Help: Stock Dividend and Mortgage

[zzricezz]

What would you guys do in my situation?

I have 594 shares of BMO stocks that is currently worth $25k. My average cost is giving me a 6.65% annual dividend yield.

Am I better off cashing the stocks to pay down my mortgage at 3.55% or keep the stocks and use the dividend to pay down the mortgage?

[DanielCarrera]

What would you guys do in my situation?

I have 594 shares of BMO stocks that is currently worth $25k. My average cost is giving me a 6.65% annual dividend yield.

Am I better off cashing the stocks to pay down my mortgage at 3.55% or keep the stocks and use the dividend to pay down the mortgage?

Keep the stocks. Even if you are at the highest tax rate, the stocks give you more in dividends than what you'd get by paying the mortgage.

[MisterJ]

I'd also stick with holding your BMO shares.

As a word of advice, you shouldn't look at the yield on the common shares as that will fluctuate with the fair market price of the shares.
For every share of BMO you own, you'll receive $2.80 annually (paid on a monthly basis though).

In other words, with 594 shares you'd receive $1663.20 in dividends.
Gross that amount up by 45% and this is what you'd have to claim as income (i.e. $2411.64). If you have a spouse who has no other source of income, he/she can claim up to $65,000 in dividends and not be taxed on the lot. I'm not sure what your tax bracket is so that's as far as I can go.

The above is all said with the idea that you won't be selling the shares any time soon and that you'll be holding it purely for the dividend.

Hope that helps you out.

[cmackie]

What would you guys do in my situation?
My average cost is giving me a 6.65% annual dividend yield.


As a word of advice, you shouldn't look at the yield on the common shares as that will fluctuate with the fair market price of the shares.

Since you're looking at the cost yield, you're fine going with 6.65% - the cost is locked in. That rate will likely increase over time as well as they start to bump up their dividends again.

[zzricezz]

Since you're looking at the cost yield, you're fine going with 6.65% - the cost is locked in. That rate will likely increase over time as well as they start to bump up their dividends again.

How is interest / Yield calculated? 3.55% interest rate on a mortgage is not the same as 6.65% Yield from a stock? excluding the taxes I would have to pay on the Yield.

[a_1_a]

How is interest / Yield calculated? 3.55% interest rate on a mortgage is not the same as 6.65% Yield from a stock? excluding the taxes I would have to pay on the Yield.

You should sell your BMO shares and use the proceeds to pay down your mortgage. Then borrow the same money to buy back the BMO shares(if you still like the BMO stock). That way you can turn your mortgage interest, which is not tax deductible, into investment interest charges on your shares which is tax deductible.

[zzricezz]

You should sell your BMO shares and use the proceeds to pay down your mortgage. Then borrow the same money to buy back the BMO shares(if you still like the BMO stock). That way you can turn your mortgage interest, which is not tax deductible, into investment interest charges on your shares which is tax deductible.

hmm interesting.. I should bring this up to my accountant.

[DanielCarrera]

How is interest / Yield calculated?

Dividend Yield = (what the stock pays you in dividends) / (the price of the stock)

3.55% interest rate on a mortgage is not the same as 6.65% Yield from a stock? excluding the taxes I would have to pay on the Yield.

They are entirely comparable. Paying your mortgage is the same as an investment that returns 3.55% after tax. Your stock can be seen as an investment that pays 6.65% before tax and dividend tax is very low.

[DanielCarrera]

hmm interesting.. I should bring this up to my accountant.

Google for Smith Manoeuvre.