Investing

Investing Idea - Dividend Growth

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freilona wrote: 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...
The strategies shouldn't even be compared, because they aim at different goals. I couldn't accomplish my goals with indexing, hence I find DGI superior for my goals. I rather use dividends to DCA fairly valued quality companies that keeps getting cheaper than paying market price for everything (good and bad companies). But not everyone has the same investing goals, and that's what makes a market. All I'm saying is that the same way DGI is not for everyone, indexing is not for everyone either.

Indexing is not meant to live on perpetual income without selling the principal. The same way that dividend growth investing primary goal is not towards total return (although that will be there in the long run, since DGI cares about quality and valuation).

DGI is meant to allow a stream of growing income in any market condition; it's meant to allow a retiree to be 100% invested in equities (that keeps growing dividends), so one can live off dividend realibly and perpetually. The same cannot be achieved with indexing (and that's not the purpose of an indexer anyway).

Berkshire (an DGI) always underperforms the index in bull markets and do better in flat and bear markets. However, when the market turns flat or bear, capital gains are diminished, while dividends keep growing. The longer one is doing DGI, the lesser it matters if it will underperform the index, because it puts the investor in a position to never sell their stocks to meet their required income - which will keep growing, regardless if the market goes flat or crash again. Combine that with some growth investing and (serious) trading then one has a winning portfolio for any market condition.

BTW, I personally find the Buffett article misleading for 2 reasons: First, failing to mention all the growing cash that BRK gets with dividends (which allows them to reinvest whenever the companies are priced reasonably). The market has been overvalued for some time, that doesn't make less of a value investing strategy, it only grows the gap for the market to "correct" for a proper level. Yet, the individual investor can evaluate which companies are on sale and buy only those. Second, BRK can only afford to trade very large companies. The (relative) small investor has a bigger advantage to explore inneficiencies of smaller companies that BRK couldn't do it given their size. It's for that very reason that it's harder and harder for BRK to outperform the index. However, the individual investor that apllies their methodology can see the same impressive returns that they had when they were smaller.

BTW, buying 62 stocks in IB or VB would cost $62 or less. That's a one-time purchase, and future dividends can be reinvested monthly at $12 or $24 per year. I wouldn't use a brokerage that charges $5 to $10 per transaction.


Rod
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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 :)
2 comments (just my 2 cents):

1. I'd never sell a "dog" that has been underperforming the index if they keep growing their dividends within a reasonable payout ratio and other fundamentals metric. That's why I don't plan to sell WMT, IBM, GIS or T, since I'm with them for their growing dividend and strong balance sheet - not to outperform the index.

2. A "dog" can outperform the market overtime if it has the financial quality elements in place. I plan to track that and we'll see how that pans out :)

Rod
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rodbarc wrote: 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.
I don't care if my returns are via capital appreciation or dividends. In fact, I'd prefer the former in a non-registered 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.
People with a lot more time and resources at their disposal than you are out there shorting these companies if they become overvalued. If you were that good at identifying them, you'd be outperforming the market instead of underperforming.
- DGI has no MER, while most ETFs does, draging returns.
But there are a lot more transaction costs. If your average transaction is $1000, that's a 0.5% commission at my broker. That's 10 years of MER with VCN. Worse actually, since it's all up front. Never mind all the selling and rebuying you potentially do.
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.
You did the math for me. Your total return is lower.
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.
Your holdings aren't immune from crashes. If my holdings go down, I can still buy your holdings and then some if I had a higher total return. That's kind of the point of total return.
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.
Sure, they have a lot more resources than you. You may use some of the same concepts, but you don't get the same results. They look for companies that are undervalued, but don't have this weird obsession with dividends at the expense of total returns.
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
Well have at it. But without a superior total return, you're losing money.
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hmm indexing can provide perpetual income without touching the capital. You just need something like 5M total
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It just seems like you are looking to pick a fight.

If you are going to compare to an index fund VCN or VCE is a bad example as the Canadian Index has been pretty flat in the last 5 years (VCE is up 29% in the last 5 years). I personally don't like Canadian Index funds as Canada is not very diversified and often has performance that suffers due to one sector or even stock (Valeant, RIM, Nortel).

