fee. Don't overcomplicate this stuff. When it comes to ETFs, if they're not covering a broad index fund and they're covering some sort of thematic investment strategy, look at the holdings. Just Google the name of the ETF and you can find the holdings very quickly. They must be listed. It is a requirement of the ETF legally to operate that they have the holdings listed on the site. And so you can find exactly what they are and what percentage of the fund they make. So when you're investing in an ETF, it is no different than investing in an individual stock, except for now you're buying a big basket of individual stocks. Don't forget when you buy an exchange traded fund, you are buying the companies that exist inside of the ETF.

It's not some magical financial instrument that just goes up and down for no apparent reason. It moves because the underlying assets of the companies that it holds, it moves from that perspective on a long view. So look at the holdings and look at the fee. The thing that you are looking for is a management expense ratio or MER. Try to buy, if it's covering a broad index, try to pay less than 0.1%. I think XUU, I just listed as like 0.06%. So that's really, really cheap. That's what you want to own. And if it's a thematic type one, I wouldn't spend more than 0.4 or 0.5% on the ETF fee. I think that's a great breakdown that you said. So I think, yeah, the holdings, the fees, an easy way to find the holdings is just type

in the fun facts with the take care of the ETF and you'll find it very easily. And like Brayden said, I think it'll vary depending if you're looking at index ETF or if you're looking at an actively managed one. I'm a bit more flexible on the fees for the actively managed. I'll probably, depending if it's very niche or not, I could go up to like 0.7070 basis point. That would be really on the high end. But for the most part, like Braden said, you'll probably be able to find some around the 30 to 40 basis point. But aside from that, not much more to add. Yeah. I think that's fair. Don't overcomplicate the exchange traded fund

purchasing. The whole reason you're buying it is for absolute simplicity and keep it that way. Exactly. Yeah. You're buying it to keep things simple. So definitely treat it as such. Thanks so much for listening and thanks for the feedback. We try to do one of these mailbag episodes at least once a quarter and it's helpful to see feedback on what the kinds of questions and the things that people are bottling with. And it gives us good ideas for stuff to talk feedback on what the kinds of questions and the things that people are battling with. And it gives us good ideas for stuff to talk about on the show. And we see some of the same stuff come up over time, but we see a lot of new ideas come up as well. And I think it's important

that we touch on them. So keep sending some of those questions. As for what we were talking about, owning companies that are great and have prospects and don't just bleed out and pay a dividend. Stratosphere Investing covers 60 plus high quality companies on Canadian markets and US markets. You can go to stratosphereinvesting.com. You can see all of my research and the companies that I buy and the companies that I research myself full-time at stratosphereinvesting.com. And if you want to leave an episode question or you want to leave anything at all, any feedback at all, you can go to thecanadianinvestorpodcast.com and there's lots of useful links there as well. Thanks so much for listening. We'll see you in a few days.

The Canadian Investor Podcast should not be taken as investment or financial advice. Thanks so much for listening. We'll see you in a few days.