Comments on: Investing Stratetgy: When to Buy Dividend Stocks

By: DogsFan

DogsFan — Tue, 05 Jan 2010 20:55:23 +0000

In my early twenties I built up my porfolio through DCA (monthly deductions off my pay-cheque) on an indexed mutual fund. Once I reached $25k (magic number for waiving discount brokerage fees) I converted the portfolio to TD WaterHouse. I am a firm believer in sticking with your strategy, not chasing the latest fad…so after careful consideration I chose the Dogs of the TSX approach…buying the 10 highest yielding stocks on the TSX 60, then selling them and re-balancing after one year (For some reason May 25th is that date).

I do agree that the high yields are not sustainable, but that’s why you re-balance after one year. Typically these stocks (Dogs because they were “beat up” the previous year, thus leaving a bargain price and a high yield) have a run-up in price, which reduces the Yield and knocks them out of the top 10 the following year. Re-balance and repeat each year. One note, I did cheat this year and take 1 REIT (RioCan) and one Income Trust (Liquor World). There are several variations of this approach, one being to spread out your 10 selections amongst 10 sectors…which I like in theory, but there aren’t any real dividend payers in Health Care and some other sectors.

Two negatives that I find are that you are heavily invested in finance and energy, and my trade fees of $29 are not so attractive…especially if I’m selling and re-buying 10 stocks each year. But once I hit $100k those fees will be reduced to $9. I suppose I could find a cheaper trading site, but I am a lazy investor.

If you are interested in reading more about this approach, David Stanley has done tremendous research on the benefits of the Dogs strategy and how it has out-performed the TSX over the past 25 years.

By: cashback cards

cashback cards — Wed, 23 Dec 2009 17:26:07 +0000

Would you suggest any free screeners for trying to find dividend? I know I have used yahoo’s before but there should be some other ones that are better.

Also, what other factors beside the dividend can you look at to know that it’s a or at least has the potential for a dividend growth?

Thanks for all that you do and share!

By: Market Lessons

Market Lessons — Thu, 26 Nov 2009 21:39:15 +0000

Well, I for one know that the Dividend Investment Strategy DOES work! But it takes time and patience, and of course good selection of the proper stocks that usually increase their dividends over time. In fact if you stay with the strategy long enough, your investment income will be beating the overall market returns over most years. And remember, this is actual income (money in pocket), not “just” capital gains which are always nice too. Most companies that increase their dividends will see an eventual increase in their stock price over time (buy and HOLD) as well. How many here have seen an increase in their portfolio’s income this past year? Mine did! By using this strategy faithfully you will get the same results. Learn and DO………………….

By: cannon_fodder

cannon_fodder — Wed, 25 Nov 2009 21:22:01 +0000

I look at a couple of other criteria – payout ratio and overall return. If the payout ratio is too high for the industry (financials don’t have the same acceptable payout ratios as REITs for example which often go above 100%) then it is a no go.

The comment about telcos is a great example for the 2nd criterion. There are a lot of telcos which have nice yields but lousy returns on the stock price itself. Look at Manitoba Telecom – yield is currently over 8% but the stock has a negative return in the last 1, 3 and 5 year periods. You are more likely going to see a dividend cut rather than an increase if the underlying stock price is going down.

By: Used Tires

Used Tires — Tue, 24 Nov 2009 01:24:27 +0000

Pretty awesome to read your strategy when it comes to buying Dividend Stocks, we’ve been learning in our Corporate finance class to do all the math and calculations when it comes to stock and determining the stock values based on the dividend that will be paid out, etc, pretty fun stuff =D

Till then,

Jean

By: Ed Rempel

Ed Rempel — Fri, 20 Nov 2009 06:32:53 +0000

Hi FT,

Do you focus on Canadian dividends (for the preferred tax treatment), or the best companies anywhere in terms of yield and dividend growth?

What do you do to avoid looking like a TSX index fund?

By: Ms Save Money

Ms Save Money — Wed, 18 Nov 2009 23:06:00 +0000

@sco,

I think the best way to pick a stock is knowing how popular the company is. If you use the products or know that the brand is popular – that’s a good indication the company is doing well (for those who are unsure of what stocks to pick); also keep them for long term – short sells don’t really work in these cases I think.