Something like the US Index VFV would at least be a better comparison as its 5 year returns are impressive. I have personally recently sold VFV this year and bought US DGI stocks.
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Chance7652 wrote: It just seems like you are looking to pick a fight.

If you are going to compare to an index fund VCN or VCE is a bad example as the Canadian Index has been pretty flat in the last 5 years (VCE is up 29% in the last 5 years). I personally don't like Canadian Index funds as Canada is not very diversified and often has performance that suffers due to one sector or even stock (Valeant, RIM, Nortel).

Something like the US Index VFV would at least be a better comparison as its 5 year returns are impressive. I have personally recently sold VFV this year and bought US DGI stocks.
Obviously you compare a Canadian stock portfolio to a Canadian index fund. Not sure what VFV (and its underlying currency appreciation) has to do with anything. Compare that (really, VTI) to his US portfolio if you want.

If 6% a year plus dividends (again, total return) is flat, I'll take it.
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rodbarc wrote: 2. A "dog" can outperform the market overtime if it has the financial quality elements in place. I plan to track that and we'll see how that pans out :)
Yay a smiley face! :) I'll be the most interested in HCG - as for me, personally, HCG and MIC were the main "deal breakers" not to follow your strategy. They seemed vulnerable because of the overvalued housing market - and, of course, the fact that I'd rather SHOP lol
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CM52 wrote: I don't care if my returns are via capital appreciation or dividends. In fact, I'd prefer the former in a non-registered account.



People with a lot more time and resources at their disposal than you are out there shorting these companies if they become overvalued. If you were that good at identifying them, you'd be outperforming the market instead of underperforming.



But there are a lot more transaction costs. If your average transaction is $1000, that's a 0.5% commission at my broker. That's 10 years of MER with VCN. Worse actually, since it's all up front. Never mind all the selling and rebuying you potentially do.



You did the math for me. Your total return is lower.



Your holdings aren't immune from crashes. If my holdings go down, I can still buy your holdings and then some if I had a higher total return. That's kind of the point of total return.



Sure, they have a lot more resources than you. You may use some of the same concepts, but you don't get the same results. They look for companies that are undervalued, but don't have this weird obsession with dividends at the expense of total returns.



Well have at it. But without a superior total return, you're losing money.
You don't care because you're an indexer. I'm not.

The ones shorting it are traders, not long term investors. We all have the same resources available: financial statements from public traded companies. In the Essays of Warren Buffett, he says that there isn't any price point that would cause them to sell KO. He and Charlie didn't sell shares when KO had a PE of 50. Think about that.

They own KO for the reliable cash flows paid via dividends.

I didn't purchase KO because I thought it would outperform the market. I bought them for their reliable cash flows into my portfolio, cash flows that have a very respectable cost of living increase. I'm assuming their high quality rating and business model will allow them to continue paying that dividend, without ever reducing it during my lifetime.

I own a lot of GIS for the same reason. In over 115 years there has never been a dividend cut. That's why I own GIS, the uninterrupted cash flows they provide to shareowners regardless of economic conditions.

KO and GIS are my fixed income assets but with a better cost of living increase than other fixed assets provide. The price I pay for owning these solid cash flow machines is price volatility and I could care less about that. Since I'm not going to sell any shares in these companies, price points don't matter.

Your broker is expensive, I buy in chunks of $1,000 or $2,000 per month and pay between $1 and $2 per month.

My holdings are not imune to crashes, but dividends continue to grow and be reinvested so I can achieve financial independence in a few years. Meet my goals. But when you buy your ETFs, you'll always buy overvalued companies too. Your total return is limited by market returns. But when one invests in individual stocks, the performance of one's portfolio is directly related how those businesses will perform.

