Capital Gains

When you invest in stock you can make dividend income and capital gains. I do make capital gains along with dividends in my investments. However, my capital gains are just a byproduct of my investing style and not primarily why I am investing.

Sure, I have invested just to get capital gains. I like tech stocks and I invested in Research in Motion, now Blackberry to make capital gains on its rise. Generally this is momentum investing. It was fun and I made money. I have also invested in stocks that go up and down a lot and so you can invest in them when they are down and sell when they are up and make capital gains. Resource stocks are generally good for this.

You can make money on other types of stocks. When I was reviewing Rogers Sugar in January I came across an interesting item in Seeking Alpha about the stock going up and down and lot and best to buy when it is down. This entry is dated in 2012, but it still seems to apply.

However, I think to invest for capital gain is a lot harder than to invest for dividends. There is also the cost of investing for capital gains. Every time you invest for capital gains there is a buy and sell and you pay fees. You also pay taxes with each stock sale. Another thing is that you have to keep a close eye on these stocks at all times. Markets can sometimes turn against you quickly.

It is not that I do not pay fees on dividend stocks. However, I do hold them for very long periods of time. I mostly buy stocks, but occasionally you have to sell dividend stocks because they are doing very poorly. An example is AGF Management Ltd. (TSX-AGF.B-TSX). It was a dividend growth stock that ran into trouble around 2003 and has not yet recovered.

As far as capital gain taxes go, I do not have much. Of course, the thing is my heirs will have to pay them out of their inheritance. In Canada, stocks are consider sold on date of death and capital gains taxes are due from stock purchase date to date of death. I have held some stocks for a very long time. The book value of my portfolio is less than half of the value of my portfolio. (Capital gain taxes were started in 1994. So, capital gains taxes are only due from 1994.)

However, a lot of dividend stocks you can put away and forget for long periods of time. I do review once a year all my stocks and I might also review if I read something bad about them in the news. However, you do not need to watch them all the time. And, if they run into trouble, you usually have time to get out.

With AGF Management Ltd. (TSX-AGF.B-TSX) I notice it was in some problems in 2003. I kept an eye on it and finally sold half my holdings in 2006 and then the rest in 2008. I was hoping it would recover. In any event I made a small profit of around 2% per year, including dividends.

The point is that when buying dividend paying stocks you tend not to get the volatility that occurs in stocks bought for capital gains. Things move along much slower.

On my other blog I am today writing about Shaw Communications Inc. (TSX-SJR.B, NYSE-SJR)...continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.