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Hedge Against Your Bills by Owning the Company

A big pet peeve of mine is having to pay a fixed recurring bill. The power bill, gasoline, mortgage, cable, internet, phone, bank fees, and insurance premiums to name a few. These are great for the company being paid as it provides a consistent source of revenue for their balance sheets, but takes a dent out of my cash flow.

Although these bills can be painful, there is a bright side. Hedging! How do I hedge against these painful bills? By becoming part owner of the company and collecting the tax efficient dividends. You see, most of our (Canadian) bills are from big strong dividend payers that are on the market right now ready to be bought.

Are your bank fees or gas prices going up? Oil above $100? Cable bill getting ridiculous? This can be good news, it means higher profits for the companies that you can potentially own. Higher profits mean higher returns and dividends for you.

Here are some examples taken from the Dividends Achievers List:

Company Symbol Current Yield
Bank of Montreal (bank) BMO 5.54%
National Bank of Canada (bank) NA 4.87%
IGM Financial (mutual fund co) IGM 4.19%
TransCanada Corporation (utility) TRP 3.55%
Great West Lifeco (insurance) GWO 3.71%
Bank of Nova Scotia (bank) BNS 3.73%
AGF Management (mutual fund co) AGF.B 4.20%
CIBC (bank) CM 4.22%
Enbridge (utility) ENB 2.89%
Power Financial Corp (insurance/mutual funds) PWF 3.36%
Royal Bank of Canada (bank) RY 4.08%
Toronto-Dominion Bank (bank) TD 3.23%
Sun Life Financial (insurance) SLF 2.64%
Fortis (utility/hotels) FTS 3.66%
Manulife Financial (insurance) MFC 2.26%
Toromont (industrial equipment) TIH 1.74%
RIOCAN Trust (commercial real estate) REI.UN 6.35%
Husky Energy (oil) HSE 3.17%
Canadian Western Bank (bank) CWB 1.60%
Imperial Oil (oil) IMO 0.60%
Brookfield Properties (real estate) BAM.LV.A 1.65%
Canadian Natural Resources (oil sands) CNQ 0.39%
Canadian National Railway (railway) CNR 1.60%

Some telecoms that didn’t make the list are Rogers Communications (RCI) and Manitoba Telecom (MBT). Both of which pay dividends. Another notable oil sands play is Canadian Oil Sands (COS.UN) which has a huge current dividend of 8.07%.

You can also consider buying US based dividend stocks, but they aren’t as attractive as their distributions are taxable at your marginal rate. However, there are some big names if you want to hedge against the cost of cruises, diapers, post it notes or appliances.

Although it may be well and good to collect dividends from these companies, they aren’t bullet proof. As with any stock, they will see volatility, some more than others. For most of the general public, it may be best to stick with an ETF like CDZ that will index a lot of these stocks.

Disclosure: I own some of the stocks mentioned above. Choosing individual stocks can be risky. Do your own due diligence before buying.

Photo credit: wrestlingentropy

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 15 comments… add one }
  • Four Pillars May 12, 2008, 8:07 am

    Interesting idea in theory although I’m not sure if you can really hedge a personal expenditure with a stock all that well.

  • FT FrugalTrader May 12, 2008, 9:29 am

    It might not be the greatest hedge, but it does offset “some” of the costs.

  • MunEconomist May 12, 2008, 10:19 am

    I’m not sure if I believe in this agruement behind this nice idea. The reason for my objection is that this forgets about the scarity problem and the oppurtunity cost of making investments.

    Now if the investment in these recurring costs is the best investment for your plan then you have recieved a side bonus. If not then you are making a bad decision.

    This is just hasty decision on this rule of investing. Does my arguement hold up?

  • FT FrugalTrader May 12, 2008, 10:25 am

    MunEcon, yes you are right. Of course it would have to fit in the individuals investment plan. However, there are some people who have done very well with a diversified dividend portfolio.

  • Dividend Growth Investor May 12, 2008, 11:58 am

    I personally am hedging by buying Anheuser-Busch, the maker of budweiser , ticker BUD ;-)

    I do agree with you that owning shares in dividend achievers/aristocrats is one of the best ways to protect your savings against the eroding power of inflation..

  • moneygardener May 12, 2008, 2:08 pm

    I’m a big believer in this strategy. It makes loads of sense. I’ve described a gasoline hedge here:

    http://themoneygardener.blogspot.com/2008/05/hedge-yourself-gasoline-costs.html

  • smithers May 12, 2008, 8:39 pm

    I used to read your blog for financial information, now I cant see anything but piles of adverts.

    Well done for selling out.

    Over and out.

  • The Financial Blogger May 12, 2008, 9:35 pm

    Man, I wish I had 100K to invest in an oil company so the dividend pay for my gas!!!

    Another possibility is to work for one of its company :-) I decided the bank field so I don’t have to worry about fees anymore. Hum… I wonder if I can take a part time job at Esso and save on gas ;-)

    I don’t know what Smithers is referring too, I think that you still provide good financial content ;-)

  • FT FrugalTrader May 12, 2008, 10:06 pm

    smithers, i’m sorry you feel that way. Ads have always been and always will be a part of blogging. The goal is to have ads “around” the content, not “within” it.

    If the ads really do bother you that much but you still enjoy the content, I would suggest that you subscribe to the RSS feed. That way, you’ll get strictly content.

    FB, thanks for the backup. :)

  • Four Pillars May 13, 2008, 12:37 am

    I think Smithers is troll – MDJ has always had lots of ads – if anything there are less now than in the past.

    Mike

  • FinancialJungle May 13, 2008, 3:01 am

    Money is fungible, therefore it’s not necessary to match all sources of your expenses to your income. Having said that, I agree with MDJ that it’s a good idea to at least hedge some of your expenses. If you drive a lot, why not own a few Canadian Oil Sand shares to offset the escalating gas prices?

  • Vancouve real estate May 13, 2008, 5:51 am

    I also think this is a good strategy and I am big believer in it. I would be just more careful. Working like Steveston real estate agent I have quite a good survey about real estate market so I have decided to invest in it. It was also kind of hedging since prices were rising last decade and nobody thought that it could be just a bubble.(it could be same with oil prices) Anyway I still think it is good strategy but be careful.

  • johnnycanuk May 14, 2008, 1:55 am

    This is an old strategy. Do not consider it as a hedge against your bills–you may deceive yourself by spending more in the hope of increasing dividends.

    Best advice–invest in the fund companies and banks-not the funds they sell.

  • Dividend Growth Investor May 16, 2008, 3:56 pm

    Well, you could actually “hedge” your gasoline exposure right now by buying the United State Gas ETF ticker UGA ( if you don’t want to trade in gasoline futures). I expect to use about 500 galons of gas in one year. Which at 3.50-4.00 equals to $1750-$2000. To hedge myself against any further price increases I could buy 30-35 shares and I am hedged for my gas consumption for one year.

  • paulette May 17, 2008, 11:05 pm

    Its sounds good to prospect owning a company. But of course the bottom line is still the buying capacity of a person.

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