Total return to me is secondary simply because my goal is to never sell my shares. My goals when investing are oriented towards safety, income, and consistency. Many companies from the index fail to meet this criteria. Therefore, I don't do index investing, because I don't want to be invested in these companies. The other factor is valuation - when purchasing the index, I cannot choose to buy a company at or below its intrinsic value. I need to buy the whole package with all companies, which will contain overvalued companies too. Buying any business when overvalued drags return.

You seem to think dividend growth companies don't have capital appreciation. Capital gains are there if I want to realize them, but the beauty of building an income stream from them, much higher than most ETF's you can recommend, allows me the option of selling if I choose, as opposed to having to sell to meet income requirements.

To beat the market, you need to address the pitfalls of indexing. That includes buying at a fair valuation (instead of paying market price for everything), buying companies that will keep growing earnings (instead of buying in the mix companies with signs of distress) and reducing or eliminating MER. Then you need the proper temperament to not sell when the market crashes.

Data retrieved from RFD search function:

Total return of my portfolios (investing and trading, (not including currency appreciation / depreciation from US investments):

2014: 20.02%

2015: 3.95%

2016: 23.1%

Dividend increase has been at a higher rate than both Canadian and US market.

That's aligned with a CAGR of 14% since I started in 1998. How does that underperform the market?


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

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freilona wrote: Yay a smiley face! :) I'll be the most interested in HCG - as for me, personally, HCG and MIC were the main "deal breakers" not to follow your strategy. They seemed vulnerable because of the overvalued housing market - and, of course, the fact that I'd rather SHOP lol
The strategy is about due diligence to screen companies for quality and valuation, according to someone's goals. My port has 62 Canadian companies, so I'm ok with the risks associated with HCG and MIC. The goal is not to follow the exact purchases and holdings, but rather understand the mechanisms involved in the process and use what meets someone's goals. I rather tailor the strategy to holdings that could meet your goals rather than dropping the strategy because some of the holdings that are risky (which I'm ok with that risk).

Rod
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rodbarc wrote: You don't care because you're an indexer. I'm not.

The ones shorting it are traders, not long term investors. We all have the same resources available: financial statements from public traded companies. In the Essays of Warren Buffett, he says that there isn't any price point that would cause them to sell KO. He and Charlie didn't sell shares when KO had a PE of 50. Think about that.

They own KO for the reliable cash flows paid via dividends.

I didn't purchase KO because I thought it would outperform the market. I bought them for their reliable cash flows into my portfolio, cash flows that have a very respectable cost of living increase. I'm assuming their high quality rating and business model will allow them to continue paying that dividend, without ever reducing it during my lifetime.

I own a lot of GIS for the same reason. In over 115 years there has never been a dividend cut. That's why I own GIS, the uninterrupted cash flows they provide to shareowners regardless of economic conditions.

KO and GIS are my fixed income assets but with a better cost of living increase than other fixed assets provide. The price I pay for owning these solid cash flow machines is price volatility and I could care less about that. Since I'm not going to sell any shares in these companies, price points don't matter.

Your broker is expensive, I buy in chunks of $1,000 or $2,000 per month and pay between $1 and $2 per month.

My holdings are not imune to crashes, but dividends continue to grow and be reinvested so I can achieve financial independence in a few years. Meet my goals. But when you buy your ETFs, you'll always buy overvalued companies too. Your total return is limited by market returns. But when one invests in individual stocks, the performance of one's portfolio is directly related how those businesses will perform.

Total return to me is secondary simply because my goal is to never sell my shares. My goals when investing are oriented towards safety, income, and consistency. Many companies from the index fail to meet this criteria. Therefore, I don't do index investing, because I don't want to be invested in these companies. The other factor is valuation - when purchasing the index, I cannot choose to buy a company at or below its intrinsic value. I need to buy the whole package with all companies, which will contain overvalued companies too. Buying any business when overvalued drags return.

You seem to think dividend growth companies don't have capital appreciation. Capital gains are there if I want to realize them, but the beauty of building an income stream from them, much higher than most ETF's you can recommend, allows me the option of selling if I choose, as opposed to having to sell to meet income requirements.

