Q: Hi,
I believe VEQT pays an annual dividend at the end of December. What would be the pros and cons of borrowing some money, depositing it in an RRSP, buying VEQT and repaying the loan when the tax refund from this and other RRSP deposits earlier in the year comes in April 2025? I realize the loan interest will have to be paid as a cost, and the higher dividend amount on the added funds would be the benefit. Thank you. Michael
I believe VEQT pays an annual dividend at the end of December. What would be the pros and cons of borrowing some money, depositing it in an RRSP, buying VEQT and repaying the loan when the tax refund from this and other RRSP deposits earlier in the year comes in April 2025? I realize the loan interest will have to be paid as a cost, and the higher dividend amount on the added funds would be the benefit. Thank you. Michael
5i Research Answer:
VEQT has paid a dividend in January every year. Other than the dividend and interest costs noted, the main issue is whether the units decline in value on the ex dividend date, offsetting any gains. In 2023, on the ex-date, they declined 1.82%. In 2022, 0.89%. In 2021, 1.75%. In 2020, 1.42%, in 2019, 1.96%. Considering yield is about 1.49%, unless this year's dividend is substantially higher, there does not seem to be a lot of net benefit from such a strategy.