By: Brendan

Brendan — Wed, 18 Nov 2009 23:04:57 +0000

I am most certainly not picking my stocks via dart board. Please read what I wrote and read what FT wrote/asked.

What I do works. I buy stock for growing income. I have NEVER lost money (income).

Read the single best investment by Lowell Miller. It outlines the dividend growth strategy and shows how it works. I am not gonna sit and argue with you.

By: sco

sco — Wed, 18 Nov 2009 22:38:08 +0000

Brendan,
if you didn’t properly test your strategy, you are actually picking your stocks via dart boards.
I am not. I always test any strategy before I apply it, including gambling-type strategies. The sad thing is that most published strategies don’t really work, and I suspect the strategies mentioned here don’t work either, if they haven’t been properly tested.

By: Brendan

Brendan — Wed, 18 Nov 2009 21:56:35 +0000

Sco while there are no guarantees when investing there certainly are reasonable assurances.

Past dividend growth does not mean future growth BUT I am reasonably assured that if a company can raise dividends for 40+ years they will continue to do so in the future.

So long as the payout ratio is in check.

Enjoy picking your stocs via dart board. I will stick to my dividends.

By: sco

sco — Wed, 18 Nov 2009 21:43:17 +0000

How did you chose your strategy? How do you know that historic dividend growth translates into future dividend growth? How do you know that your picking strategy is better than randomly picking stocks?
The easiest way to test your strategy would be:
- consider a historical period, let’s say 1995-2005. Pick the stocks at the end of 2005 according to your strategy
- calculate the total returns of your stocks for 2006-2009 and compare with the returns of S&P TSX for the same period. You can also compare the standard deviations to get an idea about the risks.
- if the return of your strategy is less than 5% more than the return of the S&P TSX, then the strategy has the same returns as a random strategy (gamble).
The same testing should be applied to any investing strategy.

By: Brendan

Brendan — Wed, 18 Nov 2009 18:01:00 +0000

My method is much the same. I will not buy a stock trading below it’s 5 year yield. I also place priority with a recent dividend increase. I consider it a safer purchase.
I only watch a dozen or so. My criteria:

1. Non cyclical with history of dividend growth.

2. Higher than average yield.

3. Recent dividend increase.

4. Low payout and PE.

5. “Reasonable” Graham price. I calculate and keep track of the graham price of a stock and rate them as a % of price difference

I.E. 10 dollar graham price trading at 11 would be -10G/D% and if it were trading at 9 then it would be +10G/D%. Trading at 10 would be zero.

If I have 2 stocks with all else being equal then I will buy the stock trading closer to its graham number.

By: kenyantykoon

kenyantykoon — Wed, 18 Nov 2009 17:36:12 +0000

i recently read a financial book called the conspiracy of the rich and the author was suggesting this type of investing during lean economic times such as this seeing as how it increases periodic cash flow and reduces to some extent the effect of inflation. I agree with this method

By: Elbyron

Elbyron — Wed, 18 Nov 2009 16:35:12 +0000

I don’t have much investing experience, but it seems to me that most brokerage services offer the ability to set up email stock alerts. Or there are free websites like zignals.com where you can set up a stocklist and alert conditions, and have the alerts sent to your email, phone (SMS), or displayed on an iGoogle widget.

By: Finance_Addict

Finance_Addict — Wed, 18 Nov 2009 15:04:21 +0000

Good Post. I agree with your approach. I would add that there are other sectors besides financials and energy that have strong yield and dividend growth profiles. Namely Telco.

By: Nurseb911

Nurseb911 — Wed, 18 Nov 2009 14:19:23 +0000

Once your portfolio is constructed I’ve found that one of the easiest ways to decide is to simply put on your portfolio manager’s hat and buy the stock that has the lowest weighting. I’ve found this to be a very easy strategy for taking out the emotions when investing because instead of deciding what stock to buy it’s simply a decision of which stock is lagging that needs to be added to.

I like your criteria for selecting through from a new investor perspective.

By: saveING.ca This is why I signed up with ING Direct

saveING.ca This is why I signed up with ING Direct — Wed, 18 Nov 2009 13:25:03 +0000

my favourite dividend stocks: Procter & Gamble (PG), Clorox (CLX), Emerson Electric (EMR), Wal-Mart (WMT) and Pepsi Co (PEP)

thanks FT!