Investing

Investing Idea - Dividend Growth

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Jun 10, 2010
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rodbarc wrote: Thanks for the kind words, and I'm happy to help. This area is a mystery to many, and I've been trying to demonstrate that anyone can do it, anyone can get better returns than the market
You don't, though.
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CM52 wrote: You don't, though.
How so?

My portfolio has a higher yield than the market and income grows at a ratio higher than the market. This is possible by constructing a diversified portfolio focused on quality companies that grows dividends, as opposed to the market that has a mix of companies that don't pay dividends, doesn't grow dividends and cut dividends, mixed with the ones that grows dividends.

I've been investing in dividend growth stocks since 1998, but since I started to track the portfolio here, it has performed better than the market in both capital appreciation and dividend increase (see 2015 and 2016 returns here). My total return is combined with my trading models which complements investing. Although on Canadian DGI side alone total return has been less than the market, that's not the primary goal for the ones seeking perpetual income from dividends. Income growth has been better than the market (and higher than inflation), which meets my goals and allows me to reach financial independence sooner and regardless if the market might crash. XIC dividends grew by 9.9% in 2015 but decreased by 0.56% in 2016. The goal is to construct a portfolio with a reliable, dependable and growing stream of income - something that the market cannot provide.


Rod
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Investing strategy based on dividend growth

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Jun 10, 2010
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rodbarc wrote: Although on Canadian DGI side alone total return has been less than the market
Total return is the only thing that matters in the accumulation phase of life. If I ever decide I want to create wealth at a lower rate, I'll give your strategy a go.
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Sep 4, 2009
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CM52 wrote: Total return is the only thing that matters in the accumulation phase of life. If I ever decide I want to create wealth at a lower rate, I'll give your strategy a go.
Rodbarc is too nice and helpful and probably won't say it, but I will. Why are you trolling here with your one liners? You give no arguments to back up your disagreement and instead present an incredibly narrow minded, small slit, deep-in-the-well tiny view of 'the only thing that matters in the accumulation phase blah blah blah'.

In fact, your posting history is full or snide, sarcastic, and rude remarks aimed at belittling others.

Please go and troll elsewhere if you nothing constructive to add or question here.
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Chasem wrote: Rodbarc is too nice and helpful and probably won't say it, but I will. Why are you trolling here with your one liners? You give no arguments to back up your disagreement and instead present an incredibly narrow minded, small slit, deep-in-the-well tiny view of 'the only thing that matters in the accumulation phase blah blah blah'.

In fact, your posting history is full or snide, sarcastic, and rude remarks aimed at belittling others.

Please go and troll elsewhere if you nothing constructive to add or question here.
Trolling is part of any forum. Occasionally they will have a constructive opinion, but brought forward in a negative way. General rule of thumb: Don't waste time on those not worth wasting time on.

Crap. I just wasted two minutes.

Edit: Grammar
Member
Jun 10, 2010
336 posts
111 upvotes
Chasem wrote: Rodbarc is too nice and helpful and probably won't say it, but I will. Why are you trolling here with your one liners? You give no arguments to back up your disagreement and instead present an incredibly narrow minded, small slit, deep-in-the-well tiny view of 'the only thing that matters in the accumulation phase blah blah blah'.

In fact, your posting history is full or snide, sarcastic, and rude remarks aimed at belittling others.

Please go and troll elsewhere if you nothing constructive to add or question here.
It's not an opinion. It's fact. If I can start with the same amount, invest solely in VCN or equivalent, sell it in 10 years and buy the entire portfolio of someone who used this strategy with plenty of money to spare to pick up even more dividend paying stocks if that is my priority, it is objectively better. I guess that's what you meant by "blah blah blah." Keep up the strawman arguments.
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CM52 wrote: It's not an opinion. It's fact. If I can start with the same amount, invest solely in VCN or equivalent, sell it in 10 years and buy the entire portfolio of someone who used this strategy with plenty of money to spare to pick up even more dividend paying stocks if that is my priority, it is objectively better. I guess that's what you meant by "blah blah blah." Keep up the strawman arguments.
Incorrect. Here is the math to why holding VCN (or an index ETF) will never come close to this strategy:

- DGI only select quality companies that have been growing earnings and dividends consistently. Meanwhile, VCN holds companies that doesn't pay dividends and cut dividends because their criteria doesn't take quality into account.

- DGI only buys when fairly valued. Meanwhile, when you buy VCN, you're paying market price for everything, including expensive companies that will have poor return because one paid more than it should.

- DGI has no MER, while most ETFs does, draging returns.

Do the math - there's a reason why such diligence pays off in the long run. Buying VCN takes no effort or thinking, but such convenience comes with the cost of sacrificing performance for the reasons above.

Feel free to point the flaws on DGI strategy.