To beat the market, you need to address the pitfalls of indexing. That includes buying at a fair valuation (instead of paying market price for everything), buying companies that will keep growing earnings (instead of buying in the mix companies with signs of distress) and reducing or eliminating MER. Then you need the proper temperament to not sell when the market crashes.

Data retrieved from RFD search function:

Total return of my portfolios (investing and trading, (not including currency appreciation / depreciation from US investments):

2014: 20.02%

2015: 3.95%

2016: 23.1%

Dividend increase has been at a higher rate than both Canadian and US market.

That's aligned with a CAGR of 14% since I started in 1998. How does that underperform the market?


Rod
You are such a broken record. But please, invent some returns from other portfolios that no one is going to validate to avoid the topic of this thread. This portfolio underperforms the market. You just said it does. It's nice that people like you believe that a dividend stream is somehow more important than total return. Enjoy your cash flow. I'll enjoy my higher cash flow.
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Rod, I would say just ignore this epic troll. There is no one perfect strategy in the world to succeed in the stock market.

To beat the market or have the best return is not the goal. Speculators get it right once in a while - they may have 300% return in one year. So what?

Indexing is a great strategy but comparing against DGI is waste of time. Apple vs Organges problem.

There are some fantastic poker players that win millions - that doesnt mean you can be good poker player and make that kind of money.

Everyone has different goals in life and DGI is not everyone. Neither is Indexing.

To me personally, my goal is to only beat the inflation with minimum risk possible. I do it very successfully with DGI. In fact, I have beaten the market in each of the last 5 years (although by a very slight margin).

The point is - there are more than one ways to get to where your ultimate destination is. It doesn't matter. What matters is what is that you get to your destination in a way that makes you comfortable and happy.
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Rod has a strategy and it's very nice of him to share it backed by his tool and research. Every person has a different financial goal and you don't have to win every battle to win the war. When measuring the performance, the starting point and the end point are also very important.

If you dont like stock picking, then move on and there is a guy here doing indexing and he has reached his million dollar portfolio.
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iceage wrote: Rod has a strategy and it's very nice of him to share it backed by his tool and research. Every person has a different financial goal and you don't have to win every battle to win the war. When measuring the performance, the starting point and the end point are also very important.

If you dont like stock picking, then move on and there is a guy here doing indexing and he has reached his million dollar portfolio.
This. Although CM52 doesn't seem to like him either.

Rod
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CM52 wrote: You are such a broken record. But please, invent some returns from other portfolios that no one is going to validate to avoid the topic of this thread. This portfolio underperforms the market. You just said it does. It's nice that people like you believe that a dividend stream is somehow more important than total return. Enjoy your cash flow. I'll enjoy my higher cash flow.
The purchases are documented here since 2014, so returns were not invented. Anyone can validate.

There are many ways to invest. For me, dividend stream for sure more important than total return. It's nice indeed that my dividend stream will allow me to reach financial independence in a few years without worrying about the market. Again, not every investor shares the same goals. Buffett said many times that indexing is a fine strategy for the majority, even though he doesn't do it himself. Nothing wrong with either strategy.

"Index funds for people who don’t want to spend time studying the market. They are good for 95% of the population. If you don’t bring anything to the game, you shouldn’t expect to win." - Warren Buffett at Student Visit, January 2007

Happy Investing!


Rod
Last edited by rodbarc on Apr 2nd, 2017 12:45 pm, edited 1 time in total.
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April 2017 purchases:

For the Canadian portfolio, I've decided to add 2 new holdings for the Utilities sector, since there's room for further exposure in this sector, and that always provide safety for the portfolio income growth. I want to add more in the Materials sector (the smallest exposure in this port), but I will wait for SJ and CCL.B to drop in price. I've added more BOS sice the exposure in this port is small and I believe there's room for recovery. So C$2,000 was split equally in 3 to add to BOS, RNW and EMA:

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Spreadsheet updated:

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For the US portfolio, I've started a position in the Consumer Staples and Energy sectors, since there were no exposures in this portfolio. It was nice to see that although the market is over extended, there are always bargains to be found.

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Spreadsheet updated:

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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

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