The dividend tax credit can be a useful tool for investors looking to reduce the taxes they pay on their investments, especially at lower tax brackets. John Horwood, director of wealth management at Richardson GMP in Toronto, told Financial Pipeline editor Romina Maurino about why the tax credit is something investors should take advantage of.
JH: From an investment point of view, many of the companies paying dividends are attractive investments anyways. Besides from the dividends, the dividend payers (the larger companies that have relatively high and growing dividend yields) have been very successful investments over the years. It’s sort of a barrier to entry, which makes it quite attractive. The second thing is obviously the income, it’s critical for Canadians today. We live in a very low interest rate and income world. When you look at the relative yields on offer from bonds and common shares and dividends on preferred shares, you can often see four to six per cent dividend yields, so the cash flow to fund retirement and projects are much higher. If that cash flow is net to you and isn’t being split up with the tax authorities, then five to six per cent back to the client is a very favourable result in today’s economy.