Dividends vs. Other Forms of Income: The Shocking Tax Gap No One Talks About
MP Market Review - December 5, 2025
Summary
Welcome to this week’s MP Market Review – your go-to source for insights and updates on the Canadian dividend growth companies we track on The List! While we’ve expanded our watchlists to include U.S. companies, The List-USA, our Canadian lineup remains the cornerstone of our coaching approach.
Don’t miss out on exclusive newsletters and premium content that will help you sharpen your investing strategy. Explore it all at magicpants.substack.com.
Your journey to dividend growth mastery starts here – let’s dive in!
Last week, dividend growth of The List was the same with an average return of +7.2% YTD (income).
Last week, the price of The List was down from the previous week with an average return of +12.2% YTD (capital).
Last week, four companies on The List made a dividend announcement.
Last week, two companies on The List released an earnings report.
This week, one company from The List will report their earnings.
DGI Clipboard
“It’s not enough to be smart about investing; you also need to be smart about taxes.”
- Joel Greenblatt
Dividends vs. Other Forms of Income: The Shocking Tax Gap No One Talks About
Intro
Each year around this time, I set a reminder to revisit one of the most overlooked advantages of dividend growth investing: taxes. We spend most of the year talking about quality companies, rising income, valuation, and long-term compounding. But the tax treatment of eligible Canadian dividends is a major part of why this strategy works so well, and it deserves attention.
In Canada, eligible dividends are among the most tax-efficient forms of income. Federal and provincial dividend tax credits offset the corporate taxes already paid, preventing double taxation and putting more money back into your pocket.
How much more?
For example, based on the 2025 tax tables from TaxTips.ca, earning $70,000 in eligible Canadian dividends can save more than $12,000 in taxes compared to earning the same amount from salary, interest, or GIC income ($12,762 vs. $750). That extra money can be reinvested, spent, or allowed to compound year after year, which significantly accelerates long-term wealth building.
The two tables below show provincial tax rates at four different before-tax income levels, with Ontario (my home province) highlighted. The difference is remarkable. Investors who focus on high-quality Canadian dividend-paying companies keep far more of their income than those who earn the same amount from employment or fixed-income sources.
There is another powerful benefit. Dividend growth investors often build rising income streams while deferring taxes on unrealized capital gains. When you hold high-quality dividend growers for years or decades, you can fund much of your retirement from tax-efficient dividends rather than selling assets and triggering capital gains taxes.
American investors enjoy similar advantages with qualified dividends in the U.S. tax system. In both countries, a thoughtful DGI plan can meaningfully improve after-tax returns. As always, consult your accountant to make sure you are optimizing these benefits.
Takeaway
The tax savings from dividend growth investing are real, material, and long-lasting. They allow you to reinvest more of every dollar and build a more secure retirement. Smart tax planning combined with a disciplined investment process is one of the most effective wealth-building tools available to long-term investors.
Become a paid partner, and I’ll show you exactly how I do it. With real money. In real stocks. In addition, gain full access to this post and exclusive, subscriber-only content. We do the work; you stay in control. Subscribe today and take your dividend growth investing to the next level!
DGI Scorecard
The List (2025)
The Magic Pants 2025 list includes 29 Canadian dividend growth stocks. Here are the criteria to be considered a candidate on The List:
Dividend growth streak: 10 years or more.
Market cap: Minimum one billion dollars.
Diversification: Limit of five companies per sector, preferably two per industry.
Cyclicality: Exclude REITs and pure-play energy companies due to high cyclicality.
Based on these criteria, companies are added or removed from The List annually on January 1. Prices and dividends are updated weekly.
The List is not a portfolio but a coaching tool that helps us think about ideas and risk manage our model portfolio. We own some but not all the companies on The List. In other words, we might want to buy these companies when valuation looks attractive.
Our newsletter provides readers with a comprehensive insight into the implementation and advantages of our dividend growth investing strategy. This evidence-based, unbiased approach empowers DIY investors to outperform both actively managed dividend funds and passively managed indexes and dividend ETFs over longer-term horizons.
Note: In the last week of every month, I will show the updated watchlist for our American dividend growers, The List-USA. It will be shown after the Canadian watchlist below.
Performance of 'The List'
Last week, dividend growth was the same, with an average return of +7.2% YTD (income).
The price of ‘The List’ was down from the previous week, with an average YTD return of +12.2% (capital).
Last week’s best performers on ‘The List’ were TFI International (TFII-N), up +11.17%.; Royal Bank of Canada (RY-T), up +3.97%; and TD Bank (TD-T) up +3.87%.
goeasy Ltd. (GSY-T) was the worst performer last week, down -11.94%.
From breaking news to quarterly earnings reports, we break down the week’s biggest headlines to help you make sense of the market. The full newsletter has even more insights and analysis, don’t miss out!