Furthermore, your scenario isn't guaranteed, because "10 years from now when you sell" can be 2008 again. And you were limited to market returns during these 10 years. I've been posting detailed returns since 2014, VCN has been a lot worse than that - for the reasons above, it's simple math. VCN or other ETFs couldn't provide me with the required price appreciation to later switch and have perpetual income. Meanwhile, with DGI, dividends start compounding on day 1 and the longer I hold them, the smaller my portfolio can afford to be to provide a growing income stream for life.

There's a reason why Buffet, Graham, Lynch, Piotroski, ONeil and many others beat the market consistently in the long term - doing much better than an ETF. This thread is meant to demonstrate that anyone can follow their footsteps, since their methodologies are well documented and continue to work - I'm just one of many that is sharing the methods and results.

I share my strategies and offered as much supporting data and facts as I could. Feel free to have a constructive discussion on the strategy. Everyone still need to validate if this strategy is suitable for them - if you're happy with indexing, all the power to you. I simply believe anyone can do better than that. The objective here is to exchange ideas, not to generate heated conflicts. When I provide a supporting fact for one idea, it's how I elaborate a strategy that works for me, it is not an attempt to convert someone.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:

Investing strategy based on dividend growth

Trading strategy based on Graham principles.
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rodbarc wrote: - DGI only buys when fairly valued. Meanwhile, when you buy VCN, you're paying market price for everything, including expensive companies that will have poor return because one paid more than it should.

- DGI has no MER, while most ETFs does, draging returns.

Do the math - there's a reason why such diligence pays off in the long run. Buying VCN takes no effort or thinking, but such convenience comes with the cost of sacrificing performance for the reasons above.

Feel free to point the flaws on DGI strategy.
I have a lot of respect for you, Rod, and used to defend you in every thread where you were "trolled" - and never thought I would be arguing with you. But now that I gained some experience and ran my own experiments, I see where your comparisons (if not strategy) are flawed (and can't even see the results for 2015 and 2016 - maybe because I'm sorting threads with "latest post on top"? For me, your links point to posts and pages that have no results, and I tried going back and fourth a few pages to find them but gave up..)

The main difference between indexers and stock pickers is that "true indexer" buys whenever they have cash. For a comparison, you add to index ETFs only when you buy some stocks that are undervalued at the time. In real life, an indexer will either lump sum or DCA, so their personal returns will be quite different.

I mentioned MERs in the other thread, in this one it seems even more of a non-argument. Buying 62 Canadian stocks would cost $5-10 in commissions each, $310-$620 in total. An indexer with a 1M balanced portfolio would have 20% in Canadian index, or 200K, or $120 per year at 0.06% MER. With smaller portfolios it would take even longer to "break even" (Buy/Sell commissions vs MER) - and I doubt there're a lot of millionaires here :)

In short, see How Warren Buffett broke my heart - it's for Unlimited Subscribers, will post a quote in a bit...
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rodbarc wrote: There's a reason why Buffet, Graham, Lynch, Piotroski, ONeil and many others beat the market consistently in the long term - doing much better than an ETF. This thread is meant to demonstrate that anyone can follow their footsteps, since their methodologies are well documented and continue to work - I'm just one of many that is sharing the methods and results.
Didn't do the math myself, so FWIW:
Start with Buffett, the biggest name of them all. With lots of cash in hand, his Berkshire Hathaway flagship was perfectly positioned for the financial crisis. As the rest of the world crumbled, Buffett was able to extract sweetheart deals from desperate borrowers like Goldman Sachs and Bank of America.

But what did all that foresight and all that cash do for him? Over the decade beginning February, 2007, he outperformed the S&P 500 Total Return Index by an average of a little more than one percentage point a year. Not bad, but not exactly eye-popping either.

The Oracle of Omaha looks even more human if you remove the first chaotic year of the downturn and start measuring his returns from February, 2008. Over the following nine years, he lagged slightly behind a plain-vanilla S&P 500 investor who simply reinvested her dividends.
How Warren Buffett broke my heart
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Interesting ideas but I have no time unfortunately to do all of that work and I know that in the long term I will not beat the indexes most of the time.
My portfolio is now more than 1.5M with almost 1M in indexes.
I sleep well at night.
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I think everyone has to look at their individual situation to figure out how to best invest their money. I've been investing since about 2010 and have primarily been investing in DGI companies. Its worked really well for me and I can see a point sometime in the future where I could live off my dividends.

That being said I while most of my investments have been in DGI companies, I also have some funds in Index Funds (my companies RRSP match and my kids RESP). I invest a bit different than Rod DGI model as I up Drips, my stocks holding size is less balanced and I own some companies that are not on his list.

