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Time for another visit to the inbox to check on the questions that have come in recently.

LIF dividends

Q – Labrador Iron Ore Royalty Corp. (LIF-T) has had some wild swings in its quarterly dividend the last six quarters. It shows a three-year dividend growth rate of 69 per cent and a five-year dividend growth rate of 37 per cent on TMX Money. Do you know the reasons for these swings and are those growth rates (or anything even close to them) sustainable? - Franz S.

A - LIF has been extremely volatile, and the main reason is that its profitability is mainly dependant on iron ore prices. They have been weak recently and the company’s first quarter financials were poor. As a result, LIF slashed its March dividend to $0.50 from $1.15 in December. The company recently announced that its next dividend, payable in late July on shareholders of record on June 30, will be 90 cents. With quarterly fluctuations of that magnitude, it’s clear you cannot project future dividend growth on the basis of past results. - G.P.

CPP survivor benefits

Q - A friend recently lost her husband. He was 83 and she is just turning 70. Neither had big pensions so they were depending on CPP and OAS.

When her husband died last year, she was under the impression that she would continue to get her CPP and would receive 60 per cent of his. This would help her keep her home and lifestyle. However, the first cheque she received was much less money than she expected. She no longer receives her CPP and just gets the 60 per cent of his. I am dumbfounded. Isn’t her CPP…hers? Why did she lose her earned CPP? Can you explain? – Kathie S.

A - The CPP is a good program, but it has its flaws. This is one of them, because it exposes surviving spouses to potential financial hardship.

As you note, a surviving spouse gets 60 per cent of a deceased partner’s pension, if he/she is 65 or older. If the survivor is under 65, the benefit is only 37.5 per cent. The calculation is based on the presumption that the deceased died at age 65. The maximum benefit this year is $752.15 a month for those 65 and older ($674.79 for anyone younger).

If both spouses contributed to the plan, the survivor’s benefit is not treated as an add-on. Instead, the government has imposed a cap on what the survivor can receive. The most that can be paid to a person who is eligible for the retirement pension and the survivor’s pension is the maximum retirement pension. That is currently $1,253.59 per month.

“You cannot receive a full survivor’s pension while also receiving a full retirement pension or disability pension,” the CPP website says. “The combined benefit is not necessarily the sum of the two separate benefits.”

Unfortunately, that’s the reality your friend must deal with. If her income is low, I suggest she look into applying for the Guaranteed Income Supplement. – G.P.

Seeks a retirement fund

Q - I am planning to retire in 2025. However, it could be earlier. I have some funds sitting in GICs in a non-registered account. I have no room in my TFSA. Can you recommend a tax efficient or tax deferred ETF or mutual fund? Not sure if I am right but mutual funds appears to be more expensive. I am looking for an investment to produce monthly income. At the beginning, I will reinvest the monthly income, but I will expect to take it every month when I retire. – A. M.

A - Take a look at the BMO Covered Call Canadian Banks ETF (ZWB-T). Based on your goals, it appears to be well-suited for your needs. It invests in the top six banks, so the risk level is relatively low. The managers use covered call writing to enhance cash flow. Currently, the fund is paying 11 cents a month ($1.32 a year), which works out to a yield of just over 7 per cent based on the recent price. Most of the distributions are received as eligible dividends or return of capital, so the fund is highly tax efficient. The ETF was launched in 2011 and has a ten-year average annual compound rate of return of 10.4 per cent. The management expense ratio is 0.71 per cent. – G.P.

DRIP taxation

Q - If I get paid a monthly dividend via DRIP, it shows up as additional shares in my account rather than as cash. Is the cash equivalent amount reported as income for that year (e.g., in a T3) for taxation purposes, or is it taxable as capital gains when I sell the shares? Thanks. – Martin

A – Unfortunately, the answer is both – you’re taxed twice, assuming the security is in a non-registered account.

The cash equivalent of the DRIP payment is taxed as dividend income, even though it’s received in the form of shares. The one bit of good news is that it’s eligible for the dividend tax credit.

The shares purchased by the DRIP will be recorded at book value. When you sell, 50 per cent of any capital gain will be taxable.

If the shares are in a registered plan, you won’t have these problems. – G.P.

Wants out of funds

Q - I am an IG Wealth customer. I am freaking out as my TFSA, RRIF, and non-registered accounts continue to decline since the beginning of the year. I want out. Friends advise to pull the money, accept the loss, and buy high dividend investments. Also, do it myself, to avoid fees and an MER of 2.06 per cent. Is there a course I can take to prepare myself for personal money management? – Hans B.

A - It is a good idea to take an investing course before you plunge into making your own decisions. It doesn’t guarantee success, but it will certainly improve your odds.

There are several on-line investing courses that you might consider. Wealthsimple offers a free course that it claims “will turn you into a financial genius in less than 45 minutes”. I doubt that, but since it’s free there is no harm in looking at it.

A better bet would by the Canadian Securities Course for Investors, offered by the Canadian Securities Institute. Details can be found here.

Other on-line courses in Canada are accessible here.

Some community colleges also offer investment courses. - G.P.

Seeking a safe haven

Q - At the end of 2021, I engaged in a transaction that resulted in significant cash proceeds. Concerned about the direction of the markets, I kept most in cash. It appears that may have been a good decision. However, it will likely take more time for the markets to continue their downward trajectory. The question is, where to park the cash while I wait? Obviously, bonds are not an option as their slide is not over. I have about 15 per cent in GICs offered by my bank at 1.85 per cent. They will not accept more for that program and therefore the remainder of the funds are yielding less than 1 per cent. Do you have any recommendations? – A.D.

A - You did not indicate a time horizon, which is obviously critical to this situation. But let’s assume a year, by which the bear market may have run its course or be close to it.

I suggest looking at EQ Bank. It is currently offering a 4 per cent yield on a one-year GIC, and the deposit is covered by CDIC insurance. - G.P.

If you have a money question, send it to me at gordonpape@hotmail.com and write Globe Question in the subject line. I can’t guarantee a personal response but I’ll answer as many questions here as possible.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.

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