I've been reading this thread for about 3 months and its been really helpful to me. My goal this year was to broaden the number of stocks I own and I've gone from owning 9 to 18 stocks. Everyone should customize how they invest taking into their portfolio size and looking at commissions. That being said I think this DGI model is a good starting point to look at Canadian Dividend stocks as it buys based on a criteria which prevents trading on emotions and making dumb moves.
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freilona wrote:
Didn't do the math myself, so FWIW:



How Warren Buffett broke my heart
The longer you go back in history, the greater Berkshire's outperformance becomes. Also, think about it this way - Berkshire has been building a cash position since the GFC and today has around $80 billion on hand, and he has still outperformed the index despite the money sitting there doing nothing. Sometimes, it's not just about returns, but risk adjusted returns. I would say it's a massive feat that Buffet is outperforming in the long run and doing it with less risk.

Another point to consider is that all value investors generally do poorly in bull markets. It's in bear markets and early bull markets where value strategies shine.
Chance7652 wrote: That being said I think this DGI model is a good starting point to look at Canadian Dividend stocks as it buys based on a criteria which prevents trading on emotions and making dumb moves.
This is a fantastic point that cannot be understated. Investors are their own worse enemies. Rod talks about Peter Lynch's Magellan fund, which as a whole returned nearly 30% annualized. However, as per Peter Lynch's own data, the average investor in the Magellan fund only made 7%, which under performed the S&P 500 during the same time. The problem was investors would pile money in when it did well, and they would pull money out when it did bad. Essentially, buying high and selling low.

Furthermore the long term data shows that, over history, stocks have returned just shy of 10% per year. However the average investor - in 100% equities during the same time frame - only realized a return of about 4%. The 6% gap is due to excessive trading, paying too many fees, and acting on emotions.

Although dividends are a form of mental accounting (if I took $10 out of your left pocket and put it in your right pocket, are you $10 richer?) I personally find them effective in managing my behaviour. For example, I hold BOS which is performing terribly. However the dividend keeps growing, so this helps me control my emotions and I don't sell just because it's dropped.

At the end of the day the investor has to know thyself. It doesn't really matter if you index, are a dividend investor, a value investor, whatever. We can beat our chests and talk, in theory, about why one may under or out perform another, but the reality is our implementation and behaviour (or, lack there of) that really drives our returns; not the fine details between strategies.
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treva84 wrote:

At the end of the day the investor has to know thyself. It doesn't really matter if you index, are a dividend investor, a value investor, whatever. We can beat our chests and talk, in theory, about why one may under or out perform another, but the reality is our implementation and behaviour (or, lack there of) that really drives our returns; not the fine details between strategies.
This is why we all have the same common goal (to increase our wealth) and yet we all have different path to get there. Rod has made himself available here and many other threads to express his ideas and I personally believe if one has the resources at his/her disposal (e.g Fastgraph), the result should be better than a pure index. I follow his posts and read his explanations which has helped me alot. Whether we follow him 100% we should respect his ideas. There is no need to challenge his ideas in a very negative way. Stock pickers have their day and so will DGI followers, as well as Indexers.
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treva84 wrote: Although dividends are a form of mental accounting (if I took $10 out of your left pocket and put it in your right pocket, are you $10 richer?) I personally find them effective in managing my behaviour. For example, I hold BOS which is performing terribly. However the dividend keeps growing, so this helps me control my emotions and I don't sell just because it's dropped.
That's actually another interesting point that I didn't come to a certain conclusion for myself yet. I also have a few "losers" that I wish we sold when they were down say "only 10%" - or better yet, didn't buy at all :) Don't own BOS, but googled and skimmed over this article (is it yours? :)): https://seekingalpha.com/article/402512 ... ong-part-2 - time will tell I guess. But one of the best advices I've got on this forum was to properly track the portfolio performance. And if with all that knowledge and time spent you're underperforming the indexes - then maybe it's better to get emotional, sell your "dogs" and give one of those quant ETFs a try :)
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freilona wrote: That's actually another interesting point that I didn't come to a certain conclusion for myself yet. I also have a few "losers" that I wish we sold when they were down say "only 10%" - or better yet, didn't buy at all :) Don't own BOS, but googled and skimmed over this article (is it yours? :)): https://seekingalpha.com/article/402512 ... ong-part-2 - time will tell I guess. But one of the best advices I've got on this forum was to properly track the portfolio performance. And if with all that knowledge and time spent you're underperforming the indexes - then maybe it's better to get emotional, sell your "dogs" and give one of those quant ETFs a try :)
Yes, that is my article.

When they posted their most recent quarter I was very disappointed (again) and close to selling. In retrospect, I'm happy I continue to hold and in reality I'm thinking about adding, given how strong their cash flow is. Commodities are cyclical, and when they rebound BOS will be sitting pretty. The hardest part is waiting.

In all honesty the dividend is literally what stoped me from selling the day after the earnings release. Sure it's mental accounting but it stops me from doing things I may regret later!

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